Nature's Sunshine Products, Inc. (NASDAQ:NATR) Q4 2021 Earnings Conference Call March 8, 2022 5:00 PM ET Company Participants Nathan Brower - Executive Vice President, General Counsel and Secretary Terrence Moorehead - President and Chief Executive Officer Joseph Baty - Executive Vice President, Chief Financial Officer and Treasurer Conference Call Participants Linda Bolton-Weiser - D.A. Davidson & Co. Steven Martin - Slater Capital Management, LLC Operator Good afternoon, everyone, and thank you for partic ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) Nature's Sunshine Products manufactures and sells nutritional and personal care products globally via direct selling - The company is a direct seller of nutritional and personal care products, operating through four main geographic segments: Asia, Europe, North America, and Latin America and Other[20](index=20&type=chunk)[21](index=21&type=chunk) - Most products are manufactured at the company's facility in Spanish Fork, Utah, with stringent quality control procedures applied to both in-house and contract manufacturing[22](index=22&type=chunk) Product Line Categories | Category | Description | | :--- | :--- | | General health | Products related to blood sugar support, bone health, cognitive function, joint health, mood, sexual health, sleep, sports and energy, and vision | | Immune | Products designed to support and strengthen the human immune system | | Cardiovascular | Products that combine ingredients to give the cardiovascular system optimum support | | Digestive | Products designed to regulate intestinal and digestive functions | | Personal care | Products for external use, including oils, lotions, shampoo, toothpaste, and skin cleansers | | Weight management | Products designed to simplify weight management, including meal replacements and items that increase caloric burn rate | - As of December 31, 2021, the company employed **850 individuals**, with the global workforce being **55.4% female** and comprising **40.2% Caucasian**, **31.4% Asian**, **25.3% Hispanic**, **1.6% Black**, and **1.5% Other**[61](index=61&type=chunk) - The company has established several sustainability goals, including achieving **100% renewable energy** at its manufacturing facility by **2023** and a **50% reduction of GHG emissions** for Scope 1 & 2 by **2025**[67](index=67&type=chunk) [Risk Factors](index=11&type=page&id=Item%201A.%20Risk%20Factors) The company faces regulatory, business, and technological risks, including compliance, consultant retention, and cybersecurity [Regulatory and Litigation Risks](index=11&type=section&id=Regulatory%20and%20Litigation%20Risks) The company faces regulatory and litigation risks from direct selling, product regulations, and anti-bribery laws - The company is subject to laws and regulations intended to prevent fraudulent or deceptive practices in direct selling, where failure to comply could result in significant penalties and business model changes[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) - The CBD product line is subject to rapidly changing federal, state, and local laws, with the FDA currently holding that CBD is not lawful in food and dietary supplements, creating regulatory uncertainty and risk[77](index=77&type=chunk) - The company is subject to anti-bribery laws, including the FCPA, where violations could result in criminal or civil sanctions and reputational damage[80](index=80&type=chunk)[81](index=81&type=chunk) [Risks Related to Our Business](index=14&type=section&id=Risks%20Related%20to%20Our%20Business) Key business risks include consultant retention, currency fluctuations, geopolitical events, and supply chain issues - The company's revenue is highly dependent on its ability to attract and retain independent consultants, and it experiences high turnover, with a significant portion of net sales in some markets depending on a few key consultants[82](index=82&type=chunk)[84](index=84&type=chunk) - In 2021, approximately **68.9% of net sales** were recognized in markets outside the United States, exposing the company to significant foreign currency exchange rate fluctuations[86](index=86&type=chunk) - The conflict arising from the invasion of Russia into Ukraine could adversely impact the Russia, Central and Eastern Europe business segment through sanctions, currency devaluation, and business interruptions[89](index=89&type=chunk) - The company is dependent on the uninterrupted operation of its primary manufacturing facility in Spanish Fork, Utah, and is subject to risks of catastrophic loss, equipment failures, and supply chain disruptions[93](index=93&type=chunk)[96](index=96&type=chunk) [Risks Related to Our Use of Technology and Intellectual Property](index=18&type=section&id=Risks%20Related%20to%20Our%20Use%20of%20Technology%20and%20Intellectual%20Property) The company faces technology and IP risks from cybersecurity, data privacy, IT reliance, and limited patent protection - The company collects and retains large volumes of sensitive data, making it a target for cyber-attacks, where a data breach could result in significant costs, litigation, and reputational harm[106](index=106&type=chunk)[109](index=109&type=chunk) - Compliance with evolving data protection laws, such as the EU's GDPR and California's CCPA, is complex and costly, with non-compliance potentially resulting in substantial fines (up to **4% of annual revenue** under GDPR)[110](index=110&type=chunk)[111](index=111&type=chunk) - Most of the company's products are not protected by patents, making it reliant on trademarks (like Nature's Sunshine® and Synergy®) and other intellectual property, which may be insufficient to prevent competition[114](index=114&type=chunk) [Unresolved Staff Comments](index=20&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[115](index=115&type=chunk) [Properties](index=20&type=section&id=Item%202.%20Properties) The company's principal properties include a leased corporate office and an owned manufacturing facility in Utah - The company owns its principal manufacturing and warehousing facility, a **270,000 square foot** building in Spanish Fork, Utah[116](index=116&type=chunk) - Corporate offices are located in a leased **61,000 square foot** facility in Lehi, Utah, with the lease expiring in **2029**[116](index=116&type=chunk) [Legal Proceedings](index=20&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various legal proceedings, accruing **$0.5 million** for estimated outcomes - The company has accrued **$0.5 million** related to the estimated outcome of various legal proceedings as of December 31, 2021[337](index=337&type=chunk) - The company has reserved for certain state sales and use tax and foreign non-income tax contingencies, with accrued liabilities of **$0.2 million** for these matters at year-end 2021[336](index=336&type=chunk) [Mine Safety Disclosures](index=20&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[120](index=120&type=chunk) Part II [Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=21&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ, returning capital in 2021 through a special dividend and share repurchases - On March 10, 2021, the company announced a special non-recurring cash dividend of **$1.00 per common share**, paid on April 5, 2021, for an aggregate amount of **$19.9 million**[125](index=125&type=chunk) 2021 Share Repurchase Activity | Metric | Value | | :--- | :--- | | Program Authorization | $15.0 million | | Shares Repurchased in 2021 | 439,000 | | Cost of Shares Repurchased | $7.4 million | | Remaining Authorization (at Dec 31, 2021) | $7.6 million | [Reserved](index=22&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, consolidated net sales increased **15.3%** to **$444.1 million**, with operating income reaching **$34.7 million** [Results of Operations (2021 vs. 2020)](index=26&type=section&id=Results%20of%20Operations) In 2021, net sales increased **15.3%** to **$444.1 million**, with operating income rising to **$34.7 million** due to broad-based growth Net Sales by Operating Segment (in thousands) | Segment | 2021 | 2020 | % Change | % Change (Local Currency) | | :--- | :--- | :--- | :--- | :--- | | Asia | $176,860 | $138,717 | 27.5% | 24.4% | | Europe | $91,539 | $77,688 | 17.8% | 16.2% | | North