Natures Sunshine Products Inc Q4 FY2021 Earnings Call

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Nature's Sunshine's Financial Results for the Fourth Quarter and Full-Year ended December 31, 2021. Today's call is being recorded. Joining us today are Nature's Sunshine's CEO, Terrence Moorehead; CFO, Joseph Baty; and Executive Vice President and General Counsel, Nathan Brower. Following their remarks, we will open the call for your questions. Before we go further, I would like to turn the call over to Mr. Brower as he reads the Company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Nathan, please go ahead.

Yes. Thank you. Good afternoon, and thanks for joining our conference call to discuss fourth quarter and full-year 2021 financial results. I'd like to remind everyone that this call is available for replay via telephonic dial-in through March 22 and a live webcast will be posted in our Investor Relations section of our website at naturessunshine.com. The information on this call may contain certain forward-looking statements. These statements are often characterized by terminologies such as believe, hope, may, anticipate, expect, will, and other similar expressions. Forward-looking statements are not guarantees of future performance, and the actual results may be materially different from the results implied by forward-looking statements. Factors that could cause results to differ materially from those implied herein 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 information on this call speaks only as of today's date, and the Company disclaims any duty to update the information provided herein. Now I would like to turn the call over to the CEO of Nature's Sunshine, Terrence Moorehead. Terrence?

