Nature's Sunshine Products Inc.

11/06/2025 | Press release | Distributed by Public on 11/06/2025 16:11

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this report, as well as the consolidated financial statements, the notes thereto and management's discussion and analysis included in our Annual Report on Form 10-K for the year ended December 31, 2024, and our other reports filed since the date of such Form 10-K.
OVERVIEW
We are a natural health and wellness company primarily engaged in the manufacture and sale of nutritional and personal care products. We are a Utah corporation with our principal place of business in Lehi, Utah, and sell our products directly to customers and to a sales force of independent consultants who resell our products to consumers.
Our independent consultants market and sell our products to customers and sponsor other independent consultants who also market our products to customers. Because a significant amount of revenue is generated through the sales of our independent consultants, our revenue can be impacted by the number and productivity of our independent consultants. We seek to motivate and provide incentives to our independent consultants by offering high quality products, product support, training seminars and financial incentives, among other considerations.
Third Quarter Performance
In the third quarter of 2025, we experienced an increase in our consolidated net sales of 12.0 percent (or 10.5 percent in local currencies) compared to the same period in 2024. Asia net sales increased approximately 17.1 percent (or 14.9 percent in local currencies) compared to the same period in 2024. Europe net sales increased approximately 12.7 percent (or 10.0 percent in local currencies) compared to the same period in 2024. North America net sales increased approximately 7.7 percent (or 7.8 percent in local currencies) compared to the same period in 2024. Latin America and Other net sales decreased approximately 13.1 percent (or 13.3 percent in local currencies) compared to the same period in 2024. The strengthening of the local currencies versus the U.S. dollar, primarily in our Asian and European markets, resulted in an approximate 1.5 percent, or $1.7 million, increase of our net sales during the quarter.
Cost of sales increased $1.4 million during the three months ended September 30, 2025, compared to the same period in 2024, and as a percentage of net sales were 26.7 percent and 28.7 percent for the three months ended September 30, 2025 and 2024, respectively. The decrease in cost of sales percentage is primarily due to cost savings initiatives, market mix and favorable foreign exchange.
In absolute terms, selling, general and administrative expenses increased $4.8 million during the three months ended September 30, 2025, compared to the same period in 2024, and as a percentage of net sales were 35.6 percent and 35.7 percent for the three months ended September 30, 2025 and 2024, respectively. The increase was primarily related to the timing of compensation costs, incremental investment in digital marketing and consultant events as well as other non-recurring expenses.
As an international business, we have significant sales and costs denominated in currencies other than the U.S. Dollar. We expect foreign markets with functional currencies other than the U.S. Dollar will continue to represent a substantial portion of our overall sales and related operating expenses. Accordingly, changes in foreign currency exchange rates could materially affect sales and costs or the comparability of sales and costs from period to period as a result of translating foreign markets' financial statements into our reporting currency.
Eastern Europe
On February 24, 2022, Russian forces launched significant military action against Ukraine. There continues to be sustained conflict and disruption in the region, which is expected to endure for the foreseeable future. Our consultants in the impacted regions, continue to operate their independent businesses, albeit at a reduced level than prior to the start of the conflict. We expect that this will continue to impact our business for the foreseeable future. We will continue monitoring the social, political, regulatory and economic environment in Ukraine and Russia and will consider further actions as appropriate.
More broadly, there could be additional negative impacts to our net sales, earnings and cash flows should the situation escalate beyond its current scope, including, among other potential impacts, economic recessions in certain neighboring countries.
Net sales related to Eastern Europe for the three and nine months ended September 30, 2025 were $13.9 million and $43.2 million, respectively, compared to $12.2 million and $41.1 million for the same periods in 2024. Operating income related to Eastern Europe for the three and nine months ended September 30, 2025 was $1.3 million and $3.7 million, respectively, compared to $0.5 million and $2.8 million for the same periods in 2024. As of September 30, 2025, Eastern Europe had assets of $6.2 million net of working capital reserves related to inventories.
