Nature's Sunshine Products Inc (NATR) 2014 Q4 法說會逐字稿

Greetings and welcome to the Nature's Sunshine Products fourth-quarter and full-year 2014 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. (Operator Instructions)

I would now like to turn the conference over to your host, Richard Strulson, General Counsel and Chief Compliance Officer of Nature's Sunshine Products. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thanks for joining our conference call to discuss our fourth-quarter and full-year 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, and Steve Bunker, Executive Vice President, CFO, and Treasurer.

Additionally, Wynne Roberts, CEO of Synergy Worldwide, and Paul Noack, President of China and New Markets, will be available for questions during the question and answer portion of this call.

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. These statements are often characterized by terminology such as believe, hope, may, anticipate, expects, will, and other similar expressions. Forward-looking statements are not guarantees of future performance, and the actual results, performance, or achievement of the Company may 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, everyone. 2014 was a year of significant achievement for Nature's Sunshine, as evidenced by the fulfillment of several key milestones, namely our progress towards entering entry into China through our joint venture with Fosun Pharma; a return to growth in our key markets of NSP North America, Synergy Europe, and Synergy Japan; the renewal of our long-standing partnership with our general dealer, Centurion, to manage operations in Russia, Central and Eastern Europe; the introduction of various new successful products including AnxiousLess and Equolibrium; the addition of several world-renowned and award-winning scientists and doctors to our medical and scientific advisory board to facilitate our R&D efforts; the building of our new multibillion-dollar R&D lab, the Hughes Center for Research and Innovation; and the hiring of Paul Noack as President of China and New Markets. Paul is a veteran in building businesses in China and is focused on building a China management team as we prepare to enter this very important market later this year.

Having previously served as managing director of the Asia-Pacific region for Herbalife, Paul has recently recruited our new managing director of China among other key experienced direct selling and consumer products executives. Today we are excited to update you on our ongoing efforts to transform Nature's Sunshine into a multi-brand, multi-channel organization to address megatrend health problems through science-based innovation and to drive distributor adoption, leadership, and engagement across the globe.

But, first, let me begin with some key sales highlights for the year. 2014 net sales of $366 million were down 0.5% on a local currency basis as water declines in NSP Russia, Central and Eastern Europe, outpaced our continued strength in Synergy and NSP North America. Excluding the declines in NSP Russia, Central and Eastern Europe, year-over-year overall revenue growth would have been 3.5% on a local currency basis.

Turning to the Synergy Worldwide business unit, we continue to see sustained momentum in Synergy following last year's global summit. Synergy's fourth-quarter sales represented 35.6% of total Company sales and growth of 13.0% year over year in local currency. Strength was seen in our key markets of South Korea, Japan, and Europe. South Korea and Japan continued their growth, while Europe posted strong fourth-quarter net sales, partially offset by declines in North America.

In local currency, we saw continued growth in South Korea in the quarter, although at 4.3%, a slower pace than in recent quarters. While the market continues to benefit from strong and engaged distributor leadership, as well as strong product positioning supported by the Slim Smart weight management product launch in the fourth quarter of 2013, the pace of new customer and distributor acquisition slowed during the quarter compared to prior quarters. This was due to a change in the usage rules of a local social network service, which our distributors had used effectively to generate new customers and attract new distributors.

Going forward, local management and distributor leaders are working together to transition to alternative distributor and customer attraction methods in order to rebuild the pace of growth.

In Japan, growth of nearly 53% in year-over-year net sales in local currency further reinforced the positive results of the well-executed merger of NSP Japan and Synergy Japan at the beginning of 2014. The return to growth has been supported by a combination of new products, new and reinvigorated distributor leadership, and the introduction of new business methods supported by top distributors from Korea.

In addition, we have been very pleased with our ability to maintain a large percentage of our NSP customers and distributors through the transition, which demonstrates the value of our products and business opportunity in the market.

I also want to touch on the rest of Asia, Indonesia and Taiwan, in particular, which demonstrated impressive growth of 120% and 98% in local currencies, respectively, in a quarter driven primarily by new distributor leadership, as well as by their re-engagement of existing leaders in the region.

Following the return to growth in the third quarter, Synergy Europe delivered robust year-over-year growth of 23.3% in local currencies in the fourth quarter. Growth was seen in all key markets in the region and continues to be supported by the investments made in sales and marketing resources in the second half of 2013.

