Q4 2021 Natures Sunshine Products Inc Earnings Call
Good afternoon, everyone and thank you for participating in today's conference call to discuss the nature Sunshine <unk> financial results for the fourth quarter and full year ended December 31, 'twenty 'twenty. One today's call is being recorded joining us today, our nature's Sunshine CEO Terrence Moorehead.
CFO , Joseph Baby, and Executive Vice President and General Counsel Nathan Brower.
Following their remarks, we'll open the call for your questions.
If 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.
Yeah. Thank you.
Good afternoon, and thanks for joining our conference call to discuss third quarter and full year 2021 financial results I'd like to remind everyone that this call is available for replay.
A telephonic dylans through March 22nd and a live webcast will be posted in our Investor relations portion of our website at natures Sunshine Dot com.
The information on this call may contain certain forward looking statements. These statements are often characterized by terminology such as believe hope may anticipate expect will and other similar expressions.
Forward looking statements are not guarantees of future performance.
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.
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, Terence. Thank you, Dave and good afternoon, everyone. I appreciate you joining us today.
I'm pleased to share our fourth quarter and full year 2021 results with you.
Before I get into the results I just wanted to take a moment to share a few thoughts on the situation in Ukraine.
The past two weeks a bit of harrowing experience for our friends and partners and colleagues in the region.
Unequivocally support the Ukrainians peoples effort to live grow and work in a free and peaceful society and our Hearts go out to our distributors the people of Ukraine and peace loving people everywhere as we watch the situation unfold in front of us.
This is a very personal issue for us at natures Sunshine, because we have long standing personal relationships with people, whose lives are directly impacted by whats happening on the ground there.
Our Ukrainian distributors and customers have been dedicated to nature's Sunshine for over 20 years.
They're our friends and they are an important part of nature Sunshine as family and we care for them deeply.
As such it's our time to step up and give back and care for them in their time of need.
There are impacts foundation nature Sunshine won't be making charitable contributions to ensure that our distributions in the Ukrainian people have the critical lifesaving assistance they need during these challenging times.
We're working with our management team on the ground in several global partners to do whatever we can scan 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 make sure 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.
Is the strength and momentum of our business continues 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.
Similar similarly for the full year, we reported record sales of $444 million, which represents 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 Ob use.
And strong execution of our five global growth strategies on.
On the bottom line, we increased gross margin, 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're 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.
It has allowed us to excite and engage new and existing customers.
As we as we move forward.
Committed to improving all aspects of our business 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 the global supply chain crisis.
Again, we're still in the early stages of our transformation, but I'm excited to have such an.
Great team here at Nature's Sunshine.
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 Ob use 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 lamoureux products, our new 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 ticked up to drive growth.
We're 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're 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 and strong new customer acquisition.
Our Japanese team has been aggressively promoting our subscribing thrive auto ship program, which now represents 50% of sales.
This is important not only because customers have.
Turning to more effectively improve their health. It's also important because it 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 continue to compete for the top sales position.
<unk> order growth 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're extremely pleased with the progress we've made in Asia, and we look forward to continued growth in 2022.
In North America sales increased six 6% in the fourth quarter, reflecting the positive momentum we've seen since the launch of our new business model.
And the introduction of our rebranding initiatives, our new digital tools and our subscribers 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 and.
That increased demand for our nutritional supplements were very pleased with nxp's growth in the U S and Canada and the positive effects of our initiatives that they are having on our on our business.
Overall, North America has gone through a tremendous amount of transformation in the last year as.
As we have completely relaunched the business with the new business model.
We're 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 improve 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.
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 <unk> 10, and the Grand opening of a new retail store in Warsaw also help 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 continued to see expansion into new markets and improved penetration across the business.
While we're 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're all saddened by what's happening in the region.
And the war in the Ukraine weighs heavily on our minds, our thoughts and best wishes are with the great people of the 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 on hand based on historical consumption rates are.
Our CFO , Joe Baty, who 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 rig.
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 tenants 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-19 restrictions and a temporary systems issue that prevented retail sales from being processed in a timely manner.
Statistics the systems issue is being addressed and we will monitor COVID-19 restrictions closely for the full year sales increased.
Latam, 11% versus prior year in local currency and the business has responded well to our transformation initiatives.
