Nature's Sunshine Products Inc (NATR) 2014 Q1 法說會逐字稿

Greetings. Welcome to the Nature's Sunshine Products first-quarter 2014 earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Richard Strulson, General Counsel for Nature's Sunshine Products. Thank you Mr. Strulson, you may begin.

Thank you. Good afternoon, everyone, and thanks to all of you for joining our conference call to discuss our first-quarter 2014 financial results.

This call is available for replay and a live webcast that we posted on our website at www.naturessunshine.com in the Investors section.

With us today are Greg Probert, Chairman and CEO, Wynne Roberts, President and COO, and Steve Bunker, Executive Vice President, CFO, and Treasurer.

The press release which was issued this afternoon at approximately 4 p.m. Eastern time and the information on this call contain certain forward-looking statements which are based on a number of assumptions that are subject to change and involve known and unknown risks, uncertainties, or other factors which may not be under the Company's control. Forward-looking statements may cause the actual results, performance or achievement of the Company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include but are not limited to those factors disclosed in the Company's annual report on Form 10-K under the caption Risk Factors and other reports filed with the Securities and Exchange Commission. The press release and the information on this call speak only as of today's date and the Company disclaims any duty to update the information provided herein and therein.

I will now turn the call over to Greg Probert, Chairman and CEO of Nature's Sunshine Products.

Thanks, Rich, and good afternoon everybody. Thank you for joining us today.

Kicking things off, 2014 is off to a strong start with record-setting sales at Synergy Worldwide and continued progress in implementing growth initiatives across our NSP businesses. Our success in Synergy Worldwide was led by South Korea through a combination of product programs and promotions as well as through our global convention. Offsetting this growth, after a strong start to the year in January, the geopolitical situation in Russia and Ukraine caused a substantial decline in sales in February and March. Within NSP North America, we made significant strides repositioning this business for growth with new products and programs, distributor engagement tools and more effective operations. More on this to come, but first I'll recap a few financial highlights for the quarter.

Continued growth in Synergy Worldwide was partially offset by declines across our industry lines of business, resulting in a slight 0.3% increase in net sales revenue on a local currency basis. More importantly, we continue to drive positive momentum in both our synergy and NSP businesses.

Synergy Worldwide delivered its third consecutive record-setting sales quarter and Q1 also marked the return to growth for Synergy Japan following our decision to merge our Japanese Synergy and NSP businesses at the start of the year.

With respect to NSP Russia, Central and Eastern Europe, despite a robust start to the year with double-digit sales growth in January, the political unrest in Russia and Ukraine severely impacted overall performance in the quarter. Despite the anticipated severity of the situation, we remain committed to our presence in this region and in fact we made several advancements in the quarter to support our position in the region. Most notably, we entered into a new long-term contract with our Russian general dealer. We are confident that our partnership will provide a strong foundation for future growth in these markets once the political situation stabilizes.

We are monitoring the situation extremely closely but maintaining our focus on the long-term. We remain committed to the region and to our distributors who have proven themselves to be extremely resilient through similar periods of political and economic uncertainty. While others seem to pulling back, we are leaning in and are confident that our newly renew distributor relationship will better position us for profitable growth in the region over the long-term.

Within NSP North America, we made significant strides repositioning the business for growth with new products and programs, distributor engagement tools, and more efficient operations. Our new patent pending situational anxiety product, AnxiousLess, which launched just six months ago has been so well received by distributors and customers alike that it is already one of our 10 best selling products. AnxiousLess epitomizes our new product development strategy which leverages science-based innovation, intellectual property that solves megatrend health problems.

The first quarter also marked the full launch of our IN.FORM weight management system at our US annual convention in March. The excitement among distributors to achieve certification under this program has been truly exceptional, and as of today, we've certified over 300 life coaches with an additional 400 certifications slated for this quarter. The duplication effort has also been very positive with IN.FORM proven to be a powerful recruiting tool which should continue to see accelerated adoption among our distributor base. And lastly, we have seen encouraging results from the October launch of our retail productivity tools.