Thank you, Nate, and good afternoon, everyone. I appreciate you joining us today. I am pleased to share our fourth quarter and full-year 2021 results with you. Before I get into the results, I just want to take a moment to share a few thoughts on the situation in Ukraine. As the past two weeks have been a harrowing experience for our friends, partners, and colleagues in the region, we unequivocally support the Ukrainian people's effort to live, grow, and work in a free and peaceful society. Our hearts go out to our distributors, the people of Ukraine and peace-loving people everywhere as we watch the situation unfold. This is a very personal issue for us at Nature's Sunshine because we have longstanding relationships with people whose lives are directly impacted by what's happening there. Our Ukrainian distributors and customers have been dedicated to Nature's Sunshine for over 20 years. They are friends and an important part of Nature's Sunshine's family, and we care for them deeply. As such, it's our time to step up, give back, and care for them in their time of need. Through our Impact Foundation, Nature's Sunshine will be making charitable contributions to ensure that our distributors and the Ukrainian people have the critical lifesaving assistance they need during these challenging times. We are working with our management team on the ground and several global partners to do whatever we can to keep our people safe and support the Ukrainian people. Through our resources on the ground, we continue to monitor the situation closely, but the situation is fluid and evolving day-to-day. Obviously, our first priority is to ensure that our people are safe and healthy, and we will continue to do whatever we can to help them get through this. Now, let me move on to talk about our fourth-quarter and full-year results for 2021, as the strength and momentum of our business continue to build. The fourth quarter of 2021 was our sixth consecutive quarter of historic record-breaking net sales and growth. Consolidated fourth quarter net sales came in at $118 million, up 16% year-over-year or 17% in local currency. Our Asian, European, and North American operating business units all reported strong growth for the quarter, led by Asia with 36% growth in local currency. We also delivered strong bottom-line results as adjusted EBITDA increased significantly to $11.6 million, which is a 55% increase versus prior year. Similarly, for the full-year, we reported record sales of $444 million, representing a 15% increase compared to 2020 and the largest sales in the 50-year history of our company. The increase was driven by growth across all of our OBUs and strong execution of our five global growth strategies. On the bottom line, we increased gross margin by 16%, operating income was up 61%, and adjusted EBITDA increased 37% for the year despite facing some of the most intense supply chain pressures in our 50-year history. Strong results are evidence that we continue to build momentum and that our strategies are working. As a reminder, we are still at the beginning of our journey, having launched our new business model and strategies late in 2020. The new business model has proven to be a powerful customer growth driver that has allowed us to excite and engage new and existing customers. As we move forward, we are committed to improving all aspects of our business, both top and bottom line. At this point, I'd be remiss if I didn't briefly pause to recognize and thank our incredible management team for their efforts in delivering our sixth consecutive quarter of record sales while dealing with the pandemic and a global supply chain crisis. Again, we are still in the early stages of our transformation, but I am excited to have such a great team here at Nature's Sunshine that's on a mission to share the healing power of Nature with more and more people across the globe. Now, I'd like to share a few of the key highlights from each of our OBUs in the fourth quarter. In Asia, sales for the quarter grew 36% in local currency, driven by 31% growth in Japan and 57% growth in China on a local currency basis. South Korea saw a 6% sales decrease on a local currency basis in the quarter, primarily due to government restrictions related to COVID-19. The launch of targeted incentives to drive order growth, along with the successful launch of several new l'amara products, our innovative natural skincare line, helped offset some of the challenges posed by the COVID-19 restrictions. Again, in China, we continue to deliver solid double-digit growth with a 57% sales increase in local currency. We continue to leverage our digital toolkit, build omnichannel capabilities, and improve our social media presence using tools like TikTok to drive growth. We are extremely pleased with how our business has progressed in China, and we believe we still have tremendous growth potential in the market. Moving to Japan, we are reporting our eighth consecutive quarter of growth with sales up 31% for the quarter and 37% for the year in local currency. The fourth quarter increase was driven by order growth from strong new customer acquisition. Our Japanese team has been aggressively promoting our Subscribe and Thrive auto-ship program, which now represents 50% of sales. This is important not only because customers have the opportunity to more effectively improve their health, but it also supports incremental sales growth. Finally, Taiwan continues to deliver strong breakthrough performance with 329% growth on a local currency basis in the quarter. Our highly motivated team of distributors continues to compete for the top sales position, driving order growth through new customer acquisition. The focus on field fundamentals is paying off as distributors are using a more disciplined approach to build their businesses and manage customer relationships. Overall, we are extremely pleased with the progress we've made in Asia, and we look forward to continued growth in 2022. In North America, sales increased 6% in the fourth quarter, reflecting the positive momentum we have seen since the launch of our new business model and the introduction of our rebranding initiatives, our new digital tools, and our Subscribe and