In addition, in November 2024 we began an internal investigation regarding our past compliance with relevant U.S. trade controls and made an initial voluntary self-disclosure of apparent trade controls violations to the U.S. Department of Commerce's Bureau of Industry and Security ("BIS"). In addition, in April 2025 we filed an initial voluntary self-disclosure with the Office of Foreign Asset Control ("OFAC") relating to the same internal investigation. Following our internal investigation, we filed final voluntary self-disclosures with BIS and OFAC on September 5, 2025. We estimate that such potential violations represented less than one percent of our net revenue in each of our last three fiscal years. An unfavorable outcome of this investigation may include fines or penalties imposed in response to our voluntary disclosures. While we believe the amount of any fines or penalties would not be material to our financial condition and results of operation, we are unable to predict the outcome or to reasonably estimate the time it may take to resolve these matters.
China Joint Ventures
On June 30, 2025, the Company entered into share purchase agreements with Fosun Industrial Co., Ltd. ("Fosun Industrial" an affiliate of Fosun Pharma) to purchase Fosun Industrial's interest in the Company's two joint ventures, Nature's Sunshine Hong Kong Limited and Shanghai Nature's Sunshine Health Products Co., Ltd., for cash consideration in the amount of $3.9 million and $3.1 million, respectively. The joint venture repurchases are subject to customary closing conditions, including making applicable regulatory submissions to the People's Republic of China ("PRC") State Administration for Market Regulation and submitting required applications to the PRC Ministry of Commerce.
Tariffs
While we have not seen a material price increase as a result of tariffs and tariff speculation, we continue to monitor the additional pressure that tariff-related price increases may have. In addition, we are monitoring other effects of tariffs on our business, including the price, availability and quality of raw materials and other ingredients. While higher tariffs have begun affecting our costs in 2025, the full-year impact is not expected to be material.
RESULTS OF OPERATIONS
The following table summarizes our unaudited consolidated operating results from continuing operations in U.S. dollars and as a percentage of net sales for the three months ended September 30, 2025 and 2024 (dollar amounts in thousands):
Three Months Ended September 30, 2025 2024 Change
Total
dollars 		Percent of
net sales 		Total
dollars 		Percent of
net sales 		Total
dollars 		Percentage
Net sales $ 128,339 100.0 % $ 114,615 100.0 % $ 13,724 12.0 %
Cost of sales 34,290 26.7 32,856 28.7 1,434 4.4
Gross profit 94,049 73.3 81,759 71.3 12,290 15.0
Volume incentives 39,348 30.7 35,521 31.0 3,827 10.8
SG&A expenses 45,726 35.6 40,954 35.7 4,772 11.7
Operating income 8,975 7.0 5,284 4.6 3,691 69.9
Other income, net 697 0.5 2,615 2.3 (1,918) (73.3)
Income before income taxes
9,672 7.5 7,899 6.9 1,773 22.4
Provision for income taxes 4,137 3.2 3,253 2.8 884 27.2
Net income $ 5,535 4.3 % $ 4,646 4.1 % $ 889 19.1 %
The following table summarizes our unaudited consolidated operating results from continuing operations in U.S. dollars and as a percentage of net sales for the nine months ended September 30, 2025 and 2024 (dollar amounts in thousands):
Nine Months Ended September 30, 2025 2024 Change
Total
dollars 		Percent of
net sales 		Total
dollars 		Percent of
net sales 		Total
dollars 		Percentage
Net sales $ 356,337 100.0 % $ 336,159 100.0 % $ 20,178 6.0 %
Cost of sales 98,392 27.6 96,535 28.7 1,857 1.9
Gross profit 257,945 72.4 239,624 71.3 18,321 7.6
Volume incentives 108,552 30.5 103,784 30.9 4,768 4.6
SG&A expenses 129,972 36.5 120,295 35.8 9,677 8.0
Operating income 19,421 5.5 15,545 4.6 3,876 24.9
Other income, net 4,904 1.4 1,432 0.4 3,472 242.5
Income before income taxes
24,325 6.8 16,977 5.1 7,348 43.3