America | $149,746 | $145,481 | 2.9% | 2.4% | | Latin America and Other | $25,939 | $23,319 | 11.2% | 10.1% | | **Total** | **$444,084** | **$385,205** | **15.3%** | **13.6%** | - Growth in Asia was driven by strong performance in China (net sales **+39.3%**) and Japan (net sales **+32.8%**)[164](index=164&type=chunk)[165](index=165&type=chunk) - Volume incentives as a percentage of net sales decreased from **34.0% in 2020** to **31.5% in 2021**, primarily due to sales mix changes and cost savings from a new compensation plan[172](index=172&type=chunk) - Selling, general and administrative (SG&A) expenses increased by **$22.8 million**, primarily due to higher service fees from sales growth in China and increased selling costs for growth initiatives[174](index=174&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2021, the company maintained strong liquidity with **$86.2 million** in cash and **$34.6 million** in operating cash flow Consolidated Cash Flows (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Operating Activities | $34,608 | $37,659 | | Investing Activities | $(6,612) | $(4,905) | | Financing Activities | $(31,721) | $3,878 | - At year-end 2021, cash and cash equivalents totaled **$86.2 million**, of which **$67.7 million** was held in foreign markets[184](index=184&type=chunk) - The company had no outstanding balance under its **$25.0 million** revolving credit agreement as of December 31, 2021[190](index=190&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is foreign currency exchange rate fluctuation, with **68.9%** of 2021 net sales from outside the U.S - Approximately **68.9% of net sales** and **60.5% of operating expenses** in 2021 were realized outside of the United States, creating significant exposure to foreign currency risk[201](index=201&type=chunk) Foreign Currency Risk Sensitivity Analysis (2021) | Strengthening of U.S. Dollar | Impact on Operating Income ($) | Impact on Operating Income (%) | | :--- | :--- | :--- | | 10% | $(3,030,000) | (8.7)% | | 15% | $(4,347,000) | (12.5)% | | 25% | $(6,665,000) | (19.2)% | - As of December 31, 2021, significant foreign cash holdings included **$19.5 million** in Chinese Yuan, **$11.3 million** in South Korean Won, and **$10.0 million** in Japanese Yen[207](index=207&type=chunk) [Financial Statements and Supplementary Data](index=37&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements and the auditor's unqualified opinion, detailing financial position, results, and cash flows [Report of Independent Registered Public Accounting Firm](index=38&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche LLP issued unqualified opinions on financial statements and internal controls, identifying deferred tax asset valuation as a critical audit matter - The auditor, Deloitte & Touche LLP, issued an unqualified (clean) opinion, stating the financial statements are presented fairly in all material respects[218](index=218&type=chunk) - The valuation of deferred tax assets was identified as a Critical Audit Matter, highlighting the significant auditor judgment required to evaluate management's estimates of future taxable income[222](index=222&type=chunk)[224](index=224&type=chunk) [Consolidated Financial Statements](index=40&type=section&id=Consolidated%20Financial%20Statements) The 2021 consolidated financial statements show net sales of **$444.1 million**, net income of **$28.9 million**, and operating cash flow of **$34.6 million** Key Financial Highlights (in thousands, except per share data) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | **Income Statement** | | | | Net Sales | $444,084 | $385,205 | | Operating Income | $34,670 | $21,482 | | Net Income (to shareholders) | $28,853 | $21,337 | | Diluted EPS | $1.42 | $1.07 | | **Balance Sheet (Year-End)** | | | | Total Assets | $258,874 | $249,498 | | Total Liabilities | $97,470 | $92,264 | | Total Shareholders' Equity | $161,404 | $157,234 | | **Cash Flow** | | | | Net Cash from Operations | $34,608 | $37,659 | [Notes to Consolidated Financial Statements](index=46&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail revenue by segment, capital transactions, tax rate, and the Russia-Ukraine conflict's impact - Subsequent Event (Note 18): The military conflict in Ukraine, which began in February 2022, poses a significant risk to the Russia and Other market, which generated **$61.4 million in net sales** and **$5.8 million in operating income** in 2021[358](index=358&type=chunk) - Capital Transactions (Note 11): A special dividend of **$1.00 per share** (**$19.9 million total**) was paid in April 2021, and **$7.4 million** was spent repurchasing **439,000 shares** under a new program[312](index=312&type=chunk)[314](index=314&type=chunk) - Income Taxes (Note 10): The company's effective tax rate for 2021 was **5.1%**, significantly impacted by a **19.7% rate decrease** from changes in the valuation allowance, primarily from releasing the allowance on foreign tax credits[180](index=180&type=chunk)[302](index=302&type=chunk) [Controls and Procedures](index=67&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management and auditors concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - Based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[364](index=364&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2021, an assessment audited and affirmed by Deloitte & Touche LLP[365](index=365&type=chunk)[367](index=367&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=69&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement - Information is incorporated by reference to the definitive proxy statement[377](index=377&type=chunk) [Executive Compensation](index=69&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive compensation is incorporated by reference from the definitive proxy statement - Information is incorporated by reference to the definitive proxy statement[378](index=378&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=69&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) This section details securities authorized for issuance under equity compensation plans, with **1.0 million** outstanding and **2.4 million** available Equity Compensation Plan Information as of December 31, 2021 | Plan Category | Securities to be Issued (a) | Weighted-Average Exercise Price (b) | Securities Available for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 1,003,250 | $12.13 | 2,454,218 | [Certain Relationships and Related Transactions and Director Independence](index=69&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the definitive proxy statement - Information is incorporated by reference to the definitive proxy statement[381](index=381&type=chunk) [Principal Accountant Fees and Services](index=70&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information on principal accountant fees and services is incorporated by reference from the definitive proxy statement - Information is incorporated by reference to the definitive proxy statement[382](index=382&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=71&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements, Schedule II (Valuation and Qualifying Accounts), and all exhibits filed with the annual report - Lists the financial statements, Schedule II (Valuation and Qualifying Accounts), and all exhibits filed with the 10-K[384](index=384&type=chunk)[385](index=385&type=chunk)[386](index=386&type=chunk) Schedule II - Tax Valuation Allowance (in thousands) | Year | Beginning Balance | Provisions | Ending Balance | | :--- | :--- | :--- | :--- | | 2021 | $15,262 | $(6,510) | $8,650 | | 2020 | $21,388 | $(6,120) | $15,262 | [Form 10-K Summary](index=73&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no Form 10-K summary - None[392](index=392&type=chunk)

| --- | --- | --- | --- | |---------------------------------------------------------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | CONNECT WITH | | | | | | | | | | NATURE | | | | | Q4 & Full Year 2021 Earnings Presentation March 8, 2022 | | | | | | | | | | | | | | S A F E H A R B O R S T A T E M E N T S Cautionary Note Regarding Forward-Looking Statements This presentation contains forward-looking statements regarding the Company's future business expectations, which are subje ...

