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Nature's Sunshine Products (NATR) Q4 2020 Earnings Call Transcript

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NATR earnings call for the period ending December 31, 2020.

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Nature's Sunshine Products (NATR -0.75%)
Q4 2020 Earnings Call
Mar 10, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon everyone and thank you for participating in today's conference call to discuss Nature's Sunshine financial results for the fourth quarter and full-year ended December 31, 2020. Joining us today are Nature's Sunshine CEO, Terrence Moorehead; CFO, Joseph Baty; and general counsel, Nate Brower. Following their remarks, we'll open the call for questions. Before we go further, I would like to turn the call over to Mr.

Brower as he reads the company's Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Nate, please go ahead.

Nate Brower -- General Counsel

Thank you. Good afternoon and thanks to all of you for joining our conference call to discuss our fourth quarter and full-year 2020 financial results. I'd like to remind everyone that this call is available for replay via telephonic dial-in through March 24, and via our live webcast that will be posted on the Investor Relations portion of our website at www.naturessunshine.com. The information on this call may contain forward-looking statements.

Such statements are often characterized by words such as belief, hope, may, anticipate, expect, or will. 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 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'll turn the call over to the CEO of Nature's Sunshine, Terrence Moorehead. Terrence?

Terrence Moorehead -- Chief Executive Officer

Thank you, Nate. And good afternoon, everyone, and thank you for joining today's call. I hope you're all well and staying safe and well during the ongoing challenges of the pandemic. 2020 was certainly a challenging year, marked by an unprecedented change from COVID-19, but our management teams around the world were able to rise to the challenge as our fourth-quarter results closed out the year strong, was hoping and what we believe to be a transformational period for our company.

During the fourth quarter, we saw net sales reach at the highest level in the company's 48-year history, as performance eclipsed the record that we felt last quarter. In addition, we drove absolute growth across all four of our operating business units for the second straight quarter, and we generated record-breaking net sales growth and bottom line, improvements for the full year. All this was made possible by our unwavering commitments to our vision that drives us to share the healing power of nature with everyone. Throughout 2020, our management team drove incredible results to transform our business and bring our business to life.

While our practitioners and retailers showed incredible stamina and determination to deliver the highest quality natural products to our customers. That combination and that partnership help made 2020 a tremendous success. Throughout the second half of the year, we benefited from improved field fundamentals and the strength of our recently revamped business model. In the fourth quarter, net sales increased 11% to $101.7 million, reflecting strong sales practices, growth in new customer acquisition, and continued positive response to our new branding and product launches.

We maintained our momentum in markets that experienced strong growth last quarter, such as NSP U.S. and China, which grew 7% and 24%, respectively in local currency. In addition, we continue to see strong momentum from our transformation initiative in LATAM, which grew 21% in the local currency, and our product introduction in Central Asia and Europe, which contributed to Europe's overall growth of 35% in local currency. While we saw a significant improvement in net income during the fourth quarter driven by a favorable tax rate from the release of valuation allowances, our adjusted EBITDA reflects several seasonal initiatives and key strategic investments to support ongoing growth.

I'll provide a more comprehensive overview of the fourth-quarter results and our upcoming plans shortly. But first, I'd like to provide some additional detail on the performance of each of our OBUs. Let me start with North America, where we saw continued positive momentum throughout the region, as sales increased 6% overall. In NSP U.S., sales increased for the fourth consecutive quarter, delivering growth of 7%.

We continue to benefit from improved field fundamentals, as well as increases in new customer activation and engagement driven by positive consumer responses to our new branding and messaging. With consumers continuing to place a high priority on their health, we believe we are well-positioned to attract customers and address their needs. To help navigate the early stages of our transformation and identify potential areas for improvement, we continue to partner with our incredible practitioners and retailers. This helps ensure that we continue to enhance the business model and fully integrate the new initiatives into our distributors' daily routines.

