Upgrade to SI Premium - Free Trial

Nature’s Sunshine Products Reports Second Quarter 2018 Financial Results

August 7, 2018 4:40 PM

LEHI, Utah, Aug. 07, 2018 (GLOBE NEWSWIRE) -- Nature’s Sunshine Products, Inc. (NASDAQ: NATR), a leading natural health and wellness company engaged in the manufacture and direct selling of nutritional and personal care products, today reported its financial results for the second quarter ended June 30, 2018.

Management Commentary

“We generated strong second quarter sales growth compared to the prior year period, which combined with our focus on cost controls led to improvement in both net income and EBITDA compared to the prior year,” commented Gregory L. Probert, Chairman and Chief Executive Officer. “Sales growth was driven by continued positive trends in Synergy Asia Pacific, NSP Russia, Central and Eastern Europe and NSP China, with a moderated rate of decline in NSP Americas. We are pleased with the continued momentum in Korea, which drove the majority of the growth in Synergy Asia Pacific. Additionally, in China, we dedicated management resources to increasing the engagement of our independent service providers over the past several months and are pleased with the sequential and year over year sales growth generated during the quarter. We still remain early in the development of our direct selling operations in China and will continue to focus on broadening our leadership and driving a long-term growth opportunity in this promising market.”

Second Quarter 2018 Financial Highlights

Net Sales by Operating Segment
Three Months Ended June 30, 2018 Three Months Ended June 30, 2017 Percent Change Impact of Currency Exchange Percent Change Excluding Impact of Currency
NSP Americas:
NSP North America$32,919 $33,190 (0.8)% $112 (1.2)%
NSP Latin America5,467 6,231 (12.3)% (54) (11.4)%
38,386 39,421 (2.6)% 58 (2.8)%
NSP Russia, Central and Eastern Europe 9,407 7,160 31.4% 82 30.2%
Synergy WorldWide:
Synergy Asia Pacific28,966 21,271 36.2% 1,139 30.8%
Synergy Europe5,107 6,097 (16.2)% 397 (22.7)%
Synergy North America2,646 2,995 (11.7)% — (11.7)%
36,719 30,363 20.9% 1,536 15.9%
NSP China 6,754 4,400 53.5% 435 43.6%
$91,266 $81,344 12.2% $2,111 9.6%

Net sales of $91.3 million increased 12.2 percent compared to $81.3 million in the second quarter of 2017. On a local currency basis, net sales increased 9.6 percent compared to 2017. Growth was primarily related to continued growth in Synergy Asia Pacific, NSP Russia, Central and Eastern Europe and NSP China, offset by a $1.0 million decline in net sales in NSP Americas and a $1.0 million decline in Synergy Europe. Net sales were also positively impacted by $2.1 million of favorable foreign currency exchange rate fluctuations.

Gross margin, as a percentage of net sales, decreased to 73.4 percent from 73.9 percent in the second quarter of 2017. The decrease in gross margin as compared to the prior year was primarily driven by changes in market mix and provisions for inventory obsolescence.

Volume incentives, as a percentage of net sales, decreased to 34.5 percent from 34.8 percent in the second quarter of 2017. The decrease in volume incentives as a percent of net sales is primarily due to changes in market mix, reflecting growth in markets where volume incentives as a percentage of net sales are lower than the consolidated average, partially offset by growth in NSP China where sales commissions to independent service providers are included in selling, general and administrative expenses (“SG&A”).

SG&A expenses increased by approximately $1.5 million to $33.3 million for the second quarter of 2018. The increase in SG&A expenses is primarily due to transition costs related to the announced retirement of the Company’s Chief Executive Officer, the timing of accrued employee benefits and the increase in independent service fees from the Company’s growth in China, which were partially offset by a gain on the sale of a Company building. As a percentage of net sales, SG&A expenses were 36.5 percent, compared to 39.1 percent for the same period in 2017.

Operating income in the second quarter of 2018 was $2.2 million, or 2.4 percent as a percentage of net sales, as compared to break even in the second quarter of 2017.