To support the local management team and ensure that we get our fair share of this large dynamic growth markets. We're pleased to have announced valid in Blackburn as the new head of Latam.
As we intensify our focus on Latin America, we believe balance experience and disciplined leadership style will help drive continued progress in the region.
The strong performance across our <unk> for the fourth quarter and full year contributed to our historic results and demonstrates the effectiveness of our global strategies and 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 frame power I am pleased to announce that we are already 90% finished with our global repackaging efforts that were a key part of the rebranding initiatives.
The new packaging and marketing collateral was extremely popular with customers and distributors around the world gave us high praise for creating something that not only speaks to the authentic spirit of nature 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 activating activation.
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 co Q1 0, and vitamin D. Three in select markets, where important additions to the portfolio.
We also diversified the product line to include a new line of clean beauty products under the Lamar a brand name.
Our R&D and marketing teams worked on the Lamar concept for almost two years evaluating product profiles reviewing ingredients stories and developing a go to market strategy.
Tomorrow is distinguished by its clean ingredient story that combines innovative ingredients from our 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 the effectiveness of important programs like subscribing thrive and our affiliate program the.
The initial launch of each of these programs delivered significant learnings and we are in the progress of process of introducing phase two 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're 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 improved 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.
South Korea for example, the team launched a new distributor App that provides access to sales training modules product training and 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 continued 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 and we're making good progress.
Importantly, our test and learn approach to DTC also continues to pay dividends as we build momentum and fine tune our DTC strategy.
We've accumulated nearly a year's worth of data on consumer preferences, and buying trends and we've been able to analyze the data to figure out how to strategically allocate resources to maximize performance.
As a result, and as an example in the fourth quarter of 2021, we generated more DTC sales.
In the fourth quarter than in the second and third quarters combined as I had mentioned.
We will continue to focus on building, our DTC business and look forward to seeing our distributors build their DTC businesses as well by leveraging the fully replicated websites and sharing tools that they have at their disposal.
Lastly, our new personalization initiative is up and running as a beta test since we're still in beta I will comment on our progress. However, I will say that in a world where consumers are increasingly aware that each person's health needs are unique and different we're very excited about.
Our personalization program will help revenue revolutionize the customer experience.
Moving to manufacturing, Inc. 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.
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 upgrade our capabilities improve productivity and strengthen the reliability of our supply chain.
While many of these changes will impact us more in 2022.
We've already seen an 8% boosting capacity at our main Spanish Fort 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 as it is a key component of what makes us unique.
And is it is what allows us to expertly craft each product to deliver the best supplements on the market.
To that end, despite having to deal with the global supply chain crisis and address unprecedented labor market challenges.
The team managed to lead recertification patient efforts for our industry, leading list of certifications and in the fourth quarter. They oversaw our ISO 9001.
So $1 705, USDA organic halal kosher and NSF certification with the highest rating.
And 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 increased 235% to $7 5 million, while operating margins improved 420 basis points.
Similarly, adjusted EBITDA increased 55% to $11 $6 million for the quarter.
EBITDA margins increased 240 basis points.
As we move forward in 2022, we expect to continue to make progress on the business as we execute our five global growth strategies and leverage our strong financial and operational Foundation.
We are watching conditions closely in Russia and surrounding markets, but I want to stress the importance of our growth strategies across markets.
We believe our journey to transform Nature's Sunshine has just begun.
It's our <unk> anniversary this year and we're 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.
As such the board of directors has authorized us to increase our share buyback program by an additional $30 million.
We're pleased with the progress of the business and believe an intensified focus on our five global strategies, we will continue to move our business in the right direction and will help us gain traction over time.
We continue to look for.
For capital allocation opportunities that maximize shareholder value in line with the priorities we have previously outlined.
Lastly, before I hand, it off to Joe.
I would like to share that we will shortly publish our inaugural ESG sustainability report.
Caring for the environment is central to what we do.
And Thats, why we prioritize reducing our environmental footprint and working with our farmers to support rejuvenated regenerative agricultural practices.
Additionally, we're 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 help us build a leadership position in the areas of sustainability and transparency, we've introduced a new global sustainability and transparency team led by one of our most capable experts in this area shrink Mccausland, who was recently appointed global Vice President sustainability and transparency.