I'll talk about our progress on the transformation a bit later in the call. But for now, I'll summarize by saying that we're very pleased with the rollout and the overall reception to the plan so far. Moving to Asia, while our sales increased by 2% on an absolute level, we experienced a slight year-over-year decline in a local currency, due to reinstated lockdowns across our second-largest market, South Korea. While we grew in Korea in the third quarter, the new restrictions constrained our ability to maintain the positive momentum into the fourth quarter, as sales fell by 23%, due to the market's strong reliance on in-person gatherings, and events.

In the months ahead, we'll continue to focus on the health and safety of our South Korean distributors, as we develop new initiatives that will allow customers to more easily access the products they desire. Excluding South Korea, Asia sales increased 18% in local currency. In China and Japan, we continue to see strong growth as both markets delivered significant increases in orders, new customers and average order spent. China's fourth-quarter sales grew 24% on a local currency basis, while sales in Japan increased 30% in local currency.

We're also starting to see robust growth, even one of our smaller strategic markets, Taiwan, which experienced 200% growth in local currency during the fourth quarter, and we expect to see continued strong growth in this market as it begins to rescale. In Europe, we saw growth of 35% led by continued strength in Central and Eastern Europe. Strong field fundamentals and targeted new product launches fueled our performance in both Russia and Poland. And we look forward to officially launching our rebranding initiatives in the second half of 2021.

Despite the recent social unrest in Russia, our performance remains strong as sales in the fourth quarter grew 37% in local currency. Poland continues to deliver explosive growth, with for the fourth quarter sales increasing 64% versus the prior year in local currency. In Western Europe, we struggled for most of the year to deal with the crushing effects of COVID-19. However, in the fourth quarter, we were able to deliver 13% growth in local currency sales, driven by strong progress in the UK, which was up 32%, and Italy, which was up 47%.

Moving forward, there is still some uncertainty with respect to the impact of the pandemic. So, we anticipate a gradual recovery for Western Europe. Finally, in Latin America, we continue to see strong growth from our revamped go-to-market strategy. In the fourth quarter, sales increased 41% versus the prior year in local currency.

The rollout and implementation of the new business model are still under way, but we saw a strong improvement in new customer growth throughout the quarter. Of course, meaningful improvement to our field fundamentals will take time, but the increased amount of field contact, improved communication, and the move to a single compensation plan appears to be having a positive impact on sales force productivity. At the same time, the introduction of new digital capabilities seems to be helping to drive new customer growth. Overall, we're pleased with how customers and distributors have responded to the transformation.

And we expect to experience continued growth as we move forward over the long-term. Our performance across the four OBUs demonstrates that our transformation initiatives are gaining momentum. Over the course of 2020, we saw momentum build, and the team focused on implementing our global growth strategies. For the full year, 2020 sales grew 6% to a record of $385 million in sales, which is the highest sales in the company's history.

Operating profits also increased 33% delivering $21 million, while adjusted EBITDA increased 16% to $36 million. We're very pleased and encouraged by the favorable response we've received from our customers and distributors to our revamped business model, the new branding, and the new website. We still have a lot of work to do. But we've made tremendous progress and are deeply grateful for the amount of flexibility and adaptability, our distributors have shown.

And we're very fortunate to have such incredibly skilled and savvy partners, as we navigate through this transition together. The changes we've implemented have only just begun to unlock the power of Nature's Sunshine, and there are still many new exciting elements of our plans to come, and I look forward to sharing those plans with you sometime in the future. For now, however, I'd like to give you a brief update on our progress on our five global growth strategies. I'll begin with brand power, where our updated packaging and branding are already receiving strong praise from our customers and distributors around the globe.

Our new clean modern design highlights the potency and effectiveness of our products while positioning Nature's Sunshine as a clear choice for consumers looking for quality products that deliver significant health benefits. In the fourth quarter, we also began testing our new Force of Nature digital marketing campaign. And I'm pleased to announce that the initial result has exciting implications for the business. The test campaign exceeded our expectations, as the results revealed a higher level of customer engagement that surpassed our initial objectives and industry benchmarks.

