Nature's Sunshine Products Inc (NATR) 2004 Q1 法說會逐字稿

Good morning and welcome to the Nature's Sunshine Products first quarter 2004 operating results conference call. Statements made during this conference call concerning the Company's business outlook or future economic performance, anticipated profitability, revenues, expenses or other financial items, and product line growth, together with other statements that are not historical facts are forward-looking statements.

As that term is defined under federal securities laws, forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those set forth in such statements. Such risks, uncertainties and factors include, but are not limited to, foreign business risks, industries cyclicalities, fluctuations in customer demands, and order patterns, the seasonal nature of the business, changes in pricing and general economic conditions, as well as other risks detailed in the Company's filings with the Securities and Exchange.

The Company disclaims any obligations to update any forward-looking statements as a result of developments occurring after the date of this conference call.

Our speakers today will be Douglas Faggioli, President and Chief Executive Officer, and Craig Huff, Chief Financial Officer. (OPERATOR INSTRUCTIONS). I would now like to turn the floor over to Mr. Faggioli. Sir, the floor is yours.

Thank you. Good morning and welcome to the Nature's Sunshine conference call. We will be reporting on the first quarter or the quarter ended March 31st, 2004. We will have Mr. Huff go through the financial information, but I'm assuming that those of you who are on the call have a copy of our news release that was issued covering this, if not, later you can call Craig's office and get a copy from Karen Lawrence. Craig, we will have you go through the financials at this point.

I appreciate the opportunity to be able to report on this great quarter that we've had. For the quarter sales were 76.9 million compared to 62.7 million the prior year. That is an increase of 22.7 percent. Net income for the quarter was $3 million compared to $1.6 million, an increase of 86.3 percent. And diluted earnings per share were 20 cents a share compared to 11 cents last year, an increase of 81.8 percent. The total outstanding shares as of the end of the quarter were 14,732,000 shares, with an EBITDA for the quarter of 5.9 million compared to 4.3 million in the prior year.

Our international segments. As you're probably aware as you have read over our 10-K, we are now breaking things down into three different segments. We have our international group, Synergy Worldwide operations and then our domestic group. So I will report on those three separately.

In our international operations we are very pleased with how things continue to grow there. Our sales for the international area were 27.8 million compared to 24.0 million. That is an increase of 15.5 percent. That is broken down into three different segments within our international operations. Our Latin American group were 14 million compared to 11.7 million. That is an increase of 19 percent for the quarter. I feel very good about that.

Our Asia-Pacific was 3.4 million compared to 4.8 million. That is a decrease of 29.6 percent. That is almost -- it is entirely associated with the declines in Korea, which we have mentioned on previous calls and previous releases, the problems that we're having there. Our other segment are 10.4 million compared to 7.5 million. That is an increase of 39.2 percent. Again, for a total increase of 15.5 percent in our international operations.

In our Synergy Worldwide operations we're very pleased with what is going on there. They, as mentioned in the news release, have operations in Japan, Thailand, Taiwan and some in the United States. We are pleased with the growth that we're experiencing there. 13.2 million were the sales for the -- the sales revenue for the quarter compared to 1.6 million the prior year. That is actually an increase of almost 704 percent. And so that continues to grow well, and we're very excited about the future with Synergy.

From a domestic standpoint we continue to struggle a little bit. Our sales were 36.0 million compared to 37.0 million, a decrease of 2.8 percent for the quarter. As you are aware from our 10-K, we have changed the way slightly in which we report sales. In the past we had components of both -- as both a small type of a rebate that was included in our volume incentives. We have since broke that out. Netted that again sales and decreased our volume incentives at the same time. And so these numbers are restated a little bit. That had no impact on operating income, on net income or on EPS, and so things are fairly comparable going forward, except some of the percentages change a little bit.

Distributors and managers continued to grow for the -- since year end our distributors have increased 4 percent to 582,000. Our total managers have increased 18 percent from year end to 17,800. Our balance sheet remains strong. During the quarter we paid off the balance outstanding on our operating line of $5 million. So we have no short-term debt or long-term debt. I feel very good about that. Our total assets for the quarter ended at 134.6 million compared to 125.6 million at the end of year.

Cash and cash equivalents continue to build, as well as -- this include our long-term investments. Our cash and long-term investments were at 42.8 million compared to year end of 37.1 million. That is even with paying the 5 million off on our operating line. So we feel very good about where we stand with the cash position.