In addition, sales were boosted by our new product introductions with Slim Smart, health shake, and our E-9 energy drink, both of which were launched in our European summit in Barcelona at the end of September. We look forward to building upon this positive momentum in the quarters to come.

Turning now to NSP Americas, fourth-quarter net sales of $44.2 million represented 51.0% of total Company sales and decreased by [4.4] year over year in local currency. The decline was mainly due to the consolidation of NSP Japan and Synergy Japan at the beginning of 2014, coupled with the transition of the UK to an export market in April 2014. The NSP Americas segment no longer has any business in Japan and Europe.

However, we are very pleased to report that the decline in net sales are partially offset by a second consecutive quarter of growth in NSP US and NSP Canada, both of which posted net sales growth in local currencies of 2.6% and 9.6%, respectively. Our fourth-quarter performance in the US reflects a continuation of our progress made over the past several quarters to restore growth in the business. We saw continued adoption of IN.FORM, which is focused on weight management and building a daily habit of health, retail sales tools, as well as positive impacts from the rebranding and upgrading of our Silver Immune product line in September, our strongest single SKU in the immune product category.

To comment on IN.FORM further, through the end of the fourth quarter, we have certified 735 IN.FORM coaches and saw a 52% increase in weight management product sales in the quarter. As we have seen with the continued adoption of these programs, we have also been able to stimulate our distributors to refocus their efforts on business building using our business opportunity with our I-Inspire incentive program.

Overall, we are pleased with the traction of our new program and program incentives in the US and are following the same strategies for our NSP Canadian market.

That said, it will take some time to see overall momentum continue to develop in these markets for long-term sustainable growth.

In Latin America, net sales declined 13.2% year over year in local currencies to $8.5 million as we face continued headwinds due to changing regulations for product registration. To address this, we are taking steps to transition to the IN.FORM business method and, at the same time, ensure that our resources are in line with this initiative.

Now turning to NSP Russia, Central and Eastern Europe, net sales of $10.6 million represented 12.3% in the total company sales and decreased 37.4% over the prior quarter. The escalation of political unrest and conflict throughout the fourth quarter, together with a substantial further devaluation of the Russian ruble, and Ukrainian Hryvnia, have significantly impacted our fourth-quarter performance, resulting in considerable net sales declines in both Ukraine and Russia, to a lesser extent, other markets across the region.

With regard to the currency devaluation of product pricing in the region is pegged to the US dollar and, therefore, products become more expensive when the local currency declines in value. Throughout this period of instability, we have been focusing our efforts on the retention and engagement of our distributors and customers in the region and continue to show support through additional price and business building promotions.

To date, conditions -- with conditions changing constantly, we have not been able to offset the decline.

As we have witnessed in recent months, the situation is highly unpredictable, and we must caution that sales will continue to be adversely impacted by currency devaluation, as well as continuing political unrest in Ukraine and Russia, and sanctions against Russia. As such, we do not expect net sale declines to reverse in the near future.

That said, we remain fully engaged, which is further enabled and supported by our strong presence on the ground through our local business partner.

Turning now to China and new markets, we are continuing our progress with our multi-brand, multi-channel, go-to-market strategy in China. Fourth-quarter net sales revenue for the segment, which currently only includes our export business, increased 22.0% year over year to $1.0 million and represented approximately 1.1% of total Company sales. The increase in net sales was primarily due to the transition of NSP UK to an export market in 2014.

In past years, the export business was included in NSP Americas businesses. During the fourth quarter, we also converted Peru to an export market. Currently, there are no managers or distributors in the China and new market segment.

Our new president of China and new markets, Paul Noack, is working hard to build the China management team, which includes a new managing director of China and other key experienced direct selling and consumer products executives. We anticipate deploying the first phase of our operating plan in China in late 2015, beginning with the launch of our e-commerce channel in which we plan to launch Nature's Sunshine branded products online through cross-border trade.

In 2016, we will launch our retail and direct selling channels upon successful approval of our direct selling license in the region, which we are very diligently working towards attaining. We are pleased with the progress made to date and are very excited to enter China later this year.

