Nature's Sunshine Products Inc (NATR) 2004 Q3 法說會逐字稿

Good morning and welcome to Nature's Sunshine Products, Inc. third 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 the term is defined, under Federal security's 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, industry cyclicallity, fluctuations in customer demands and order pattern, 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 Mr. Douglas Faggioli, President and Chief Executive Officer, and Craig Z. Huff, Chief Financial Officer. At this time all participants have been placed on a listen-only mode and the floor will be opened for questions and comments following the presentation.

I would now like to turn the floor over to Mr. Faggioli. Sir, the floor is yours.

Thank you. Good morning, and welcome to Nature's Sunshine conference call and report on the results of operations for the third quarter ended September 30th.

We're appreciative of the opportunity we have to talk to you about not only what transpired in the quarter, and the results of operations for the quarter, and year-to-date, but, also, some of the other issues in terms of new products and things that we're doing as a company and we're just pleased to have this opportunity to go - - to go through this with you.

And at this point, I'll turn this over to - - to Craig Huff, our Chief Financial Officer, to review some of the financial information that hopefully, you have received in the - - in the - - in the news release that was sent out. Craig?

Thanks, Doug. I appreciate this opportunity to go over the financial statements and the financial position that we find ourselves in at this time. And I'm very pleased with the results that we have receive - - that we have experienced this last quarter and for the year of 2004.

For the quarter sales were 83.6 million, compared to 63.5 million the prior year, that's an increase of 32%. Operating income increased from a loss last year of 1 million to $6.8 million worth of operating income. I'm very pleased with that. And, as I - - before I go further, I just wanted to make sure that everyone remembers that last year, the last year numbers were impacted by a - -charges for a realignment of our business, in preparation to cut SG&A and a lot of - - to realign things at 2.2 million. And so, last year's results were impacted by that 2.2 million which was a pretax number.

Net income for the quarter was 4.6 million compared to a loss last year of .6 million. Again, very good results. EPS was 29 cents a share compared to a loss last year of 4 cents a share. Year-to-date, our sales are 240.1 million compared to 189.7 million, that 's an increase of 27% over the prior year.

Operating income, again, very strong year-to-date, 15.2 million compared to 3.9 million the prior year. Net income was 12.4 million compared to 2.2 million, an increase of 474% over the prior year. Again very strong results and we're very pleased with those. Our diluted earnings-per-share for year-to-date are 81 cents compared to 15 cents last year. Total outstanding shares that we have at this time, are 15,094 million shares.

From - - going into tour segment reporting. Our international operations continued to grow during the quarter and their broken - - we've broken them now down into International operations, our Synergy world wide operations and our United States operations. From our International operations, for the quarter sales were 26.4 million, that is an increase of 15% over the prior year. And year-to-date sales were 76.6 million, compared to 65.5 million the prior year, that's an increase of 17%. So our International operations continue to go along at the growth rate we've been experiencing in the past.

One thing that's concerning the profitability of our International operations, we've talked in the past about needing to get Japan in line with profitability-wise and we can say that for the quarter, Japan was profitable where we've lost a significants amount of money in the past. And we'll talk a little bit more about that in the - - when we talk about our SG&A. The segments of our International, we now have gone down to just 2 segments, our Latin American segment and our Other segment.

Asia, we moved a number of the operations there as part of Synergy as was mentioned in the news release. And so, really, the only thing left in Syner - - in our Asian market and the International operations is just our Japan business, which was not significant enough to break out separately. So, for the quarter, our Latin American markets, were 13.8 million. Now that is flat with where we were last year at 13.8 million in 2003 for the quarter, also.

Our Other segments were 12.6 million, that is up from 9.2 million the prior year, an increase of 37%. Our segment year-to-date, for our International operations was Latin America was 41.4 million compared to 38.5 million the prior year. That's an increase of 7.5%. And our Other markets, which includes the Russian Federation, the U.K., Canada, and now, our Japanese - - Nature's Sunshine Japanese business and our export markets and Israel, they were 35.2 million, for year-to-date compared to 27 million last year. That is an increase of 30.4%.