Other income (loss), net, in the second quarter of 2018 decreased to a loss of $1.8 million compared to income of $0.4 million in the second quarter of 2017. The effective income tax rate was 116.4 percent in the second quarter of 2018 compared to 190.5 percent in the second quarter of 2017.

Net income attributable to common shareholders was $0.1 million, or de minimis per diluted common share, compared to a loss of $0.2 million, or $0.01 per common share, in 2017. The net loss attributable to NSP China was $0.6 million, or $0.03 per diluted common share for the quarter, compared to $1.2 million, or $0.06 per common share for the second quarter of 2017.

Adjusted EBITDA was $5.2 million, compared to $3.1 million in 2017. Adjusted EBITDA, which is a non-GAAP financial measure, is defined here as net income/loss from continuing operations before taxes, depreciation, amortization and other income/loss adjusted to exclude share-based compensation expense. A reconciliation of Net Loss to Adjusted EBITDA is provided in the attached financial tables.

Six Months Ended June 30, 2018 Financial Highlights

Net Sales by Operating Segment
Six Months Ended June 30, 2018 Six Months Ended June 30, 2017 Percent Change Impact of Currency Exchange Percent Change Excluding Impact of Currency
NSP Americas:
NSP North America$68,523 $71,236 (3.8)% $237 (4.1)%
NSP Latin America11,734 12,830 (8.5)% 42 (8.9)%
80,257 84,066 (4.5)% 279 (4.9)%
NSP Russia, Central and Eastern Europe 18,958 15,606 21.5% 318 19.4%
Synergy WorldWide:
Synergy Asia Pacific52,674 40,052 31.5% 2,700 24.8%
Synergy Europe10,763 12,022 (10.5)% 1,146 (20.0)%
Synergy North America5,100 5,602 (9.0)% — (9.0)%
68,537 57,676 18.8% 3,846 12.2%
NSP China 10,856 7,094 53.0% 698 43.2%
$178,608 $164,442 8.6% $5,141 5.5%

Net sales increased 8.6 percent to $178.6 million compared to $164.4 million in the six months ended June 30, 2017. On a local currency basis, net sales increased 5.5 percent compared to 2017. Growth was primarily related to continued growth in Synergy Asia Pacific, NSP Russia, Central and Eastern Europe and NSP China, offset by a $3.8 million decline in nets sales in NSP Americas and a $1.3 million decline in Synergy Europe. Net sales were also positively impacted by $5.1 million of favorable foreign currency exchange rate fluctuations.

Gross margin, as a percentage of net sales, decreased to 73.7 percent from 73.9 percent in the six months ended June 30, 2017. The decrease in gross margin as compared to the prior year was primarily driven by changes in market mix and provisions for inventory obsolescence.

Volume incentives, as a percentage of net sales, increased to 35.2 percent from 34.8 percent in the six months ended June 30, 2017. The increase in volume incentives as a percent of net sales is primarily due to changes in market mix, reflecting growth in markets where volume incentives as a percentage of net sales are higher than the consolidated average, partially offset by growth in NSP China where sales commissions to independent service providers are included in SG&A expenses.

SG&A expenses increased by approximately $3.5 million to $65.7 million for the six months ended June 30, 2018. The increase in SG&A expenses is primarily due to transition costs related to the announced retirement of the Company’s Chief Executive Officer, the timing of accrued employee benefits, the increase in independent service fees from the Company’s growth in China and increased depreciation related to the Company’s Oracle ERP system implemented in April 2017, which were partially offset by a gain on the sale of a Company building. As a percentage of net sales, SG&A expenses were 36.8 percent, compared to 37.8 percent for the same period in 2017.

Operating income for the six months ended June 30, 2018 was $3.1 million or 1.7 percent as a percentage of net sales, as compared to operating income of $2.1 million or 1.3 percent as a percentage of net sales, in the same period in 2017.