Thrive auto-ship program. During the quarter, we also got a boost from several new holiday campaigns, including Black Friday, Cyber Monday, and a 12 days of wellness promotion campaign. Overall, this was the region's strongest quarter of growth for 2021, and our DTC business generated more revenue in the fourth quarter than the second and third quarters combined. By market, NSP U.S. and Canada were up 7% driven by an intensified focus on customer growth that increased demand through our nutritional supplements. We are very pleased with NSP's growth in the U.S. and Canada and the positive effects our initiatives are having on our business. Overall, North America has gone through a tremendous amount of transformation in the last year, as we've completely relaunched the business with the new model. We are still in the early days, but we continue to listen to feedback from our customers, practitioners, and retailers to fine-tune and improve the customer experience and enhance the brand's overall consumer appeal. In Europe, we delivered another quarter of double-digit growth as sales grew 12% on a local currency basis. The growth was led by our markets in Central and Eastern Europe. Poland had the highest sales growth in the region, reporting a 26% increase for the fourth quarter on a local currency basis and a 33% increase in local currency for the full-year. The growth was driven by the team's execution of our growth strategies, which led to strong growth in both orders and average order. New product launches like CoQ10 and the grand opening of a new retail store in Warsaw also helped fuel growth for the quarter. Russia increased 16% in local currency for the quarter, driven by strong customer growth and the success of our new product packaging. During the quarter, we continue to see expansion into new markets and improve penetration across the business. While we are pleased with the team's accomplishments, our attention is obviously on the current state of affairs. As discussed at the beginning of the call, we are all saddened by what's happening in the region, and the war in Ukraine weighs heavily on our minds. Our thoughts and best wishes are with the great people of Ukraine and all of our wonderful partners throughout the region. While the situation is dynamic, the business is obviously impacted by this. Countries are not receiving new shipments, but they do have anywhere from three to five months of inventory based on historical consumption rates. Our CFO, Joe Baty, will share more insights with you after my remarks, and we will keep you updated as we learn more. Moving to Western Europe, sales were down 15% in the fourth quarter and down 6% for the full-year on a local currency basis. Remember, we still haven't launched our transformation initiatives in Western Europe, so Q4 results are largely in line with expectations. As we begin to introduce the major components of the new business model, we should expect to see positive momentum building across that business. Finally, in Latin America, our business was down 12% in local currency in the fourth quarter, driven by government-imposed COVID restrictions and a temporary systems issue that prevented retail sales from being processed in a timely manner. The systems issue is being addressed, and we will monitor COVID restrictions closely. For the full year, sales increased in LATAM by 11% versus the prior year in local currency, and the business has responded well to our transformation initiatives. To support the local management team and to ensure that we get our fair share of this large dynamic growth market, we are pleased to have announced Vallen Blackburn as the new Head of LATAM. As we intensify our focus on Latin America, we believe Vallen’s experience and disciplined leadership style will help drive continued progress in the region. The strong performance across our OBUs for the fourth quarter and full year contributed to our historic results and demonstrates the effectiveness of our global strategies in driving sales and profitability. As we look at 2022, we look forward to building on the momentum behind our strategies. With that said, I'd now like to move on to discuss our progress on our five global growth strategies, starting with brand power. I'm pleased to announce that we are already 90% finished with our global repackaging efforts, which were a key part of the rebranding initiative. The new packaging and marketing collateral have been extremely popular with customers and distributors around the world, receiving high praise for creating something that not only speaks to the authentic spirit of Nature's Sunshine but also brings new life and excitement to the brand. The rebranding has been an important growth driver for the business, and our analysis suggests that the new packaging, branding, and the Force of Nature campaign combined to successfully drive activation among both existing and new customers. Brand building initiatives will continue to be a key part of our growth strategy moving forward. New product launches were also an important component of our brand power strategy. The introduction of health basics like Collagen, CoQ10, and Vitamin D3 in select markets were important additions to the portfolio. We also diversified the product line to include a new line of clean beauty products under the l'amara brand name. Our R&D and marketing teams worked on the l'amara concept for almost two years, evaluating product profiles, reviewing ingredient stories, and developing a go-to-market strategy. l'amara is distinguished by its clean ingredient story that combines innovative ingredients from the land and sea. It was a very successful launch with strong sales in South Korea, Japan, and the U.S. On Field Energy, we continue to fine-tune and improve the effectiveness of important programs like Subscribe and Thrive and our affiliate program. The initial launch of each of these programs delivered significant learnings, and we are in the process of introducing Phase II enhancements designed to improve consumer appeal, user experience, and ease of use. Subscribe and Thrive is a powerful way to drive order growth and increase the lifetime value of customers while helping customers improve their