| --- | --- | --- | --- | |-----------------------------------------------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CONNECT WITH | | | | | | | | | | | | | | | NATURE Investor Presentation \| December 2021 | | | | | | | | | | | | | | S A F E H A R B O R S TAT E M E N T S Cautionary Note Regarding Forward-Looking Statements This presentation contains forward-looking statements regarding the Company's future business expectations, which are subject to the safe harb ...

| --- | --- | --- | --- | |-----------------------------------------------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CONNECT WITH | | | | | | | | | | | | | | | NATURE Investor Presentation \| December 2021 | | | | | | | | | | | | | | S A F E H A R B O R S TAT E M E N T S Cautionary Note Regarding Forward-Looking Statements This presentation contains forward-looking statements regarding the Company's future business expectations, which are subject to the safe harb ...

Nature's Sunshine Products, Inc. (NASDAQ:NATR) Q3 2021 Earnings Conference Call November 4, 2021 5:00 PM ET Company Participants Nathan Brower - Executive Vice President, Secretary, and General Counsel Terrence Moorehead - President, Chief Executive Officer and Director Joseph Baty - Executive Vice President, Finance, Chief Financial Officer and Treasurer Conference Call Participants Linda Bolton-Weiser - D.A. Davidson Bill Dezellem - Tieton Capital Steven Martin - Slater Operator Good everyone, afternoon, ...

Financial Performance - Consolidated net sales for the three months ended September 30, 2021, were $114.7 million, representing a 14.5% increase compared to $100.3 million for the same period in 2020[112] - For the nine months ended September 30, 2021, consolidated net sales were $326.1 million, an increase of 15.1% from $283.5 million in the same period in 2020[112] - The company experienced notable product sales growth across all operating segments for the three and nine months ended September 30, 2021[112] - The increase in net sales was primarily attributed to product promotions and an increase in demand for nutritional supplements[118] Regional Sales Performance - Net sales in Asia for the three months ended September 30, 2021, were $48.4 million, a 27.1% increase from $38.1 million in 2020[113] - In Europe, net sales for the three months ended September 30, 2021, were $21.8 million, reflecting a 21.1% increase from $18.0 million in 2020[118] - North America net sales for the three months ended September 30, 2021, were $37.7 million, a slight increase of 0.5% from $37.6 million in 2020[119] - Latin America and Other markets reported net sales of $6.8 million for the three months ended September 30, 2021, a 2.9% increase from $6.6 million in 2020[121] Cost and Expenses - Cost of sales as a percentage of net sales decreased to 25.6% for the three months ended September 30, 2021, compared to 27.1% for the same period in 2020[123] - Volume incentives as a percentage of net sales were 31.2% for the three months ended September 30, 2021, down from 34.2% in the same period in 2020[124] - Selling, general and administrative expenses increased by $6.2 million to $39.5 million for the three months ended September 30, 2021, and by $15.8 million to $108.7 million for the nine months ended September 30, 2021, compared to the same periods in 2020[126] - Selling, general and administrative expenses represented 34.4% and 33.3% of net sales for the three and nine months ended September 30, 2021, compared to 33.2% and 32.8% for the same periods in 2020[126] Other Income and Taxes - Other income (loss), net, for the three and nine months ended September 30, 2021, were losses of $0.9 million and $2.3 million, respectively, compared to gains of $0.7 million and losses of $0.2 million during the same periods in 2020[127] - The provision for income taxes as a percentage of income before income taxes was 40.2% for the three months ended September 30, 2021, compared to (16.7)% for the same period in 2020[128] - The effective tax rate difference for the three months ended September 30, 2021, was primarily due to an increase in tax liability associated with transfer pricing adjustments and non-deductible executive compensation[129] Cash Flow and Financing - Operating activities provided cash of $20.3 million for the nine months ended September 30, 2021, compared to $26.8 million in the same period in 2020[141] - Investing activities used $4.6 million for the nine months ended September 30, 2021, compared to $3.5 million for the same period in 2020[142] - Financing activities used $29.5 million for the nine months ended September 30, 2021, compared to providing $5.0 million in cash for the same period in 2020[143] - Cash held as of September 30, 2021, was $75.5 million, with $13.7 million in the U.S. and $61.8 million in foreign markets[139] - The company repurchased 350,000 shares of common stock for $6.0 million during the nine months ended September 30, 2021[144]

Nature's Sunshine Products, Inc. (NASDAQ:NATR) Q2 2021 Earnings Conference Call August 5, 2021 5:00 PM ET Company Participants Nathan Brower ??? Executive Vice President, Secretary, and General Counsel Terrence Moorehead ??? President, Chief Executive Officer and Director Joseph Baty ??? Executive Vice President, Finance, Chief Financial Officer and Treasurer Conference Call Participants Matt Dame ??? Titan Capital Management Steven Martin ??? Slater Operator Good afternoon, everyone, and thank you for part ...

