Natures Sunshine Products Inc Q4 FY2025 Earnings Call

Thank you. Good afternoon, and thanks for joining our conference call to discuss our fourth quarter and full year 2025 financial results. I'd like to remind everyone that this call is available for replay by telephonic dial-in through March 24 and by a live webcast that will be posted on the Investor Relations portion of our website. The information on this call contains 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, Ken Romanzi. Ken?

Thank you, Nate, and good afternoon, everyone. Thank you for joining our fourth quarter and full year 2025 earnings call. I've now been at Nature's Sunshine for 131 days, and I am even more delighted to be here than when I last spoke to you on our third quarter earnings call on November 6 of last year. Nature's Sunshine delivered another terrific quarter, growing sales 5% and EBITDA 10% by continuing to execute against its key drivers of success, leading to its highest annual sales level ever. But I'm most pleased by what I have found in this great company over the past three months. Simply put, I love what I see. Two very strong brands steeped in heritage and quality, Nature's Sunshine and Synergy, operating in the large global and rapidly growing category of natural health supplements. A globally diverse business operating in over 40 countries around the world. Exceptional product development capabilities. Sourcing and blending hundreds of Nature's best ingredients from around the world and scientifically verifying their effectiveness. An army of independent consultants passionately representing our products every day to consumers all over the world. A rapidly growing digital business penetrating new channels driven by a subscription strategy that enables consistent recurring revenue streams. A rock-solid balance sheet with nearly $100 million in cash and no debt. And last but not least, a passionate, mission-driven organization dedicated to elevating people's lives globally through improving their health and economic well-being while delivering industry-leading results for our shareholders. Suffice to say, I see so much to build upon at Nature's Sunshine, and I believe we can drive even more accelerated growth going forward. I will share an outline for the future of Nature's Sunshine after our CFO, Shane Jones, provides the details of our strong fourth quarter performance. Shane?