Provision for income taxes 8,387 2.4 8,353 2.5 34 0.4
Net income $ 15,938 4.5 % $ 8,624 2.6 % $ 7,314 84.8 %
Net Sales
International operations have provided, and are expected to continue to provide, a significant portion of our total net sales. As a result, total net sales will continue to be affected by fluctuations in the U.S. dollar against foreign currencies. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, in addition to comparing the percent change in net sales from one period to another in U.S. dollars, we present net sales excluding the impact of foreign exchange fluctuations. We compare the percentage change in net sales from one period to another period by excluding the effects of foreign currency exchange as shown below. Net sales excluding the impact of foreign exchange fluctuations is not a U.S. GAAP financial measure and removes from net sales in U.S. dollars the impact of changes in exchange rates between the U.S. dollar and the functional currencies of our foreign subsidiaries, by translating the current period net sales into U.S. dollars using the same foreign currency exchange rates that were used to translate the net sales for the previous comparable period. We believe presenting the impact of foreign currency fluctuations is useful to investors because it allows a more meaningful comparison of net sales of our foreign operations from period to period. However, net sales excluding the impact of foreign currency fluctuations should not be considered in isolation or as an alternative to net sales in U.S. dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with U.S. GAAP. Throughout the last five years, foreign currency exchange rates have fluctuated significantly. See Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The following table summarizes the changes in net sales by operating segment with a reconciliation to net sales excluding the impact of currency fluctuations for the three months ended September 30, 2025 and 2024 (dollar amounts in thousands):
Three Months Ended September 30, 2025 2024 Percent
Change 		Impact of
Currency
Exchange 		Percent
Change
Excluding
Impact of
Currency
Asia $ 64,725 $ 55,293 17.1 % $ 1,213 14.9 %
Europe 22,107 19,615 12.7 528 10.0
North America 36,224 33,631 7.7 (22) 7.8
Latin America and Other 5,283 6,076 (13.1) 14 (13.3)
$ 128,339 $ 114,615 12.0 % $ 1,733 10.5 %
The following table summarizes the changes in net sales by operating segment with a reconciliation to net sales excluding the impact of currency fluctuations for the nine months ended September 30, 2025 and 2024 (dollar amounts in thousands):
Nine Months Ended September 30, 2025 2024 Percent
Change 		Impact of
Currency
Exchange 		Percent
Change
Excluding
Impact of
Currency
Asia $ 166,042 $ 151,497 9.6 % $ 522 9.3 %
Europe 67,962 63,513 7.0 921 5.6
North America 106,219 103,719 2.4 (213) 2.6
Latin America and Other 16,114 17,430 (7.6) (441) (5.0)
$ 356,337 $ 336,159 6.0 % $ 789 5.8 %
Consolidated net sales for the three and nine months ended September 30, 2025, were $128.3 million and $356.3 million, respectively, compared to $114.6 million and $336.2 million for the same period in 2024, which represents an increase of 12.0 percent and 6.0 percent, respectively. The increase was primarily related to product sales increases in our Asia, Europe and North America operating segments. Excluding the impact of foreign currency exchange rate fluctuations, consolidated net sales for the three and nine months ended September 30, 2025 increased 10.5 percent and 5.8 percent, respectively, from the same periods in 2024.
Asia
Net sales related to Asia for the three and nine months ended September 30, 2025 were $64.7 million and $166.0 million, respectively, compared to $55.3 million and $151.5 million for the same periods in 2024, or increases of 17.1 percent and 9.6 percent, respectively. In local currency, net sales for the three and nine months ended September 30, 2025 increased 14.9 percent and 9.3 percent, respectively, compared to the same periods in 2024.