We're happy to share our initial ESG report and hope that Youll have a chance to read it.
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.
Increase was primarily attributable to strong customer growth in Japan, China, and Taiwan supported by our digital tool set.
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 as discussed in our Form 10-K , we have significant operations in our Russia and other market, which includes Russia, Ukraine, Belarus, and other common independent states in the region.
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 'twenty one for.
For 2021 and 2020.
At least for 2020 to 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, which was primarily due to supply chain and systems related challenges.
Additionally, we face 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%.
Display chain pressures, we faced whether it was port delays raw materials shortages or manufacturing capacity or some of the toughest challenges that nature Sunshine as faced in its history.
True Testament of our teams dedication and execution for us to be able to report a stable gross profit margin for 2021.
As compared to the prior year.
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 administration 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 <unk>.
Increased sales among other factors.
As a percentage of net sales SG&A expenses were 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 38, 2% in the fourth quarter of 2021.
<unk> to 37, 1% in the year ago quarter.
Looking forward to 2022, we expect added SG&A costs from travel and events.
<unk> further reopens worse versus cobot constraints experienced in 2021 and 2020.
Operating income in the fourth quarter increased 235% to seven 5 million.
Or six 4% of net sales compared to operating income of $2 two man or two 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 <unk> 67 per diluted share.
As compared to $5 9 million or 29 cents 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 companys 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 increase.
Increased 55% to $11 6 million in the fourth quarter as compared to seven 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 very healthy from a cash flow perspective, and our cash position reflects the impact of our share repurchase program.
Share repurchases are one piece of our capital allocation plan, which is the ultimate goal of increasing shareholder value.
In 2021, we repurchased a total of.
439000 shares at an aggregate cost of seven 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 we plan to make as part of our business transformation.
During the quarter, we increased inventory levels to $3 5 million higher than the prior year period.
Prior quarter period, 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 are Russia, and other region had assets of approximately $6 8 million, primarily consisting of inventories and accounts receivable.
The current situation poses a risk to realizing full value for our region specific assets.
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 modest modestly increase our costs over the next few quarters.
We expect a long term benefit of these investments will allow us to sustain our growth and drive further 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 look at a variety of alternatives, both organic and inorganic to make sure. We are using our capital was the greatest step in order to drive customer acquisition.
Activation and increase 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 the work proactively reposition nature Sunshine to address changes to 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 end by saying that our team did a phenomenal job throughout 2021.
As a result of strong execution from our team, we had another quarter and year of record growth and improve profitability.
For 2022, we are cognizant of the situation in eastern Europe , and the potential for impact on our financial results.
Additionally, as Terrence mentioned, we are working closely with our team and partners to mitigate supply chain challenges.
Supported by our strong balance sheet, we believe our global growth strategies, coupled with our team's excellence in achieving success lead to a very optimistic long term future for nature Sunshine.
Now I will turn.
Turn it back over to the operator for Q&A operator.
Yeah.
Thank you Sir if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again Thats star one to ask a question.
And we will go to our first question from Linda Bolton Weiser of D. A Davidson.
Hello, Matt.
Hi.
Yes, congratulations great quarter and year.
Thank you.
Yeah.
So.
Kevin.
<unk>.
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, where are you do you ship the product from the U S or from where are you currently shipping.
And.
Yes, I mean, just trying to talk about exactly like what's going on right now.
Yes, so products leave from the U S.
Basically go over there.
They are manufactured in our Spanish facility.
Many of them actually have I believe the same labeling as some of our U S product.
But we are not shipping products right now shipments are on hold.
As I had mentioned they do have depending on kind of what the consumption rate is if you just look at historical comps of consumption rate.
Have about three to five months worth of inventory on hand or in transit to them. So that's the status right now people are still doing business over there where they can but obviously Ukraine is a different situation.
Joe do you have some additional commentary I don't know if theres anything else no I think Terry shuttle Linda.
But obviously as I pointed out in my comments that.
Our business are.
We have some risks there right I mean, the business is clearly being impacted by the 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 and so forth. So as we sit here today.
We are not shipping any further product and we'll shift to continue to evaluate and see how the situation plays forward, but as I noted in my comments.