health. In addition to functional and process changes, we are also increasing our promotional efforts to increase awareness and acceptance of the program. Similarly, our focus on affiliates will be strengthened with several Phase II enhancements designed to improve targeting, enhance the user experience, and make sharing easier. As part of our ongoing effort to improve field fundamentals, we've also launched a series of training programs and modules to support our distributors. In South Korea, for example, the team launched a new distributor app that provides access to sales training modules, product training, coaching, and business management courses. This type of automation, while not a replacement for face-to-face training, will be particularly helpful as we move forward with a broader array of training options. Turning to Digital First, we continue to build our digital capabilities and enhance our digital assets based on market feedback. Our web platform continues to strengthen as we add new capabilities and refine processes, and our plans to launch a new global digital platform are on track, with good progress being made. Importantly, our test and learn approach to DTC continues to pay dividends as we build momentum and refine our DTC strategy. We have accumulated nearly a year's worth of data on consumer preferences and buying trends and have analyzed the data to strategically allocate resources to maximize performance. As a result, in the fourth quarter of 2021, we generated more DTC sales than in the second and third quarters combined, as I mentioned. We will continue to focus on building our DTC business and look forward to seeing our distributors build their DTC businesses by leveraging the fully replicated websites and sharing tools available to them. Lastly, our new personalization initiative is up and running as a beta test. Since we are still in beta, I won't comment on our progress. However, I can say that in a world where consumers are increasingly aware that each person's health needs are unique, we are very excited about how our personalization program will help revolutionize the customer experience. Moving to Manufacturing, our supply chain team produced a record number of units in 2021, while continuing to deliver the highest level of quality and purity available, all during the global supply chain crisis. Fortunately, in anticipation of the challenges resulting from the pandemic, we made a strategic investment in inventory to protect demand and limit our exposure to market volatility. As demand for our products increased, we also invested in equipment upgrades to improve production capacity and throughput. The new state-of-the-art high-speed equipment will further enhance our capabilities, improve productivity, and strengthen the reliability of our supply chain. While many of these changes will have a greater impact in 2022, we've already seen an 8% boost in capacity at our main facility. As we move forward, we will continue to upgrade our industry-leading manufacturing capabilities and evaluate and assess our global supply chain footprint. We take great pride in our industry-leading manufacturing capabilities, which is a key component of our uniqueness and allows us to expertly craft each product to deliver the best supplements on the market. To that end, despite dealing with the global supply chain crisis and unprecedented labor market challenges, the team managed to lead recertification efforts for our industry-leading list of certifications. In the fourth quarter, they oversaw our ISO 9001, ISO 17025, USDA Organic, Halal, Kosher, and NSF certifications with the highest rating. As a result, we continue to lead the industry in this area. Finally, our Right Stuff initiatives continue to focus on building a high-performance organization. In the fourth quarter, we delivered another quarter of record-setting results, with operating profit increasing 235% to $7.5 million, while operating margins improved 420 basis points. Similarly, adjusted EBITDA increased 55% to $11.6 million for the quarter, with EBITDA margins increasing 240 basis points. As we move forward in 2022, we expect to continue making progress on the business as we execute our five global growth strategies and leverage our strong financial and operational foundation. We are closely watching conditions in Russia and surrounding markets, but I stress the importance of our growth strategies across markets. We believe our journey to transform Nature's Sunshine has just begun. It's our 50th anniversary this year, and we are at a crossroads for carrying the legacy of our founders forward while reimagining Nature's Sunshine business for the future. The strength of our business continues to improve our financial position, and our capital allocation plans are a key priority. As such, the Board of Directors has authorized us to increase our share buyback program by an additional $30 million. We are pleased with the progress of the business and believe an intensified focus on our five global strategies will continue to move our business in the right direction, helping us gain traction over time. Lastly, before I hand off to Joe, I'd like to share that we will shortly publish our Inaugural ESG Sustainability Report. Caring for the environment is central to what we do and that's why we prioritize reducing our environmental footprint and working with our farmers to support regenerative agricultural practices. Additionally, we are committed to caring for the people who help us take care of our customers. We ensure ethical labor practices throughout our supply chain, provide jobs around the world and give back to communities globally through our Impact Foundation. To build a leadership position in areas of sustainability and transparency, we've introduced a new global sustainability and transparency team led by one of our most capable experts, Trent McCausland, who has recently been appointed Global Vice President, Sustainability and Transparency. We are happy to share our initial ESG report and hope that you'll have a chance to read it. With that, I'd like to turn the call over to Joe, who will walk you through our fourth quarter and full-year 2021 financials in more detail. Joe?