Notable activity in the following markets contributed to the results of Asia:
In our Taiwan market, net sales increased $0.5 million and $3.0 million, or 2.5 percent and 5.9 percent, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. In local currencies, net sales for the three and nine months ended September 30, 2025 decreased 4.8 percent and increased 3.0 percent, respectively, compared to the same periods in 2024. Net sales in local currency decreased for the three months ended September 30, 2025 primarily due to a reduction in total orders and average order value. The increase in net sales for the nine months ended September 30, 2025 was primarily the result of an increase in active consultants and total orders in the first quarter.
In our Japan market, net sales increased $4.4 million and $9.8 million, or 33.2 percent and 30.4 percent, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. In local currencies, net sales for the three and nine months ended September 30, 2025 increased 31.5 percent and 27.9 percent, respectively, compared to the same periods in 2024. The increase in net sales was primarily the result of strong field fundamentals and timing of event qualifications that drove greater customer acquisition and an increase in total orders and average order value.
In our South Korea market, net sales increased $1.3 million and decreased $0.5 million, or increased 9.4 percent and decreased 1.1 percent, for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. In local currency, net sales for the three and nine months ended September 30, 2025 increased 12.4 percent and 3.3 percent, respectively, compared to the same periods in 2024.The increase in net sales was primarily the result of event qualifications that drove greater average order value.
In our China market, net sales increased $3.0 million and $2.4 million, or 35.7 percent and 9.3 percent, for the three and nine months ended September 30, 2025, compared to the same periods in 2024. In local currencies, net sales for the three and nine months ended September 30, 2025 increased 35.8 percent and 9.8 percent, respectively, compared to the same periods in 2024. The increase in net sales was primarily the result of higher total orders driven by improved consultant engagement.
Europe
Net sales related to Europe for the three and nine months ended September 30, 2025 were $22.1 million and $68.0 million, respectively, compared to $19.6 million and $63.5 million for the same periods in 2024, or increases of 12.7 percent and 7.0 percent, respectively. In local currency, net sales for the three and nine months ended September 30, 2025 increased 10.0 percent and 5.6 percent, respectively, compared to the same periods in 2024. The functional currency for many of these markets is the U.S. Dollar which reduces the effect from foreign currency fluctuations. Fluctuations in foreign currency exchange rates had favorable impacts on net sales of $0.5 million and $0.9 million for the three and nine months ended September 30, 2025, respectively. Net sales in local currency increased for the three and nine months ended September 30, 2025 primarily as a result of improved customer acquisition and existing customer engagement.
North America
Net sales related to North America for the three and nine months ended September 30, 2025 were $36.2 million and $106.2 million, respectively, compared to $33.6 million and $103.7 million for the same periods in 2024, or increased 7.7 percent and 2.4 percent, respectively. In local currency, net sales for the three and nine months ended September 30, 2025 increased 7.8 percent and 2.6 percent, respectively, compared to the same periods in 2024.
In the United States, net sales for the three and nine months ended September 30, 2025 increased $2.6 million and $3.1 million, or 8.3 percent and 3.2 percent, respectively, compared to the same periods in 2024. The increase was primarily due to improved customer acquisition through our digital channels as well as stabilization of our core business.
Latin America and Other
Net sales related to Latin America and Other markets for the three and nine months ended September 30, 2025 were $5.3 million and $16.1 million, respectively, compared to $6.1 million and $17.4 million for the same periods in 2024, or decreased 13.1 percent and 7.6 percent. In local currency, net sales for the three and nine months ended September 30, 2025 decreased 13.3 percent and 5.0 percent, respectively, compared to the same periods in 2024. Fluctuations in foreign currency had favorable impacts on net sales of $14,000 and unfavorable impacts of $0.4 million for the three and nine months ended September 30, 2025, respectively.
Further information related to our Asia, Europe, North America and Latin America and Other business segments is set forth in Note 7 to the unaudited Condensed Consolidated Financial Statements in Part 1, Item 1 of this report.