Benefiting from cost savings and operational efficiency initiatives, operating income for the quarter improved over the prior year, both in terms of absolute dollars as a percentage of sales to $7.2 million or 7.5% of net sales revenue. We ended the quarter with approximately $490,000 in cash flow from operations and $71.5 million in cash and cash equivalents with little debt. And yesterday, the board of directors approved a $0.10 per share regular quarterly cash dividend. Due to a mandated blackout period beginning mid December through today, we didn't repurchase any shares during the quarter. We still have $7.5 million available under our share repurchase program. We're thrilled that our solid financial position and confidence in our growth prospects enable us to return excess capital to shareholders through our dividend and share repurchase programs while continuing to fund our strategic investments. Along these lines, investments in our growth initiatives will continue to be a prevailing theme throughout 2014.

R&D remains a top priority and leveraging science-based innovative IP to solve mega-health trend problems will continue to form the basis of our product development strategy going forward. Our investment in clinically researched product offerings will ensure that Nature's Sunshine continues to be an industry leader as people worldwide take an ever greater responsibility for their health and well-being.

AnxiousLess, as I briefly touched upon, is our first such proof of concept as well as our number one recruiting product. Reaction has been incredibly positive with repurchase rates of 80%. Probably more than 90% of our sales leaders have purchased this product. And what's particularly encouraging about our investment in product development has been the rate at which we are realizing return on our investment. In just five months since its launch, AnxiousLess has achieved patent pending status and has topped over $1 million in sales.

Most recently, at our US convention in March, we launched our new us product, Equolibrium, developed to support healthy prostate function. What makes Equolibrium unique is it?s the only prostate product on the market to contain the unique molecule Equol. Equol is a powerful antioxidant that supports a prostate through a multifaceted approach. Namely, it binds directly to the enzyme DHT and in doing so protects the prostate without triggering side effects that could be caused by other enzyme blocking products. While early in the launch, the response to Equolibrium has also been very, very positive.

We'll continue to be aggressive, to aggressively implement our new and innovative scientific-driven product development strategy, including ongoing investment in R&D, personnel, equipment and labs.

Our medical and scientific advisory board created to serve as a resource to our Chief Scientific Officer, Dr. Matthew Tripp, continues to grow with the addition of nationally renowned and Emmy award-winning physician Dr. Luis Pacheco. As announced in March, Dr. Pacheco will educate and train NSP distributors, assist with product development, and speak at various company functions.

We're also excited to announce in the next few months we will begin construction of a new $2 million vertically integrated research and development center at our corporate headquarters in Lehi. This state-of-the-art facility will house a chemistry and molecular biology lab and clinic. The center of excellence will serve as home base for our team of world-renowned and award-winning researchers doing scientific research and product development. This in turn provides us with the capability to control the entire product development lifecycle from early proof of concept through ingredient formulation to in-house medical studies that prove efficacy. Work on the facility should be completed by year-end.

As evident by our investments, scientific research will continue to form the backbone of our product develop strategy. We are committed to the development of our own unique intellectual property to create innovative, differentiated products that we believe enable us to not only realize distinct first mover advantages but also more broadly position us as a science-based health, nutrition, and lifestyle company.

In addition to our investment in science, we are concurrently investing in our go-to-market strategies. Jeffrey Ten has recently been brought on board as our Vice President of New Markets and Channel Development to lead our efforts in expanding NSP's presence in global markets.

Specifically over the next several months and quarters, we will be evaluating on a market by market basis our market entry strategy where we pursue multiple brands, multiple channels or a combination of both. As part of this effort, we will also be evaluating alternative sales channel strategies and a purchase to sell NSP products in selected markets around the world. New product development and our broader evolution to a science-based health nutritional lifestyle company will dovetail closely with this effort.

Also aligned with our product development and distribution strategy is our increasing focus on efficiency and manufacturing in operations. In the past 18 months, we've made terrific strides in this area, implementing lean principles, instituting strategic sourcing initiatives and driving efficiencies in distribution. These efforts have already resulted in a 1% to 2% reduction in our cost sales, the effect of which was reflected in our operating income margin for this quarter.