Our net cash provided from operating activities were 9 million for the quarter compared to 5.3 million last year. Our inventory increased a little bit. It went up to 27.7 million. That is an increase of 1.2 million. But we still feel that we're in control of that. Supporting Synergy and the growth of our other markets we've had to increase inventory just a little bit. Return on shareholders equity was 14.9 percent. Book value per share was at 5.56.

We continue to strengthen our margins through our cost of goods sold. Last year it was -- we were at 20.8 percent. This is on a restated basis -- the way our sales are. And now we're 20.8 percent. For 2004 we're at 19.9. So we're able to increase our margins through decreasing our cost of goods sold, and feel very good about that.

One of the main things that we talked about last conference call is that we were going to strengthen our cost -- or our selling, general and administrative. We have added actually some actual dollars, but decrease that as a percent of sales as we have grown Synergy. So I feel that we're on the right track. We have a lot of work still to do and feel that that will continue through the rest of the year.

As we have mentioned before, this is a full year long process to bring this down, even a couple of years’ process. So we were at 39.6 percent SG&A last year. This year we are at 37.1 percent, so down 2.5 percent. I feel that that can continue to improve as we go forward.

Our taxes. Last year for the first quarter we were at 36 percent. This year we're at 33 percent and feel very good that we will be able to at least move that going forward through the remainder of the year. Overall we feel good about the financial position that we're in and direction that we're headed now. We still have our challenges, but we feel very good about being able to report these kinds of earnings for this first quarter. I will now turn the time that over to Doug.

Thank you, Craig. Thank you for reviewing the financial information with us and talking a little bit about some of the progress that we've made. We are pleased with the results that we are reporting for the first quarter, and feel like we have made quite a bit of progress. And I think the other side of the issue is that we feel like there's a lot more that we can do, and now part of it is the exciting and challenging part.

I will talk about a few things that we've made progress in. As Craig mentioned, we have made some progress in our SG&A. I feel like, or we feel like we have a lot more that we can do, and we're working on that. So we see that improving, hopefully, as we go forward. Throughout this year and the next several years our objective is to get that down several points, as many of you already know.

We are pleased with the addition of Synergy and the results that they have been able to contribute. That is a good part of what we have going. The other side of it, a little bit more challenging side I will talk about for a few minutes has been the U.S. business. That is an important piece to us. We feel very strongly that we have a great opportunity in the United States with the demographics and the way they're going in our favor in terms of the products that we offer, and really the opportunity that we have in United States to expand our business.

It is something we have to look at with a little bit of a -- you know, a different look or if you will a fresh look, because our business has been around for a long time in the United States. And we're finding that people are getting more and more interested in the opportunity that we offer in the United States. And we have to come out with new and different programs.

And one of the things I will just mention briefly is something we have been working on for some time in the U.S. -- the U.S. sales group has been working on is a new product that we're going to introduce in May. It is actually available for sale on a limited basis through some of our sales leaders right now. But we're going to launch this product with a round of regional meetings that will be held to introduce this product. It is a product called THAI-GO.

It is a liquid product that has been found to be beneficial in terms of raising the immune system, supporting the cardiovascular system, promoting energy. And really there is a number of benefits from taking this product, and I won't going into too much detail about that right now because we're trying to save that for our launch.

Associated with the launch of this new product in the United States we are going to have a special promotion in terms of an incentive to incentivize people to recruit new distributors with this product. And so I think this is going to be a very important piece of the program to really invigorate the sales in the United States of the Nature's Sunshine piece of that. So we're pretty excited about that.

And we are starting to see a number of signs that are very favorable. Craig mentioned that the numbers of managers and distributors had gone up compared to year end. And I'll just mention in the United States the number of managers had increased 17 percent since year end. So that is a very positive thing for us in the United States.

We're trying to see some, as I mentioned, the excitement of some of the leaders and distributors there. I will just mention briefly, I attended this last Saturday evening a meeting by our Hispanic group in Los Angeles. And the meeting was very well attended. There were approximately a thousand people there. And it was a very good meeting. A lot of people were excited; seemed to be interested in what we're doing. And a little bit different approach. And we are pleased with the progress that we think we're making there.