Cost of Sales
Cost of sales as a percent of net sales was 26.7 percent and 27.6 percent for the three and nine months ended September 30, 2025, compared to 28.7 percent and 28.7 percent for the same periods in 2024. The decrease in cost of sales percentage is primarily due to cost savings initiatives, market mix and favorable foreign exchange.
Volume Incentives
Volume incentives expense as a percent of net sales was 30.7 percent and 30.5 percent for the three and nine months ended September 30, 2025, respectively, compared to 31.0 percent and 30.9 percent for the same periods in 2024. The decrease was primarily due to timing of promotional incentives and changes in product pricing and market mix. These payments are designed to provide incentives for reaching certain sales levels. Volume incentives vary slightly, on a percentage basis, by product due to pricing policies and commission plans in place in our various geographies. We do not pay volume incentives in China, instead we pay independent service fees which are included in selling, general and administrative expenses.
Selling, General and Administrative
Selling, general and administrative expenses represent operating expenses, components of which include labor and benefits, sales events, professional fees, travel and entertainment, marketing, occupancy costs, communications costs, bank fees, depreciation and amortization, independent services fees paid in China and other miscellaneous operating expenses.
Selling, general and administrative expenses increased $4.8 million and $9.7 million, respectively, to $45.7 million and $130.0 million for the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024. Selling, general and administrative expenses were 35.6 percent and 36.5 percent of net sales for the three and nine months ended September 30, 2025, compared to 35.7 percent and 35.8 percent for the same periods in 2024. The increase was primarily related to the timing of compensation costs, incremental investment in digital marketing and consultant events as well as other non-recurring expenses.
Other Income, Net
Other income, net, for the three and nine months ended September 30, 2025, was $0.7 million and $4.9 million, respectively, compared to $2.6 million and $1.4 million during the same periods in 2024, respectively. Other income, net for the three and nine months ended September 30, 2025 primarily consisted of foreign exchange gains in Asia and Europe, partially offset by foreign exchange losses in Latin America, that resulted from net changes in foreign currencies.
Income Taxes
For the three months ended September 30, 2025 and 2024, our provision for income taxes, as a percentage of income before income taxes was 42.8 percent and 41.2 percent, respectively, compared with a U.S. federal statutory rate of 21.0 percent. For the nine months ended September 30, 2025 and 2024, our provision for income taxes, as a percentage of income before income taxes was 34.5 percent and 49.2 percent, respectively, compared with a U.S. federal statutory rate of 21.0 percent.
The difference between the effective tax rate and the U.S. federal statutory tax rate for the three and nine months ended September 30, 2025, was primarily attributed to operations in foreign countries which are treated as a branch for U.S. tax purposes, partially offset by foreign derived intangible income deduction.
The difference between the effective tax rate and the U.S. federal statutory tax rate for the three and nine months ended September 30, 2024, was primarily attributed to operations in foreign countries which are treated as a branch for U.S. tax purposes and foreign losses which do not provide future tax benefit, partially offset by foreign tax credits.
The difference between the effective tax rate for the three months ended September 30, 2025, compared to September 30, 2024, was primarily caused by adjustments to deferred tax assets in the current period.
The difference between the effective tax rate for the nine months ended September 30, 2025, compared to September 30, 2024, was primarily caused by a decrease in foreign losses year over year that presently do not provide future tax benefit, favorable adjustments to valuation allowances recorded during 2025, and a year over year increase to income resulting in tax adjustments having a smaller rate impact in the current period compared to the prior period.
Our U.S. federal income tax returns for 2021 through 2023 are open to examination for federal tax purposes. We have several foreign tax jurisdictions that have open tax years from 2019 through 2024.
As of September 30, 2025 and December 31, 2024, we had accrued $0.5 million and $0.6 million, respectively, related to unrecognized tax positions.
On July 4, 2025, the President of the United States signed into law the One Big Beautiful Bill Act. Pursuant to ASC Topic 740, Income Taxes, the effects of changes in tax law are recognized in the period of enactment and are reflected in our results for the three and nine months ended September 30, 2025. There was no material impact to our income tax expense or effective tax rate.
