Nature’s Sunshine Products Reports Third Quarter 2017 Financial Results

• Third quarter net sales of $89.3 million were up 4.5 percent year-over-year 
• Net income of $2.4 million attributable to common shareholders, or $0.13 per diluted common share during the third quarter
• Third quarter Adjusted EBITDA of $4.7 million

Nature’s Sunshine Products, Inc., a leading natural health and wellness company engaged in the manufacture and direct selling of nutritional and personal care products, is reported its financial results for the third quarter ended September 30, 2017.

Management Commentary

“We are pleased to report improved third quarter sales performance, returning to both year-over-year and sequential growth led by a recovery at Synergy Worldwide and strong growth in China,” commented Gregory L. Probert, Chairman and Chief Executive Officer. “The disruptions that impacted sales earlier in the year have moderated with enhanced distributor engagement in Korea and improvements in the performance in North America. We will continue to focus on regaining sales growth in these two markets while driving continued growth in China as we expand our direct selling efforts. The growth at Synergy Worldwide was led by strength in Japan and our NSP business in Russia, Central and Eastern Europe contributed another quarter of growth.”

Mr. Probert continued, “After a period of significant investments, both in China and the ERP system implemented earlier this year, we are now focused on leveraging our China investments to build a long-term profitable and growing business in this promising market. Additionally, we have made significant progress migrating to the new ERP system after a period of disruptions and still have opportunities for improvement. Accordingly, we are continuing our efforts to ensure improved conversion of sales growth into profit enhancements that will drive shareholder value.”

Third Quarter 2017 Financial Highlights

• Net sales of $89.3 million increased 4.5 percent, compared to $85.4 million in the third quarter of 2016. On a local currency basis, net sales increased 4.3 percent as compared to the third quarter of 2016. China and New Markets net sales increased approximately 44.5 percent, compared to the same period in 2016. Synergy WorldWide net sales increased approximately 10.0 percent compared to the same period in 2016 (or 10.7 percent in local currencies). NSP Russia, Central and Eastern Europe net sales increased approximately 11.0 percent compared to the same period in 2016. NSP Americas net sales decreased approximately 4.5 percent compared to the same period in 2016 (or 5.2 percent in local currencies). Net sales were impacted by $0.2 million of favorable foreign currency exchange rate fluctuations.The Company began the initial implementation of its Oracle ERP system on April 2, 2017, for the Company’s NSP Americas segment as well other corporate operations. The implementation of Oracle ERP negatively impacted net sales and profitability during the second and third quarters of 2017, primarily by causing wait times for calls into the Company’s call center to be longer than usual and by causing difficulties within the Company’s on-line product ordering system. The Company is addressing these issues and other issues relating to the implementation of the Oracle ERP system. The Company anticipates that the implementation of the Oracle ERP system may continue to negatively impact net sales and profitability going forward.In the second quarter of 2016, the Company began making pre-opening product sales through Hong Kong while awaiting its direct selling license in China. During the second quarter of 2017, the Company received its direct selling license in China, which allows the Company to expand its business scope in China to include direct selling activities.
• Net income attributable to common shareholders was $2.4 million, or $0.13 per diluted common share, compared to net income of $4.2 million attributable to common shareholders, or $0.22 per diluted common share, in the third quarter of 2016.
• The Company’s net loss in China attributable to common shareholders was approximately $0.03 per share.
• Adjusted EBITDA was $4.7 million, compared to $7.1 million in the third quarter of 2016. Adjusted EBITDA, which is a non-GAAP financial measure, is defined here as net income from continuing operations before income taxes, depreciation, amortization, share-based compensation expense and other income/loss.

First Nine Months of 2017 Financial Highlights

• Net sales of $253.7 million decreased 1.3 percent, compared to $257.2 million in 2016. On a local currency basis, net sales decreased 1.5 percent as compared to 2016. China and New Markets net sales increased approximately 37.2 percent compared to the same period in 2016. NSP Russia, Central and Eastern Europe net sales increased approximately 12.4 percent compared to the same period in 2016. NSP Americas net sales decreased approximately 5.9 percent compared to the same period in 2016 (or 6.0 percent in local currencies). Synergy WorldWide net sales decreased approximately 2.2 percent compared to the same period in 2016 (or 2.4 percent in local currencies). A modest overall weakening of the U.S. dollar versus local currencies resulted in an approximate 0.2 percent or $0.4 million increase of its net sales during the period.
• Net income attributable to common shareholders was $4.4 million, or $0.23 per diluted common share, compared to $8.8 million, or $0.46 per diluted common share, in 2016.
• The Company’s net loss in China attributable to common shareholders was approximately $0.15 per share.
• Adjusted EBITDA was $12.2 million compared to $17.4 million in 2016.

Third Quarter 2017 and 2016 Regional Sales by Operating Segment

Nine Months of 2017 and 2016 Regional Sales by Operating Segment

Active Distributors and Customers by Segment as of September 30 ⁽¹⁾

(1) Active Distributors and customers include Nature’s Sunshine Products’ independent Distributors and customers who have purchased products directly from the Company for resale and/or personal consumption during the previous three months ended as of the date indicated.  Total Managers, Distributors and Customers, which include those who have made a purchase in the last twelve months, was 498,000 as of September 30, 2017.