It's a significant business for us in 2021.
60.
$61 million plus in revenues and almost 6 million and operating income.
Yes, I'll note the figures you mentioned the $61 million.
The vast majority of that Russia, or like what percent of the Ukraine of data now.
So it's all of the above.
As we look at it we call out Russia, and other but it includes Russia, Ukraine, Belarus Moldova.
One or two other.
The markets Theyre in that in that area, but the primary ones are Russia, Ukraine, and Belarus, and Ukraine is about a third.
Roughly put a bit more than a third.
Ukraine is a third.
It's a little bit more than a third of the sales.
Upward of 40% of the total so somewhere in there.
Mr. The flexibility of the area.
Mhm.
And then in Russia, I'm, just curious is it mostly like distributors or little store or direct selling web type of distributions.
Okay.
I'm, sorry could you repeat that Linda I Couldnt hear you.
Like in Russia is your is it mostly little stores or distributors or direct selling rats that are doing the seller.
So I think you have quite a network of of <unk>.
Retail type distribution centers that are all around they've got several hundred of them around the country.
And then from there they would also have.
And our representatives, who would kind of go in and get their products and sell to their customers as well but.
Bulk of it is these these retail centers.
And they do have a fair amount of digital business as well.
Historically driven.
Yes.
Okay.
Okay and then.
So you've done a really great job with your growth.
Great Joe.
It was flat in the quarter.
Really impressive.
Can you remind us have you taken pricing and then if you had to.
I wanted to give guidance, but are you hopeful you can maintain that gross margin in 2022.
We have not taken any more.
Meaningful pricing yet there is a.
Pricing initiative in the U S. I think that's coming in April right beginning of April .
So that will.
To provide some some uplift in our cushion to fight off inflationary pressures.
Joe additional.
No.
Did we answer your question there Linda.
The second part I missed.
There was a second part of that.
Well I know you don't want to give guidance youre not doing that yet, but I mean.
In the sense that you've shared initiatives and your pad.
The offset to that continue so you can maintain gross margin or do you think you will see gross margin pressure in 2021.
We believe that again, there is a pending price increase for North America, we believe that will help offset certain inflationary pressures obviously as we discussed in our comments we believe that.
Our proactive approach to bringing in more raw materials clearly our inventories are up you can see that on a year over year basis. So forth that is primarily raw materials.
Believe that will help hedge against inflationary pressures as well so you're right, we're not necessarily giving guidance, but I would say as we sit here today subject to other things that may happen over in eastern Europe , and so forth.
We feel pretty good about our.
Yes.
<unk> 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.
Hi, Brad impacts from Lockdowns, and maybe you just mentioned that more in South Korea.
Yes. It is there is there something different about south Korea or like when do you think that the growth there will kind of.
Start going again in terms of positive growth in South Korea.
Yes, I think the real difference with South Korea.
As.
Are the government restrictions that they have there versus what they have elsewhere and again one of the restrictions as on group size of meeting size you can only get five people together in a room.
And the underlying processes of that business and the kind of the fundamentals.
Fundamental to driving that business.
Are driven by a lot of kind of face to face contact and training historically drip.
Driven by kind of incentive events, where you might get the field people to chase after an incentive trip of some type.
So in the absence of those those types of incentives promotions and.
<unk> business building activities, it's been somewhat of a challenge for the team in South Korea, we haven't seen those type of restrictions in.
Places like Taiwan, and in Japan, where they do use similar some similar tactics, but they are probably also using a little bit of digital may be a little bit more effect effectively.
And.
And they've got kind of a somewhat of a younger demographic that are again, just using some other tools in a different manner. So you also have as I had mentioned a really robust subscriber subscription auto ship program in a place like Japan, where 50% of the revenues are locked in.
And so every new person they are bringing into the business is largely incremental which is fantastic and so that's just really hard work by the team in Japan on the ground there.
Versus say, a Taiwan, where theyre just so competitive right now nobody wants to be outdone and so they are building their customer bases.
Like wildfire there.
And then you have China, that's really leveraging omnichannel capabilities and things like take talk in order to get out there and getting the market. So there are just some different pratt.
Practices and different behaviors in opportunities in some of these different markets in Asia.