Our medical and scientific advisory board, as I highlighted earlier, we are very excited to welcome four professionals throughout 2014 to our medical and scientific advisory board, which now totals six individuals. We've held our first medical and scientific advisory board meeting during the quarter at our Lehi headquarters, which was highly beneficial. These key individuals will further support our global organization and R&D efforts in educating and training our distributors, assisting with product development, conducting extensive research and clinical studies, and speaking at various company events.

In addition, we are pleased to announce that the Hughes Center for Research and Innovation, our new multimillion dollar R&D center and medical clinic and our corporate headquarters in Lehi, will be opening this month. The Hughes Center will be the cornerstone of our science strategy to create science-based, innovative products and will serve as home base for our team of world-renowned and award-winning scientists and doctors who are doing research and product development.

Lastly, our Oracle ERP implementation continues to progress according to plan with an expected launch date in early 2016. In addition to deploying capital to further our science-based innovation and unify our global infrastructure, we continued our track record in returning excess capital to shareholders.

Today, our Board of Directors approved a $0.10 per share regular quarterly cash dividend. Our regular and special dividends, in combination with our share repurchase program, underscores the confidence our board and management team have in our strategy and our ability to continue to execute on returning capital to shareholders.

With that, I will turn the call over to Steve to review our fourth-quarter financials.

Thanks, Greg, and good afternoon, everyone. Net sales in the quarter were $86.7 million, down 7.1% from $93.3 million in the same quarter last year. On a local currency basis, net sales decreased [4.9%] year over year. As Greg mentioned earlier, net sales revenue growth within Synergy for the fourth quarter of 2014 was offset by declines within NSP Russia, Central and Eastern Europe. Excluding these declines, net sales for the remaining business segments would have increased by 2.4% year over year in local currency.

Cost of sales were $23.5 million, down slightly from $23.6 million in the year ago period. Cost of sales increased as a percentage of net sales in the fourth quarter of 2014 by 1.8% to 27.1% as compared to the same period in the prior year. The increase is due to product promotions, the devaluation of the foreign currencies relative to the US dollar, and increased importation fees related to higher transfer prices within some of our foreign markets.

Gross margin fell 176 basis points to 72.9% compared to 74.7% in the year ago period, primarily as a result of the decline in revenue and the increased cost of sales percentage during the fourth quarter. Volume incentives accounted for 36.6% of net sales in the fourth quarter, down by less than 1% compared to 36.8% of net sales in the same period last year.

As a reminder, 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.

Selling, general, and administrative expenses were $30.6 million, down $2.4 million or 7.2% compared to $33.0 million in the same period a year ago. Selling, general, and administrative expenses as a percent of net sales was relatively flat with the prior year period. The decrease in SG&A was primarily related to a decrease in variable costs in NSP Russia, Central and Eastern Europe, as well as reduced expenses associated with the combination of NSP Japan with Synergy Japan and the transition of NSP United Kingdom to an export market. The reduction in SG&A expenses was partially offset by $1.1 million in startup costs for the China joint venture.

Operating income decreased 64.4% to $0.08 million or 1% of net sales from $2.3 million or 2.5% of net sales in the prior year period. The decrease was primarily due to the net sales revenue decline in addition to an increase in cost of sales as a percentage of net sales, as previously noted.

Adjusted EBITDA as defined in our earnings press release as net income from continuing operations before taxes, depreciation, amortization, and other income, adjusted to exclude share-based compensation expense, decreased 38.7% to $2.6 million in the fourth quarter as compared to $4.3 million in the fourth quarter of 2013. The effective income tax rate for the fourth quarter of 2014 was 26.1% compared to 30% in the fourth quarter of 2013. The current quarter's effective tax rate was lower than the US federal statutory tax rate of 35%, which was primarily attributable to valuation allowance adjustments relating to deferred tax assets.

The effective income tax rate for 2014 was a benefit of 3.9% compared to a provision of 31% in 2013. The current year's effective tax rate was lower than the US federal statutory tax rate of 35%, which is primarily attributable to foreign tax credits arising from intercompany dividends paid by foreign subsidiaries to the US Corporation throughout the year that are expected to be realizable in future periods.

Net income from continuing operations for the quarter was $0.09 million or $0.05 per diluted share as compared to $1.8 million or $0.11 per diluted share in the year ago period.

Negatively impacting our net income was our decision to cease operations in Venezuela in November 2014, due to the difficulties and uncertainties related to import controls, difficulties associating with repatriating cash, and high inflation.