In closing, we are feeling great about our start to the year. We have built up the momentum established in 2013 and have a robust strategy focused on new product innovation, distributor recruiting, engagement and global expansion. The team in place has never been stronger and we remain laser focused on delivering against our strategic operational and financial plans. In doing so, we are confident in our ability to deliver increased shareholder value over the long term.

With that I'll turn the call over to Wynne to comment further on our operations.

Thank you, Greg, and good afternoon everybody. To reiterate, we were pleased with our first-quarter net sales growth of 0.3% on a local currency basis, particularly given the turbulence experienced in Russia Ukraine during the quarter. Net sales growth was fueled by record sales at Synergy which more than offset the declines experienced across our NSP businesses.

In NSP Americas, net sales were $50.7 million, or 53% of total company sales. In local currencies, segment net sales decreased by 3.1% from the same quarter a year ago. Relative strength experienced in Latin America, in particular Venezuela, was offset by a decline in the US. Also impacting year-over-year comparability for this business unit was the consolidation of our NSP Japan business into our synergy Japan business on January 1 of this year. For the first quarter of 2013, we had recorded revenue of $0.9 million for NSP Japan.

NSP US, which remains our largest market at 39% of total company sales, reported a net sales decline of 3.7%. While weather undoubtedly impacted retailers and consultants in certain states, it is difficult to quantify the full impact. As we have stated previously, we are building towards a sustainable return to growth in our US business. We are continuing with targeted investments in sales and marketing personnel for launch of new products, including the strengthening of our weight management category, coupled with sales and marketing support programs and materials. While it will take time for these programs to make a sustainable impact on sales, we are encouraged by the early adoption by our distributors and customers alike.

We have been focused on building products and programs that make it easier for our managers to attract new customers and distributors to Nature's Sunshine. AnxiousLess, our situational anxiety product, achieved $0.6 million sales for the quarter, and penetration into our distributor base continues to build, exceeding 60% amongst managers and 9% amongst members. AnxiousLess is proving to be a popular introductory product for our sales leaders with most customers feeling the positive benefits of the product in less than one hour. Our announcement during the quarter of our patent application together with our sampling program has further helped sales of this product.

Adding to this new product momentum was the quarter end launch of our new prostate health product, Equolibrium. This unique formulation, which contains the clinically researched ingredient Equol, has already achieved penetration of 20% amongst our manager base and sales of $0.2 million to date. Further, our weight management category continues to gain momentum in the US with first-quarter sales increasing 13% year-over-year.

Turning to our sales programs, on our last call, we discussed NSP's transformational habit of health, our overall approach to achieving a healthy lifestyle. And as part of that, we were introducing IN.FORM, a new weight management program which was fully launched at our US national convention at the end of March. We now have over 400 managers trained to run this program with an additional 300 scheduled by the end of June. We are already seeing this program attract new members to NSP and we plan to provide continued support through field meetings, webinars and early success stories to build further momentum.

Additionally, we are seeing encouraging results from the October launch of our retail productivity tools in the US aimed at our distributors that operate natural products specialty stores as part of their businesses. We have seen a corresponding sales lift among these stores that have begun adopting the tools. We expect to build on this positive momentum with field testing of local media campaigns to drive store traffic.

Finally, with the goal of enabling ease-of-use for our managers and distributors to build their businesses, we launched our new corporate website during the quarter. The new NaturesSunshine.com incorporates a new updated brand design and an overall improved shopping experience with enhanced search features and checkout times reduced by over 50%.

As is evident, we are encouraged by the early positive indicators of distributor engagement and take-up of our new products and programs. Admittedly, however, our enthusiasm is not yet reflected in our financial performance. We would expect continued variability in our performance in the coming months as we build towards a more sustainable recovery.

Moving on to discuss Venezuela, which contributed positively to our performance in the NSP segment, first-quarter net sales revenues increased by nearly 20% in local currency. In addition to increased manager and distributor activity in Venezuela, the increase in local currency net sales benefited from price increases designed to offset the inflationary environment. In Mexico, following a very strong fourth quarter supported by strong promotions, sales were flat in the first quarter of 2014.