```markdown [General Information](index=1&type=section&id=General%20Information) [Filing Information](index=1&type=section&id=Filing%20Information) This section provides the basic filing details for Nature's Sunshine Products, Inc.'s Form 10-Q for the quarterly period ended June 30, 2021, including company identification, stock information, and compliance with SEC filing requirements. - The registrant is NATURE'S SUNSHINE PRODUCTS, INC., a Utah corporation, filing a Quarterly Report on Form 10-Q for the period ended June 30, 2021[2](index=2&type=chunk) **Common Stock Information** | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :-------------------------------------- | | Common Stock, no par value | NATR | Nasdaq Capital Market | - As of July 23, 2021, the number of shares of Common Stock outstanding was **19.936 million shares**[4](index=4&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=4&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section serves as a cautionary note regarding forward-looking statements made in the report, outlining their nature, the assumptions they are based on, and the significant risks and uncertainties that could cause actual results to differ materially. - Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, including extensive government regulations, legal challenges to direct selling, product liability claims, and the impact of the ongoing coronavirus pandemic[9](index=9&type=chunk)[10](index=10&type=chunk) - The company disclaims any obligation to publicly release revisions to forward-looking statements, except as required by law[10](index=10&type=chunk) [Part I. Financial Information](index=5&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of income, comprehensive income, changes in shareholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items. [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) **Condensed Consolidated Balance Sheets (Amounts in millions)** | Assets/Liabilities/Equity | June 30, 2021 (millions) | December 31, 2020 (millions) | | :------------------------ | :----------------------- | :--------------------------- | | **Assets:** | | | | Cash and cash equivalents | $74.902 | $92.069 | | Total current assets | $143.689 | $154.065 | | Total assets | $233.190 | $249.498 | | **Liabilities:** | | | | Total current liabilities | $64.992 | $69.654 | | Total liabilities | $86.037 | $92.264 | | **Shareholders' Equity:** | | | | Total shareholders' equity | $147.153 | $157.234 | | Total liabilities and shareholders' equity | $233.190 | $249.498 | - Total assets decreased by **$16.308 million** from **$249.498 million** at December 31, 2020, to **$233.190 million** at June 30, 2021[13](index=13&type=chunk) - Cash and cash equivalents decreased by **$17.167 million** from **$92.069 million** at December 31, 2020, to **$74.902 million** at June 30, 2021[13](index=13&type=chunk) [Condensed Consolidated Statements of Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) **Condensed Consolidated Statements of Income (Amounts in millions, except per share information)** | Metric | Three Months Ended June 30, 2021 (millions) | Three Months Ended June 30, 2020 (millions) | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net sales | $108.978 | $87.286 | $211.399 | $183.212 | | Gross profit | $80.515 | $64.269 | $155.957 | $135.514 | | Operating income | $9.486 | $6.600 | $17.121 | $13.762 | | Net income attributable to common shareholders | $6.540 | $5.754 | $10.556 | $8.716 | | Basic earnings per share | $0.33 | $0.30 | $0.53 | $0.45 | | Diluted earnings per share | $0.32 | $0.29 | $0.52 | $0.44 | | Dividends declared per common share | — | — | $1.00 | — | - Net sales increased by **24.9%** for the three months ended June 30, 2021, and by **15.4%** for the six months ended June 30, 2021, compared to the same periods in 2020[15](index=15&type=chunk)[18](index=18&type=chunk) - Operating income increased by **43.7%** for the three months and **24.4%** for the six months ended June 30, 2021, compared to the same periods in 2020[15](index=15&type=chunk)[18](index=18&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) **Condensed Consolidated Statements of Comprehensive Income (Amounts in millions)** | Metric | Three Months Ended June 30, 2021 (millions) | Three Months Ended June 30, 2020 (millions) | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net income | $6.794 | $6.133 | $10.946 | $9.139 | | Foreign currency translation loss (net of tax) | $(0.045) | $(0.151) | $(0.166) | $(0.260) | | Total comprehensive income | $6.749 | $5.982 | $10.780 | $8.879 | - Total comprehensive income increased by **12.8%** for the three months and **21.4%** for the six months ended June 30, 2021, compared to the same periods in 2020[19](index=19&type=chunk) [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) **Condensed Consolidated Statements of Changes in Shareholders' Equity (Amounts in millions)** | Item | Balance at Dec 31, 2020 (millions) | Share-based comp. expense (millions) | Shares issued (net) (millions) | Cash dividends (millions) | Net income (millions) | Other comp. loss (millions) | Balance at June 30, 2021 (millions) | | :------------------------ | :------------------------- | :--------------------------- | :----------------------- | :------------------------ | :-------------------- | :---------------------- | :-------------------------- | | Common Stock (Amount) | $139.311 | $2.071 | $(1.574) | — | — | — | $138.308 | | Retained Earnings | $26.030 | — | — | $(19.858) | $10.556 | — | $16.728 | | Noncontrolling Interest | $1.848 | — | — | — | $0.390 | — | $2.238 | | Accumulated Other Comprehensive Loss | $(9.955) | — | — | — | — | $(0.166) | $(10.121) | | Total | $157.234 | $2.071 | $(1.574) | $(19.858) | $10.946 | $(0.166) | $147.153 | - Total shareholders' equity decreased from **$157.234 million** at December 31, 2020, to **$147.153 million** at June 30, 2021, primarily due to cash dividends of **$19.858 million** and common stock repurchases[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) **Condensed Consolidated Statements of Cash Flows (Amounts in millions)** | Activity | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $10.712 | $14.420 | | Net cash used in investing activities | $(2.898) | $(2.210) | | Net cash provided by (used in) financing activities | $(23.630) | $5.164 | | Net increase (decrease) in cash and cash equivalents | $(17.167) | $16.626 | | Cash and cash equivalents at end of period | $74.902 | $70.255 | - Net cash provided by operating activities decreased to **$10.712 million** in H1 2021 from **$14.420 million** in H1 2020[24](index=24&type=chunk) - Financing activities used **$23.630 million** in H1 2021, a significant change from providing **$5.164 