Thank you, Terrence, and good afternoon, everyone. Net sales in the fourth quarter increased 16% to a company record of $117.9 million compared to $101.7 million in the year-ago quarter. This marks the sixth consecutive quarter of record net sales. As Terrence mentioned, this increase was primarily driven by growth across our Asia, Europe, and North America operating business units due to the continued execution of our business transformation initiatives, new product launches, and the increase in demand for nutritional supplements. Excluding foreign exchange rates, net sales increased 17% in the fourth quarter of 2021. On an absolute basis, net sales in Asia increased 33% to $49.2 million compared to $36.9 million in the prior year quarter. This represented a 36% increase on a local currency basis. The increase is primarily attributable to strong customer growth in Japan, China, and Taiwan supported by our digital toolset. Net sales in Europe increased 11% on an absolute basis to $26.1 million compared to $23.6 million in the year-ago quarter. This represented a 12% increase on a local currency basis. During the quarter and full year, Poland was our fastest growing European market as our team focused on strong field fundamentals and customer growth throughout Central and Eastern Europe. As Terrence mentioned, we are watching the Russia-Ukraine situation closely. We have significant operations in the Russia region that includes Russia, Ukraine, Belarus, and other common independent states. Net sales in the region were $61.4 million and $51.2 million respectively for 2021 and 2020. Related operating income was $5.8 million and $5 million respectively for 2021 and 2020. At least for 2022, the current situation poses significant risk to our business, and we continue to evaluate the impact. North America net sales increased 6% to $36.9 million compared to $34.7 million in the prior year period. The increase is attributed to business transformation efforts and success with our growth initiatives. Net sales in Latin America and other were $5.8 million compared to $6.6 million in the prior year period. This represented an 11% decrease on a local currency basis, primarily due to supply chain and systems-related challenges along with a tough comp for the fourth quarter since we reported 18% growth in the fourth quarter of 2020 from 2019. Gross margin was flat quarter-over-quarter at 74%. The supply chain pressures we faced, including port delays, raw materials shortages, or manufacturing capacity, present some of the toughest challenges that Nature's Sunshine has faced in its history. It's a true testament to our team's dedication and execution to report a stable gross profit margin for 2021. Volume incentives as a percentage of net sales were 29.1% compared to 34.1% in the year-ago quarter. The decrease is partially due to changes in market mix and growth in NSP China, where volume incentives are included in SG&A. The decrease also reflects cost savings from the September 2020 launch of our new consultant sales and compensation plan in North America and LATAM. Selling, general, and administrative expenses were $45.4 million compared to $38.4 million in the year-ago quarter. The increase was primarily attributable to higher costs associated with incremental variable service fees in China from net sales growth, the implementation of business transformation and sales growth initiatives in the U.S. and other markets, and direct selling costs associated with increased sales among other factors. As a percentage of net sales, SG&A expenses were approximately 38.5% in the fourth quarter of 2021 compared to 37.8% in the year-ago quarter. Excluding restructuring and other unusual expenses, SG&A expenses as a percentage of net sales were approximately 38.2% in the fourth quarter of 2021 compared to 37.1% in the year-ago quarter. Looking forward to 2022, we expect added SG&A costs from travel and events as the economy further reopens versus COVID constraints experienced in 2021 and 2020. Operating income in the fourth quarter increased 235% to $7.5 million, or 6.4% of net sales compared to operating income of $2.2 million, or 2.2% of net sales in the year-ago quarter. GAAP net income attributable to common shareholders for the fourth quarter was $13.4 million, or $0.67 per diluted share, compared to $5.9 million, or $0.29 per diluted share in the year-ago quarter. The year-over-year increase is primarily attributable to the strong sales from continued execution of the company's growth strategies together with a favorable income tax benefit. Adjusted EBITDA, as defined in our press release as net income from continuing operations before income taxes, depreciation, amortization, and other income or loss adjusted to exclude share-based compensation and certain noted adjustments increased 55% to $11.6 million in the fourth quarter compared to $7.5 million in the prior year period. Now shifting to a discussion regarding our liquidity and capital allocation plan. We had cash and cash equivalents at December 31 of $86.2 million and $2.4 million of debt. We remain healthy from a cash flow perspective, and our cash position reflects the impact of our share repurchases program. Share repurchases are one piece of our capital allocation plan, which aims to increase shareholder value. In 2021, we repurchased a total of 439,000 shares at an aggregate cost of $7.4 million. As noted in today's announcement, our Board of Directors authorized an additional $30 million for repurchases of the company's common shares. Beyond share repurchases, our capital allocation plan supports investments we are currently making as part of our business transformation. During the quarter, we increased inventory levels, higher by $3.5 million compared to the prior quarter, primarily reflecting an increase in raw materials and finished goods as we dynamically managed our inventory levels to meet demand and mitigate supply chain challenges. At December 31, 2021, our Russia and other regions had assets of approximately $6.8 million, primarily consisting of inventories and accounts receivable. The current situation poses risks to realizing full value for region-specific assets. Again, we continue to evaluate the impact. Additionally, we are making investments as part of our global growth strategies. As mentioned last quarter, these investments are expected to modestly increase our costs over the next few quarters, but we expect the long-term benefit of these investments to allow us to sustain our growth and drive operational improvements for years to come. Going forward, we are continuously assessing the capital allocation plan and are collaborating as a management team and with the Board to explore a variety of alternatives, both organic and inorganic, to ensure we use our capital effectively to drive customer acquisition and activation, ultimately increasing total shareholder value. I'd also like to share that during the year, we had a cross-functional initiative to minimize double taxation of foreign-based income. I'm happy to say that our work proactively repositioned Nature's Sunshine to address changes in U.S. tax laws and repatriate cash back to the U.S. As a result of this initiative, we recognized an income tax benefit of approximately $7 million in the fourth quarter of 2021. This benefit is expected to be realized as cash savings over the next five years. We continue to evaluate opportunities for further income tax savings. Before we jump into Q&A, I want to conclude by saying our team did a phenomenal job throughout 2021. Thanks to their strong execution, we achieved another quarter and year of record growth and improved profitability. For 2022, we are cognizant of the situation in Eastern Europe and the potential impact on our financial results. As Terrence mentioned, we are working closely with our team and partners to mitigate supply chain challenges. Supported by our strong balance sheet, our global growth strategies coupled with our team's excellence in achieving success lead to a very optimistic long-term future for Nature's Sunshine. Now I will turn it back over to the operator for Q&A.