Net sales in NSP Russia, Central and Eastern Europe were $15 million in the quarter or 16% of total company sales. Segment net sales decreased 6.8% over the prior-year quarter. Following continued growth and momentum in January, sales fell significantly in February and March as political unrest escalated. Distributor activity was substantially disrupted in the Ukraine with Russia and Belarus also affected, although to a lesser extent.

On a positive note, as announced in our press release last week, we have agreed to a new three-year contract with our general dealer in Russia, our local partner in that region, extending our long-standing partnership. This commitment supersedes our prior contract and includes full resolution of the disclosed dispute. The contract provides for a sliding scale fee base payable to our general dealer which is tied directly to sales. The initial fee base has been increased but reduces incrementally over time as sales grow.

As many of you know, we have operated in this region for 15 years and our renewed contract is indicative of our commitment to these markets. Further, our local partner has supported our 200 strong dealer center distribution network and our 260,000 distributors in this region since 1999. And we are confident that our continued partnership will provide a solid foundation for growth in this market.

Two weeks ago in Amsterdam, together with our business unit president for Russia, Central and Eastern Europe, I met with our top distributors from the region as well as our general dealer to discuss potential tactical actions that will support our business in this uncertain time, and we are working through those plans right now. Although the momentum for our business in Russia has been hindered due to the political situation, we are confident that we will be able to work with our local partner to continue to support our ground force and to rebound once the political uncertainty stabilizes. However, it is impossible at this time to predict the timing of that.

Turning to the Synergy Worldwide business unit, the first quarter marked its third consecutive record-setting sales quarter with total net sales of $30 million, representing 31% of total company sales and a growth of 11 .1% in local currencies. Net sales growth was led by strength in South Korea and Japan, partially offset by declines in Europe and North America. Synergy Asia reported net sales growth of 31.5%, driven by South Korea and Japan. In South Korea, sales momentum continued to build around a combination of product programs and promotions, including our Slim Smart weight management program as well as our global convention.

In Japan, cross-training our distributors on both synergy and NSP products has taken place following the merger and new member distributor engagement programs continue to take hold. As is evident, our decision to merge NSP Japan and Synergy Japan businesses at the start of the year has led to positive results. In addition to providing a stable platform for growth, we expect this transition will yield significant operating efficiencies going forward.

Turning to Synergy Europe, total first-quarter net sales decreased 18.6% year-over-year in local currency. Excluding the $1.4 million favorable impact in Q1 2013 following the successful lifting of the temporary shipping restrictions imposed in Q4 2012 by the Norwegian Food Authority, sales in the first quarter declined 4%. Softness in Scandinavia and Central Europe in general were partially offset by growth in Finland, Poland, and Italy since its opening in December.

The sales in Europe are being addressed by a series of trainings and promotions leading to our European summit to be held in Barcelona in September, at which time we will also launch our Slim Smart program for Europe.

North America continued its downward trend in the quarter with net sales declining from the prior year period, albeit at slowing rates. In February in the US, to address this situation, we launched new product training around our Slim Smart weight management range, new customer and distributor engagement promotions, and increased the number of meetings around the country. And we expect these initiatives to gradually return the North American market to growth over time.

In regard to Synergy's net sales by product category, we have been seeing a continued shift in sales from cardiovascular products to weight management and other general health products, primarily due to the adoption of the Slim Smart weight management line which allows for us to target an even broader customer base and demographic.

In summary, the first quarter as a whole reflected positive momentum in a number of key elements of our core business despite negative headwinds experienced in Ukraine. We are encouraged by the early adoption and impact of investments we've made through the reorganization of our business units, and we are continuing to make strategic investments where warranted to enhance our overall distributor engagement and product innovation through our multibrand multichannel approach.

Now, I would like to turn the call over to Steve to review the financials.

Thanks Wynne. Good afternoon everyone.

Net sales in the quarter were $95.8 million, down slightly, or 0.8%, from $96.5 million in the same quarter last year. On a local currency basis, net sales increased 0.3% year-over-year. Cost of sales was $23.1 million, down 5.5% from $24.4 million in the year-ago period. The slight net sales decline was more than offset by the decrease in cost of sales resulting in a 120 basis point improvement in gross margin to 75.9% versus 74.7% in the year-ago period.