And I will just mention now, probably is a good time to mention that I'm not in the office with Craig, so we're going to have to be careful how we handle the questions. I guess we will try to communicate back and forth when that point in time comes. But I'm attending the TAC trip. It is called our Top Achievers Club for the United States group. And there will be approximately 300 attendees at this meeting. So at any rate we will try to handle those questions as we go.

But we're pleased with the results that we have. We still have our challenges. We're looking at trying to improve what we are doing in the United States. I am very confident that we can make a difference in that market. It is a very strong market. It has great potential for us. As Craig mentioned, we are pleased with results we've had in our international operations. We're working diligently to reduce some of the cost that we have in some of those markets with the partnership, if you will, of the sales leaders in those areas that are helping us do that.

And I guess most importantly we're looking forward to the progress that we know, or we believe, that we can make as we go forward. So we feel like we have made some progress here that we have been able to report to you. And we're looking forward to the things that we can do as we go down the road. With that I would like to it open up, Lisa, to questions to the group to see if they have questions for us.

(OPERATOR INSTRUCTIONS) Scott Van Winkel with Adams Harkness.

I apologize in advance if I'm asking a question you already answered. I had to jump off the call for a minute there in the middle. I was wondering a couple of things. One, what was the currency impact particularly on the Synergy business? And how much did that help you in the quarter?

Synergy, everything is done except for a small amount that is in Taiwan and Thailand is in U.S. dollars. And so there really hasn't been a currency impact on that. So there's really minimal an amount that we have benefited or been penalized for the currency devaluation or evaluation.

Okay, and a second. You know looking at the new numbers you stated for last year, and I hope I have these numbers right. It looks like the volume incentives were up a couple of hundred basis points. Is there a particular driver? And is that something we should expect to see continue in the future?

The reason that that is up is the Synergy, their compensation plan has a slightly higher payout than does the Nature's Sunshine are the internationals -- the other international markets. So as Synergy becomes a larger portion that will increase slightly as time goes on. So that will continue to increase. It is capped so it won't be a significant amount of change, but there will be a slight creep up in that volume incentive expense.

Craig, wasn't also due to the restatement of the sales?

Right. Right. The restatement caused it to go but at the same time overall in comparable dollars it will go up just a little bit because of Synergy.

Okay. And, Doug, in your comments about the growth of managers since year end in the U.S. is that -- is there a certain period in -- I guess what I'm asking is do you -- once a year or do you regulate from move people to the next level, their milestones they hit? How does that work?

Well, essentially in the United States you have to reach a level of business with the Company that is $1,000 in your personal group, which is you and your directly sponsored distributors. And so as they reach that level than they automatically get taken up to the level of manager. So I mean it is not something that we can really plan. One thing I was going to mention -- you have given me an opportunity to do that - is our sales, even though Craig mentioned they were off for the quarter, I think it is noteworthy that they were up in the month of March. Craig, I think it was up 5 percent, is that you had?

7 percent.

7 percent. And so what I was going to tell you, Scott, is that typically if there is a price increase, and there was this year, you'll see more managers going up in the month of March as a result of the increased buying due to that. So we got a little bit of a bump out of that. But that is a positive sign for us in terms of greater numbers of managers in the U.S. So we think that is a very positive sign.

Historically has the growth of managers been a good indicator of future revenue growth?

Well, that really is what drives our business, is the numbers of managers, and distributors to really a lesser degree, but it is really one of the important drivers of the business is the number of managers, particularly in United States. So that's a very positive thing for us.

Rob Horwitz with RH Capital Associates.

I'm relatively new to Nature's Sunshine. We participated in the last quarter's call. But I was interested in finding out if you could provide us with some insight as to what you expect out of U.S. operations this year? What you expect out of the Synergy and international operations? Just some kind of guidance in terms of sales growth?

We don't normally put out projections and things like that. I can just kind of roughly guide you in the sense that we have been off a little bit in the United States and that has been our challenge. Our expectation, our hope I guess, is the things that we're doing is to incentivize the U.S. group to grow again. And that has been a little bit of a challenge for us. But what we're doing, we really feel like we have a number of things in place that could accomplish that. And that is why we're looking to this next quarter as far as the launch of THAI-GO and these regional meetings that we're having with this new incentive, to see if that will get things going again. Because that has been kind of a challenge. And as I mentioned, we're optimistic about it and we feel very good about it.