Our Synergy world wide operations continued to grow significantly and we're very pleased with the results that we're seeing there. Again these have been restated to move in our Korean operation, our Singapore operation, and as we mentioned on the last call, we were going to launch Australia, and that is included in these numbers. And so, little different then the ones before, because we brought some of our existing markets into this segment now. For the quarter sales were 24.3 million, compared to 6.6 million the prior year, that's an increase of 271%. Synergy for the quarter represented 29% of our consolidated sales. Year-to-date, sales in the Synergy world wide were 60.1 million, compared to 16.4 million, the prior year. That's , again, an increase of 266%. And so we're very pleased with what's going on at Synergy and the increased sales revenue, but also, the profitability that has been achieved there and that is contributing to the overall success of Nature's Sunshine.

In our United States operations, sales for the quarter were 32.9 million, compared to 34 million, that's a decrease of 3.2%. And year-to-date they're 103.3 million compared to 107.8 million year-to-date. That's a decrease of 4.1%. One thing I did want to mention about the United States, as you're aware, we include the Dominican Republic, which is an integral part of our Spanish division in the United States with - - so the Dominican Republic - - is included in the United States operation. They've actually had significant devaluations and so, if we eliminate them for the quarter, the United States operation would have actually been flat, which is a significant improvement over where we have been going down 4 or 5 or 6% over the last few quarters. And so we feel good about the turn-around that has happened in the United States, excluding the DR. The DR continues to remain strong but the devaluation has that significant impact. And Doug will talk more about what is going to be going on in - - or what has been going on in the United States.

Our distributors world wide increased to 652,000, that is an increase of 16% over the prior year. And our total manager's increased to 18,100, that's a 19.5% increase over the prior year.

Continuing on to look at our balance sheet, a little bit, the total assets were 150.5 million. That's up from 125.6 million at year-end. Our cash and cash equivalents, along with our long term investments has increased $10 million, up from 37.1 million at year end, up to 47.1 million currently. And so we're continuing to build cash at the same time, we do have liabilities have increased of just haven't been paid such as for our convention and those kinds of things. So that will come down slightly but we're still generating a significant amount of cash.

Cost of goods sold, I want to talk just a little bit about that. We've mentioned that would come down a little bit and our volume incentives may go up a little bit as Synergy becomes a larger part of our business, where cost of goods sold is a little less than in the Nature's Sunshine business, but the volume incentive portion is a little bit higher. And so, for the year, year-to-date, cost of goods sold is 18.7 million, compared to last year of 20.6. So that is down significantly. Volume incentives though is up a little bit to 38.7%, compared to 36.3%. If you combine those two numbers, because they are really both variable expenses there, the total of costs of goods sold and volume incentive expense for 2004 year-to-date is 57.4% compared to the same period in 2003 is 56.9%. So there's been a slight - - I don't want to say erosion, but about 4/10 - 5/10 of a percent change in those two numbers when you net those together.

One area that we've talked about in the past that we feel good about is our selling, general, & administrative expenses. As you're aware, over the prior few years we've sort of eroded our margins because of increasing SG&A, as a percent of sales. And over the last year, we've made a very concerted effort to be able to decrease our selling & administrative expense as a percent of sale. And we've accomplished that in a couple of ways, cutting expenses as well as growing sales in a couple of areas, and holding expenses in line. For the quarter, our SG&A was 28.2 million, compared to 27.8 million the prior year. So we were up slightly about 400,000 in SG&A. But as a percent of sales, last year we were at 43.8% for the quarter. This year, we're at 33.7%. So, a 10% decrease in our SG&A as a percent of sales in the quarter.

Now, part of that is associated with the 1-time charges last year. But, still a significant decrease. If you just compare the quarter to last quarter, the second quarter. Second quarters SG&A was 38.3%. And again, compared to this quarter of 33.7%, so we've seen that significant decrease.

We feel we're moving in the right direction. Are we done? No. We still have a lot of work to do. We hope to be able to, again, by controlling our expenses as well as growing sales to accomplish that number that we've talked about in the past, getting down - - getting the SG&A down from our year-end numbers of last yea,r which were about 41%, down about 10 percentage points. Year-to-date, our SG&A is 87.1 million, compared to 77.7 million. That's 12% increase in SG&A expenses, but, as a percent of sales, it went from 41% last year, to 36.3%. So, almost a 5% decrease on our year-to-date numbers. And again, we feel very good about that. We feel that we're moving in the right direction. But, we've got a long way, still to go and we plan to continue to cut our expenses and grow our sales and hold expenses in line.

