Nature's Sunshine(NATR) - 2019 Q2 - Quarterly Report

Part I. Financial Information Financial Statements (Unaudited) This section presents Nature's Sunshine Products' unaudited condensed consolidated financial statements for Q2 and H1 2019, including balance sheets, income statements, cash flows, and notes Condensed Consolidated Balance Sheets Total assets increased to $216.3 million from $193.0 million at year-end 2018, driven by operating lease right-of-use assets, with liabilities and equity also rising Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $46,341 | $50,638 | | Total current assets | $105,589 | $106,825 | | Operating lease right-of-use assets | $26,361 | — | | Total assets | $216,251 | $193,016 | | Liabilities & Equity | | | | Total current liabilities | $63,605 | $66,687 | | Total operating lease liabilities | $27,659 | — | | Total liabilities | $91,513 | $72,448 | | Total shareholders' equity | $124,738 | $120,568 | Condensed Consolidated Statements of Income Q2 2019 net sales slightly decreased to $90.7 million, while operating income more than doubled to $4.5 million, and net income significantly increased for both the quarter and six-month period Three Months Ended June 30, (in thousands, except per share data) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net sales | $90,724 | $91,266 | | Gross profit | $66,859 | $66,988 | | Operating income | $4,538 | $2,186 | | Net income attributable to common shareholders | $2,689 | $67 | | Diluted EPS | $0.14 | $0.00 | Six Months Ended June 30, (in thousands, except per share data) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net sales | $181,996 | $178,608 | | Gross profit | $134,702 | $131,617 | | Operating income | $7,516 | $3,067 | | Net income attributable to common shareholders | $4,446 | $565 | | Diluted EPS | $0.23 | $0.03 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $1.1 million for H1 2019, a shift from cash provided in 2018, leading to a $4.3 million decrease in cash and cash equivalents Cash Flow Summary for Six Months Ended June 30, (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,144) | $9,437 | | Net cash used in investing activities | $(2,774) | $(113) | | Net cash used in financing activities | $(193) | $(5,526) | | Net (decrease) increase in cash | $(4,297) | $3,988 | | Cash and cash equivalents at end of period | $46,341 | $46,898 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, including the adoption of the new lease standard, Q2 2019 segment realignment, revenue recognition, and tax positions - Effective January 1, 2019, the company adopted the new lease accounting standard (ASU 2016-02, Topic 842), resulting in the recognition of $23.1 million in operating lease right-of-use assets and $24.0 million in lease liabilities[34][69][70] - In Q2 2019, the company realigned its operating segments from a brand-based structure to four geographic segments: Asia, Europe, North America, and Latin America and Other[62] - As of June 30, 2019, the company had accrued $2.2 million for unrecognized tax positions and noted that its 2017 U.S. federal income tax return is under audit by the IRS[80] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 and H1 2019 financial performance, highlighting sales trends, segment realignment, improved operating income from lower SG&A, and liquidity Results of Operations Q2 2019 net sales decreased to $90.7 million, while operating income significantly increased by 107.6% to $4.5 million, driven by reduced SG&A expenses Consolidated Operating Results - Q2 2019 vs Q2 2018 (in thousands) | Metric | Q2 2019 | Q2 2018 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $90,724 | $91,266 | (0.6)% | | Operating income | $4,538 | $2,186 | 107.6% | | Net income (loss) | $2,629 | $(62) | 4,340.3% | - SG&A expenses decreased by $2.3 million in Q2 2019 compared to Q2 2018, primarily due to restructuring efforts and headcount reductions[105][127] - The weakening of the U.S. dollar had an unfavorable impact of $2.6 million on net sales in Q2 2019; excluding this, net sales would have increased by 2.3%[104][113] Segment Performance Analysis Europe showed strong sales growth in Q2 2019, while Asia grew in local currency, offsetting declines in North America and Latin America Net Sales by Segment - Q2 2019 vs Q2 2018 (in thousands) | Segment | Q2 2019 | Q2 2018 | % Change (USD) | % Change (Local Currency) | | :--- | :--- | :--- | :--- | :--- | | Asia | $35,162 | $35,767 | (1.7)% | 4.1% | | Europe | $15,075 | $13,922 | 8.3% | 11.1% | | North America | $34,620 | $35,518 | (2.5)% | (2.3)% | | Latin America and Other | $5,867 | $6,059 | (3.2)% | (1.6)% | | Total | $90,724 | $91,266 | (0.6)% | 2.3% | Distributor and Customer Metrics Active Managers slightly decreased, while active distributors and customers increased to 232,000, with new customer acquisition showing positive trends Active Managers, Distributors & Customers as of June 30, | Category | 2019 | 2018 | | :--- | :--- | :--- | | Active Managers | 12,900 | 13,100 | | Active Distributors & Customers | 232,000 | 217,200 | New Managers, Distributors & Customers for Three Months Ended June 30, | Category | 2019 | 2018 | | :--- | :--- | :--- | | New Managers | 1,500 | 1,800 | | New Distributors & Customers | 59,000 | 50,200 | Liquidity and Capital Resources The company maintains a solid liquidity position with $46.3 million in cash and $42.0 million in working capital, with no outstanding revolving credit facility balance - Working capital was $42.0 million as of June 30, 2019, compared to $40.1 million as of December 31, 2018[151] - As of June 30, 2019, the company had $46.3 million in cash, with $38.5 million held in foreign markets[151] - There was no outstanding balance under the $25.0 million revolving credit facility as of June 30, 2019, and the company was in compliance with all debt covenants[156][158] Quantitative and Qualitative Disclosures about Market Risk The company's financial results are exposed to market risks, primarily from fluctuations in foreign currency exchange rates and interest rates - The company identifies its primary market risks as fluctuations in currency exchange rates, interest rates, and other uncertainties inherent in its international business operations[176] Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, evaluated disclosure controls and procedures and found them to be effective as of June 30, 2019[177] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[178] Part II. Other Information Legal Proceedings The company reported no new material legal proceedings - None[181] Risk Factors There have been no material changes to the company's risk factors since its 2018 Annual Report on Form 10-K - There have been no material changes to the company's risk factors since the filing of its Annual Report on Form 10-K for the year ended December 31, 2018[182] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None[183] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - Exhibits filed with this report include CEO and CFO certifications under SEC Rule 13a-14(a) and Section 1350, as well as XBRL Instance Documents[187]