million** in H1 2020, primarily due to cash dividends and share repurchases[24](index=24&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [(1) Basis of Presentation](index=12&type=section&id=(1)%20Basis%20of%20Presentation) - Nature's Sunshine Products, Inc. is a natural health and wellness company manufacturing and selling nutritional and personal care products through independent consultants[26](index=26&type=chunk) - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and include all adjustments considered necessary for fair presentation[27](index=27&type=chunk) - Significant accounting estimates include independent consultant incentives, income tax assets and liabilities, non-income tax and value-added tax contingencies, and legal contingencies, with potential material impact from COVID-19 uncertainty[29](index=29&type=chunk)[30](index=30&type=chunk) [Recent Accounting Pronouncements](index=13&type=section&id=Recent%20Accounting%20Pronouncements) - The adoption of ASU No. 2019-12 (Income Taxes) did not have a significant impact on the Consolidated Financial Statements[33](index=33&type=chunk) - The adoption of ASU No. 2020-04 (Reference Rate Reform) is not expected to have a significant impact on the Consolidated Financial Statements[34](index=34&type=chunk) [(2) Inventories](index=13&type=section&id=(2)%20Inventories) **Composition of Inventories (Amounts in millions)** | Category | June 30, 2021 (millions) | December 31, 2020 (millions) | | :--------------- | :----------------------- | :--------------------------- | | Raw materials | $16.360 | $13.956 | | Work in progress | $1.736 | $1.351 | | Finished goods | $32.861 | $32.376 | | Total inventories | $50.957 | $47.683 | - Total inventories increased by **$3.274 million** from **$47.683 million** at December 31, 2020, to **$50.957 million** at June 30, 2021[35](index=35&type=chunk) [(3) Investment Securities - Trading](index=13&type=section&id=(3)%20Investment%20Securities%20-%20Trading) - The trading securities portfolio totaled **$1.0 million** at June 30, 2021, and **$1.0 million** at December 31, 2020[36](index=36&type=chunk) **Investment Securities - Trading Gains (Amounts in millions)** | Period | 2021 (millions) | 2020 (millions) | | :----------------------- | :-------------- | :-------------- | | Three months ended June 30 | $0.050 | $0.093 | | Six months ended June 30 | $0.067 | $(0.004) | [(4) Revolving Credit Facility and Other Obligations](index=13&type=section&id=(4)%20Revolving%20Credit%20Facility%20and%20Other%20Obligations) - The company has a revolving credit agreement with Bank of America, N.A., with a borrowing limit of **$25.0 million**, maturing on July 1, 2023. As of June 30, 2021, there was no outstanding balance[37](index=37&type=chunk)[38](index=38&type=chunk) - A Capital Credit Agreement with Banc of America Leasing and Capital, LLC, has a borrowing limit of **$6.0 million**. As of June 30, 2021, **$3.0 million** was outstanding, with **$1.2 million** classified as current[39](index=39&type=chunk)[40](index=40&type=chunk) [(5) Net Income Per Share](index=14&type=section&id=(5)%20Net%20Income%20Per%20Share) **Net Income Per Common Share (Amounts in millions, except per share information)** | Metric | Three Months Ended June 30, 2021 (millions) | Three Months Ended June 30, 2020 (millions) | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net income attributable to common shareholders | $6.540 | $5.754 | $10.556 | $8.716 | | Basic earnings per share | $0.33 | $0.30 | $0.53 | $0.45 | | Diluted earnings per share | $0.32 | $0.29 | $0.52 | $0.44 | | Weighted average basic common shares outstanding | 19.999 | 19.491 | 19.897 | 19.472 | | Weighted average diluted common shares outstanding | 20.503 | 19.783 | 20.340 | 19.725 | - Dilutive shares excluded from diluted EPS include **0.563 million** stock options for both three and six months ended June 30, 2021, and **0.844 million** for the same periods in 2020[42](index=42&type=chunk) [(6) Capital Transactions](index=14&type=section&id=(6)%20Capital%20Transactions) - A special non-recurring cash dividend of **$1.00** per common share, totaling **$19.9 million**, was paid on April 5, 2021[43](index=43&type=chunk) - The company announced a **$15.0 million** common share repurchase program on March 10, 2021, with **$13.5 million** remaining available at June 30, 2021[45](index=45&type=chunk) - Share-based compensation expense for RSUs was approximately **$0.6 million** for Q2 2021 (vs **$0.5 million** in Q2 2020) and **$1.0 million** for H1 2021 (vs **$0.8 million** in H1 2020)[58](index=58&type=chunk) [(7) Segment Information](index=17&type=section&id=(7)%20Segment%20Information) **Net Sales by Operating Segment (Amounts in millions)** | Segment | Three Months Ended June 30, 2021 (millions) | Three Months Ended June 30, 2020 (millions) | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :---------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Asia | $43.536 | $32.757 | $79.291 | $63.715 | | Europe | $21.455 | $15.465 | $43.655 | $36.092 | | North America | $37.372 | $34.471 | $75.134 | $73.228 | | Latin America and Other | $6.615 | $4.593 | $13.319 | $10.177 | | Total net sales | $108.978 | $87.286 | $211.399 | $183.212 | **Contribution Margin by Operating Segment (Amounts in millions)** | Segment | Three Months Ended June 30, 2021 (millions) | Three Months Ended June 30, 2020 (millions) | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :---------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Asia | $18.463 | $16.052 | $33.782 | $30.579 | | Europe | $6.588 | $5.202 | $13.384 | $12.033 | | North America | $16.259 | $11.904 | $31.699 | $26.323 | | Latin America and Other | $3.762 | $1.946 | $7.394 | $4.396 | | Total contribution margin | $45.072 | $35.104 | $86.259 | $73.331 | **Net Sales by Product Line (Amounts in millions) - Six Months Ended June 30, 2021** | Product Line | Asia (millions) | Europe (millions) | North America (millions) | Latin America and Other (millions) | Total (millions) | | :--------------- | :-------------- | :-------------- | :----------------------- | :--------------------------------- | :--------------- | | General health | $23.990 | $19.139 | $32.619 | $3.848 | $79.596 | | Immune | $0.585 | $3.834 | $8.975 | $1.508 | $14.902 | | Cardiovascular | $22.163 | $5.828 | $8.235 | $0.903 | $37.129 | | Digestive | $14.618 | $11.107 | $19.479 | $5.872 | $51.076 | | Personal care | $7.814 | $2.425 | $3.653 | $0.743 | $14.635 | | Weight management | $10.121 | $1.322 | $2.173 | $0.445 | $14.061 | | Total | $79.291 | $43.655 | $75.134 | $13.319 | $211.399 | [(8) Income Taxes](index=20&type=section&id=(8)%20Income%20Taxes) **Provision for Income Taxes as % of Income Before Income Taxes** | Period | 2021 | 2020 | U.S. Federal Statutory Rate | | :----------------------- | :--- | :--- | :------------------------ | | Three months ended June 30 | 32.2% | 24.4% | 21.0% | | Six months ended June 30 | 30.4% | 28.9% | 21.0% | - The higher effective tax rate in 2021 was primarily due to increased tax liability from transfer pricing adjustments, non-deductible executive compensation, and net unfavorable foreign tax items, partially offset by stock compensation deductions[72](index=72&type=chunk)[74](index=74&type=chunk) [(9) Commitments and Contingencies](index=20&type=section&id=(9)%20Commitments%20and%20Contingencies) - Accrued liabilities for non-income tax contingencies were **$0.2 million** at both June 30, 2021, and December 31, 2020, with potential future payments ranging from **$0** to **$2.8 million**[80](index=80&type=chunk) - Accrued liabilities for other litigation were **$0.5 million** at both June 30, 2021, and December 31, 2020, with potential future payments ranging from **$0** to **$0.3 million**[81](index=81&type=chunk) [(10) Related Party Transactions](index=21&type=section&id=(10)%20Related%20Party%20Transactions) **Outstanding Borrowings by NSP China (Amounts in millions)** | Source | June 30, 2021 (millions) | December 31, 2020 (millions) | | :-------------------- | :----------------------- | :--------------------------- | | From the Company | $3.700 | $4.800 | | From joint venture partner | $0.900 | $1.200 | - The China joint venture (**80%** owned by the company) did not borrow new amounts from the company or its partner during the three and six months ended June 30, 2021 and 2020[82](index=82&type=chunk) [(11) Fair Value Measurements](index=21&type=section&id=(11)%20Fair%20Value%20Measurements) **Assets Measured at Fair Value on a Recurring Basis (Amounts in millions)** | Asset | June 30, 2021 (Level 1) (millions) | December 31, 2020 (Level 1) (millions) | | :-------------------------- | :--------------------------------- | :------------------------------------- | | Investment securities - trading | $0.984 | $0.989 | | Total | $0.984 | $0.989 | - The company's trading portfolio consists of marketable securities valued using quoted prices in active markets (Level 1)[86](index=86&type=chunk) [(12) Revenue Recognition](index=22&type=section&id=(12)%20Revenue%20Recognition) - Revenue is recognized when promised products are transferred to the customer, typically at the shipping point[89](index=89&type=chunk) - A reserve for product returns is recorded based on historical experience, allowing independent consultants to return unused products within ninety days[90](index=90&type=chunk) - Volume incentives and other sales incentives are commission payments to independent consultants, recorded as a reduction of revenue for personal purchases and as expense for qualifying sales[92](index=92&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, discussing key performance drivers, segment performance, and critical accounting policies. It highlights the impact of COVID-19, sales growth across segments, and changes in expenses and cash flows. [Overview](index=24&type=section&id=OVERVIEW) - The company is a natural health and wellness company, manufacturing and selling nutritional and personal care products through a sales force of independent consultants[99](index=99&type=chunk) - Sales are highly dependent on the number and productivity of independent consultants, motivated by high-quality products, training, and financial incentives[100](index=100&type=chunk) - Despite COVID-19 restrictions, the company experienced increased sales in Q2 2021 due to higher demand for nutritional supplements, though the pandemic's full impact remains uncertain[101](index=101&type=chunk) [Results of Operations](index=25&type=section&id=RESULTS%20OF%20OPERATIONS) [Consolidated Operating Results](index=25&type=section&id=Consolidated%20Operating%20Results) **Consolidated Operating Results (Amounts in millions, as a percentage of net sales)** | Metric | Q2 2021 Total (millions) | Q2 2021 % of Sales | Q2 2020 Total (millions) | Q2 2020 % of Sales | Change Total (millions) | Change % | | :------------------------ | :----------------------- | :----------------- | :----------------------- | :----------------- | :---------------------- | :------- | | Net sales | $108.978 | **100.0%** | $87.286 | **100.0%** | $21.692 | **24.9%** | | Gross profit | $80.515 | **73.9%** | $64.269 | **73.6%** | $16.246 | **25.3%** | | Operating income | $9.486 | **8.7%** | $6.600 | **7.6%** | $2.886 | **43.7%** | | Net income | $6.794 | **6.2%** | $6.133 | **7.0%** | $0.661 | **10.8%** | | Metric | H1 2021 Total (millions) | H1 2021 % of Sales | H1 2020 Total (millions) | H1 2020 % of Sales | Change Total (millions) | Change % | | :------------------------ | :----------------------- | :----------------- | :----------------------- | :----------------- | :---------------------- | :------- | | Net sales | $211.399 | **100.0%** | $183.212 | **100.0%** | $28.187 | **15.4%** | | Gross profit | $155.957 | **73.8%** | $135.514 | **74.0%** | $20.443 | **15.1%** | | Operating income | $17.121 | **8.1%** | $13.762 | **7.5%** | $3.359 | **24.4%** | | Net income | $10.946 | **5.2%** | $9.139 | **5.0%** | $1.807 | **19.8%** | - Consolidated net sales increased by **24.9%** (**20.7%** in local currencies) for Q2 2021 and **15.4%** (**12.0%** in local currencies) for H1 2021, driven by product sales growth across all operating segments[102](index=102&type=chunk)[107](index=107&type=chunk) [Net Sales by Operating Segment](index=25&type=section&id=Net%20Sales%20by%20Operating%20Segment) **Net Sales by Operating Segment (Amounts in millions, % Change)** | Segment | Q2 2021 Net Sales (millions) | Q2 2020 Net Sales (millions) | Q2 % Change | Q2 % Change (Excl. Currency) | | :---------------------- | :--------------------------- | :--------------------------- | :---------- | :--------------------------- | | Asia | $43.536 | $32.757 | **32.9%** | **26.0%** | | Europe | $21.455 | $15.465 | **38.7%** | **33.9%** | | North America | $37.372 | $34.471 | **8.4%** | **7.4%** | | Latin America and Other | $6.615 | $4.593 | **44.0%** | **39.1%** | | Total | $108.978 | $87.286 | **24.9%** | **20.7%** | | Segment | H1 2021 Net Sales (millions) | H1 2020 Net Sales (millions) | H1 % Change | H1 % Change (Excl. Currency) | | :---------------------- | :--------------------------- | :--------------------------- | :---------- | :--------------------------- | | Asia | $79.291 | $63.715 | **24.4%** | **17.8%** | | Europe | $43.655 | $36.092 | **21.0%** | **17.1%** | | North America | $75.134 | $73.228 | **2.6%** | **1.9%** | | Latin America and Other | $13.319 | $10.177 | **30.9%** | **29.2%** | | Total | $211.399 | $183.212 | **15.4%** | **12.0%** | - Asia's net sales increased by **32.9%** (**26.0%** in local currency) in Q2 2021, driven by strong growth in Japan (**37.5%** in local currency) due to product promotions and increased demand for nutritional supplements[108](index=108&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) - Europe's net sales increased by **38.7%** (**33.9%** in local currency) in Q2 2021, attributed to the stabilization of the Russian ruble, product promotions, and increased demand for nutritional supplements[113](index=113&type=chunk) [Cost of Sales](index=27&type=section&id=Cost%20of%20Sales) - Cost of sales as a percentage of net sales was **26.1%** for Q2 2021 (down from **26.4%** in Q2 2020) and **26.2%** for H1 2021 (up from **26.0%** in H1 2020)[118](index=118&type=chunk) - The decrease in Q2 percentage was due to market mix changes and prior year reserves, while the increase in H1 percentage was primarily due to increased transportation costs and market mix changes[118](index=118&type=chunk) [Volume Incentives](index=28&type=section&id=Volume%20Incentives) - Volume incentives expense as a percentage of net sales decreased to **32.5%** for Q2 2021 (from **33.4%** in Q2 2020) and **33.0%** for H1 2021 (from **33.9%** in H1 2020)[119](index=119&type=chunk) - The decrease is primarily due to changes in market mix, reflecting growth in markets with lower volume incentives as a percentage of net sales, and growth in NSP China where service fees are paid instead[119](index=119&type=chunk) [Selling, General and Administrative](index=28&type=section&id=Selling,%20General%20and%20Administrative) - SG&A expenses increased by **$7.1 million** to **$35.6 million** in Q2 2021 and by **$9.6 million** to **$69.1 million** in H1 2021 compared to the same periods in 2020[121](index=121&type=chunk) - As a percentage of net sales, SG&A remained consistent at **32.7%** for Q2 2021 and increased slightly to **32.7%** for H1 2021 (from **32.5%** in H1 2020)[121](index=121&type=chunk) - The dollar increase was primarily due to increased selling costs aimed at driving growth, including a new compensation plan, virtual events, and growth in markets with higher variable costs[103](index=103&type=chunk)[121](index=121&type=chunk) [Other Income (Loss), Net](index=28&type=section&id=Other%20Income%20(Loss),%20Net) - Other income (loss), net, was a gain of **$0.5 million** in Q2 2021 (vs **$1.5 million** gain in Q2 2020) and a loss of **$1.4 million** in H1 2021 (vs **$0.9 million** loss in H1 2020)[122](index=122&type=chunk) - These fluctuations primarily resulted from foreign exchange gains and losses in Asia, Europe, and Latin America[122](index=122&type=chunk) [Income Taxes](index=28&type=section&id=Income%20Taxes) - The provision for income taxes as a percentage of income before income taxes was **32.2%** for Q2 2021 (vs **24.4%** in Q2 2020) and **30.4%** for H1 2021 (vs **28.9%** in H1 2020)[123](index=123&type=chunk) - The increase in the effective tax rate for 2021 was mainly due to higher tax liability from transfer pricing adjustments and non-deductible executive compensation, partially offset by stock compensation deductions[124](index=124&type=chunk)[126](index=126&type=chunk) [Product Categories](index=29&type=section&id=Product%20Categories) - The company offers over **700** products across categories including general health, immune, cardiovascular, digestive, personal care, and weight management[128](index=128&type=chunk) - Most products are manufactured at the Spanish Fork, Utah facility, with some produced by contract manufacturers under strict quality control[128](index=128&type=chunk) [Distribution and Marketing](index=29&type=section&id=Distribution%20and%20Marketing) - Products are marketed primarily through a network of independent consultants using direct selling techniques[130](index=130&type=chunk) - Independent consultants are incentivized through high-quality products, training, sales conventions, travel programs, and financial incentives (volume incentives)[130](index=130&type=chunk)[133](index=133&type=chunk) - In NSP China, independent service fees are paid instead of volume incentives, and these are included in selling, general and administrative expenses[133](index=133&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) - Working capital was **$78.7 million** at June 30, 2021, down from **$84.4 million** at December 31, 2020[134](index=134&type=chunk) - Cash and cash equivalents totaled **$74.9 million** at June 30, 2021, with **$15.3 million** in the U.S. and **$59.6 million** in foreign markets[134](index=134&type=chunk) **Net Consolidated Cash Inflows (Outflows) (Amounts in millions)** | Activity | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :----------------------- | :------------------------------------------ | :------------------------------------------ | | Operating activities | $10.712 | $14.420 | | Investing activities | $(2.898) | $(2.210) | | Financing activities | $(23.630) | $5.164 | [Off-Balance Sheet Arrangements](index=30&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) - The company has no off-balance sheet arrangements[142](index=142&type=chunk) [Critical Accounting Policies and Estimates](index=30&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) - The preparation of financial statements requires significant estimates and assumptions, including those for revenue recognition, inventory valuation, incentive trip accruals, contingencies, and income taxes[143](index=143&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - Actual results could differ materially from these estimates, potentially affecting financial position and results of operations[143](index=143&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section addresses the company's exposure to market risks, primarily focusing on fluctuations in currency exchange rates, interest rates, and other uncertainties inherent in international business operations. - The company's net sales, operating income, and net income are affected by fluctuations in currency exchange rates and interest rates due to international operations[154](index=154&type=chunk) - Operations are also exposed to risks from changes in social, political, and economic conditions in international markets, including laws and policies governing international investment[154](index=154&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the effectiveness of the company's disclosure controls and procedures and confirms no material changes to internal control over financial reporting during the quarter. - Management, under the supervision of the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2021, at a reasonable assurance level[155](index=155&type=chunk) - There were no material changes