As a result, we incurred a loss from discontinued operations of $5 million or $0.25 per diluted common share in the fourth quarter of 2014.

Moving on to the balance sheet, cash and cash equivalents as of December 31, 2014, were $58.7 million, down from $77.2 million at December 31, 2013. The lower cash balance primarily reflects cash outflows of $35.2 million to pay dividends, $7.5 million to repurchase shares of common stock, and $20.1 million to reinvest in our Oracle ERP implementation. These cash outflows were partially offset by the issuance of 2.9 million shares of common stock to Fosun Pharma, representing aggregate net proceeds of $44.8 million in a private placement transaction.

Inventory levels at December 31 were down 3.5% from December 31, 2013, and we have approximately $121 million in current assets.

As Greg highlighted earlier, our Board of Directors approved a regular quarterly cash dividend of $0.10 per share, payable on March 23 to shareholders of record as of the close of business on March 12.

In December 2014, we completed share repurchases under our previously announced 10 million share repurchase program. We repurchased approximately 319,000 shares of common stock for approximately $4.7 million in the fourth quarter. Our new 20 million share repurchase program went into effect on January 1, 2015. In order to enhance our ability to repurchase shares, we established a 10b5-1 trading plan, which allows us to repurchase shares at times that otherwise might be prevented from doing so under insider-trading laws or because of self-imposed trading blackout periods.

I would now like to turn the call back over to Greg for closing remarks.

Thank you, Steve. In summary, despite the headwinds we experienced and will continue to experience in our NSP Russia, Central and Eastern Europe segment, we were pleased with the significant progress made throughout the year.

2014 marked a return to growth in a number of key markets, including NSP North America, and Synergy Europe, as well as continued strong momentum in Synergy South Korea and Synergy Japan. We remain optimistic on our future growth potential in China, and we are encouraged by improving rates of distributor engagement and adoption of our products and programs in many of our key markets.

With that, I will turn the call over to the operator for any questions.

(Operator Instructions). Brian Hollenden, Sidoti.

Can you talk a little bit more about the 2015 China launch? What are the stages, the timing, and the breakeven? And, around that, if you could talk at all about the revenue forecast or just high level expectations, that would be helpful.

Certainly. This is Paul. I think it is way too early to talk about revenue forecasts. We can certainly talk about the fact that we are putting a world-class team together. We are preparing for launches in three key distribution channels: e-commerce, retail, and indirect selling. And all systems are go at this point. We need to get a little further down the line before we can give any sort of projections.

Okay. Fair enough. And then, is that the order? You mentioned e-commerce by the end of 2015, retail. Would that be early 2016 and then the license for direct selling later in the year?

That is the order we currently have scheduled. Getting the license in China in direct selling is not a perfect science, so we have to go through the process.

Okay. Turning over to Ukraine and Russia, can you elaborate more on your options to keep your distributor base engaged?

First, I think one of the things that we have going for us in Russia and Central and Eastern Europe is that we have a very strong local partner, and we have over 200 distribution points throughout the region.

So one of the things that we have been able to do very effectively, I think, throughout the unrest is to maintain product availability and product accessibility for all our distributors in the region.

The other thing that is always important to do is to maintain visibility throughout the region, not only with the leadership, but with those various distribution points and distributors. I think we held our annual convention and birthday party at the end of September with 4500 distributors in Moscow. And, throughout the fourth quarter, our President of Russia -- our Vice President of Sales in Russia and our third-party partner, Centurion, were all very active in visiting every part of the market -- Kiev, Moscow, the outer lying regions, as well as Belarus. And so that visibility, I think, has been very, very important as well as, obviously, the other forms of communication.

And then, the third piece has been -- we have been very active in running both product and business recruitment promotions through the period and have selected discounted way as far as the product is concerned. The challenge has been throughout the period there has been no stability, and I think the engagements and the visibility has been critical, but without the stability, it has been very tough for those actions to gain any real traction and create the stability that we crave.

Appreciate the color. Can we talk a lot about more about potential future revenue impacts within that division? You know, you expect to see additional decreases, but would they be decelerating -- those decreases?