Product Categories
Our line of over 800 products includes several different product classifications, such as immune, cardiovascular, digestive, personal care, weight management and other general health products. We purchase herbs and other raw materials in bulk, and after quality control testing, we formulate, encapsulate, tablet or concentrate them, label and package them for shipment. Most of our products are manufactured at our facility in Spanish Fork, Utah. Contract manufacturers produce some of our products in accordance with our specifications and standards. We have implemented quality control procedures to verify that our contract manufacturers have complied with our specifications and standards.
See Note 7, Segment Information, for a summary of the U.S. dollar amounts from the sale of general health, immune, cardiovascular, digestive, personal care and weight management products for the three and nine months ended September 30, 2025 and 2024, by business segment.
Distribution and Marketing
We market our products primarily through our network of independent consultants, who market our products to customers through direct selling techniques. We seek to motivate and provide incentives to our independent consultants by offering high quality products and providing independent consultants with product support, training seminars, sales conventions, travel programs and financial incentives.
Our products sold in the United States are shipped directly from our manufacturing and warehouse facilities located in Spanish Fork, Utah, as well as from our regional warehouses located in Georgia, Ohio and Texas. Many of our international operations maintain warehouse facilities and inventory to supply their independent consultants. However, in foreign markets where we do not maintain warehouse facilities, we have contracted with third parties to distribute our products and provide support services to our force of independent consultants.
In the United States, we generally sell our products on a cash or credit card basis. From time to time, our U.S. operations extend short-term credit associated with product promotions. For certain of our international operations, we use independent distribution centers and offer credit terms that are generally consistent with industry standards within each respective country.
We pay sales commissions, or "volume incentives," to our independent consultants based upon their own product sales and the product sales of their sales organization. As an exception, in China, we do not pay volume incentives; rather, we pay independent service fees, which are included in selling, general and administrative expenses. These volume incentives and independent service fees are recorded as an expense in the year earned. The amounts of volume incentives that we expensed during the quarters ended September 30, 2025 and 2024, are set forth in the unaudited Condensed Consolidated Financial Statements in Item 1 of this report. In addition to the opportunity to receive volume incentives, independent consultants who attain certain levels of monthly product sales are eligible for additional incentive programs including automobile allowances, sales convention privileges and travel awards.
LIQUIDITY AND CAPITAL RESOURCES
Our principal use of cash is to pay for operating expenses, including volume incentives, inventory and raw material purchases, capital assets, digital investments and funding of international expansion. As of September 30, 2025, working capital was $102.4 million, compared to $94.9 million as of December 31, 2024. At September 30, 2025, we had $95.6 million in cash, of which $5.8 million was held in the U.S. and $89.8 million was held in foreign markets and may be subject to various withholding taxes and other restrictions related to repatriation before becoming available to be used along with the normal cash flows from operations to fund any unanticipated shortfalls in future cash flows.
Our net consolidated cash inflows (outflows) are as follows (in thousands):
Nine Months Ended September 30, 2025 2024
Operating activities $ 25,423 $ 13,114
Investing activities (4,143) (8,776)
Financing activities (15,248) (9,329)
Operating Activities
For the nine months ended September 30, 2025, operating activities provided cash of $25.4 million, compared to $13.1 million in the same period in 2024. Operating cash flows increased primarily due to improved net income and the timing of payments for accrued liabilities, accrued volume incentives and service fees and deferred revenue, partially offset by an increase in inventories and reduction in account payables.
Investing Activities
For the nine months ended September 30, 2025, investing activities used $4.1 million, compared to $8.8 million for the same period in 2024, which consisted of capital expenditures related to the purchase of equipment, computer systems and software.
Financing Activities
For the nine months ended September 30, 2025, financing activities used $15.2 million, compared to $9.3 million for the same period in 2024.