in internal controls over financial reporting during the quarter ended June 30, 2021[156](index=156&type=chunk) [Part II. Other Information](index=33&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there are no legal proceedings to report for the period. - No legal proceedings are reported for the period[159](index=159&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the risk factors discussed in the company's Annual Report on Form 10-K and confirms no material changes since that filing. - No material changes to the company's risk factors have occurred since the filing of the Annual Report on Form 10-K for the year ended December 31, 2020[160](index=160&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's common stock repurchase activities during the fiscal quarter ended June 30, 2021, under its board-approved program. **Common Stock Repurchases (Amounts in millions)** | Period | Total Number of Shares Purchased (millions) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (millions) | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (millions) | | :-------------------------- | :------------------------------------------ | :--------------------------- | :---------------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------- | | April 1, 2021 to April 30, 2021 | — | $— | — | | | May 1, 2021 to May 31, 2021 | — | — | — | | | June 1, 2021 to June 30, 2021 | 0.077 | $19.43 | 0.077 | | | Total | 0.077 | | 0.077 | $13.500 | - The company repurchased **0.077 million** shares of common stock for **$1.5 million** during the quarter ended June 30, 2021, under a **$15.0 million** share repurchase program announced on March 10, 2021[139](index=139&type=chunk)[161](index=161&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities during the reporting period. - No defaults upon senior securities are reported[163](index=163&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company. - Mine safety disclosures are not applicable to the company[164](index=164&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report. - No other information is reported[165](index=165&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section provides an index to the exhibits filed as part of the Form 10-Q, including various certifications and XBRL documents. - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[167](index=167&type=chunk) [Signatures](index=35&type=section&id=SIGNATURES) This section contains the official signatures of the company's President and Chief Executive Officer, and Executive Vice President, Chief Financial Officer and Treasurer, certifying the report. - The report is signed by Terrence O. Moorehead, President and Chief Executive Officer, and Joseph W. Baty, Executive Vice President, Chief Financial Officer and Treasurer, on August 5, 2021[172](index=172&type=chunk) ```

Financial Data and Key Metrics Changes - Consolidated first quarter net sales reached $102.4 million, a 7% increase compared to $95.9 million in Q1 2020, marking the third consecutive quarter of net sales over $100 million [52][60] - Adjusted net income attributable to common shareholders increased 68% to $4.1 million, while adjusted EBITDA rose 20% to $11.6 million, the highest first quarter EBITDA in the company's history [12][48][60] - Gross margin decreased to 73.7% from 74.3% in the prior year, attributed to inventory reserves and supply chain challenges [57][60] Business Line Data and Key Metrics Changes - North America reported a 3% decrease in sales, with NSP US sales down 1%, following strong growth in previous quarters [13][55] - Asia saw a 16% increase in net sales to $35.8 million, with China and Japan growing 38% and 44% respectively [53][54] - Europe experienced an 8% increase in net sales to $22.2 million, with Poland showing a remarkable 40% growth in local currency [54][23] - Latin America reported a 21% increase in local currency sales to $6.7 million, driven by successful transformation initiatives [56][26] Market Data and Key Metrics Changes - North America sales were impacted by tough comparisons from Q1 2020 due to stockpiling during the pandemic [55] - In Asia, Taiwan's sales surged 285% in local currency, while Korea faced a 16% decline due to ongoing pandemic restrictions [18][19] - Europe saw a modest 2% sales decrease in Western Europe due to COVID restrictions, but Poland's strong performance offset some of these challenges [23][54] Company Strategy and Development Direction - The company is focused on five global growth strategies: brand power, field energy, digital-first, Manufacturing, Inc., and the right stuff, which are driving record-breaking performance [11][31] - A relaunch in Western Europe is planned for the second half of 2021, including new branding and enhanced field support [25] - The introduction of a personalization program aims to improve customer compliance and increase sales through tailored health packs [42][44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's operational and financial foundation despite supply chain pressures and ongoing pandemic challenges [30][28] - The company anticipates continued growth and strong results, with a focus on strategic investments to support customer acquisition and activation [49][62] - Management is cautious about providing full guidance due to ongoing transformation and COVID-related uncertainties, but remains optimistic about momentum [88] Other Important Information - The company received six Stevie awards from the American Business Awards, recognizing achievements in various categories [6] - The company has a cash reserve of $91.3 million and plans to allocate funds for strategic investments and shareholder returns [61][50] Q&A Session Summary Question: Update on CapEx guidance - The company expects CapEx to be around 2 times the spending of 2020, with an increase anticipated in subsequent quarters [67][68] Question: Metrics for Subscribe and Thrive and affiliate program - Management confirmed that they are tracking metrics for both programs and expect to see significant movement in the future [69][70][74] Question: Impact of gross margin changes - The gross margin decline was approximately 60 basis points, with some impact attributed to pandemic-related costs [75] Question: Timing for Korea market recovery - Management expects some relief in the Korean market soon, but full potential will not be realized until restrictions ease [85][86] Question: Guidance on future performance - Management is not ready to provide solid guidance yet but is confident in the business's momentum and transformation initiatives [88] Question: Share buyback targets - The company has set aside $15 million for share repurchase and intends to use it wisely, with no specific targets disclosed yet [91][93]