This marks our third consecutive quarter of sequential margin improvement. As we have explained previously, volume incentives are a significant part of our network marketing program and are designed to provide incentive to reach higher product sales levels. Volume incentives vary slightly on a percentage basis by product due to pricing policies and commission plans in place and by the sales mix in our various markets. Volume incentives accounted for 37.3% of net sales in the first quarter, up 1% from 36.3% of net sales relative in the same period a year ago.

Selling, general, and administrative expenses were $29.8 million, or 31.1% of net sales, down 1.2% from $30.1 million, or 31.2% of net sales, in the same period a year ago. Selling, general, and administrative expenses decreased due to $1.4 million of one-time severance costs and the acceleration of stock option expense incurred related to the resignation of our former chief executive officer that were occurred in 2013, which were partially offset by $1 million of increased compensation, health insurance and other benefit costs as a result of our incremental investment in sales, marketing, science, and product development personnel and programs in 2014. As a result, operating income increased 3.3% to $7.2 million, or 7.5% of net sales, from $6.9 million or 7.2% of net sales in the prior-year period.

Adjusted EBITDA as defined in our earnings press release to exclude share-based compensation expense increased 3.5% to $9.5 million from $9.2 million in the same quarter a year ago. During the quarter, the Company remeasured its assets and liabilities in Venezuela at the higher official foreign-exchange rate of VEF11.3 to the US dollar, which resulted in a foreign exchange loss of $845,000. Going forward, the Company reported its results at the higher official exchange rate of VEF11.3 to the US dollar. The Company previously measured its results at the lower official foreign-exchange rate of VEF6.3 to the US dollar.

The effective income tax rate from the first quarter of 2014 was a tax benefit of 59.6% compared to a tax provision of 33.1% in the first quarter of 2013. The current quarter's effective tax rate was below the US federal statutory tax rate of 35%, which is primarily attributable to the foreign tax credit benefits related to intercompany dividends offset by adjustments to foreign valuation allowances and an increase in tax liabilities associated with uncertain tax positions.

Net income for the quarter was $9.7 million, or $0.58 per diluted share, as compared to $4.9 million or $0.30 per diluted share in the year-ago period.

Moving to the balance sheet, cash and cash equivalents as of March 31 were $71.5 million, down from $77.2 million at December 31, 2013. The lower cash balance reflects approximately $4.6 million in capital expenditures, and a pay down on a revolving credit facility of $847,000. In addition, we repatriated $21.5 million of foreign cash in the quarter through intercompany dividends.

Inventory at March 31 was down just slightly from December 31, 2013, and we have $145 million in current assets with access to $15 million on our $25 million revolving credit facility as of quarter end. Given our strong balance sheet and consistent operating cash flow, our Board of Directors approved our regular quarter cash dividend of $0.10 per share payable on June 2, 2014 to shareholders of record as of the close of business on May 21, 2014. The Company did not repurchase any shares of its common stock under the share repurchase program during the quarter. Therefore, as of March 31, we had $7.5 million remaining available for purchases. The regular quarterly dividend, combined with our share repurchase program, represents the Company's strong cash flow and healthy quarter-end cash balance, the Board's commitment to return capital to our shareholders and our confidence in the long-term growth prospects of the business.

We will fund a regular dividend and share repurchase program through available cash on hand, future cash flows from operations, and borrowings under the revolving credit facility. Our ample capital capacity enables us to continue to make long-term investments in sales, marketing, science, product development initiatives, and overall operations, as well as to pursue strategic opportunities as they may arise. As always, we remain focused on maximizing the Company's return on invested capital.

That concludes our prepared remarks. Operator, please open up the call for questions.

(Operator Instructions). Brian Hollenden, Sidoti and Company.

Good afternoon, guys, and thanks for taking my call. You repatriated $21.5 million in foreign cash, yet overall companywide, Nature's Sunshine had a tax benefit of $3.6 million. Can you walk us through that a little bit closer?

Yes. With respect to the repatriation of cash, we have set up a business structure from an international standpoint that allows us to efficiently manage our international operations. Through that process, we were able to free up some foreign tax credits that previously had a valuation allowance applied to them. As a result, we were able to repatriate the cash, and the result of that was a tax benefit on our financial statements in this quarter.