It's still early to come to any final conclusions, but based on the results we've seen so far, we feel confident that our new branding will effectively support our customer growth initiatives moving forward. In summary, we continue to see strong consumer response to our initial marketing efforts and believe that our performance-based products, industry-leading quality, and unique branding truly distinguishes Nature's Sunshine from the competition. Turning to field energy, this is the area where we've experienced the greatest challenges due to pandemics. Around the globe, all of our markets have been forced to adapt and build new, flexible capabilities to augment our field fundamentals.

The introduction of new updated sales tools has been key, but we've also had to rely more heavily on new digital tools to keep our teams connected and productive in a remote work environment. The increased number of Zoom calls, webinars, and video conferences, has helped us reach a broader group of distributors, including those that might normally fall through the facts. As a result, we're working more closely with our distributors to find new ways to drive customer growth and improve activation. The launch of our new business model was designed to support these efforts and more.

And we continue to make excellent progress in our two key launch markets, North America and Latin America. It's still early days, but we're seeing success in both of OBUs and believe that we're laying a strong foundation for the future. One of the areas where we're seeing increased participation is in the number of customers signing up for Subscribe and Thrive. Remember, Subscribe and Thrive is our new auto-ship program, and is the most cost-effective way to purchase our products.

Subscribe and Thrive customers receive our best prices, a complimentary one-year premium membership that offers them exclusive savings on all of their purchases, and they get free shipping. After just a few months, Subscribe and Thrive already represents about 25% of our monthly orders, and we continue to see steady growth in the number of people join the program each month. The program not only helps people save time and money, but it also helps to contribute to health since our products become more effective when used over time. The new business model also introduced the new affiliate program, which continued to gain momentum in the fourth quarter.

Since the launch of the program in September, we've seen a 300% increase in the number of people joining the program. And the new affiliate continues to join the company each month, and they're sharing our products with friends and acquaintances through their social media networks. This has helped introduce our brand to an entirely new group of consumers, supported by influencer recommendations. Amidst all of this, our incredible distributors continue to lead the way as we continue to transform the business.

As you've heard me say before, I believe we have some of the most skilled, dedicated, and talented practitioners and retailers in the industry. Their passion for herbs, natural products, and sharing the healing power of nature makes them an invaluable partner in the transformation of our business, and we're committed to their success. Our industry-leading bridge program offers our distributors what we refer to as a passport to success, and reflects our unwavering commitment to ensuring that each and every one of our distributors has the time and support needed to adapt to the new system build confidence and create a plan to drive growth in their business. Moving on to our digital-first initiatives, the fourth-quarter launch of our new website ushered in a new era for Nature Sunshine.

The new digital platform has played a key role in the relaunch of our business over the past two quarters by introducing customers and distributors to a more powerful online toolkit that more effectively helps them search for and share our products. Ongoing enhancements to the platform, we're focused on improving and strengthening the user experience, as we continue to strengthen Subscribe and Thrive functionality, Google search parameters, and our website content in areas like product ratings, customer reviews, and sourcing transparency. We're also building our database marketing capabilities, and they are developing strategic partnerships with several top-tier database marketing platforms. This will allow us to more effectively target and serve customers while enhancing the level of engagement in future marketing campaigns.

We look forward to continuing the comprehensive rollout of our digital transformation in 2021. Turning to Manufacturing Inc., a recent study by the Nutrition Business Journal showed that 85% of Americans say that they trust independent third-party certification organizations when evaluating brands. At Nature's Sunshine, we take tremendous pride in the vast number of product certifications that we have. Our industry-leading list of certifications and accreditations thoroughly distinguishes our company from the competition.

In the fourth quarter of 2020, we continue to increase our lead over the competition by gaining our ISO 9001 recertification for quality processes, securing our ISO 17025 certification for testing excellence, and receiving an A1 TGA rating, which is the highest rating available from TGA, which is similar to pharmaceutical-grade certification. Again, we take pride in our rigorous quality controls, meticulous testing, and precise manufacturing standards. The fact that we keep these processes largely in-house distinguishes us from the more than 85% of competitors, who outsource their products to less accredited third-party manufacturers that lack the science, quality, testing, control, and manufacturing capability that Nature's Sunshine has developed over the past 49-years. Going forward, our excellence in product quality, reliability, and testing will form the foundation for our increased commitment to sustainability and transparency.