Synergy is a very different story. It is very new as far as part of Nature's Sunshine, and has been generating some very exciting growth, albeit, on a smaller base. But its operations are mainly geared internationally, Japan, Thailand, Taiwan. And they're looking at other markets for Synergy. And so we think Synergy is also a very exciting opportunity for us. And so I guess we're looking at that and saying we have sort of a really balanced offering here that both international and very aggressive as well as the Nature's Sunshine.

You are showing very strong sequential growth in Synergy. Is there any reason to believe that that is going to change or slow down anytime soon? Or can you --?

Well, we don't have a lot of history to project that from. And as I mentioned, we're hesitant to go on a line for projections, but it is something we hope is going to continue. Obviously as it gets larger, like you say, as far as the percent that might decline somewhat, but we are hoping there are very strong gains in Synergy as we go forward.

And in terms of SG&A, I know that you've got ambitious goals over an extended period of time. You have reduced SG&A about 250 basis points year-over-year. Is that a reasonable expectation here for you guys? I'm just trying to model the Company going forward?

Sure. We think that we have a lot more work to do there obviously. SG&A has gotten larger as a percent of sales, and we feel like it should have, and you know we're working at that. I'm working with Craig and the other offices of the Company, and I expect that we should be what to bring that down really over the next two years 2 to 3 basis points a year. Hopefully, it is closer to the 3 points. I'm sorry, not basis points but 3 percent. So really I mean the objective is 3 percent a year over the next three years or so. So I would like to get it down roughly 9, 10 percent over the next few years as a percent of sales. Sorry. I want to make sure that is right.

No, I understand. And tax rate, was I correct in understanding that you expect to have a 33 percent tax rate this year?

We have some additional planning that we're trying to do to try and get that lower, but that is where we are at right now. That is what are planning for is a 33 percent. Hopefully, we will have some things that are in place that will strengthen that, get that lower, but right now 33 is what we're planning.

Okay. And in terms of your generating a lot of cash. Do you have any expected use for that cash that we should be aware of, acquisitions, Capex, share buyback, a dividend? What is the cash going to do?

I will let Craig add to this because obviously that is his responsibility. But just generally speaking, we raised the cash dividend here recently to 5 cents a share. We think that was a positive move. We have been looking at the possibility of share buyback and those kind of things. But Craig will be more familiar with CapEx, the requirements that we may have. Craig, do you want to comment on that?

Yes. There are no major requirements out there. There are some things that as we have had the growth, we're going to probably add a little capacity as far as machines, those kinds of things. I don't think that our Capex will be out of line significantly from what we have done in the past couple of years.

We have no buildings, no expansions. Right now there are no plans for acquisitions, those kinds of things. It doesn't mean if opportunities did arise that we wouldn't be interested, but -- and I think that for the last little while we haven't had a share buyback program, but that is something that I think that the Board is considering again.

So those will be things that would come up down the road a little bit. So I think overall there is not a major use for our cash other than just ongoing and expanding our business. That is really what we would like to see is our business expand, and that needs to go into other markets and grow our business.

But looks like most of these are not really -- even when you go into other markets they don't a large upfront investment. They're kind of pay-as-you-go?

That's true.

So the dividend is 5 cents a quarter?

Yes.

And would you think about increasing that as your earnings ramp up here?

Yes, certainly we would look at that. As I mentioned, we just increased it. As things continue to improve, we will continue to look at that. And that is certainly one of the options is raising the cash dividend. So it is either that or a stock buy back. As Craig mentioned, we don't have a lot of expectation at this point that cash will be used on capital expenditures. So those are the options I guess, raising the dividend or increasing the stock buy back.

Bill Caton with First Wilshire Securities.

Nice quarter. Could you -- I have a couple of questions here. In terms of manufacturing or administrative outsourcing, I know that your cost of goods sold is going down. Your SG&A, you're trying to drop 2 to 3 percent per year. Are you going to -- are you doing outsourcing right now in any of those areas, or will you -- do you foresee yourselves doing that outsourcing?

Well, we have looked at that from time to time various ideas of outsourcing, and I wouldn't rule out the possibility. But the times we have looked at the different areas for outsourcing, quite frankly even though there may be some projected savings in that, it seems like we give up some things in terms of the quality and that kind of a thing in order to manage this.