It is really tough to say at this stage. I think the best way I can illustrate that is, as the currencies devalue, we see strong impact. We had thought we had seen some level of stability by the time we got to late October, early November for the previous few months, and then we saw significant further depreciation and devaluation of the currencies, the ruble and the Hryv, primarily. And so I think until we see stability in the currencies, it will be very tough to see stability in sales at this stage.

Thank you. And then I will just have one more question and I will jump back into the queue. Can you talk a little bit about the $5 million cost exit in Venezuela? I think that compares to about the $600,000 to $800,000 estimate that you gave last quarter. I was just wondering if something came off there, just what happened in the Venezuela exit.

Yes. Good question, Brian. This is Steve. With respect to the cost to exit Venezuela, there was approximately $600,000 to $800,000 of costs in writing off some remaining assets and paying severance. The one item -- the additional balance between that $600,000 to $800,000 and the $5 million was due to writing off the translation gains and losses that had accumulated in the other comprehensive income since we began doing business in Venezuela. And so that $4.3 million, essentially, of that write-off was a non-cash write off, in addition to the cash write-offs that we talked about in the last quarter.

Nelson Obus, Wynnefield.

Boy, the guy from Sidoti took apart most of my questions, which is helpful. I noticed we spent $20 million on the IP systems again this year. Are we in the last inning there, and maybe you could quickly give us a sense of what will that allow us to do that we don't have available now?

Well, certainly, the ERP systems -- or the Oracle ERP implementation is set to go forward in early 2016. We began the implementation in the latter half of 2013, and so we are well down that path. But it is a $35 million to $40 million ERP project and, therefore, we still have spending that will take place as we move forward this year.

So we spent how much so far of the $40 million? We spent $20 million in 2014, right?

We spent $20 million in 2014 and about $3.5 million in 2013.

Okay. So we still have spread between -- well, this year we might spend $15 million to $20 million, right?

So when you used the word implement, I don't think you meant to use implement. Maybe you meant began the program. I mean, you initiated the installation, but you are going to do a full changeover in 2016?

Yes. We won't put the ERP implementation in place until 2016, but we began the process to configure the systems as well as writing the interfaces with other systems. And certainly, that implementation process we will commence with or will be put in place in early 2016.

Well, I am sure I have forgotten more about these systems -- I am sure you have forgotten more about these systems than I know. But I hope you're going to go redundant for a little while. Any system that costs that much money -- well, that may not be true, but I assume you're going to run parallel systems to make everything sure goes well.

We will make sure everything goes well.

And can you just give us a quick nickel tour about what that will enable you to do that you cannot do now?

Sure. From a financial perspective, Nelson, right now, we have disparate financial systems all connected from around the world into Lehi here. It will give us a single financial platform worldwide. So it will give us much better greater visibility into our financial systems and give us much faster access to information as a hosted data.

In addition to that, our manufacturing space, it will give us much greater clarity into the -- which products are profitable and which products are not. We will be able to drill down much faster and give us much more real-time visibility to our inventory in various places around the world. So we will be better able to drive down our inventory, which, as you know, is relatively high.

In the sales space and how it will help us drive sales, I think one of the keys to any organization is understanding where your hotspots, where your successes are happening and why they are happening so you can focus in, drill down, try to replicate good practices around the world. And I think the systems will enable us to have a much better visibility into where we are seeing our successes on a much faster basis and enable us to be more effective in targeting the areas for strong growth and strong investment.

Okay. That's great for -- that makes it clear for someone like myself. What I wanted to ask had to do with -- were you able to calculate how much more FX costs -- a lot of companies are running (inaudible) headwind, and were you able to calculate how much FX impacted the quarter in the EBITDAR realm? Or is that something you haven't done? Some companies try to do that.

Yes. The foreign exchange impact was probably somewhere in the [1.6] to [1.8] range.

I am going to mispronounce this, but I did see a chart of the Ukrainian currency, which has a lot of consonants and not a lot of vowels. Words there are something. I couldn't believe, like you said on this call, how it has fallen through the ground. I mean, is it conceivable that this business just won't be viable at some level of currency collapse?

Well, the Hryv has gone -- I mean, the two major currencies, Nelson, in those markets -- the ruble and the Hryv. The Hryv has moved from -- the end of 2013, it has moved from UAH8.2, UAH8.3 to the $1.00, and yesterday it was at UAH38.