Thank you, Ken. We are pleased to report another outstanding quarter with strong growth across North America and Europe. This growth continues to be bolstered by our expansion into new digital channels, strong adoption of our subscription auto-ship programs, exceptional new customer acquisitions, and strong partnerships with our independent consultants across the globe. Our efforts to modernize the business, expand digital capabilities, and strengthen customer and consultant engagement continue to pay big dividends. Now diving into specific financial performance. Net sales in the fourth quarter were $123.8 million, representing our second largest quarter in company history and our strongest fourth quarter ever. This represents a 5% increase versus $118.2 million in the year-ago quarter or a 4% increase excluding the impact of foreign exchange rates. Growth was driven by continued acceleration in both North America and Europe. Net sales for the full year 2025 finished at $480.1 million, our best year ever and slightly higher than the high end of our most recent guidance range. This compares to $454.4 million of net sales in 2024 and represents 6% year-over-year growth or 5% excluding the impact of foreign exchange. These results reinforce the traction we're seeing from our digital and other transformation initiatives, the strength of our product portfolio manufactured in-house with the very highest quality ingredients, and the power of our passionate and knowledgeable independent consultants. Looking at our results in more detail, let's start with regional performance. In North America, we continue to see building momentum as digital accelerates while maintaining our core business of specialty retailers, practitioners, affiliates, and independent consultants. Q4 sales grew 6% year-over-year to $37.4 million. We're particularly excited about the strength in our digital business, which continued to show exceptional growth in Q4, increasing 47% versus the prior year. Our work to move to an improved platform, leverage digital tools, optimize our digital marketing, enhance the customer experience, and increase lifetime value continues to pay off, evidenced by very robust growth in new customers coupled with better retention and frequency from returning customers. Similar to what we reported in Q3, during Q4, we saw new digital customers nearly double compared to the prior year. We're also pleased to see very strong adoption of our subscription auto program. This program provides the strongest value proposition for the consumer while improving consistent use to ensure the very best results for improved health. It also promotes increased frequency and retention and provides the company with a predictable recurring revenue stream. In Q4, digital subscriptions coming through our website increased 260 basis points versus the prior year to 47% of revenue. And subscription auto-ship on TikTok, which only started this past summer, reached 25% of TikTok revenue. Finally, we also continue to make progress with the efficiency of our digital marketing spend, which is resulting in meaningful improvements in customer acquisition cost and enhanced return on ad spend. We are excited to see these fundamentals continue to move in the right direction, validating the strategic investments we are making and strengthening our confidence that we will meet and exceed the goals we have set. As we've said many times, digital momentum is a key component of our broader transformation and represents an important long-term growth lever for our business. As digital continues to see robust growth, we expect continued mid-single-digit revenue growth in North America during 2026. Sales in Asia Pacific declined 1% year-over-year to $55.7 million or a 1% decline on a constant-currency basis. As we highlighted in our discussion last quarter, Q4 was a very difficult compare for APAC as sales increased 21% in constant currency terms during Q4 2024. This performance over that difficult compare was driven by outstanding execution in China and Japan, where sales increased 35% and 21%, respectively, excluding the impact of foreign exchange. We are pleased with the commitment and strong execution from our independent consultants in both markets, which has allowed Japan to sustain 20%-plus growth for six consecutive quarters now and has helped to drive the meaningful turnaround in China. In addition to great execution, strong adoption of our subscription auto-ship program also continues to drive meaningful growth along with predictable recurring revenue. We are seeing rapid adoption of this program across all of our markets in APAC. In Japan, subscription auto-ship accounts for nearly half of all sales in that market. We only recently launched the subscription auto-ship program in China during the first half of 2025. Last quarter, we announced that the program already accounted for 12% of sales in Q3. We are pleased to report that subscription auto-ship in China continued to surge in Q4, increasing to 18% of revenue. We are very pleased with the progress being made in APAC and expect continued mid-single-digit growth from this region in the coming year but acknowledge the inherent lumpiness of quarter-to-quarter sales due to the nature of our field activation efforts. We're also pleased with the continued strength in our European business, where Q4 sales increased 18% versus the prior year to $25.2 million or 14% on a constant currency basis. These outstanding results were driven by 23% growth in Eastern Europe in local currency terms. The strength in Eastern Europe has been fueled by improved product availability as we have worked to ensure appropriate in-stock levels of our key products where we see high demand. This improvement was combined with outstanding execution from our independent consultants and some economic stabilization in the region. This remarkable growth is a testament to the perseverance and commitment of our staff in that area, given the continued war in the region. For 2026, we expect continued mid-single-digit growth in Europe as well. Now turning to gross margin. We continue to build on the progress we've made over the past several quarters as gross margin increased 55 basis points to 72.5% compared to 72.0% a year ago. This improvement represents the benefit of our ongoing gross margin initiatives and favorable market mix. We've been talking about these margin improvement efforts for some time. These initiatives include renegotiating logistics contracts, better conversion costs through improved manufacturing efficiency, improved sourcing, more disciplined pricing, and other cost-saving measures. We're proud of our team's continued efforts to streamline our supply chain and pleased to see the benefit reflected in our results. As we look forward, we anticipate continued modest improvement in gross margin during 2026 but note that some uncertainty remains around the impact of tariffs and inflation. Therefore, gross margins are likely to settle into the upper 72% range during 2026, which represents a significant step up from where we've been historically. Volume incentives as a percentage of net sales were 29.1% compared to 31.1% in the year-ago quarter. The decrease was primarily due to the strong growth in our digital business as well as changes in market mix. Selling, general and administrative expenses during the fourth quarter were $48.4 million compared to $43.7 million in the year-ago quarter. As a percentage of net sales, SG&A expenses were 39.1% for the fourth quarter compared to 35.7% a year ago. The $4.7 million increase versus prior year was primarily related to digital ad spend, variable costs associated with the sales increase, and nonrecurring expenses. The decision to increase digital ad spend during Q4 was based upon the opportunity for very strong customer acquisition at a favorable customer acquisition cost. Looking forward to 2026, we expect quarterly SG&A of $46 million to $48 million. Operating income increased to $5.3 million or 4.3% of net sales compared to $4.6 million or 3.8% of net sales in the year-ago quarter. GAAP net income attributable to common shareholders for the fourth quarter was $4.1 million or $0.23 per diluted common share compared to a loss of $0.3 million or $0.02 per diluted common share in the year-ago quarter. Adjusted EBITDA, as defined in our earnings release, increased 16% to $11.9 million compared to $10.3 million in the year-ago quarter. The increase was primarily driven by the growth in net sales and improvement in gross margin. Adjusted EBITDA for the full year 2025 was $49.4 million, above the high end of our most recent guidance range and representing 22% growth versus 2024. The increase for both the quarter and the full year was driven by the increase in net sales, improved gross margin, and cost leverage. Our balance sheet remains clean with cash and cash equivalents of $93.9 million and no debt. Inventory increased to $68.3 million at the end of the fourth quarter, a $1 million increase versus Q3 as we work to replenish inventory after the robust growth seen in Q3 and Q4. We expect to see a moderate increase in inventory during 2026 to ensure appropriate in-stock levels and fulfill continued strong demand. Net cash provided by operating activities was $35.3 million compared to $25.3 million in the prior year. We repurchased 1.3 million shares for approximately $16.3 million or $12.95 per share during the year ended December 31, 2025, with $17.4 million remaining on our share repurchase program. Looking beyond share repurchases, our healthy capital allocation structure positions us well to continue our digital transformation and other strategic initiatives. Now turning to our 2026 outlook. We expect full year 2026 net sales to range between $500 million and $515 million compared to $480 million for 2025. This equates to year-over-year growth of 4% to 7%. For adjusted EBITDA, we are guiding to a range of $50 million to $54 million, representing year-over-year growth between 1% and 9%. This guidance includes measured investments to improve our technology infrastructure, drive further customer acquisition, advance geographic expansion, expand penetration in existing markets, and accelerate product innovation. While these investments will temper our 2026 EBITDA from our consistent double-digit growth rate, we see strong momentum in the business and believe that now is the time to make these key investments in order to position the company for more rapid, sustained growth in 2027 and beyond. Overall, we continue to believe the business is well-positioned to capitalize on current opportunities in a growing market and remain very optimistic about our ability to continue to unlock the substantial growth prospects that we see. The strategic initiatives we've been implementing are working, and we're confident in our ability to continue to accelerate growth in sales, profitability, and free cash flow. Now I'll turn the time back to Ken for some further commentary.