We've already made the move to 100% recyclable bottles, and have implemented a Supplier Code of Conduct agreement with all of our suppliers to ensure that they are in compliance with our -- with all of our sustainability goals and objectives. We're also working to enhance and expand our ESG efforts, and we'll share additional updates on that in the future. As a company committed to its vision of sharing the healing power of nature, we are proud to take on this challenge and to lead the industry in this area. Lastly, on our Right Stuff initiatives, we continue to benefit from our revamped organization structure, as evidenced by the team's improved ability to drive transformational change throughout the pandemic.

2020 represented the largest transformation in the company's history, and it has impacted every single area of the business. Without the increased level of focus, attention to detail, and collaboration, we would not have been able to deliver the historic year of growth, while significantly increasing profits. For the full year, again, operating profit increased 33%, while operating margins increased 110-basis-points, despite COVID-related increases in the cost of goods sold, one-time restructuring charges, incremental incentives for supply and growth, and several strategic investments designed to build momentum and drive future growth where we invested ahead of sales as we talked about last quarter. In the future, we expect to see continued improvements to profitability, as our streamlined organization and operational efficiencies are designed to improve productivity across the business.

We continue to be pleased with the progress we've made on our five global growth strategies, and are proud of our financial success in 2020. Despite the economic and operating challenges posed by the pandemic, our improved productivity and effectiveness have strengthened the financial health of the company and created significant long-term growth potential. As we announced earlier today, our record-breaking financial performance has put us in a position to return a meaningful amount of capital to our shareholders through a special dividend in the amount of $1 per share, as well as a $15 million share buyback authorization. While Joe will walk you through the details of these shortly, I want to walk you through our capital allocation strategy, which prioritizes three areas as we move forward.

Our first priority is maintaining our financial strength and stability. Obviously, we want to make certain that we have sufficient cash reserves on hand to meet our financial obligations. From there, our next priority is to invest in incremental growth in the form of organic opportunities that will take our business to the next level, or strategic M&A transactions to expand on its abilities to accelerate market penetration. And finally, our third priority is to allocate funds to future dividends and share repurchase programs as opportunities arise.

Overall, however, at this point, our main focus is on supporting and driving growth. With that, I'd like to turn the call over to Joe, who will walk you through our fourth quarter and full-year financial results, and our continued priorities for 2021 in more detail. Joe?

Joe Baty -- Chief Financial Officer

Thank you, Terrence, and good afternoon, everyone. So, let's just jump into this. Net sales in the fourth quarter increased 11% to a company record of $101.7 million, compared to $91.7 million in the year-ago quarter. This increase was primarily driven by new product development and continued execution of our business transformation plans and growth in new customer acquisition within key markets.

As Terrence mentioned, we achieved absolute growth across all four operating business units, excluding the benefit of overall favorable foreign exchange rates, net sales increased 9% in the fourth quarter of 2020. On an absolute basis, net sales in Asia increased 2% to $36.9 million, compared to $36.1 million in the year-ago quarter. But on a local currency basis, this represented a 3% decrease. The decrease was primarily attributable to a net sales decline in South Korea during the fourth quarter as a result of stricter lockdown restrictions, as well as a decrease in net sales across our other Asian markets.

The decrease was partially offset by a 24% increase in sales in China, and a 30% increase in sales in Japan due to the lift of lockdown restrictions and increased market penetration within these regions. Net sales in Europe increased 35% year over year in local currency to $23.6 million, compared to $17.2 million in the year-ago quarter. The increase reflects the continued success of new product launches and stronger field fundamentals throughout Central and Eastern Europe. North American net sales increased 6% on a local currency basis to $34.7 million, compared to $32.9 million in the year-ago quarter.