But I think the good news is again, all things being equal.
Those fundamentals and that that momentum should carry forward.
In 2022, again, all things being equal and as soon as you see start seeing some of those restrictions ease.
In South Korea, I mean, our expectation just like we've seen in other markets is that we start to see some positive movement.
Okay.
And then yes, so we feel really good about Asia feel good about obviously feeling good about North America.
As well and the momentum we're seeing with our DTC opportunity.
I mean, it's just doing a great job I think the team has done a phenomenal job.
Building out those those digital capabilities, and our kind of retail business and practitioner business have.
We're seeing some kind of I'd say more stability there as well.
Certainly expect it going forward.
Again, all things being equal.
Okay.
Right.
Great and then.
Just let me just ask about your share repurchase.
That's our hub.
A big amount and.
Frankly, I I didn't have as much in free cash flow projection for the next year, but maybe I need to raise it but is that is that going to be just pay.
Pay for it out of.
Your internally generated cash flow or do you think you could put some debt on the balance sheet too to kind of wanted to share repurchase.
So I'll tackle that one Joe I.
I mean.
I guess to some degree on the <unk>.
Buying opportunity Linda.
As we sit here today I wouldn't anticipate that we would borrow much for that so the.
<unk> that we will be funding those repurchases.
Combination of existing cash coupled with.
Ongoing free cash flows.
Okay.
And is it over.
Yes, sure is the timeframe specified on that $30 million repurchase.
No it's not specified.
Yes, I would just to update you as.
As you know we implemented the initial share repurchase about one year ago, the tune of about $15 million.
And of that $15 million as we sit here today.
Less than a million available to us so we're going to reload with the 30, and we will see whether.
Yes.
All utilized in one year or.
Or not so.
Did you see and obviously, we have met certain metrics that we had that.
We consider in that in the buying opportunities so.
But we appreciate.
Appreciate the board and their support and obviously, we feel very good about our financial health and our ability to continue to generate cash going forward.
Okay sounds good I'll leave it there and good luck in the next year.
Thank you thanks Linda.
Thank you Linda.
And as a reminder, it is star one if you have a question at this time that is star one we will pause a moment.
And well go next to Steven Martin with Slater.
Hi, there guys. Thanks, Steve.
Ellen.
Pretty good pretty good and congratulations once again.
A great quarter.
Thank you.
I do appreciate the aggressiveness on the buyback and the aggressiveness on the new biotech.
So absolutely.
All re expectations in all your commitments.
Fourth quarter EBITDA margin.
Full year EBITDA margin got into double digits.
The fourth quarter always seems to be light is there something about the fourth quarter.
Yeah.
That causes that.
Yes, we will frequently have expenses, whether those before events or accruals that will come up as your as the.
Performance ramps up and you're over performing there may be some accruals that will that will be added in but yes in the fourth quarter. There may be some in usually are.
At least some type of either events or conferences conventions that may happen.
What happened in the other core in the previous quarters.
Joe do you have some additional commentary around that.
I mean, there is a little bit of a timing Steve its fair question. The other thing that will come into play as well.
The final.
Pool, and true up of certain employee related costs.
Depending on how the year played out and if you understand the way.
The company's bonus plan works and so forth, it's disclosed in the proxy I mean.
Based off lease in 2020, while it's based off sales and EBITDA and so forth. So.
That will come into play is that all trues up and so there may be a little heavier accrual in the fourth quarter say versus earlier quarters and then there's just other employee related costs that will true up in the fourth quarter whether thats.
Benefit costs, and so forth and so on so there's a little bit of a timing to it.
But all things considered as we pointed out in a quarter of fourth quarter over fourth quarter. We're obviously pretty pleased with the improvement in EBITDA, yes.
No absolutely.
I know you don't want to give guidance, but I'm not going to let you off the hook quite as easy as well.
Okay.
You guys had been at it longer.
Recognizing what's going on.
Ukraine, and Russia, and other factors in the supply chain.
You look out to 2022 <unk> had a great run.
The last three or four years, good sales growth and good EBITDA growth.
Can you give us some.
Okay.
Can you frame 2022 in some way shape or form for US do you expect.
Top line to be up do you expect EBITDA.