Thank you, Shane. Very well done. As I mentioned earlier, I see many opportunities for Nature's Sunshine. To take advantage of those opportunities, we're doubling down in 2026 to make the investments Shane shared with you to accelerate our growth. We're setting a goal of growing Nature's Sunshine to $1 billion in sales with improved profitability along the way. As our plan is still in its early stages, we will present more details of when and how we'll get there in future presentations. But simply put, we expect to accelerate our top-line growth ahead of the 4% to 5% we've been growing over the past few years and then leverage that higher growth to improve our bottom line profitability. We're calling our accelerated growth plan Nature's Sunshine vision for growth. The core drivers of our vision for growth include the following seven elements. One, continued rapid expansion of our digital business into new channels. Two, deeper penetration in our core direct selling markets. Three, geographic expansion in new high-value markets. Four, exploring opportunities in retail channels. Five, deepening our consumer relationship with differentiated brand positioning, marketing and product innovation for both Nature's Sunshine and Synergy. Six, leveraging our supply chain for scale efficiencies. And seven, searching for complementary accretive M&A opportunities. By executing our vision for growth, we see $1 billion in sales clearly in our grasp. The future has never been brighter for Nature's Sunshine, and I look forward to sharing more about our vision for growth in the near future. Thank you for your time today and your continued support of Nature's Sunshine. I would now like to turn the call back to the operator for questions.

And your first question comes from the line of Brian Holland from D.A. Davidson.

Congratulations on the strong results for 2025. To start, Shane, can you share your outlook for 2026? You've indicated a broader range for EBITDA compared to net sales. I assume that's fairly straightforward, especially as you've mentioned increased investment in advertising, marketing, and innovation to bring new products to market. Is it correct to think that the lower end of the EBITDA range assumes those investments won't perform as well as the additional funding you allocated in the latter half of 2025? Also, could you clarify the midpoint and the high end of the range? Does the midpoint reflect 2026 being similar to the second half of 2025, with the high end indicating an even stronger performance? I'm trying to grasp the details of what you have included. Apologies for the convoluted question.