With the various strategic and e-commerce enhancements we have implemented to our transformation initiatives, we continue to capitalize on strong demand resurgence within the U.S. market and driving future growth and new customer acquisitions during the fourth quarter. Net sales in Latin America and others increased 21% in local currency to $6.6 million, compared to $5.6 million in the year-ago quarter, with the increase primarily due to new product launches, and the continued success of our transformation initiatives in this market. Particularly, with our advanced field fundamentals and digital resources for distributors, as Terence mentioned.

Gross margins remained flat at 74% compared to the year-ago quarter. Volume incentives as a percentage of net sales were also consistent at 34.1% for the respective fourth quarters. Selling, general and administrative expenses were $38.4 million, compared to $32.7 million in the year-ago quarter. The increase was primarily attributable to variable costs associated with sales growth, incremental stock-based compensation, bonus-related and restructuring expenses, as well as incremental support for future growth initiatives.

As a percentage of net sales, SG&A expenses were 37.8% compared to 35.7% in the year-ago quarter. Excluding the impact of almost $0.7 million of restructuring expenses in the fourth quarter of this year, SG&A expenses were 37.1% of net sales compared to 35.7% in the year-ago quarter. Operating income in the fourth quarter was $2.2 million or 2.2% of net sales, compared to operating income of $3.9 million or 4.3% of net sales in the year-ago quarter. Excluding the restructuring-related expenses, we generated $2.9 million of operating income or 2.9% of net sales for the current quarter, compared to $3.9 million and 4.3% of sales in the year-ago quarter.

The reduction in the margin is primarily related to incremental stock and bonus compensation of $2 million, and marketing investment associated with our transformation initiatives. Adjusted EBITDA as defined in our press release has net income from continuing operations before income taxes, depreciation, amortization, and other income or loss adjusted to exclude share-based compensation in certain noted adjustments were $7.5 million in the fourth quarter, as compared to $7.6 million in the year-ago quarter. The lack of adjusted EBITDA growth from increased sales is primarily attributable to the aforementioned timing of certain expenses, including incremental bonus amounts and investments made in support of the company's long-term growth, as Terrence has noted previously. Net income attributable to common shareholders for the quarter was $5.9 million or $0.29 per diluted share, as compared to $1 million or $0.05 per diluted share in the year-ago quarter.

Turning to liquidity, we had cash and cash equivalents on December 31, of $92.1 million and outstanding debt of $3.7 million. For the full year of 2020, we generated $37.7 million of cash from operations as compared to $8.5 million in 2019. Adjusted EBITDA for 2020 increased $5 million, including an almost four-point margin increase. As we look back in 2020 into the fiscal year ahead, we are proud of our stronger financial foundation.

Our significantly improved financial health enabled us to invest in our business and positions us to return a portion of our cash to shareholders. As Terrence mentioned today, our board of directors declared a special cash dividend of $1 per share, payable on April 9, to shareholders of record as of March 29. In addition, our board authorized the repurchase of up to $15 million of the company's common shares. The repurchases may be made from time-to-time, as market conditions warrant, and are subject to regulatory considerations.

Future capital allocation strategy, including initiatives, will be balanced with our aim to continue investing ahead of sales growth. This includes strategic investments to support our customer acquisition and activation, where we have already made progress. Similar to the results we are reporting today, our investments in the next phases of our business transformation may increase our costs over the next several quarters. However, we expect the long-term benefit of these investments will sustain our growth for long-term operational improvements, and result in increased operating and adjusted EBITDA margins.

We believe the initiatives we have put in place this year have only just begun to fully optimize our platform. And we look forward to further enhancing and expanding our transformation in 2021. Now, I will turn it back to the operator for Q&A. Operator?

Questions & Answers:


Operator

Thank you. [Operator Instructions]. We'll now take our first question from Steven Martin with Slater. Please go ahead.

Steven Martin -- Slater Capital Management LLC -- Analyst

Yeah. Hi, guys.

Joe Baty -- Chief Financial Officer

Hi, Steve.