You may ask the question, why did we increase our selling administrative expenses year-to-date as much as we have. The biggest - - all of it really, is associated with growing of our Synergy world wide business. In the United States, we've cut significantly the selling & administrative expenses as well as in our other international markets. Those are all done down. But they are offset by the increases that have taken place in our Synergy operations as we've grown that business and we've had to try and support that business. And we'll continue to spend there, as that business continues to grow. So the actual dollars will go up, but we feel that as a percent of sales, that will come down significantly.

One other area, taxes, continue to see some benefits coming from that. Our tax rate for the quarter was 33.8%. We still anticipate for the year, to finish around 26%. I feel very good about where we're at with our taxes and that we've got those under control. Still have some planning things we're working on so we hope to see some benefits in the future.

I feel, overall, very good about the financial situation that this Company is in right now and with the growth coming in sales and the things Doug will talk about still, there's a bright future for Nature's Sunshine.

Doug, I'd like to turn the time back to you.

Thank you, Craig.

I'd like to just share a few thoughts with you. First, I'd like to start off by expressing appreciation for the efforts and contributions of our sales leaders and distributors world wide, as well as our employees. I just feel like we've made a lot of progress in a short period of time. We've been able to do very well in a lot of areas and we've accomplished a lot.

And as Craig mentioned, we feel like we have a lot more that we need to do and a lot more that we feel like we can accomplish. But I just wanted to express appreciation to our sales leaders and distributors, as well as our employees, for their really - - for their efforts and contributions that they make to the performance that we are enjoying as a Company and I just wanted to start out with that.

Craig mentioned, and I'll just touch briefly on this, we're very pleased with the growth in sales leaders. Craig mentioned that we had 18,000 sales leaders world wide. That's up, compared to prior year, about 18%. And 19% compared to just year end. So, that's a very - - that's something we're very pleased with and it's really a good indicator of the - - of the strength of our business, and so, we're really, we're anxious and happy about that number. The distributor number that Craig mentioned as well, the very positive, 652,000. Again, I think that's up 16% compared to year end. So both very positive signs for our business and we know that we still have a lot of work to do and a lot of things we need to do to continue to experience this growth. And we're very focused on accomplishing those things.

I just mentioned Synergy as well as - - You can tell from the financials and the numbers, that Craig has gone through with you, Synergy continues to show very impressive results and sales growth and earnings and growth in sales leaders. And I think the Synergy management team, as well as employees and the sales leaders in particular, are just doing a terrific job there and we really appreciate their hard work, dedication and effort that they're putting in. It's been very exciting for us to see this kind of dynamic growth that Synergy has been able to generate. And you know we're not making a forecast or anything like that, but, we all believe that the best is still to come. So, we're excited with the growth, we're appreciative of everybody's efforts that's involved with this, but we're really excited about the future of Synergy and Nature's Sunshine.

So, just mention briefly, because Craig talked a little bit about the numbers. In the U.S. and without, I guess, without the Dominican Republic, the U.S. sales were virtually, flat. With the Dominican Republic, I think we were off a couple of percent. So, I think that's a very good improvement. I think there's obviously, we still need to turn that corner, but I think that's a pretty good improvement over the second quarter. And that's a very positive thing for us, because we know we have leverage in the U.S. as we can - - as we get that business going the way we know it can go. And it's going to generate a lot of income and really, you know, add to the excitement we have as a company. And so we're very focused on that.

As you may know, we had our convention in the U.S. in Florida. We kind of got in between hurricanes down there and so we think that had a little bit of impact on the - - the attendance at the convention. So, our convention sales were off a little bit from what we expected. We do feel like it was a very successful convention, I think there were something like 1700 people in attendance, some new products were introduced that we think it will do well, at least by the initial reaction. They seem to be doing very well so we're pleased with that.