Yes, that's fine, Brian. Absolutely, there are many factors influencing our EBITDA projections. As mentioned, there is still some uncertainty regarding tariffs and inflation. At the lower end of our projections, we face significant impacts from potential inflation increases and tariffs this year. Additionally, we are making substantial investments in various areas, some of which will benefit us this year, while the real advantages are expected to come in the later years, specifically in 2027 and beyond. These considerations are included in our forecasts. Furthermore, there is macroeconomic uncertainty due to the ongoing war and its implications for consumers and oil prices. We have factored all of these elements into our guidance, which is why there is a wider range from $50 million to $54 million. Does that address your question?

Yes, that’s very helpful, thank you. As we look ahead to 2026, your comments about uncertainties are relevant. We're about two-thirds through the first quarter of 2026. There are several factors to consider from the past week and even earlier this quarter. Can you share any insights on how your core consumer is faring in light of your strategic initiatives as we start 2026? How does this compare to the conclusion of 2025?

Yes. We're still seeing very strong consumer demand in our markets. We've talked about some of the demand, like what you saw in Q4 across the digital, places like digital, and China continues to be very, very strong. Japan, and we are seeing no letup in the current quarter from those trends.

And then maybe just to...

And keep in mind because of the recent issues in the world that I don't even think they showed up at the gas pump yet. So we haven't seen anything...

Yes. To summarize, we're not seeing anything yet. We're still seeing very strong demand, but who knows?

I appreciate that things are changing daily. To wrap up on some of the long-term aspects you mentioned, Ken, your team has really engaged in the digital initiatives in North America and the auto subscription in China. I anticipate you will continue to focus on these areas, particularly as part of your outlook for 2026. What insights have you gained about the addressable market for Nature's Sunshine over the past year? Is there a way to quantify how much that market has expanded, possibly indicating a potential for a $1 billion business in the future? I understand you haven't set a specific timeline for that. Additionally, are you considering that the growth to $1 billion would be entirely organic, or could mergers and acquisitions also play a role in reaching that target? I will stop there.

Yes. Great. Thank you. Well, first of all, what we've seen in the market, this is a big and growing market. And depending on what sources you use, you can look at health and wellness trends, you can look at total supplement trends, you can look at natural supplement trends. There's a lot of different sources, and we're honing in on what source we really want to use to kind of measure our market share. But basically, the market's been growing mid-single digits, 5%, 6%. And it's projected to step up to grow a little bit higher than that, maybe 6% to 7% in what we're measuring in terms of health supplements going forward. Because if you look at health and wellness trends, some of the data includes exercise equipment, weight loss, GLP-1. We're really looking at the supplement market. So it's large. The total addressable market is huge. And we've looked at market share in some places. And right now, we're looking at per capita consumption, and there's just opportunity everywhere. In some of our strongest markets, we only have like a 2% to 3% share of health supplements. So we just think there's tremendous opportunity to both grow with the market as well as increase market share. In terms of growth going forward, to double the business in 10 years, you got to grow 7% a year. To double a business in 7 years, you got to grow about 10% or 11% a year. So we think that there's strong organic growth, but we also think that new channels and M&A have to play a part in that. So I listed a menu of things. We're not leaving anything unturned. But as we've discussed it with the Board, it depends on how fast we want to get there. We believe there's opportunities in the M&A area because we have capacity in our manufacturing facility. So we can do bolt-on acquisitions and get a lot of variable margin by leveraging our fixed costs in our manufacturing facility as well as perhaps brands that might be able to help us get into other channels. So we have amazing product development. We have two brands, and we're going to open up our aperture and not be limited by whatever channel we've done in the past. We have so much product development capabilities. We could probably have different products in different channels underneath the brands we already have even before we consider buying anything new.

And your next question comes from the line of Susan Anderson from Canaccord Genuity.