Okay, great. And then switching directions a little bit, companywide, the Company's active managers were in headcount down about 6% and active distributors down over a little bit about 3%, yet revenue on a constant currency basis was up 0.3%. Overall, was that due to pricing, or was it more due to a shift in mix? Can you just talk about that?

I'll take that, Brian. It's really around the mix of how our business moves around the business. It wasn't as a result of significant pricing action. So, one of the -- for example we saw relative declines in Southeast Asia and Indonesia and Thailand, which has, in terms of number of distributors, significantly in the Synergy business, was proportionately more than the value of the business decline, because their average order size and so on and average productivity is much lower than the rest of the business.

In the NSP business, we saw part of the drop in the NSP business was the fact that we no longer had NSP distributors in Japan, and that accounted for nearly a 1000 drop for example. So it really -- it's a complex response because it's partly due to mix. It depends from business unit to business unit, as well as depends on the region of the world, the momentum of our business and the average productivity of the distributors in those parts of the world. So, not a very clear answer, I'm afraid, but there's a lot of moving parts to be able to give you a definitive response on that.

Okay. And then switching up with just one last question and then I'll get back into the queue. Can you quantify for us a little bit on a monthly basis the impact of the situation in Ukraine had on topline?

I can tell you Ukraine was the biggest impact. Across the board in the quarter, the decline that we saw in Russia, Ukraine, and Belarus was $1.1 million. That was the dip. Now, of that, $1.3 million of the dip was Ukraine, and we saw some positive benefit in the quarter in Belarus and markets like Mongolia and Moldova. So, the Ukraine impact alone was $1.3 million negative. And that accelerated through the quarter, because one of the things we saw in Q1 was that, as a Greg referenced on the call and I referenced in my prepared remarks, we had a double-digit growth in the region in Q1. Sorry, in January, I beg your pardon. And then the dip really started in February and accelerated in March with Ukraine being the biggest impact.

Thanks for taking my questions.

Nelson Obus, Wynnefield Capital.

Hi there. Can you hear me? (technical difficulty) gentleman's question. Shareholders are obviously following the Company, and your attempt in initiatives which seem to be well underway to add a significant component of growth to the Company. So as we monitor this (technical difficulty) attention should we put to the number of distributors and managers on a quarter-to-quarter basis. Can you give us an insight into that? Because sometimes you're tossing off unproductive people and it can be a little confusing. So, is it an important metric for us to keep an eye on going forward?

That's a great question, Nelson because long-term it will be, but we are going through a transition in business methods. And what we will see is where our business methods, for example -- and also a transition in the mix of our business market to market. And so for example you will have seen in Russia and Ukraine and Belarus with the momentum that we have been building for five quarters and into January, the distributor numbers after a period of sustained growth was starting to tie very well with the growth numbers in the business.

In the Synergy business, that's less obvious because we've seen a change in the mix of markets and the average order size in the markets. So, I think what you will see is, in coming quarters, those numbers in Synergy will become more indicative as we get more stability in the mix of markets and the average order size.

In the [NSPA] business right now, we are in the early stages of a transition. And you were at our convention. You've seen in more detail many of the programs that we launched. And I think we are still going through a change as distributors adopt the new business methods right now and start to experience success with them. So, I still think it will be a couple of quarters at least before we see a correlation in distributor numbers and revenue numbers.

That's wonderful. Just a quick follow-up mini-question for Steve. If you read the press release (technical difficulty) obviously you gave us some -- a lot of noise in the quarter but there were some clear benchmarks you provided in regard to operating income as well as EBITDA. You didn't do that in terms of earnings-per-share. Is that because that calculation would just be too complicated to put in there?

I'm not sure I understand the question, Nelson.

The operating income was the operating income. You took -- start with the idea that it was nosy quarter. EBITDA was EBITDA and the operating income was the operating income, but sometimes when there's a lot of noise, companies are able to provide an earnings number as well as if the noise wasn't in there, earnings-per-share number. And I saw that was lacking, and I just wondered was that -- this is a little nitty -- but was it just because it's too complicated in terms of all the noise that took place in the quarter? Do you understand the question?