Other income (loss), net, in the six months ended June 30, 2018 was a loss of $1.1 million compared to income of $1.7 million in the six months ended June 30, 2017. The effective income tax rate was 86.5 percent in the six months ended June 30, 2018 compared to 61.9 percent for the same period in 2017.

Net income attributable to common shareholders was $0.6 million, or $0.03 per diluted common share, compared to $2.0 million, or $0.10 per diluted common share, in 2017. The net loss attributable to NSP China was $1.5 million, or $0.08 per diluted common share for the six months ended June 30, 2018, compared to $2.6 million, or $0.14 per diluted common share for the same period in 2017.

Adjusted EBITDA was $9.2 million, compared to $7.4 million in 2017. Adjusted EBITDA, which is a non-GAAP financial measure, is defined here as net income from continuing operations before taxes, depreciation, amortization and other income/loss adjusted to exclude share-based compensation expense. A reconciliation of Net Income to Adjusted EBITDA is provided in the attached financial tables.

Balance Sheet and Cash Flow

Net cash provided by operating activities was $9.4 million for the six months ended June 30, 2018, compared to a use of cash of $0.7 million for the prior year period. Capital expenditures during the six months ended June 30, 2018 totaled $2.7 million compared to $3.1 million in the same period 2017. The Company ended the second quarter of 2018 with cash and cash equivalents of $46.9 million.

Active Distributors and Customers by Segment (1)

2018 2017
Distributors & Customers Managers Distributors & Customers Managers
NSP Americas 101,700 5,800 105,500 6,400
NSP Russia, Central and Eastern Europe 65,500 3,100 60,000 2,700
Synergy WorldWide 50,000 4,200 49,000 4,100
Total 217,200 13,100 214,500 13,200

(1) Active Distributors and customers include Nature’s Sunshine Products’ independent Distributors and customers who have purchased products directly from the Company for resale and/or personal consumption during the previous three months ended as of the date indicated. Total Manager, Distributors and Customers, which includes those who have made a purchase in the last twelve months, was approximately 511,000 as of June 30, 2018.

In China, the Company does not sell its products through Managers and Distributors, but rather through independent service providers who are compensated for marketing, sales support, and other services.

Conference Call

Nature’s Sunshine Products will host a conference call to discuss its second quarter 2018 results on Tuesday, August 7, 2018 at 5:30 PM Eastern Time. The toll-free dial-in number for callers in the U.S. and Canada is 1-877-423-9813, conference ID: 13682130. International callers can dial 1-201-689-8573, conference ID: 13682130. A replay will be available from August 7, 2018 at 8:30 PM Eastern Time through August 24, 2018 at 11:59 PM Eastern Time by dialing 1-844-512-2921 (U.S. and Canada) or 1-412-317-6671 (International), replay PIN: 13682130. The call will also be webcast live and will be available on the Investors section of Nature’s Sunshine Products’ website at www.naturessunshine.com for 90 days.

About Nature’s Sunshine Products

Nature’s Sunshine Products (NASDAQ: NATR), a leading natural health and wellness company, markets and distributes nutritional and personal care products through a global direct sales force of approximately 511,000 independent Managers, Distributors and Customers in more than 40 countries. Nature’s Sunshine manufactures most of its products through its own state-of-the-art facilities to ensure its products continue to set the standard for the highest quality, safety and efficacy on the market today. The Company has four reportable business segments that are divided based on the characteristics of their Distributor base, similarities in compensation plans, as well as the internal organization of NSP’s officers and their responsibilities (NSP Americas; NSP Russia, Central and Eastern Europe; Synergy WorldWide; and NSP China). The Company also supports health and wellness for children around the world through its partnership with the Sunshine Heroes Foundation. Additional information about the Company can be obtained at its website, www.naturessunshine.com.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements regarding the Company’s future business expectations, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, statements relating to the Company’s objectives, plans, strategies and financial results. All statements (other than statements of historical fact) that address activities, events or developments that the Company intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are often characterized by terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions, and are based on assumptions and assessments made by management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, including the following.

These and other risks and uncertainties that could cause actual results to differ from predicted results are more fully detailed under the caption “Risk Factors” in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports filed on Forms 10-Q.