Thanks, sir. And we will go to our first question from Linda Bolton-Weiser of D.A. Davidson.

Hello. How are you?

Hey, Linda.

Hello, Linda.

Hi. Yes. Congratulations, great quarter and year.

Thank you.

So can I just start with, I guess Russia and your exposure there and in Ukraine. So you quantified it, which is good. Can you just tell us what is going on right now? In other words, do you ship the products there from the U.S. or from where? And are you currently shipping? And yes, I mean, just kind of talk about exactly like what's going on right now?

Yes. So products leave from the U.S. and are manufactured at our Spanish Fork facility. Many of them have the same labeling as some of our U.S. products. However, we are not shipping products right now; the shipments are on hold. As I mentioned, they have, depending on consumption rates, about three to five months' worth of inventory on hand or in transit to them. So that's the status currently. People are still doing business over there where they can, but obviously Ukraine is different.

No, I think Terrence touched on it Linda. But obviously, as I pointed out in my comments that our business is impacted by this overall situation. It's good that we have some inventory on the ground there, but there are still challenges in trying to get the inventory into the right hands. As we sit here today, we are not shipping any further product, and we'll just have to continue to evaluate and see how the situation evolves. But as I noted, it’s a significant business for us in 2021, $61 million plus in revenues and almost $6 million in operating income.

Yes. Of those figures you mentioned, the $61 million, is the vast majority of that from Russia or what percentage is Ukraine of that amount?

It’s all the above. We call it Russia and other, but it includes Russia, Ukraine, Belarus, Moldova, and a couple of other markets there. But the primary ones are Russia, Ukraine, and Belarus.

And Ukraine is about a third, roughly a little bit more than a third.

Ukraine is a third?

It's a little bit more than a third of the sales.

Yes. It's 30-40% of the total. So somewhere in there, there’s a little bit of flexibility.

And in Russia, I'm just curious, is it mostly like distributors or little stores or direct selling reps type of distribution?

I'm sorry, could you repeat that, Linda? I couldn't hear you.

Like in Russia, is it mostly little stores or distributors or direct selling reps that are doing the selling to consumers?

So they have quite a network of retail distribution centers scattered across the country. They also have representatives who go in and get their products and sell to their customers as well. But the bulk of it is through these retail centers. They also have a fair amount of digital business that they've historically driven.

Okay. And then, so you've done a great job with your gross margin and great challenges; it was flat in the quarter, which is very impressive. Can you remind us, have you taken pricing? And if you had to – I know you don't want to give guidance, but are you hopeful you can maintain that gross margin in 2022?