Just to mention 2 products that were introduced at convention and some of the early results. We have a new liquid vitamin and mineral supplement. It's called VitaWave. It provides 100% or more of the daily values of 17 essential vitamins and minerals in a base of healthy herbs, an amino acid blend, a plant-derived trace minerals and a body supporting blend of healthful nutrients like lutein and lycopene, 2 very important antioxidants. So we think that product is going to do very well. We think there's a demand for kind of liquid vitamin product, as well as we have a new product called Cellular Build. It's really based on the idea of nucleotides which are really the building blocks of DNA and RNA. Nucleotides are especially important in areas of the body where rapid cell division occurs. To mention briefly, Cellular Build may enhance digestion, improve the uptake of nutrients, promote the growth of beneficial flora, support enzyme activity and in general, support the intestinal system. We have, we think, some very good new products that are going to, hopefully, add to the sales momentum that we think we're building in the U.S.

I'll just mention briefly for those of you who are familiar with this, in the U.S. we started a program called Habit-of-Health or the 90-Day Challenge. That has been doing very well and we that that's one of the things that is very important to Nature's Sunshine to broaden its appeal to consumers to make this easier for distributors who sign up to be able to talk about products right from the beginning, because it's based on a couple of different packages of products that really, anyone can benefit from taking it. So we're very pleased, so far, with the results we're getting from that.

We have, essentially, 55% on average, for the third quarter of new members that signed up with Nature's Sunshine. Signed up with this challenge. We have about 4300 people who have already completed the challenge. 81% of the participants that sign up for this challenge, complete that. That's really an important number because it's one thing to sign up for a program like this and, you know, that's a very high percentage of people completing it.

So far, we have about 20,000 Habit-of-Health packages have been sold. And we see this program strengthening. And we're still interested this this as well as trying to use this as one of our marketing tools in the U.S. that we even based our training program around that. And we're getting some very good results from our new training program, that is based on that.

Just talk briefly, about our International operations. We have made, you know, a little bit of a - - I guess the best way to refer to this is differentiation between our International subsidiary operations and our Nature's Sunshine subsidiary operations. And we're really trying to focus both areas on their strengths and in the areas where they have the greatest growth potential. And you know, we're - - we're - - we're very pleased with the results. And as Craig read those earlier, in our International Nature's Sunshine business, and so we feel very positive about the things we've been able to accomplish. We're pleased with what we feel has been the progress.

Craig talked a little bit about the SG&A. We know that we've had an issue there we've been trying to work on. And we feel like for the next several years we can continue to improve the SG&A.

Craig mentioned briefly that , you know, we've been able to improve our tax rate as well. And you know overall, we're making progress, and I guess the best way for me to summarize this is to say that we're pleased with the results we have. We think that the combination of Synergy and Nature's Sunshine, that we've come a long way. But we also feel like we have challenges that we need to address and things that we can do to improve what we've been doing.

I guess as we look to the future we feel like there's so much more to accomplish and we're challenged by that and yet, we're excited about what we believe the future will bring. This is a great business to be in when you see the benefit to the lives of, not only distributors and sales leaders, but to the people who use the products and how it improves their lives. This Habit-of-Health has a really helped a lot of people enjoy better health when they thought, really, I'm healthy and I'm doing pretty well. But to see people actually improve their health - - you know, there's just no better business to be in. We're really, really happy with the progress that we've made. We challenged by the future and the things that we think we can accomplish, and we're just happy we've had this opportunity to go through some of the results of operations with you.

And at this time, Lee Ann, I think we'll open it up to anybody that might have a question at this point in time.

Thank you. If you do have a question, please press star followed by 1 on your touch tone telephone at this time. We do ask that if you're using a speaker phone, that you please pick up your hand set while posing your question to provide optimum sound quality. Once again, that is star followed by 1 on your touch tone telephone to ask a question.

Our first question is coming from Scott Krasik of C.L. King. Your line is live, sir.

Hi. Good morning.

Good morning.

Can you give us a little bit better sense of what some of the SG&A initiatives are more in detail, that maybe you thought you would have accomplished by now and you haven't? Or what, sort of, the next round of things to make more efficient are going to be?

Okay. Probably, the biggest single item that is out there, that the greatest impact will come from, is still in our Brazilian operations. There's a lot of little things that we're still working on. Head count and those kinds of things, but the biggest single impact will come through turning our Brazilian operations profitable.

You've been talking about Brazil for a while.

Yes.

And has that slowed down or is there any change in your intentions or beliefs about what you can accomplish there?