I really think that we're probably going to be better served by just getting more efficient ourselves and trying to work on that. That is not to say we would rule out the possibility of outsourcing, but it would have to be compelling enough to get us to do that. Because we don't want to rush into something at the hope of saving something, and then have it impact our business in a negative manner. So I don't think it this point we're really looking at a lot of outsourcing, but again we won't rule out the possibility.

Okay. You mentioned earlier about a price increase. When did that take effect and was that in multiple countries or mainly in the U.S.?

Yes. It was in the United States. And that was effective April 1st. The other countries obviously have price increases that impact their sales, and they're usually spreads usually spread throughout the year, addressing currency issues and other things like that. But the U.S. tends to get little bit more attention because it is a pretty significant part of our business. And when we do raise that -- do that we do it with a lot of thought to make sure that is not going to be negative impact our field. But -- it represents increased costs and things like that, and so we're very careful at managing that. But that was effective April 1st.

Okay. In terms of -- are there any plans going to any new foreign countries like maybe India or China or beyond those two anywhere else?

Yes, there are plans at this point to -- selected markets. We don't tend to announce those in advance. We're doing some work on some markets that are little bit off into the future. But we announce those generally as we get ready to open those markets.

Okay. And you mentioned the THAI-GO product, you know to boost the immune system. But are there any -- is that going to be rolled out mainly in the U.S.? Are there any other new products that you could talk about?

There's a couple that I can mention that were introduced in either our leaders conference or will be part of this. I will just mention that THAI-GO in answering your first answer, that THAI-GO is what will be called in the United States. And yes there are plans to introduce this product in some of our international markets. And it will probably have a different name in some of those markets.

But we're seeing a lot of interest in this product. And, as I mentioned, we're going to have regional meetings to introduce this, as well as an important incentive to go along with the product. And so we're pretty excited about what this is going to do in the United States.

As far as international there are different plans for that. There not going to be approached in the same fashion. There a little bit different issues as far as that goes. And it will be a different name. We've had some good success with a number product in the United States that are doing very well. We had a leader’s conference where we announced a new product. You all are familiar with DHA, a EPA product that was introduced, as well as Probiotic product that was introduced. It seems to be doing well. We have a meal replacement product that is still doing very well called, Nutri-Burn.

We introduced overall last year I think 58 products. They accounted for about, I think, 11 to 12 percent of sales in the United States. And so we expect to do not as many products, hopefully, this year. Sometimes you introduce a lot and it is hard for people to understand and appreciate all those different products. So we're going to focus a little bit more -- and we have tried to do this over the last several years on products that we think are going to yield higher sales, and kind of keep them down a little bit. So hopefully this year THAI-GO will give us a start at that. That is kind of why we're focusing in on THAI-GO.

And last year when you introduced 58 products for 11 to 12 percent of sales, how does that fall in line with previous years? Is that a lot higher percentage?

Well, it is not a lot. We tend to be somewhere around 10 percent. Sometime it is 9, below it. So, yes, it is a lot in terms of 11 to 12. It is above the 10. The number 58 kind of varies hopefully this year, unless there are reasons we would introduce from a competitive stand other products. We hope to keep that down, maybe a little bit below that, a little more focused for instance on THAI-GO and Omega DHA product and some of these, so we can kind of get some focus on them -- and the Probiotic Eleven product as well.

Greg Helman (ph) with First Wilshire Securities.

I was wondering if you could talk about two things, one concerning Synergy, the other concerning THAI-GO , maybe THAI-GO first. Is THAI-GO by chance based goto (ph) berry, goto juice?

Actually is actually is based on several things. I guess the premier ingredient in there if you want to call that is mango steam. It has wolfberry, sea buckhorn, red grapes, grape seeds, grape skins, raspberries, blueberries, apple extract and green tea. And kind of a lot of things behind THAI-GO , as I mentioned before it enhances the immune system, supports cardiovascular system, promotes energy. There seems to be a lot of interest in it.

And the other thing that I didn't mentioned before which I think is particularly important it has a real high Orac (ph) value rating, which is an antioxidant rating. So it is very high and rich in antioxidants. So there are really a lot of benefits that are expected from this product. There's been a lot of research into it and that kind of thing. But the main or the central product is mango steam fruit.