We have not taken any meaningful pricing yet. There is a pricing initiative in the U.S. coming in April, which should provide some uplift to combat inflationary pressures. Joe, additional?

No. Did we answer your question there Linda, or...

No, there's a second part that I missed.

Yes, I think there was a second part that...

Well, I know you don't want to give guidance. You're not doing that yet. But I mean, in the sense that you've had initiatives and you've had things that have offset, can that continue so you can maintain gross margin or do you think you will face more pressure in 2022?

Well, we believe there is a pending price increase for North America. We believe that will help offset certain inflationary pressures. Obviously, as we've discussed, we believe our proactive approach to bringing in more raw materials with our inventories up year-over-year, that will also help hedge against inflationary pressures. So you're right. We're not necessarily giving guidance, but as we sit here today, subject to other things that may happen over in Eastern Europe, we feel pretty good about our ability to maintain a relatively consistent gross profit margin in 2022.

Okay. Thank you. And then your performance in Asia is really impressive because some other companies did face widespread impacts from lockdowns. Maybe you could just mention that more in South Korea. Is there something different about South Korea, or when do you think that the growth there will start to improve in terms of positive growth in South Korea?

Yes. I think the real difference in South Korea is the government restrictions that they have versus other regions. One of the restrictions is on group size and meetings; you can only have five people together in a room. The fundamental processes of that business heavily rely on face-to-face contact and training, typically driven by incentive events. Without those types of promotions and business-building activities, it's been somewhat of a challenge for the team in South Korea. We haven’t seen those restrictions in Taiwan and Japan, which are using similar tactics but have also adapted better digitally, appealing to a younger demographic who are employing various tools. As I mentioned, Japan has a robust subscription auto-ship program, where 50% of revenues are locked in. Every new person adds on top of that is incremental, which is fantastic. The team in Japan is doing hard work, contrasting it with Taiwan's competitive spirit, where everyone wants to outperform each other, thus rapidly growing their customer bases. China is leveraging omnichannel capabilities using platforms like TikTok to penetrate the market. There are different practices and opportunities in these various markets in Asia. The positive news is, all things being equal, those fundamentals and that momentum should carry-forward in 2022. As soon as we see some of those restrictions ease in South Korea, we expect to see some positive movement.

Okay. And then...

Yes. We feel really good about Asia, and obviously North America, as well, with the momentum we’re seeing in our DTC opportunity; the team is doing a phenomenal job building out those digital capabilities. Our retail and practitioner business is also showing more stability and is expected to strengthen going forward.

Right. Great. And just one last question regarding your share repurchase, that's a significant amount, and quite frankly, I didn't anticipate as much in free cash flow projections for the next year, but maybe I need to raise it. But is that going to be just paying for it out of your internally generated cash flow? Or do you think you could put some debt on the balance sheet to fund that share repurchase?

Would you like to tackle that one, Joe?

No. I mean, I guess it depends somewhat on the buying opportunity, Linda. But as we sit here today, I wouldn't anticipate that we would borrow much for that. So the expectation is that we would be funding those repurchases from a combination of existing cash and ongoing free cash flows.

Is it over a year or is...

No, it's not specified. I would update you that we implemented the initial share repurchase about one year ago for about $15 million, and we have less than $1 million available. So we’re reloading with the $30 million, and we will see if that's all utilized in one year, depending on buying opportunities. We appreciate the Board's support, and we feel very good about our financial health and ability to continue generating cash.

Okay. Well, sounds good. I'll leave it there, and good luck in the next year.

Thank you. Thanks, Linda.

Thank you, Linda.

And we'll go next to Steven Martin of Slater.

Hi, there guys.

Hey, Steve. How’s it going?

Pretty good, and congratulations once again on a great quarter.

Thank you.

And I do appreciate the aggressiveness on the buyback and the aggressiveness on the new buyback. So you've lived up to all the expectations and commitments. The fourth quarter EBITDA margin – the full-year EBITDA margin entered double digits. The fourth quarter always seems to be light. Is there something about the fourth quarter that causes that?