Steven Martin -- Slater Capital Management LLC -- Analyst

Regulations on the revenue increase, I guess we're all surprised the cost increase was so great. I was asking about costs, where do you see going forward, because it was all the G&A line. So what do you expect in 2021?

Terrence Moorehead -- Chief Executive Officer

I'll let Joe I guess attend that. Obviously, we expect to see continued expansion in our margins and overall profitability. But Joe, you want to give a little bit more color to that?

Joe Baty -- Chief Financial Officer

Sure. Hey, Steve, how are you doing?

Steven Martin -- Slater Capital Management LLC -- Analyst

Good.

Joe Baty -- Chief Financial Officer

I'll tell you, directionally, yes, we expect because I noted in my comments that we may have some incremental costs associated with certain of our initiatives, and spending a bit ahead of growth if you will. Having said that, looking at 2021 overall, as we -- well, we don't get guidance per se, I would just say that we clearly expect our overall margins to be north of where they are in 2020. If that helps to answer your question.

Steven Martin -- Slater Capital Management LLC -- Analyst

It does. It does. And once Korea strengthens itself out, what do you -- can you give us, I mean, you're getting better with this. Can you give us a range of what your expectation is for top-line growth in 2021?

Terrence Moorehead -- Chief Executive Officer

Well, again, I won't necessarily give you specific direction, but as we've seen in our other markets when the COVID-19 restrictions are eased in Tennessee, the unleashing of our potential in Korea, we've got such strong field fundamentals and such a strong kind of operating machine there that is built on relationships. And you ship this finely tuned and finally oiled machine, I mean you throw something like COVID into the mix and it just really slows them down. So as you saw. So, I think our expectation is that we would return to kind of normal growth rates and almost the sort of growth rates that we would have seen there, historical performance in that market.

But again, that will be determined by when that market can open up, as well as our ability to build out some more digital capabilities on the ground there. And we are working on that Steve. But it'll take a little bit of time for us to put that infrastructure in place. So obviously, before I came on board, there wasn't much there.

We focused on it as a core component of our strategy and are building up the capabilities right now. But it'll take a little bit of time. But that's a great market for us. And my expectation would be that they'll step back.

Steven Martin -- Slater Capital Management LLC -- Analyst

What's the status of that market now? Is it still closed up?

Terrence Moorehead -- Chief Executive Officer

They actually have some additional restrictions put in place and largely on meetings and just how people can get together. And again, as you know, that sets a large part of the Korean -- South Korean business and the dynamic that they have in place there. They are working with some again, some -- they've just launched a new business app that's designed to take some of the meeting dynamic and the training that they do, and build that into a digital platform. But that is brand new since half of the assembly line just launched this quarter.

So definitely, I don't want to make any predictions on the impact that's going to have. But clearly, the more tools and the more contact you have, the more helpful it is.

Steven Martin -- Slater Capital Management LLC -- Analyst

Ok. I do applaud the board's decision to pay a special dividend and buy back shares, as you know I've been looking for that for a long time. So with $90 million in cash, I think that's a great use of cash and I hope you're reasonably aggressive about how to use the buyback. One other question on debt.

You took out that Bank of America loan, obviously in April, and you took some more of it out. Given your cash position is this the reason why you're keeping it out?

Joe Baty -- Chief Financial Officer

Well, I mean, we have an equivalent line, we have a couple of lines of credit, Steve. And given that today -- at the end of the day, we're trying to give -- maintain our banking relationship and the money is very, very cheap. So, given that we pay back the PPP loan, we turn around and build a little bit against our equivalent line, which obviously in any given day, we feel so compelled, we can obviously, pay it back.

Steven Martin -- Slater Capital Management LLC -- Analyst

Ok. And capex thought for this year?

Joe Baty -- Chief Financial Officer

Well, for 2020, there are still consistently 2019 somewhere in that $5 million or $6 million range. Again, directionally, I would say that, because of the number of initiatives that we have that it's certainly possible the capex for 2021 could be 1x, 2x times what it was in 2020.

Steven Martin -- Slater Capital Management LLC -- Analyst

Got it. And are you guys having any supply -- there are a lot of shipping supply disruptions as a result of you are doing most of your manufacturing? Are you guys experiencing any of that?