Okay. So basically it is a combination product. It is not like a mono-product? It is a combination. And your product is unique. There is not another similar thing on the market?

No, there is nothing quite like ours. Obviously there are other companies using the mango steam fruit. But there are different combinations. And as you mentioned ours is an unique combination to Nature's Sunshine.

Okay, now moving to the Synergy, what is their product lineup in terms of their largest products that they are selling? What exactly are the products that that they are selling?

Well, I think it would be kind of hard for us to go through all of them, but their products are different than the Nature's Sunshine line. Their line is, I wouldn't say limited, they sort of focus on a smaller product offering obviously much more oriented towards recruiting and that kind of thing, very aggressive in terms of marketing.

The one product that I probably would mention that you probably have a sense of is -- they have a product that people are really excited about, Proactazyme. That seems to show some promise there in terms of their products. But their products are more limited. It is not -- by comparison Nature's Sunshine has like 5 or 600 products whereas Synergy would have a much smaller line, more focused on the opportunity.

Okay and what is proargenine? What does that do?

Actually it has a lot of benefits that I think are pretty well known. And I apologize to you that I don't have that information with me, but I think that a lot of people have some interest in that. It is shown to have a lot of beneficial impacts, but I'm sorry I don't have that here with me.

Okay. And is Synergy a traditional multilevel? It is just a different -- or is it some other sales -- direct sales system?

By traditional multilevel, what is it that you --?

Well, I mean do people get royalties from their down line in Synergy?

Well, they get paid commissions, if that is what you're talking about, the over rides? They get that. There is less concern or I guess less of it is built-in with what Craig was talking about earlier in terms of rebates and that kind of thing. It is a little bit more aggressive in terms of recruiting and building an organization and some of the other multilevel marketing groups. But yes, it is similar in the sense that you pay over rides and that kind of thing.

How many levels deep do the over rides go?

They really go deeper in terms of how that operates. They go -- it is kind of hard to describe this to you in just a short period of time, but just to give you an example, they have a program called the MegaMatch which really pays you based on your weak leg. But then pays you -- in other words to get you compensated based on the weak side of your organization, but then you get paid down the stronger side of your organization.

Okay. And then in terms of ethically are most of the sales in Japan for starters for Synergy?

Yes, their highest level of sales are in Japan. They do have an operation in Thailand and in Taiwan. So that is where the majority of the sales are coming from.

And then can you give some kind of explanation why this thing has taken off? Why the huge increase?

Well, I mean there are a lot of reasons for it. First of all, I would say the management that we have in that organization has done a good job of promoting the opportunity, talking about the products. And one of the things that they have that I think they are all very excited is they have a seamless marketing plan. I think that helps as well, but you know I would give the management credit. And then secondarily they have had some top leaders that are being very aggressive and going out and recruiting. So it is that. On top of that I would also say they have some very good products. And they have been, I guess, very aggressively promoting it. So I would say overall I would give management and the top sales leaders credit for really pushing this forward.

And when you say a seamless marketing plan, what do you mean by that?

Well, their marketing plan is essentially the same in the international markets that they operate in. And so when you have international sponsoring those -- that program of sponsoring rewards those distributors the same in every market that they recruit and sponsor in. And so that has been a very positive thing for the Synergy marketing plan.

So there has been a lot of people hopping on airplanes and going to -- when a new country opens under Synergy?

Yes, it sounds a little easier than it is, but there have been a number of sales leaders who have been very aggressive at traveling to Japan, to Thailand and some of these markets and recruiting. And you have to give them credit because they have put a lot of effort into it themselves. And you know it has been rewarding in the sense that it is growing and they're doing well. And that seems to have the right element there.

That's fine. And finally, do you supply the majority of the products for Synergy, or do they get some outside of the ones that are made in Spanish Fork?

Yes, they have a number of products that are made by contractors. Obviously we have our quality assurance people that work with them and make sure -- and so in a sense they are provided the exact same, or the same quality assurance, although some of these products are made by other parties. But the products are shipped from Spanish Fork, our shipping location, and so they get that service provided through the Spanish Fork facility.

Peter Reed (ph) with C.L. King.

Do you have a number of distributor growth at Synergy so we can relate that to the revenue growth?

A number in terms of --?

A number of distributors?

I don't know if you break that out regionally or not. Craig, you don't do that do you?