Certainly, we had some of the operating income which was up over the year-ago period a year ago, that was a positive. But we then had the Venezuela situation, which was a one-time expense in other income of about $845,000 and the tax benefit. So, it's something that we could quantify. We just haven't -- we just didn't do that in the release.

I'm not sure (technical difficulty) necessary because you have the other benchmarks, but I just thought I would ask about it. Hopefully, in future quarters, you won't have as much noise. Thanks.

Gregg Hillman, First Wilshire.

Hi, good afternoon. First of all, can you talk about access lift in terms of its ability to pull new distributors into the Company that have never really been involved with Nature's before? And what is your take on that?

I think the take is, as we talked about I think a little bit last quarter, is a couple of things. One, it is a very unique product that you can't get anywhere else. I Think that gives our distributors something very interesting to talk about. It's a feel product, so you take it and you can feel the effects fairly rapidly, generally within 30 minutes after you take it. So, again, those type of products generally do a lot better as recruiting products.

And I think also it's interesting just to talk about I think where NSP is going in terms of science space, innovative products that have clinicals behind them and strong science behind them. So I think it's sort of the first product like that that we have given since Matt Tripp joined us as our chief scientific officer. So I think just a combination of all those things.

And I think the real proof is to me that not only is it a great recruiting tool but the fact that we have an 80% repurchase rate that we penetrate at 90-plus% of our manager base. It's not getting the first sale. To me, it's always getting the second sale that's important. So, I think the fact that you get that second sale is what drives success stories and that makes it easier to recruit the next round.

Okay, that's good. I noticed that product, GNC Lumiday I think it's being advertized on the radio out here in Los Angeles. They say it's their largest selling mood enhancing product now, which is I guess analogous to AnxiousLess but it seems to have more St. John's wort and other stuff in it.

I think the actives are different, obviously.

I think I imagine Axe is a better product or that's what I'm supposing anyways.

I would have to agree with you.

Okay. The other thing I wanted to ask you about was Mexico. I know that was supposed to be a target for growth. What's going on in Mexico right now?

So, I think one of the things we've said in the last couple of earnings calls was that we had, as we went into 2013, we were following several years of decline and that the recovery in Mexico was going to be a while before it was sustainable in terms of double-digit growth.

We saw a return to flat in the second quarter. We saw 7% growth in the third quarter. I think it was 25% in Q4. And what we had done a huge amount last year to launch a new weight management program, new Solstic Energy program, both of which were used for recruiting. And we also, if you like, significantly enhanced the promotional dollars that we had put into Mexico to re-kickstart the country and demonstrate our commitment to the country.

So now as we sort of ease back, in Q4, there was a lot of promotion around a vacation prize as well as a convention. So, as we ease back into normal business momentum now, it's not surprising to me that we see a little bit more of a flattening of the business for a while. And I expect to still see some bumps in Mexico before we get to that sustained level. We had a pretty sustained period of weak results there and we are going to see a few bumps before we have sustained growth there.

Did you ever say publicly what the sales level was in Mexico, or is it something that's --

What, sorry?

What were the sales level? How important Mexico is or is that proprietary?

We have not disclosed the level of Mexico sales, just the business unit sales. So, that's not been something that we have disclosed at this point.

But suffice it to say the overall levels are not significant in the overall performance of the Company at this stage. We think the potential in Mexico can be very significant, but the overall levels are not significant right now.

Okay. And then finally, just on Synergy, do you think there is a chance that could really accelerate and go up to like become a 20% grower again, Synergy, or do you think we will stay in the low teens single-digit growth?

Obviously, Gregg, we are aiming to build it to a very strong and higher growth momentum than it is today. I think one of the challenges with any business, as you know, in the sector is that we want to build sustained growth in a number of markets to be able to deliver the levels you are talking about. And that's what we are working towards. We do believe it is feasible to do that, and we have very high expectations for the Synergy business. But I won't predict at this stage when we will get to that level.

Okay. Thanks very much.

Alec Jaslow, Midtown Partners.