Joe Baty -- Chief Financial Officer

For the most part, no, we're not. Let's not say that we haven't had to experience a hiccup or two. And sometimes those have been a domestic strike, trying to get a product out of Westport facility and on the water to one of our markets. I mean, we've had a hiccup or two, but for the most part, we've been relatively unscathed by disruptions, both on the distribution side and on the supply side.

Steven Martin -- Slater Capital Management LLC -- Analyst

Gotcha. All right. I will go and I'll talk to you next week sometime, Joe.

Joe Baty -- Chief Financial Officer

All right. Thank you, Steve.

Terrence Moorehead -- Chief Executive Officer

Thank you, Steve. Next question, please.

Operator

Thank you. [Operator Instructions] We'll hear next from John Hollander with CAG Advisors.

John Hollander -- CAG Advisors -- Analyst

Hi, Guys. Thank you for taking my call. The first question to you on the metric that you use to manage your business, through Q2 of 2020, your earnings releases improved the numbers of distributors and managers. Those numbers have been removed for Q3, and again, in this earnings.

Can you give me an update on what metrics investors should be looking at to help me analyze your business?

Joe Baty -- Chief Financial Officer

Well, first off let me -- in regards to removing some of the distributor information that we've had in prior years, it's not required data. And frankly, based on the implementation -- the introduction of our new business model back in September, we consider some of that data just less relevant. And there's much more of a focus on differentiating between what your customers are versus who the distributors and leaders are. So, as Terrence touched on his comment, I would recommend that you listen to some of the data points that he called out in his comments, but they give you a pretty good roadmap as to some of the things, the metrics, if you will, that we look at and trying to measure the results, and how we're doing on a go-forward basis.

When we're all said and done, I mean obviously, we're looking for growth. We're looking to build on the customer base. We're looking to build on our distributor base. We've seen some success on that, especially with programs as Terrence touched on like Subscribe and Thrive, and the significant amount increase, we've seen in customer activation, and so forth.

John Hollander -- CAG Advisors -- Analyst

Ok. Can you give any data points as to what percent of your sales are coming from the digital side, I guess, digitally originated?

Terrence Moorehead -- Chief Executive Officer

Those numbers are still somewhat presented sales from digital. I'd say that percentage is still relatively low in the 10% range. However, having said that, most of our distributors now aren't doing business with us digitally. So, the volume of digital transactions overall is very high.

The amount coming from consumers is still relatively low. And again, we just launched our new platform and our new website, September 1, 2020. So we're relatively new to the journey.

John Hollander -- CAG Advisors -- Analyst

Ok. So I assume you guys don't have any metrics such as customer acquisition costs, or like on value cost or other quarters or anything that from the consumers?

Terrence Moorehead -- Chief Executive Officer

Yes. Not yet, we don't. Again, we just started our general test doing some of that type of work the database marketing work in the November timeframe. And we'll be rolling out some additional initiatives going forward.

So that's all kind of part of the digital campaign or force of Nature campaign. And then it's the other things that I talked about that we're doing rolling forward. But again, that's still kind of new territory for us, new ground for us, but it's a tremendous opportunity. One of the interesting things, John, just to build on that, one of the interesting things about kind of our business and our platform, is not only will we be leveraging those tools, but we've also kind of making sure that all of our distributors have the exact same tools and the exact same capabilities that we have as well.

So each one of our distributors, all of our practitioners, all of our retailers, everyone in our business here, especially here in North America, and Latin America, will have the exact same kind of tools, a fully functional website, sharing tools, kind of everything, email marketing tools, in order to help them create a wholly digital business of their own. So there's kind of multiplier effects that we hope to get by going forward out of our digital toolkit.

John Hollander -- CAG Advisors -- Analyst

Ok. That's helpful and thank you for that. Can you give me a quick sense of how you think about working capital?

Terrence Moorehead -- Chief Executive Officer

Joe, do you have any color on that?