All forward-looking statements speak only as of the date of this press release and are expressly qualified in their entirety by the cautionary statements included in or incorporated by reference into this press release. Except as is required by law, the Company expressly disclaims any obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this press release.

Non-GAAP Financial Measures

The Company has included information which has not been prepared in accordance with generally accepted accounting principles (GAAP), such as information concerning Adjusted EBITDA and net sales excluding the impact of foreign currency exchange fluctuations. Management utilizes the non-GAAP measure Adjusted EBITDA in the evaluation of its operations and believes that this measure is a useful indicator of the Company’s ability to fund its business. This non-GAAP financial measure should not be considered as an alternative to, or more meaningful than, U.S. GAAP net income as an indicator of the Company’s operating performance. Moreover, Adjusted EBITDA, as presented by the Company, may not be comparable to similarly titled measures reported by other companies.

In addition, the Company believes presenting the impact of foreign currency fluctuations is useful to investors because it allows a more meaningful comparison of net sales of its foreign operations from period to period. Net sales excluding the impact of foreign currency fluctuations should not be considered in isolation or as an alternative to net sales in U.S. dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with U.S. GAAP.

Other companies may use the same or similarly named measures, but exclude different items, which may not provide investors with a comparable view of Nature’s Sunshine Products’ performance in relation to other companies. The Company has included a reconciliation of Net Income to Adjusted EBITDA, the most comparable GAAP measure, in the attached financial tables.

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Amounts in thousands, except per share information)(Unaudited)

Three Months Ended June 30,
2018 2017
Net sales $91,266 $81,344
Cost of sales (24,278) (21,197)
Gross profit 66,988 60,147
Operating expenses:
Volume incentives 31,492 28,288
Selling, general and administrative 33,310 31,836
Operating income 2,186 23
Other income (loss), net (1,807) 441
Income before provision for income taxes 379 446
Provision for income taxes 441 884
Net loss (62) (420)
Net loss attributable to noncontrolling interests (129) (233)
Net income (loss) attributable to common shareholders $67 $(187)
Basic and diluted net income (loss) per common share:
Basic earnings (loss) per share attributable to common shareholders $— $(0.01)
Diluted earnings (loss) per share attributable to common shareholders $— $(0.01)
Weighted average basic common shares outstanding 19,105 18,876
Weighted average diluted common shares outstanding 19,402 18,876

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Amounts in thousands, except per share information)(Unaudited)

Six Months Ended June 30,
2018 2017
Net sales $178,608 $164,442
Cost of sales (46,991) (42,925)
Gross profit 131,617 121,517
Operating expenses:
Volume incentives 62,854 57,271
Selling, general and administrative 65,696 62,172
Operating income 3,067 2,074
Other income (loss), net (1,067) 1,716
Income before provision for income taxes 2,000 3,790
Provision for income taxes 1,729 2,347
Net income 271 1,443
Net loss attributable to noncontrolling interests (294) (530)
Net income attributable to common shareholders $565 $1,973
Basic and diluted net income per common share:
Basic earnings per share attributable to common shareholders $0.03 $0.10
Diluted earnings per share attributable to common shareholders $0.03 $0.10
Weighted average basic common shares outstanding 19,058 18,861
Weighted average diluted common shares outstanding 19,408 19,251

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Amounts in thousands)(Unaudited)