Yes. That was the chart I saw. How do you pronounce it? Griev. Okay.

(multiple speakers). Yes.

I am grieving, yes. Okay.

I don't know if it is right, but it is a lot easier than phonetically.

It starts with an H. Yes. Okay.

Yes. Exactly. So much -- and that UAH38 was a fall from UAH27 or UAH28, just a few days ago. So it is very, very volatile right now. And I suspect that is because of renewed fighting in terms of cease-fire, right. Every time you see bad news there, it moves the currency.

The ruble itself has moved from low [30s] over the last year to -- it has settled around -- a range between [58] and [62]. So the Hryv is almost 5 times devalued. The ruble has been cut in half. So it certainly makes doing business in those regions very challenging at this stage.

Yes. Well (multiple speakers).

I think one of the most important things, from our perspective, though, having said that, we don't have -- we have very little fixed cost in the region. Our cost is with our third-party partner, and our contract with them is variable to revenue. So as we have seen the sales decline, we have obviously seen profitability decline, we have been able to hold some profitability in the region, and that has been a very -- whilst not reducing any services in the region. So I think that bodes well for it, should stability return here.

Because they clearly have been receptive to the model over the years. Just a couple of real quick things. I mean, look, assuming we have a continued improvement in US and Canada -- I think I reading this right -- we should see -- I know you don't make projections. I am just saying assuming we started a trajectory -- I think this is self-evident. But assuming we started a trajectory in US and Canada of positive -- in a lot of the metrics, including, hopefully, distributors and marketers and revenues and then EBITDA, I would assume -- in those countries, it would be logical, I think it is implied, that we should see positives in metrics across the board in NSP America going forward because of the elimination of the UK. And, essentially, it really is North America now, right? I mean, is that a true statement?

So North America is certainly the bulk, and you can see that in the carrier, and then obviously we have Latin America and there is a mix (multiple speakers).

Oh, that's right. Latin America is in there, too. Okay.

(multiple speakers) Latin American. Greg commented that on the --

Okay. You're right. Okay. I see my problem. Okay. No problem.

And the last question, just to get back quick real to China a little bit. Could you just be a little more granular about what -- I am not talking about numbers here, but what are the operational benchmarks since you did say that there would be -- you did mention that there would be a launching in 2016. Just so that -- in 2015, later this year. Just from a granular perspective, but what is the operational benchmarks you are looking for concretely as we go through 2015?

Well, I think the first thing is we have got to hire a team of people to do the business, number one. Number two, we have got to set operational functions up that we can launch an e-commerce platform, which is the quickest one to market. In retail, we obviously have to negotiate deals with the retailers. We have to get products licensed and in the country. That is early next year. And direct selling, it is all contingent upon getting a direct sale license.

Yes. Okay.

But you have to apply locally. You have to go through (inaudible) in Beijing. It takes time, and the Chinese government works on their own pace sometimes.

So let's take the very first thing. Hiring -- putting together a team, which has to be multifaceted. Where are we in that?

We are very far along. As far as getting a top level world-class team, probably 70% of the way there.

And is this a team that will attack all three of the verticals, or is it mostly focused on e-commerce at this point?

It will attack all three distribution channels and product development.

Okay. Okay. So we could expect China to be a little more of a cost center in 2015 than kind of reverse going forward. Correct?

Yes.

(Operator Instructions). Gregg Hillman, First Wilshire.

Paul, continuing along China, I noticed some multilevel -- you have an e-commerce platform, but they are just moving product through Hong Kong because they have a lot of sales in Hong Kong, and I guess that product just fits into mainland China. Is that model legal, and is that a viable model for Nature's?

There are free trade zones in China. I don't know what Hong Kong business you are talking about, but there are free trade zones in China. Through Internet, you can send products from other countries.

Okay. Then I think you mentioned the cost for China in the fourth quarter was $1.6 million.

$1.1 million.

I'm sorry. $1.1 million.

$1.1 million.

Sorry about that. What do you think the cost will be next year? Is that a good run rate on a quarterly basis, or do you think it will go up?

It will certainly -- this is Steve. And we don't give a lot of guidance, but it was $1.1 million in the fourth quarter. We are 70% there on the team. And so there will be some additional costs to register product, and that is where we are going forward.

Okay. And then, maybe, Wynne, can you talk about the progress in AnxiousLess and Equolibrium (multiple speakers).