The change is that the overhead will be sized for the business. We've continued to try to get the business going again after the governmental intervention down there. And just as recently as last week, there was a group in Brazil to size that business to where it needed to be. It's our intention by the end of the year they will be profitable. Which is a significant improvement, in the millions of dollars. So, that's the biggest single item still out there that we're working on. And my people, as well as the people in international, are very focused on making sure that that happens.

Any specific SG&A initiatives in the U.S. business?

Not ones that I really want to talk about. But there are things where we're maybe changing some qualifications, stretching things out, changing the way people earn different incentives. And so those are the things that are really happening. Focusing on pushing people to place their orders over the internet and there's a lot of different things we see that we can do to make improvements.

Okay. And then, just is there anything in your outlook changed for the fourth quarter, given the all the news on the flu vaccine shortage? Are you pushing more vitamin and flu-related type products for the the fourth quarter and could that be an upside?

We think it would be an upside. Obviously, it's something that we follow very closely. And we believe there are a number of our products that are very effective in helping people get ready for the flu season and, - - not just the vitamins, but we have a number of products we think are very helpful for strengthening the immune system and things like that. Yeah, that is one of the areas that we're focusing on.

Have you, you know, in the last few weeks as this has all come about, have you changed, sort of, directions and really pushed this? Or just, it's just generally - - it's always done in the fourth quarter?

Well we do, you know, focus more on this in the fourth quarter any way. I think you'll see a little bit more intensive effort in marketing some of these products. And we also have a lot of - - some of our sales leaders, particularly our more influential ones start to talk about this any way. This is sort of giving them added incentive to do that because there are a number of products that they like to suggest people take in flu season any way, I think this is giving them more incentive to, you know, promote those products more.

Okay. Thanks very much.

Thank you.

Thank you. Our next question is coming from Ava(ph) Horowitz of Yewman(ph) Capital.

Hi, Doug. Congratulations on a really good quarter.

Thanks.

Okay. I got a few questions. I'll try and make them quick.

First of all, I'm just wondering with the fallout from Merck, with VIOXX and the other inhibitor, I forgot the name of it off-hand, I'm wondering, is this driving any business right now? People looking for alternatives for heart issues?

We think it is. And I think, you know, it's not just the heart issues. Obviously, we have products to support that, healthy heart function and that kind of thing. But we also think - - I think Vioxx and some of these others are also geared towards anti-inflammatory issues as well. We have a number of products that address that. And we do think that that is an opportunity for us. And we are trying to, you know, take advantage of that, to help people, you know, improve their health. We think that it's a good time to promote some of those products as well.

Okay. Can you also talk about Greg Halliday, who you made Vice-President of the U.S. Division? I'm wondering if maybe you could talk about some initiatives he's doing to spur growth or reignite the U.S. business?

He's really doing a number of things. And I don't know how much time I have, but I'm really pleased with Greg and his efforts and enthusiasm that he has for the business.

It's really been a nice transition, as you may know, Ava, to Greg. He has a lot of support both in the office and in the field. You know, Greg tends to look more at incentives and promotions and things like that and, you know, he's really been doing that. He's really been if driving force, even though he will credit, you know, the people that work with him as well, as he should in this habit Habit-of-Health and this 90-Day Challenge. He really is very good at those kinds of things and focuses on that, as well as, he has this initiative that he's been doing, really, for - - oh, I don't know, 6 months or a year, in fact, is doing it right now. He's out in the field visiting various leaders and just kind of reviewing with them how their business is going and whatever. From that, he gets a lot of insight into what some people are doing that is successful and compared to other people and sort of spreading the ideas. He uses that a lot at conventions and places like that, where you can kind of get a larger group to hear what - - what kinds of things are really working.

So, I guess the main thing I would say about him is his enthusiasm for the business, his belief in the business, and the way he works, you know, kind of marketing and sales issues with both sales leaders and the field - - and the employees as well. I know you are probably looking for a longer discourse on that, but I'm really happy with Greg and the things that he's doing.

Okay. Now I know this is significant, there was a 19.5% increase in managers. And that's very meaningful for you guys because the managers are higher level then the distributor?

Right.