Margin or dollars to be up despite all the headwinds.
Well, it's a fair question.
And in an ideal world Steve.
Tariffs are in line that.
We would have like to have.
Or be close to providing formal guidance.
Having said that as you all know the situation over in Russia, Ukraine, just came about literally in the last couple of weeks and as we already pointed out it it does have a.
Can I have a pretty significant impact on our overall business I would say overall.
It's just way too early to assess what that impact could be for us in 2022, I would say putting that aside.
Question was would we have expected growth in 2022 versus 2021, the short answer's absolutely but.
That's not an insignificant part of our business.
Really impacting us as we sit here today.
We're continuing to evaluate that day after day week after week.
So that comes into play it's just premature to say.
Overall 2022, what the impact is going to be say versus 2021 and <unk> been.
Here in another six weeks or so.
We will be reporting on the first quarter of 2022.
Certainly hope that we have a much better feel for what's the potential impact would be this year.
Alright.
<unk> when we met with you a couple of months ago, you talked about.
All the initiatives.
The last.
<unk> 21, and then into 'twenty two when you look at <unk> 22 could you rank the importance of the various initiatives.
Whether it's the product rollouts with the system Rollouts et cetera.
Yeah.
Sure and it's not.
They are not necessarily linear Steve because they are our strategies are designed to work together right. So they are integrated strategies, but you've got to have.
Things like digital.
Up there at the top of your list you've got to have.
Certainly our subscribing drive initiatives at the top of the list.
The rebranding and new product development.
Is critical to US also and we've seen that for the last couple of years, now and even where it was relatively.
Unexciting products like.
Co Q1 0, or a D. Three.
In many of these markets those are just very important products and so where we've got those product gaps and we can get them into the market.
It does have it does make a difference and have a real impact.
But again those work most effectively when the rebranding has been launched effectively when our digital capabilities are in place and when you've got kind of a subscribe and drive up and running.
And working where we're like in Japan.
If you've got somebody and Youre, not just going to get one order out of them Youre getting five plus orders out of them and every new consumer you add on top of that is incremental.
So I think those are those are some of the key ones.
I don't want to let it get too low.
On the new product side, if you had to rank the new product.
In terms of their importance to 2022, how would you do that.
Again, it depends by by market because again in some of these markets. We've got some some markets in Asia, where I could do a.
I could do a refresh on our floor.
Chlorophyll type product and have tremendous get a tremendous uplift from that.
Could do a in one of the things we're going to be looking into and we're working on in 2022 and beyond is kind of building out some of our brands to just give them more more stature and I'll use that as an example, something like a rejuvenated.
That is an outstanding kind of revolutionary product that is still.
It's in the top 10, but it should be.
Number one seller it could be.
Many business unto its own so that's something that we're looking at we're working on we're working on our gut health products in our gut health portfolio. So really what you should be looking forward Steve over the next 12 to 18 months.
Just a tighter focus on maybe some of the I don't want to necessarily call them Mega brands that either let skills to use that term mega branding or mega categories around things like a rejuvenated pro Argentine.
It could even be something like some of our proteins, where we've got some really phenomenal protein.
Technology that we're launching but those those are types of the type of of basics, where we can really build some good solid sustainable business around and so that's those are a couple of things we're going to be working on over the next 12 months to 18 months if that's helpful.
Okay, and one last one for Joe.
Inventory you built up the inventory you commented on that.
Is inventory, where you wanted to be.
Or are we going to see another jump up is warranted.
Good question, Steve I think it's maybe still a little bit light of where our ideal position is.
Especially as we continue to try to assess ongoing supply chain challenges and so forth and so on do I envision a dramatic increase now but could you see some fluctuation that.
Is still climbs a bit in 2022, yes.
But I think we're getting pretty close to our.
Where we where we think we ought to be just from a stock standpoint.
And.
Hedging.
Inflation, and so forth and so on so, but youll see a little bit of volatility, but I don't think youll see dramatic volatility over 2022.
Alright, Thank you very much and congratulations again.
Thanks, Steve.
And 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, well really just like to say thank you everybody for listening to today's call. We look forward to speaking with you again, when we report our first quarter 2022 results in May but until then take care and look forward to talking to you again take care. 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.
Yeah.
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