Yes. Equolibrium. I think AnxiousLess continues to be a very strong recruiting product for us. We talked about it in several quarters since launch in the fourth quarter of 2013. And it has been a -- because of the impact it has, very quickly on consuming the product, it has been very good and become a staple recruiting product for us. So that has been very, very well received.

Equolibrium, I think, launched very well and has been a great addition to our prostate health line. I think, since the launch of Equolibrium, I think one of the things that has really been the focus in the US has been the launch of the IN.FORM program. And we have talked about that in Q1 last year. And the IN.FORM program really is much more focused on general health and weight management.

And so as we have seen the success and trajectory of the IN.FORM program build through 2014, we have seen continued growth in the weight management segment of our product lines as well. So I think it is, although AnxiousLess and Equolibrium are important parts of the range, as IN.FORM is gaining traction, we are seeing a bigger impact on our weight management and cleanse products.

That's great. You did a great job growing sales in NSP North America. And just turning to your overall effort with your distributors to improve, basically, recruiting and attention to the people once they become distributors, how is that going in terms of -- because if you can increase in retention, I guess that would help a lot. Do you have anything -- changes along those lines that you could speak of?

Are you talking about in the US or in general?

Yes, just in the US.

So I think the -- we talked a lot last year about the IN.FORM program. And the IN.FORM program, as you recall, is a 13-week program where consumers are invited not only to walk through each week modules that help them to understand better how their bodies work and how they respond to good nutrition. So that is part of the learning they get in the program.

But through that program, they are introduced to a variety of Nature's Sunshine products that address different categories. So they are introduced to the immune category. They are introduced to the digestive category. They are introduced to the weight management category. And what we are seeing is that those products that are the focus of IN.FORM, in addition to the retail areas of our business as well, we are seeing the continued growth in those phases.

In the fourth quarter, we launched -- we relaunched our Silver product line. We improved the formula to 20 ppm. Silver, we rebranded the packaging and the labels on the products, and we introduced two new sizes. And we saw a significant response in the field of that as well.

So I think, as we go forward with IN.FORM, as we build that daily consumption and as we keep introducing the different parts of our products through the IN.FORM product through our retail channels, we are seeing that consumption and retention improved.

Okay. And then, finally, Greg, can you just talk about what you think the most important catalyst will be over the next few years to grow sales and profitability for the Company in terms of -- given all the segments of the Company?

Yes. I think there is sort of three things we look at. One is maintaining and accelerating the growth that we have been able to achieve in NSP North America. So, obviously, the US is over 40% of our worldwide business. So turning that market around was very strategic for us, and it generates over 50% of our operating cash flow. So to continue to see that division grow and I think the initiatives we put in from -- product initiatives like AnxiousLess to program initiatives like IN.FORM or promotional initiatives like I.Inspire are all having a strong effect on that business.

And I think equally important is, we now segmented the business amongst our different type of distributors, retailers, and practitioners and IN.FORM, and what we are seeing is, it is not one pocket of the business growing, and we are seeing growth across all of our segments in the US. So we are very optimistic that we can maintain and hopefully accelerate that growth.

So that is the single biggest area because it is the single biggest piece of our business. I think, second, is Synergy to -- we have several countries that are growing tremendously. As a pointed out, Indonesia is one. Taiwan, Japan are all growing. Korea, although it has slowed down, continues to grow. And I think, for the first time in a while, we are seeing growth in Synergy across our European region.

So I think just maintaining that growth in Europe and in Asia for Synergy and building upon that will be a second key focus. And I think the third one is China. Although it is an investment for the next two years, I think everyone realizes how big China is for direct selling, how big China is for the BMS category -- the second-largest VMS market in the world, and the fastest growing direct selling market.

So although it is a drag on earnings for a couple of years, it obviously creates a huge opportunity for us to significantly grow the business, and we are very, very focused on executing against the plan. We have built, as Paul mentioned, a top notch management team that comes from direct selling and is very, very experienced at driving direct sales in China. So we have a team that has done it before, and I think no one in China is using a multi-brand, multi-channel approach like we are. So I think that provides upside, and no one is doing it with a major joint venture partner like we have with Fosun Pharma. So I would say those are really the three major revenue areas of focus.

At this time, we have no further questions, and this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.