So, what does that mean in terms of, I guess, revenues, that we're seeing such a huge increase? I mean, this must have been the largest increase in a long time for managers if I'm correct?

Yeah. We're very pleased with that, Ava, and that's an excellent question. I tried to sort of pinpoint that earlier and say, you know that's one of the key drivers of our business, to have this go up like that is certainly very significant. I think it's also an indication of, you know, growth in our international markets and in particular, in Synergy, because of the growth they've been experiencing in the Asian markets as well as some of the other markets that they're in. But we always look to that number, as you may know, as kind of an indicator of not only how we're growing now, but on into the future. Because that's the probably the primary key of indicator of our growth. So, yeah, we look at that as a very good indicator of how we're going.

Now, do we see any signs on the U.S. business towards the end of the quarter? Was it - - or was the linear basically flat the whole quarter or did you see it actually started to pick up towards the end of the quarter?

No, I saw it pick up. And I mentioned one of the things we were a little bit discouraged by, was - - and unfortunately, we really expressed, you know, our hope for the people who live in Florida, they can survive the constant barrage of these hurricanes, but we kind of had our convention in Orlando, which, I think, brought the attendance down a little bit. We were lucky enough to kind of come in between hurricanes and then, leave before the next one. But, I think that impacted attendance. I think it impacted convention sales. And so at that point, we were a little concerned. But, after convention, the sales started to really strengthen. Which, I think is a very positive sign. If I were to characterize it, I'd say that July looked very good. August was - - tended to be a little weaker. And then September started to really strengthen to the point where, you know, we feel, you know, more optimistic and confident about what we're doing in the U.S.

Okay. I just didn't get the number. How many people are doing this 90-day Habit-of-Health?

Well we have 4,300 that have completed it. We have sold 20,448 Habit-of-Health packages. What we're really trying to do is get more and more people on that. And I think we'll be able to talk a little bit more about that as we see the fourth quarter develop.

Okay. And my final question is: How much cash did you generate this quarter?

I don't have the actual number of cash provided from operations. We actually increased our overall cash about $4 million during the quarter.

Okay. And any word on share repurchase or Dutch tenders or anything to that effect?

Well Ava, as you probably know, we are interested in - - very interested in doing things that will reward our continuing shareholders and I think, we're really at the point where we're looking at the best way to do that. We believe that the stock is under valued at this level. We continue to want to support that. We - - it's one of the issues that we'll be looking at, probably, at our next Board meeting. We're not, at this point, able to announce anything and hopefully, we'll be able to announce something in the near future.

Okay. Doug and Craig, great job, thanks again.

Thank you.

Okay. Thank you. And once again, that is star 1 on your touch tone telephone to ask a question.

Our next question is coming from Mitchell Golden of RH Capital.

Hi, guys, congratulations on the quarter. Couple of questions.

I'm working down the income statement as I try to understand the impact as Synergy becomes more and more of the business. Will the volume incentive continue to increase as a percentage of sales as Synergy grows, as a percentage of the business or will that flatten out?

It will grow slightly. They do have a higher percentage than - - of payout than the U.S. and our International businesses. So, it will continue to go up slightly as it becomes more significant part of the business.

So --

But the S,G - - or the cost of goods sold should decrease slightly. I think the volume incentives will increase a little bit more than the cost of goods sold, but the two should offset them - - offset each other.

Okay. And then, just a little more on the SG&A. You guys have done a terrific job. You took a lot out. Can you help to quantify what more is possible, just in terms of - - you had talked about 10 points of margin on the previous calls and you're almost there. Given that you still- - like you mentioned, you have to fund Synergy, which is growing so quickly, what do you think is your realistic goal at this point?

And Doug mentioned this in the past, that our goal was 10% off of last year's numbers. This quarter, now just so everyone is aware, there is a - - naturally, because of the way our business works, the first half of the year always will have a little bit higher SG&A than the second half of the year. So, that's why I think the year-to-date number is probably more realistic of where we're at. Fourth quarter will be very good in SG&A. But then first and second quarter will go back up a little bit just because of the nature of the way we do our business. So, our goal is, really, to pull, you know, 3% out a year over the next 2 years. After the end of this year to get us down to that 31% or 30% in SG&A.

And we feel that that's realistic given the growth in sales and the controlling of the SG&A that we have in all of our other markets.