Yes. We frequently have expenses, whether before events or accruals that arise as performance ramps up. If we're overperforming, there may be some accruals added in. But yes, in the fourth quarter, there are usually types of either events or conferences, conventions that may happen, that don't occur earlier in the year. Joe, do you have additional commentary around that?

No, it's well said. I mean, there’s a timing issue; it’s a fair question. Also, the final accrual and true-up of employee-related costs play a role, based on how the year went. Understood through the company's bonus plan, this is based on sales and EBITDA and so forth. That all trues up and can result in heavier accruals in the fourth quarter compared to earlier quarters. There are also other employee-related costs that will true-up in the fourth quarter, be it health benefit costs, and so on. So there's a timing issue, but overall, we’re pleased with the fourth-quarter EBITDA improvement.

Yes.

Absolutely. I know you don't want to give guidance, but I won't let you off the hook quite as easily as Linda because I’ve been at this longer. I've been observing what’s going on in Ukraine and Russia along with supply chain factors. When you look out to 2022, you’ve had a solid run with good sales growth and strong EBITDA growth over the last three or four years. Could you frame 2022 in some way, shape, or form for us? Do you expect topline growth? Do you expect the EBITDA margin or dollars to increase despite all the headwinds?

It's a fair question. In an ideal world, Terrence and I would have preferred to provide formal guidance. That said, the situation in Russia and Ukraine just arose recently. As we pointed out, that could have a significant impact on overall business. Overall, it's too early to assess the effects for us in 2022. If we set that aside, the short answer is yes, we expected growth in 2022 over 2021. However, that is a significant part of our business, and it’s clearly impacting us at this moment. We will continue to evaluate that day-to-day as the situation develops. In another six weeks or so, we'll be reporting the first quarter of 2022, and I hope to have a much better grasp of the potential impact by then.

Yes, exactly.

Terrence, when we met a couple of months ago, you discussed various initiatives meant for the last quarter of 2021 and into 2022. With a look toward 2022, could you rank the importance of the various initiatives, whether it's product rollouts or system rollouts, etc.?

Sure, they’re not necessarily linear because our strategies are designed to work together. Digital capabilities are at the top. Subscribe and Thrive initiatives are also critical. The rebranding and new product development are essential too, and we’ve observed that even relatively unexciting products like CoQ10 or D3 are significant in various markets. Filling product gaps and launching these into the market does matter and has a real effect. Their synergy works effectively when branding is launched efficiently, digital capabilities are in place, and Subscribe and Thrive is operational. In Japan, for instance, new customers aren't just one-time orders; they make numerous purchases. Each lifetime customer adds to incremental sales. So these are some of the key initiatives, though I’d prefer to keep the list manageable.

What about on the new product side? If you had to rank the new products in terms of their importance for 2022, how would you do that?

Again, it varies by market. I could launch a chlorophyll product refresh in some regions and see a substantial uplift. One area we're focusing on in 2022 and beyond is elevating some of our brands to provide more visibility. Rejuvenaid, for example, is a revolutionary product that should be a top seller. We're also concentrating on gut health products. So in the next 12 to 18 months, expect a tighter focus on substantive brands or categories, such as Rejuvenaid or ProArgi-9, where we have incredible protein technology. We aim to build stable, sustainable business around those essential offerings. That’s our plan moving forward.

Okay. One last question for Joe. Inventory: you built up the inventory and commented on that. Is inventory at the desired level or should we expect another jump-up in 2022?

Good question, Steve. I think it might still be a little light of our ideal position, but as we assess ongoing supply chain challenges, do I foresee a dramatic increase? No. However, some fluctuations may lead to modest increases in 2022. I believe we're getting close to adequate levels, considering safety stock measures against inflation.

All right. Thank you very much, and congratulations again.

Thanks, Steve.

Thanks, Steve.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Moorehead for closing remarks.

Okay. I would like to say thank you to everyone for listening to today's call. We look forward to speaking with you again when we report our first quarter of 2022 results in May. Until then, take care, and thank you.

Thank you.

And ladies and gentlemen, this does conclude today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.