I haven't done that. I know that there up significantly, but I haven't totaled all of the ones just Synergy themselves to see what the total growth is, but it is a significant growth.

Obviously higher than the overall organization (multiple speakers).

Yes.

Well, in terms of percentages they are.

Right. And you own 100 percent of Synergy?

Yes.

Okay. How about as far as your exposure to Ephedra is that an issue for you guys? I thought I saw on our website that you actually had a clearance sale on Ephedra products? But -- is that something you guys were doing?

Yes, we promoted it. I will tell you, we're really not happy that it was banned to say the least. We have had a very good history with that product. We didn't combine it with other things that could potentially be a problem, and so we have a very good record in terms of complaints or people that had, we call it AERs.

Are those the stokes (multiple speakers)?

And so we feel like you know we're sort of stuck with everybody else when it got banned. So it is not something we were happy to do. And we did special off some of the products that we had in inventory mainly because people like the products and wanted to continue to use them and have access to them. And as you know after, I think it is April 12, you couldn't sell them anymore. But people who bought them could use it for personal consumption. And that is what we saw a lot of, people buying those products for personal use.

But we are either in the process of reformulating some of those products, but some were already reformulating. So we hope that we can just continue on. But I'm still disappointed that we lost ephedra.

Was that a major percentage of your product line, products containing ephedra?

No. I think it was less than 3 percent of sales, something like that.

Actually less than too percent of sales associated with them.

Okay. And are there any lawsuits out there against you guys for customers that used ephedra?

Well, I don't know that there are any particular lawsuits against us for ephedra. You know we might be involved in something that, I hate to say it this way, without merit or frivolous or something like that. We don't see anything significant from our use of ephedra, no.

Okay. What are you replacing the ephedra with?

Well, there are a number of things. Unfortunately I'm not the pharmacognicist so I can't tell you that. One of the things that I have seen in the literature is there is there some complaints about sednefren (ph) and mature orange peel (ph). I know that we have used that in some cases. But there are some other things that I think our pharmacognicists are looking at to see if it could either be better or would work well with the existing products that we have. So they're still in the process of that. I don't think we have everything finalized.

Some of the major products, MetaboMax and some of the other things have already been reformulated. But some of the products that had the ephedra alkaloids in, which really is kind of a problem for us in terms of there really wasn't very much in there of those alkaloids, like sedicordifoleia (ph) or tenaila (ph), trarata (ph), those kind of things.

It had a small amount of them in these products and they really -- it is almost like why do these have to be reformulated, but that is the law and we have to comply with it. And so we're still in the process of trying to reformulate some of those products.

Okay. Moving to the income statement I saw that other income popped up to 856,293. What does that reflect?

The biggest component of that is a couple of -- in a couple of markets we had some fairly good exchange gains. So that represents the majority of it.

I see, alright. And on the share account that was up like 800,000 sequentially. Is that --?

The reason for that is, as you may aware, we made some changes in some management and employees late last fall. And during the first quarter there were some options that had to be exercised. And so those options were exercised from some of -- the former President and some of the former officers that they exercised those, which caused our share count to go up.

I see, okay. But you did buy back stock last year though, right?

Last year we did.

And just one more question. On Synergy is there a website or something we could look at to get a feel for their product line?

I'm not sure of the name. There is a web site though. I think it is probably Synergy Worldwide is the official title.

Alright, I will see if I can find it.

And if you can't get that, you can call Craig later and he can give you the exact address for that.

(OPERATOR INSTRUCTIONS) Scott Cresic (ph) with C.L. King.

Just one question. Can you say what the peak percentage of sales in new product was and when that was? This whole industry has been plagued by a lack of really dynamic new products since I would think the late '90s. But could you give an idea of maybe what really -- what the last product that really had a major impact was, and how much that contributed to sales?

You mean, you know you say major product we have like 600 different products in the United States. We tend to look at them if they do close to $1 million or more and it really depends on when they're launched and that kind of thing as far as how they do. But I can tell you in the last year we had some pretty significant products. But they would be in terms of numbers probably sound pretty small to you. But the Nutri-Burn did very well. But the Probiotic Eleven did very well. And we have product called Paw Paw that did very well. It is (indiscernible). And so those products -- probably three or four of these a million or more.