Great. And then, just a little more on the Synergy. You guys continue to experience such impressive growth. Given that it's now becoming a big - - I mean, the larger business, can you help quantify what the growth expectations are?

We don't usually make forecasts, Mitch. But, if I could just, on an overall basis, kind of address that. We've been very pleased with the growth there and very excited about what's happening there.

But you followed other multilevel companies and you kind of get a sense of there's sort of this idea of you know, when you get to a kind of a critical mass and I think this is really taking off. And you know it's hard for us to, you know, make projections and that kind of thing. But I really look at it and say, you know this is exciting because, I think this leads to even better growth, you know, in terms of not numbers of people and size of the business and that kind of thing, whether or not the actual percentage will come off a little better or not, you know, it's hard for us to say. Because, again, we don't make those kinds of forecasts. But the exciting thing to us is we think this is kind of the beginning for the growth for Synergy.

Right, thank you.

Thank you.

Our next question is coming from Peter Reed of CL King.

Good morning, guys. Congratulations.

Hey, you mentioned that Thai-Go is now the number one product for the company. Is that a Synergy product as well or is that just in the Nature's Sunshine side?

That's just in the Nature's Sunshine. Thai-Go is the U.S. version of that. International is just getting ready to launch their version of it. It's a little bit different formulation, it's actually a different name, not that that's what was originally planned, it's just kind of that's how it worked out. It's going to be called ZANBROSIA(ph). We're excited about what we think that can do internationally as well. But that will be launched, really, I think here in the next month or 2 in selected markets and then we'll start to get into some of our other international markets. But no, that is a Nature's Sunshine product and that's not in Synergy.

Okay. And now, the - - you mentioned that - - like 4400 people have completed the 90-Day Habit-of-Health program?

Right.

Are you seeing a large percentage of those reup? Is that something you would expect to see?

Yeah, that's what we're interested in looking at. I'm sorry I don't have that yet, and that's why I referred to the fourth quarter. We want to see how many of those sort of start up because it is a 90 day sort of challenge and the people that are completing it, we want to look and see are they going to reup for it.

Really, more importantly, will they, you know, begin to recruit other distributors with this Habit-of-Health we're driving at and hope to be able to talk better to that in the fourth quarter. Exciting thing I guess I mentioned before, is we have over 20,000 of those packages already sold. So it seems to have some real good traction.

And are you planning on kind of using this challenge for selling other products as well or this kind of specific to this particular product?

I think we kind of picked a group of products and there are a couple of different packages already. There's a couple of different Habit-of-Health packages that we have, there's like 3 of them that we have out there. I don't think we want to branch out on to something else, yet. Not even sure if that's something we want to do even down the road, because we want to get this to the point where all distributors understand these products and talk to about them, whether they just signed up today or whether they've been a distributor for a while. So we're trying to simplify it and broaden the appeal to as many consumers as possible.

Okay. And just clarification, you said you expect the full year tax rate to be 26%?

Yeah. Around 26%, yes.

Okay. So that implies the forward quarter is again at, kind of a 33% run rate or there about?

Yes. There about.

Okay, great. Alright, well thank you very much.

Thank you, Peter.

Okay. Thank you. Our next question is coming from Scott Hood of First Wilshire.

Yes, hi, this is Bill Katin(ph) for Scott Hood. Great quarter.

Thanks, Bill.

I have a just couple of questions. On the - - what are your guy's plans of - - do you have plans of going into India and also, what's the current status with China with the retail fronts versus doing multilevels and is that market opening up a little bit more? And then also, is there any analyst coverage?

Well, Greg - - I don't want to talk about the analyst version.

At this point we don't have any coverage. There are people who have - - we've talked to and those kind of things, but at this point, it is published out there, there's nothing.

Okay.

Let me talk briefly about those markets. We kind of have, maybe this isn't a good reference, kind of a tiger by the tail with some of the markets that Synergy is in. We sort of stated that Synergy will be, you know, primarily in the Asian market. And we have kind of looked at India, off and on. We're not prepared to enter that market at this point in time. It is one of the markets that we are looking at. But I can't tell you that we're looking at entering there this year or even next year.