Hey guys. My question was about some of the weakness in the US and Japan. If you could possibly give us some color, why some of the reasons you're having trouble there, and maybe the strategy to improve that going forward.

So let's start with Japan. We operated two businesses in Japan until January 1 this year. We operated NSP Japan, which was a relatively small business, and we operated Synergy Japan. Both businesses had been in decline for some time, and we were actually losing -- operating -- running an operating loss there. So as part of our strategic plan last year and as part of our operating plan for 2014, we developed a plan to merge those two entities to operate under the banner of Synergy Worldwide. So, we have now one entity operating in Japan under the banner of Synergy.

That did two things for us. It enabled us to consolidate obviously to yield operating efficiencies, but it also enabled us to have a business model in Japan that was consistent with our business model for the rest of Asia, which several years ago were a result of a merger between the Synergy and NSP Japan businesses.

And I think what we have seen just in the first quarter alone, as reported in the Synergy comments earlier that I made, that we have seen Japan in the first quarter return to growth. There has been a very well-executed integration of the two businesses, and we are starting to see the market return to moderate growth right now. So, that's the Japan business.

Okay.

Relative to -- I'll talk about NSP US primarily, which is obviously a large business unit for us.

Yes.

We are not -- our business in NSP US is not a typical network marketing business. It's a business that our typical distributor, which we call managers, are either passionate or expert, product experts, in the natural health field. They operate largely in a one to one consultancy type of mode with customers, and have been much more focused actually on product sales rather than business building.

So, also, we had a scenario where with one of our strengths, which is our board product line, in the one-to-one consultancy that they are operating as experts in the field. That made it more challenging to attract people to the business opportunity because their expertise made it look hard. So, it provided for the strength for us as well is it provided a very profitable stable business. What it did was make it a little bit more challenging to experience the growth that you would expect in a robust network marketing business.

So, over the last 16, 18 months, we have been developing product programs and the three we talked about today, weight management with the IN.FORM -- weight management, AnxiousLess and Equolibrium, amongst others, that are easy to talk to, to talk about and attract new customers with. They are easy to learn. And we developed business methods and sales programs and tools that make it easy to build the business with and for new people to build the business.

So the good news is the stability of the business that we had gave us the time to develop those product programs and tools. And we launched, over the last six or seven months, we've launched the majority of those. Weight management was in March last year, then in October, we launched AnxiousLess at the leaders convention in the US, and we soft launched the IN.FORM weight management business method. In national convention in the US in March this year, we full launched the IN.FORM business method and the retail productivity tools, reaffirmed the IN.FORM business method and the AnxiousLess science and the patent pending on the AnxiousLess, and launched for the first time the Equolibrium prostate health product. So we've gone through a cycle over 16 months put ourselves in a position that we have the basis in place from which to grow. And they have been very enthusiastically received by our distributor base.

Okay, that's helpful. Do you have any -- could you disclose the percentage of weight loss products that make up your revenue, I would be curious because I know it's a big area for a lot of direct selling companies.

Yes we do. We do it in our case. I Think what you would see across the business units is that you will see weight management in Synergy, weight management in NSP, and weight management in Russia is going up.

I talked in my prepared remarks -- one of the issues for us with weight management, if you look at our strategy with weight management, it's not about becoming -- making Synergy or Nature's Sunshine a weight management company. It is about broadening our appeal. So in Synergy, we were primarily a cardiovascular-based business. We now have broadened that to address the other megatrend, obesity, which is connected with cardiovascular and a cause of cardiovascular, so we've got a broader demographic appeal, two linked megatrends and great products that address both.

In the NSP business, we've got the transformational habit of health concept with weight management as a gate -- as an entry gateway into our transformational habit of health, which is the IN.FORM business method around that. And then in Russia, Central and Eastern Europe, we launched weight management again under the transformational habit of health concept. And we are seeing -- it early stages for us, but we are seeing very positive momentum in all three business units in each of those sectors. And you will see in there the Synergy business for example in the K, you'll see that weight management moved in the quarter from $450,000 last year to nearly $2 million this year.

Does that help?

Yes, that's helpful. Thank you.

That concludes today's teleconference. You may disconnect your lines at this time. We thank you for your participation.