Well, from the perspective of sort of industry changing events, I mean I look back at least in supplements, and you look at Gingko Biloba and St. John's Wart, things like that of that magnitude. Is it really going back that far, or from your perspective have you seen anything that has changed the meter on an individual basis?

I mean not probably as significant as what you're talking about with Gingko and some of the others, but you know there seems to be sort of a focusing on products like, I mentioned the Probiotic and the DHA and those kind of things. There seems to be probably -- you know as consumers become more and more knowledgeable it is probably less -- like you're talking about Gingko Biloba or something like that -- and more on the things that people are finding more impact with. And that is why I mentioned the Probiotic Eleven and the DHA. So those kind of things.

Have you had an impact with a pomegranate juice product? It just seems like that is being advertised left and right.

You know I'm not aware of that. That is why I mentioned the THAI-GO . I think there's probably going to be more emphasis for us on a product like the THAI-GO that has really high orac value and that kind of thing. So that is kind of where we're focused right now.

As opposed to just antioxidants?

Yes, as opposed to just an antioxidant this has more benefits than just the antioxidant benefit in terms of supporting cardiovascular system, enhancing the immune system and those kind of things. We find that people are interested in things that do more than just one thing probably.

Okay, and than just based on the product that you mentioned, sort of in the $1 million range that is an impact for you, and that is at least in this context not a Gingko or a St. John's or something?

Yes, probably not, like you say a Gingko or a St. John's, but I wouldn't discount the impact that these things can have, particularly when we put an incentive with it like we have with the THAI-GO and introduce it at regional meetings. It is a matter of getting the word out on the product and the benefits of that, and how that will help somebody with a product like that. So we're looking at this one to be a real big product for us.

Okay, and then I guess this last thing, not to beat a dead horse, but sort of because of the way the industry has evolved and there are so many people focused on it, do you really think it is unlikely that a new product will come out that at least in the near future that will have that sort of impact as some of the huge ones that we have talked about?

Well, I wouldn't rule it out. And like you say, some people are more attracted to something that is brand new or something like that. And that is kind of why we have come up with this formulation of THAI-GO, but in terms of Gingko or something like that, I don't know. But the main thing in this THAI-GO drink that I mentioned is the mangosteen fruit. And so that could possibly have the same kind of impact as say a Gingko or something like that.

How long has the mangosteen fruit been used in this type of products. You said yours is in THAI-GO isn't the first?

No, THAI-GO isn't the first and there are a few others out there, but I don't know if you are familiar with the marinda citra folia (ph) or otherwise known as Noni?

Noni juice, yes?

Noni juice. And that was pretty good. A lot of people got interested in that. We have a product called Nature's Noni that does very well and is very impactful to some people. And I think that THAI-GO could be on that scale. So when you try to compare it to the products that you mentioned, I don't know, we will have to wait and see. I think this might even be bigger than some of those.

That will be fantastic.

That would be great.

I guess just the last thing. The one product, and I forget who made it, I think Dynamic Essentials, it was Royal Tongan Limu. I don't know if you were familiar with that product. And did that use the mangosteen fruit?

Royal -- ?

I think it was a Noni juice-esque product, I'm not sure which.

I'm not familiar with that one.

I'm not sure which the key ingredient was.

I'm showing no further questions at this time.

Okay. I would like to make some closing comments. I appreciate those of you who listened in on the call. I apologize for any coordination that didn't come across as well as it could have in the past just by my not being in the office, and some of that. But we feel very good about the progress that that we have made as a Company. As Craig mentioned, we're very pleased with the results that we are reporting.

And I guess even more importantly we're challenged by the opportunities that we see as a Company to get better, to get better in terms of the product offering, to get better in terms of people's interest in Nature's Sunshine. We're excited about the opportunities that we have and the potential that we have and trying to reach that potential. In the end it is about creating shareholder value and that is what we are going about, and we're challenged by that, and very excited about the opportunities that we have. And appreciate those of you who have listened, and look forward to being able to report to you continued results. Thank you.

Thank you. A replay of this broadcast will be available in approximately two hours, and thereafter will be available until Sunday, May 2nd at 12 midnight. You may access this replay by dialing 1-877-519-4471. Once again that is 1-877-519-4471. The pin number is 4677500. Again that is 4677500. International callers dial 973-341-3080 and use the same pin number.

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