China is a very interesting market to us. We've kind of followed the developments of a number of other multilevel companies that have gone in there and, you know, they've kind of - - some of them have done very well and others have done well and then kind of struggled. You know, we're very interested in China. We're not - - I don't think we're at the point where we're ready to go in there. We have so much opportunity with the markets we're already in with both Nature's Sunshine and Synergy. I don't know that that is very imminent or on the horizon but it's certainly a market we're very interested in. We're kind of concerned about the retail aspect of it because we'd like to go in and, obviously, it's not possible at this point as a multilevel company we're sort of debating the merits back and forth of that. But we're not ready to enter China, at least, at this point.

Okay. Thank you.

Thank you.

Thank you. And once again, that's star 1 on your touch tone telephone to ask a question.

We have a follow-up question coming from Scott Krasik of C.L. King.

Hi. Doug, if you could just sort of characterize and grade our level of drug scares. When we look at Empro (ph)- - and the issues with hormone replacement therapy last year, and compare that to Vioxx and Merck this year, do you expect a bigger sort of move towards the joint care and anti-inflammatory products you have than you know what you saw with soy products and things, when that all went down?

You know, I have to tell you. It's not going to be a real sophisticated answer. But, yeah, I have a sense or a feeling that we're probably going to get more from this then we did from the hormone replacement therapy.

Not to say that we didn't benefit from that and we weren't tuned into it, because we were. And we had, obviously, products we were offering the consumers and things when that became an issue. I just think this one just seems like more and more people are concerned about, as you said, the inflammatory and joint problems and things like that, as well as the heart issues and that kind of thing. I just - - my sense is, I think this is probably going to be a bigger deal.

What's your leading product in that category?

We had a number of products that really are good as far as anti-inflammatory and joint health. As far as the joint health product. We have a product called Everflex that is an excellent joint product, I can speak from experience on that one. As far as anti-inflammatories we have a number of those, I'll just mention a couple of really the top products. We have a product called Nature's Noni. Morinda Citifolia is what that product is. And that is really good for - - as an anti-inflammatory. It helps with joint health and that as well as Thai-Go is also helpful in that regard. So, we have a lot of top-selling products that really address those issues and we hope to see some benefit from that - - and we want to promote those products as well.

Because there are a lot of natural sort of alternatives than the drugstore shelves and supermarket shelves that get pretty good press. I mean, can the Everflex - - does that have a meaningful, you know, overall position in the category or you know, can it?

Yeah, it does. It is - - I'm sorry I don't have it in front of me right now, but as I recall, it's like a top-ten product for us. And it has an interesting blend. It has, obviously, the glucosamine chondroitin in it as well as MSM but it also has an herb called Devil's Claw that is very good as far as an anti-inflammatory. And again, I mentioned that I can speak from experience, that one - - that one helps me a lot. I think that that's going to do very well in this environment. Okay, thanks.

Thank you.

Thank you. And as a final reminder, that is star 1 on your touch tone telephone to ask a question.

We do have a follow-up question coming from Peter Reed of C.L. King.

Yeah. I asked this question last quarter and I think the answer answer was yes. Synergy was profitable I imagine? It was profitable last quarter as well, that's true?

That's correct.

And is it proportional to the - - or more so to the revenue growth you're showing? I mean I guess you must be above some kind of threshold level where the incremental revenues are proving to be nicely profitable. Is that fair to say?

That's fair to say.

Okay. Is it - - is this a question I can ask? Your corporate operating margin was 8.1%. Is Synergy running near or above or below that level?

Synergy is probably about the same. It's real close to that.

Okay. Very good. Thank you.

Thank you.

Thank you, at this time, we have no further questions. Are there any closing comments?

Yeah. I just wanted to add, we appreciate those that listened in. Again, I want to express appreciation for efforts and contributions of our sales leaders and distributors and our employees that are really making an effort to take us to that next level. And, you know, we're very pleased with this quarter and the results of operations. And I guess, we're even more encouraged and optimistic about the future and look forward to, you know, continued opportunities to talk to you again about Nature's Sunshine. We appreciate our - - our shareholders and their loyalty and interest in the Company. We look forward to the next time we have to cover our results of operations with you. Thank you, and good day.

Thank you all for your participation. This does conclude your teleconference. You may disconnect your lines at this time.