In China, the Company does not sell its products through Managers and Distributors, but rather through independent service providers who are compensated for marketing, sales support, and other services.

Cash Flow and Balance Sheet Highlights

• Net cash provided by operating activities was $8.0 million for the nine months ended September 30, 2017, as compared to $5.1 million for the nine months ended September 30, 2016.
   
• Total assets on September 30, 2017 were $222.2 million, compared to $205.6 million on December 31, 2016.

Conference Call

Nature’s Sunshine Products will host a conference call to discuss its third quarter 2017 results on November 8, 2017 at 5:30 PM Eastern Time. The toll-free dial-in number for callers in the U.S. and Canada is 1-877-423-9813, conference ID: 13672822. International callers can dial 1-201-689-8573, conference ID: 13672822. A replay will be available from November 8, 2017 at 8:30 PM Eastern Time through November 22, 2017 at 11:59 PM Eastern Time by dialing 1-844-512-2921 (U.S. and Canada) or 1-412-317-6671 (International), replay PIN: 13672822. The call will also be webcast live and will be available on the Investors section of Nature’s Sunshine Products’ website at www.naturessunshine.com for 90 days.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements regarding the Company’s future business expectations, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, statements relating to the Company’s objectives, plans and strategies. All statements (other than statements of historical fact) that address activities, events or developments that the Company intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are often characterized by terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions, and are based on assumptions and assessments made by management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, including the following.

• changes in laws and regulations, or their interpretation, applicable to direct selling or the nutritional supplement industry may prohibit or restrict the Company’s ability to sell its products in some markets or require the Company to make changes to its business model in some markets;
• legal challenges to its direct selling program or to the classification of its independent distributors;
• complex legal and regulatory requirements in China, including the failure to obtain the necessary approvals and licenses to expand its direct sales activities in China;
• extensive government regulations to which its products, business practices and manufacturing activities are subject;
• the impact of anti-bribery laws, including the U.S. Foreign Corrupt Practices Act;
• the full implementation of its joint venture for operations in China with Fosun Industrial Co., Ltd.;
• registration of products for sale in China, or difficulty or increased cost of importing products into China;
• its business practices in some of the jurisdictions in which it operates, including China and South Korea, where the business practices may be legal and compliant with local and foreign law, but still draw unnecessary media or regulatory attention;
• its ability to attract and retain independent distributors;
• the effect of fluctuating foreign exchange rates;
• negative consequences resulting from difficult economic conditions, including the availability of liquidity or the willingness of its customers to purchase products;
• geopolitical issues and conflicts;
• restrictions on the repatriation of money;
• uncertainties relating to the application of transfer pricing, duties, value-added taxes, and other tax regulations, and changes thereto;
• changes in tax laws, treaties or regulations, or their interpretation;
• taxation relating to its independent distributors;
• high levels of inflation in one or more of the countries in which the Company operates;
• cyber security threats and exposure to data loss;
• reliance on information technology infrastructure;
• liabilities and obligations arising from improper activity by its agents, employees or independent distributors;
• its relationship with, and its inability to influence the actions of, its independent distributors, and other third parties with whom it does business;
• its reliance upon, or the loss or departure of any member of, its senior management team;
• challenges in managing rapid growth in China;
• the slowing of the Chinese economy;
• negative effects from its independent distributor promotions or compensation plans;
• risks associated with the manufacturing of the Company’s products;
• availability and integrity of raw materials;
• obsolescence of product inventory;
• changing consumer preferences and demands;
• the competitive nature of its business and the nutritional supplement industry;
• negative publicity related to its products, ingredients, or direct selling organization and the nutritional supplement industry;
• product liability claims;
• the sufficiency of trademarks and other intellectual property rights; and
• reliance on third-parties to distribute its products and provide support services to independent distributors.

These and other risks and uncertainties that could cause actual results to differ from predicted results are more fully detailed under the caption “Risk Factors” in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports filed on Forms 10-Q.

All forward-looking statements speak only as of the date of this press release and are expressly qualified in their entirety by the cautionary statements included in or incorporated by reference into this press release. Except as is required by law, the Company expressly disclaims any obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this press release.

Non-GAAP Financial Measures

The Company has included information which has not been prepared in accordance with generally accepted accounting principles (GAAP), such as information concerning Adjusted EBITDA and net sales excluding the impact of foreign currency exchange fluctuations.  Management utilizes the non-GAAP measure Adjusted EBITDA in the evaluation of its operations and believes that this measure is a useful indicator of the Company’s ability to fund its business. This non-GAAP financial measure should not be considered as an alternative to, or more meaningful than, U.S. GAAP net income (loss) as an indicator of the Company’s operating performance.  Moreover, Adjusted EBITDA, as presented by the Company, may not be comparable to similarly titled measures reported by other companies.

In addition, the Company believes presenting the impact of foreign currency fluctuations is useful to investors because it allows a more meaningful comparison of net sales of its foreign operations from period to period. Net sales excluding the impact of foreign currency fluctuations should not be considered in isolation or as an alternative to net sales in U.S. dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with U.S. GAAP.

Other companies may use the same or similarly named measures, but exclude different items, which may not provide investors with a comparable view of Nature’s Sunshine Products’ performance in relation to other companies. The Company has included a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, in the attached financial tables.

* Other income, net, is primarily comprised of foreign exchange gains (losses), interest income, and interest expense.

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