Joe Baty -- Chief Financial Officer

So we think about working capital, as far as going forward, what I'd say is, obviously, if you are breaking particular components obviously, as we discussed earlier, you know, we are doing a lot. We had a decent year growth-wise in 2020. We do believe it will continue to grow going forward. We'd like to see that growth increase.

That certainly drives maybe a little bit of an uptick on inventory. Cash receivable for us is primarily credit card-related. So we convert to cash pretty quickly. And then on the current liability side, obviously, to some degree the inventories will be financed with cash paid along and so forth and so on.

So it's a little bit of a long-winded answer to your question, John that we don't see any major pressures on using cash for using cash as a result of working capital going forward. There'll always be some things that just from a timing perspective that will come into play, but we don't consider working capital as -- our growth and working capital is a major use of cash for us going forward.

John Hollander -- CAG Advisors -- Analyst

Ok. So obviously, we're already near the end of Q1. I was hoping on the discussion we just had about Korea, about the other geographies in Q4. Can you make any comments on how things are trending for Q1 because we've seen some reopening worldwide post-COVID?

Joe Baty -- Chief Financial Officer

At this time, no, we're not going to provide any comments regarding Q1. Obviously, we've already provided a little bit of that. As far as how we believe 2021 shake out, we clearly believe that we're going to experience growth, clearly believe and expect, that we're going to see improvement in our profitability, and so forth and so on. I mean, our next earnings release in early May.

And obviously, we'll talk much more at length about the first quarter played out, and then maybe we'll be in a better position to talk a little further about the rest of 2021.

John Hollander -- CAG Advisors -- Analyst

Ok. And as one final question. On the cash flow statement, I've noticed the line item for non-cash lease expense. Can you please comment on that?

Joe Baty -- Chief Financial Officer

I'm sorry, could you repeat that question?

John Hollander -- CAG Advisors -- Analyst

Yes. It is consciously, I have noted some line items for non-cash lease expense.

Joe Baty -- Chief Financial Officer

Ok. If your question is specific to adjusted EBITDA the other non-cash -- non-cash items for us are primarily depreciation and stock-based compensation. And there's a table at the earnings release that breaks...

Terrence Moorehead -- Chief Executive Officer

The amortization of the brand expense and that probably standard change accounting?

Joe Baty -- Chief Financial Officer

So we'll be -- the other consideration maybe we're referencing is, obviously there was a new accounting standard for the employees' couple of years ago, where you have to put all the leases on the books. You have to evaluate and present-day the lease liabilities for your various office leases, where offices whatever you may have, you put those on the books, and then there is some amortization associated with that liability. But it's an asset and it's a liability. I don't really look at that as an adjustment to EBITDA.

It's a gross-up to your core to do for accounting purposes.

John Hollander -- CAG Advisors -- Analyst

Ok. That's helpful. I thought it might have been [Inaudible] leases with staff, which is why.

Joe Baty -- Chief Financial Officer

Yes. That's one of those accountants' kind of wild things.

John Hollander -- CAG Advisors -- Analyst

No problem. Well, thank you for your time. Very good quarter. That's the end of my questions.

Joe Baty -- Chief Financial Officer

Well, thank you for your questions.

Terrence Moorehead -- Chief Executive Officer

Thanks, John. Thanks for the questions.

Operator

Thank you. And at this time, this concludes our Q&A session. And with that, I would like to turn the call back over to Mr. Moorehead for closing remarks.

Terrence Moorehead -- Chief Executive Officer

Ok. Well, thank you very much. I just want to take a moment to thank everybody for participating and listening to today's call. We look forward to speaking with you again when we report our first quarter '21 results in May.

Until then, stay well, and look forward to speaking with you all soon. Take care. Bye now.

Operator

[Operator signoff]

Duration: 54 minutes

Call participants:

Nate Brower -- General Counsel

Terrence Moorehead -- Chief Executive Officer

Joe Baty -- Chief Financial Officer

Steven Martin -- Slater Capital Management LLC -- Analyst

John Hollander -- CAG Advisors -- Analyst

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