June 30,2018 December 31, 2017
Assets
Current assets:
Cash and cash equivalents $46,898 $42,910
Accounts receivable, net of allowance for doubtful accounts of $631 and $395, respectively 8,158 8,888
Assets held for sale 998 998
Inventories 41,281 44,047
Prepaid expenses and other 7,061 5,666
Total current assets 104,396 102,509
Property, plant and equipment, net 66,480 69,106
Investment securities - trading 1,545 1,980
Intangible assets, net 663 709
Deferred income tax assets 8,997 8,283
Other assets 12,382 12,608
$194,463 $195,195
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $4,224 $4,215
Accrued volume incentives and service fees 19,145 18,774
Accrued liabilities 29,818 24,980
Deferred revenue 1,553 3,348
Income taxes payable 2,071 1,834
Related party note payable 1,025 506
Total current liabilities 57,836 53,657
Revolving credit facility 7,210 13,181
Liability related to unrecognized tax benefits 4,761 4,633
Deferred compensation payable 1,545 1,980
Long-term deferred income tax liability 714 770
Other liabilities 737 1,242
Total liabilities 72,803 75,463
Shareholders’ equity:
Common stock, no par value; 50,000 shares authorized, 19,130 and 18,919 shares issued and outstanding, respectively 132,594 131,525
Retained deficit (653) (2,072)
Noncontrolling interests 117 411
Accumulated other comprehensive loss (10,398) (10,132)
Total shareholders’ equity 121,660 119,732
$194,463 $195,195

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in thousands)(Unaudited)

Six Months EndedJune 30,
2018 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $271 $1,443
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for (recovery of) doubtful accounts 255 (22)
Depreciation and amortization 5,012 3,585
Share-based compensation expense 1,124 1,762
Gain on sale of property and equipment (2,267) (10)
Deferred income taxes (744) 263
Purchase of trading investment securities (96) (367)
Proceeds from sale of trading investment securities 566 73
Realized and unrealized (gains) losses on investments (11 (79)
Foreign exchange (gains) losses 834 (1,882)
Changes in assets and liabilities:
Accounts receivable 369 (1,429)
Inventories 2,317 (2,359)
Prepaid expenses and other current assets (1,471) (1,221)
Other assets (164) 358
Accounts payable (28) 109
Accrued volume incentives and service fees 673 1,082
Accrued liabilities 4,762 (3,542)
Deferred revenue (1,795) 1,586
Income taxes payable 197 (636)
Liability related to unrecognized tax positions 68 207
Deferred compensation payable (435) 395
Net cash provided by (used in) operating activities 9,437 (684)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,671) (3,134)
Proceeds from sale of property, plant and equipment 2,558 522
Proceeds from sale/maturities of investments available for sale — 1,776
Net cash used in investing activities (113) (836)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of cash dividends — (1,886)
Payments on new revolving credit facility (33,483) —
Borrowings on new revolving credit facility 27,512 —
Net borrowings on previous revolving credit facility — 2,035
Proceeds from borrowings on related party note 500 —
Net proceeds from exercise of stock options 410 104
Payment of withholding taxes related to the vesting of restricted stock units (465) (512)
Net cash used in financing activities (5,526) (259)
Effect of exchange rates on cash and cash equivalents 190 1,316
Net increase (decrease) in cash and cash equivalents 3,988 (463)
Cash and cash equivalents at beginning of the period 42,910 32,284
Cash and cash equivalents at end of the period $46,898 $31,821

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIESRECONCILIATION OF NET LOSS TO ADJUSTED EBITDA (Amounts in thousands)(Unaudited)

Three Months Ended June 30,
2018 2017
Net loss $(62) $(420)
Adjustments:
Depreciation and amortization 2,411 2,134
Share-based compensation expense 581 984
Other (income) loss, net* 1,807 (441)
Provision for income taxes 441 884
Adjusted EBITDA $5,178 $3,141

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIESRECONCILIATION OF NET INCOME TO ADJUSTED EBITDA (Amounts in thousands)(Unaudited)

Six Months Ended June 30,
2018 2017
Net income $271 $1,443
Adjustments:
Depreciation and amortization 5,012 3,585
Share-based compensation expense 1,124 1,762
Other (income) loss, net* 1,067 (1,716)
Provision for income taxes 1,729 2,347
Adjusted EBITDA $9,203 $7,421

* Other (income) loss, net is primarily comprised of foreign exchange gains and losses, interest income, and interest expense.

Contact:

Scott Van Winkle Managing Director, ICR (617) 956-6736[email protected]

Primary Logo

Source: Nature's Sunshine Products, Inc.

Categories

Press Releases

Next Articles