During the nine months ended September 30, 2025, we used cash to repurchase 1,129,000 shares of our common stock under the share repurchase program for $14.4 million. On May 6, 2025, we announced an amendment to the share repurchase program allowing the repurchase of an additional $25.0 million in common shares. At September 30, 2025, the remaining balance available for repurchases under the program was $19.3 million.
We maintain a revolving credit agreement with Bank of America, N.A (the "Credit Agreement"), as well as a credit agreement with Banc of America Leasing and Capital, LLC (the "Capital Credit Agreement"). At September 30, 2025, there were no outstanding balances under the Credit Agreement or the Capital Credit Agreement. Our debt obligations are discussed in greater detail in Note 4, "Revolving Credit Facility and Other Obligations," to our unaudited Condensed Consolidated Financial Statements in Item 1, Part 1 of this report.
We believe that cash generated from operations, along with available cash and cash equivalents, will be sufficient to fund our normal operating needs, including capital expenditures, on both a short- and long-term basis.
In addition, other things such as a prolonged economic downturn, a decrease in demand for our products, an unfavorable settlement of our unrecognized tax positions or non-income tax contingencies could adversely affect our long-term liquidity.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements have been prepared in accordance with U.S. GAAP and form the basis for the following discussion and analysis on critical accounting policies and estimates. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates and those differences could have a material effect on our financial position and results of operations. We have discussed the development, selection and disclosure of these estimates with the Board of Directors and our Audit Committee.
A summary of our significant accounting policies is provided in Note 1 of the Notes to Consolidated Financial Statements in Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2024. We believe the critical accounting policies and estimates described below reflect our more significant estimates and assumptions used in the preparation of the consolidated financial statements. The impact and any associated risks on our business that are related to these policies are also discussed throughout this "Management's Discussion and Analysis of Financial Condition and Results of Operations" where such policies affect reported and expected financial results.
Revenue Recognition
Our revenue recognition practices are discussed in Note 11, "Revenue Recognition," to our unaudited Condensed Consolidated Financial Statements in Item 1, Part 1 of this report.
Inventories
Inventories are adjusted to the lower of cost and net realizable value, using the first-in, first-out method. The components of inventory cost include raw materials, labor and overhead. To estimate any necessary adjustments, various assumptions are made regarding excess or slow-moving inventories, non-conforming inventories, expiration dates, current and future product demand, production planning and market conditions. If future demand and market conditions are less favorable than our assumptions, additional inventory adjustments could be required.
Incentive Trip Accrual
We accrue for expenses associated with our direct sales program, which rewards independent consultants with paid attendance for incentive trips, including our conventions and meetings. Expenses associated with incentive trips are accrued over qualification periods as they are earned. We specifically analyze incentive trip accruals based on historical and current sales trends as well as contractual obligations when evaluating the adequacy of the incentive trip accrual. Actual results could generate liabilities more or less than the amounts recorded.
Contingencies
We are involved in certain legal proceedings and disputes. When a loss is considered probable in connection with litigation or non-income tax contingencies and when such loss can be reasonably estimated with a range, we record our best estimate within the range related to the contingency. If there is no best estimate, we record the minimum of the range. As additional information becomes available, we assess the potential liability related to the contingency and revise the estimates. Revision in estimates of the potential liabilities could materially affect our results of operations in the period of adjustment. Our contingencies are discussed in further detail in Note 9, "Commitments and Contingencies", to the Notes of our unaudited Condensed Consolidated Financial Statements, of Item 1, Part 1 of this report.
Income Taxes
Our provision for income taxes, deferred tax assets and liabilities and contingent reserves reflect management's best assessment of estimated future taxes to be paid. We are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in determining our consolidated provision for income taxes.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we develop assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates that we are using to manage the underlying businesses. Valuation allowances are recorded as reserves against net deferred tax assets by us when it is determined that net deferred tax assets are not likely to be realized in the foreseeable future.
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes that would have a material effect on our results of operations, cash flows or financial position.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.
Nature's Sunshine Products Inc. published this content on November 06, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 06, 2025 at 22:12 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]