I guess maybe I kind of wanted to drill down a little bit on the strong digital growth in North America. I guess I'm kind of curious if you're seeing customers come to the site, maybe they were buying your products in another channel or elsewhere, or I guess how are you guys acquiring these customers? And then also when they do go to the site, I guess, are they purchasing any different products you're seeing in other channels? Are they looking for anything different? Or its kind of basically their interest is very similar to consumers purchasing in another channel.

Great question, Susan. One important realization for us is that we are operating within an ecosystem. As we expand into various digital channels, each of these channels works synergistically and supports one another. For instance, we've recently been leveraging TikTok and have achieved outstanding results in acquiring customers. We're acquiring new customers at a considerably lower cost compared to other channels. These customers start by making their first purchase on TikTok, but many of them also go on to buy from Amazon, our website, or through our independent consultants. The interaction across these channels enhances the overall effectiveness. We feel we are reaching a pivotal moment where we can clearly see and understand these benefits, allowing us to optimize our digital media strategy for stronger returns. We have a clear understanding of the customer acquisition costs and the expected lifetime value of these customers, which helps us focus on maximizing their value and improving retention. We're optimistic about the trends we're observing, particularly regarding customer acquisition which is primarily driven by TikTok but also supported by our other channels, ultimately benefiting all our initiatives.

Yes. I’d like to add that when considering your own or your family's shopping habits, we don't typically shop in just one location. Sometimes we shop in retail stores, sometimes we purchase items from Amazon, and other times we go directly to a website. Many visitors come to our website for information but then opt for Amazon due to the appeal of free shipping for Prime members. A great example of this interconnectedness is a collaboration we had with an influencer on TikTok, who became enthusiastic about one of our products that was ranked #83 in North America. This product, lymphatic drainage, is currently a trending health topic. Thanks to this influencer, we not only achieved impressive sales on TikTok Shop, but we also saw a significant increase in sales on Amazon and our website, as well as through our independent consultants. The influencer on TikTok generated substantial demand across all channels, and every channel benefited from this. These channels are more intertwined than we often acknowledge because consumers are shopping in multiple places daily. The key is being present where consumers are, leading us to benefit from their engagement. That product ultimately became our top-selling item last year after being relatively low in ranking for years.

Okay. Great. So it sounds like you guys are definitely acquiring new customers. So I guess as you think about kind of like this plan to accelerate growth to $1 billion and maybe go into some additional channels such as retail, I guess, the thought is that you'll continue to drive new customer acquisition through those new channels. I guess, is there any point where there is risk of kind of cannibalizing the older channels such as some of the partners that you work with and everything?

Well, one of the ways we can do this is we can do it through product differentiation. So we still want to treat our independent consultants very special. Right now, there's a lot of times where they bring consumers in and then people jump off to Amazon. So that is a little bit of channel conflict, but we believe we have enough products to feed the channel. So if you think about our independent consultant business and direct-to-consumer alone, we've got enough to feed those independently to drive growth because our independent consultants can't sell everything and we can't sell everything DTC. We can't concentrate on the amount of new product activity that we have coming down the pipeline because at some point, you can have too much. So we're fortunate enough to have such a robust pipeline. We're going to be able to start to differentiate and pick our way through to drive growth because I'm not very patient. And when my product development team has a great idea, I'm not going to wait for a channel to be ready. We're going to go find where the consumers are and we'll open up the channels necessary to make sure that we have an outlet for the strong product pipeline we have coming down the road.

Congrats again on another great quarter.

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

Thank you for your questions and for your attention. We are really excited about Nature's Sunshine. I see both brands, Nature's Sunshine and Synergy, being supported by an incredible organization with excellent product development capabilities. If we slightly broaden our perspective to focus on where the consumers are, the lymphatic drainage example is a great illustration. If we begin to explore this type of potential and avoid being restricted by our channel scope, we truly believe we can accelerate growth. It's not just about continuing with the same strategies. We plan to utilize all the effective methods that the team has been developing while introducing some new strategies to boost our growth. We look forward to sharing more details about this plan in the future. Thank you for your time, attention, and ongoing support for Nature's Sunshine.

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