Natural Health Trends Corp (NHTC) Management on First Quarter 2022 Earnings Call Transcript

Natural Health Trends Society (NASDAQ: NHTC) Q1 2022 Earnings Conference Call May 4, 2022 11:30 a.m. ET

Participating companies

Michelle Glidewell – Senior Director at NHT Global Corp

Chris Sharng – President and Director

Scott Davidson – Senior Vice President, Chief Financial Officer, Chief Compliance Officer and Secretary

Operator

Greetings and welcome to the Natural Health Trends Corp. First Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to hand over to your host, Michelle Glidewell, from Natural Health Trends Corp. Thanks. You can start.

Michelle Glidewell

Thank you and welcome to the Natural Health Trends First Quarter 2022 Earnings Conference Call. During today’s call, there may be statements regarding the future results of the company that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Results, performance or achievements actual results could differ materially from those anticipated in these forward-looking statements. – forward-looking statements through the outcome of certain factors, including those set forth in the company’s filings with the Securities and Exchange Commission.

It should also be noted that today’s call will be webcast live and can be viewed in the Investors section of the Company’s website at naturalhealthtrendscorp.com. Instructions for accessing the archived version of the conference call are available in today’s earnings press release, which was issued at approximately 9:00 a.m. Eastern Time.

At this point, I’d like to hand over to Chris Sharng, President of Natural Health Trends.

Chris Sharng

Thank you, Michelle, and thank you all for joining us this morning to discuss our first quarter 2022 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer.

Revenue of $11.5 million decreased 14% from $13.5 million in the first quarter of 2021. Results were primarily attributable to increased COVID-related restrictions in Hong Kong and China, particularly in Shenzhen, which disrupted our supply chain and created distribution issues. In total, 70 days of the quarter were impacted by slowed down or completely halted logistics operations.

We have been in constant contact with our members, informing them of the delivery of their orders. Despite this very difficult environment, we still managed to ship nearly 23,000 orders during the quarter. To date, we are seeing some signs of improvement in the flow of goods.

The year-over-year comparison is also affected by the fact that in 2021 we held an in-person event in January Fly High in China. This year, we were forced to push our scheduled March in-person event in Macau to later this year, which negatively impacted orders for the quarter. We have generally experienced an increase in orders in the weeks leading up to and following our events, which are designed to promote and educate about our product offering and showcase our programs and incentives.

Although in-person events are not possible in the current environment in Hong Kong, China or Macau, we continue to conduct virtual activities such as webinars, online trainings and events to encourage engagement, deepen product knowledge and hone personal development skills.

Our resilient and hard-working members have learned to adjust their business practices to make the most of the ever-changing environment, and we are rolling out programs and promotions designed to engage leaders more effectively in business activities, ultimately rewarding them for the teamwork.

Regarding our markets outside of China. We are satisfied with the momentum and development of sales in our markets in Japan and South-East Asia. These 2 markets outperformed their year-over-year performance by 37% and 67%, respectively.

We continue to host virtual events to support our marketplaces and provide product and business education and provide a stage for product launches and promotions. In fact, just 2 weekends ago we hosted our Virtual Awaken E-Forum for our North America, Japan, Peru, India, Europe and CIS markets. The same weekend, we held an in-person beauty event in Gothenburg, Sweden for 150 members and prospects, where we launched our Skindulgence Probiotic Ampoule product in Europe.

Let’s move on to our market expansion and diversification efforts. During the quarter, we prepared our systems and our back-office platform to be able to accept registration and transfer our members to the country codes of Bolivia and Colombia. These developments stem from our activities in Peru. Starting this month, members will begin registering customers and leads on the Marketplace as we finalize product registrations and prepare for the official Marketplace opening later this year.

In summary, despite the difficult operating environment and challenges beyond our control, our employees remain focused on business fundamentals, including providing exceptional member support and demonstrating strong financial oversight, to maximize value performance for our shareholders.

While it is likely that the disruptions and mandatory lockdowns around COVID-19 will continue to impact our business in the near term, we are positioned with top industry leaders and members dedicated to our products. of quality and bring these products to people all over the world. world. I would like to thank all of our leaders for their continued dedication and commitment to NHT Global. I would also like to thank all of our loyal members, valued customers, employees and shareholders for their continued support of NHT Global.

With that, I’d like to turn the call over to CFO, Scott Davidson, to discuss our financial results in more detail. Scott?

Scott Davidson

Thanks Chris. Total revenue for the first quarter was $11.5 million, down 14% from $13.5 million in the first quarter of 2021. As Chris mentioned, the year-over-year decline in revenue was primarily due to the COVID-19 related increase. restrictions in Hong Kong and China that led to supply chain disruptions and prohibited us from hosting in-person events during the quarter. As we continue to weather this latest wave of the pandemic, we expect our financial results to continue to be negatively impacted.

Our active membership base decreased 3% to 44,490 as of March 31 from 45,760 as of December 31 and decreased 10% from 49,420 as of March 31 last year.

Let’s move on to our operating costs and expenses. Gross profit margin was 74.8% compared to 75.8% in the first quarter of the prior year due to the impact of relatively fixed costs on a lower level of net sales as well as lower revenue from administrative costs. Commission expense as a percentage of net sales for the first quarter was 41%, compared to 40.9% in the prior year quarter.

Selling, general and administrative expenses for the quarter decreased 4% to $4.3 million from the first quarter a year ago. The decrease in our general and administrative expenses compared to the prior year quarter reflects lower professional fees and credit card fees. Consequently, the operating loss for the quarter amounted to $383,000 compared to an operating profit of $220,000 in the first quarter of the previous year.

We recorded an income tax benefit of $168,000 for the quarter compared to an income tax provision of $87,000 recorded in the first quarter of the previous year. Net loss for the first quarter totaled $105,000 or $0.01 per diluted share, compared to net earnings of $153,000 or $0.01 per diluted share in the first quarter of 2021.

I will now turn to our balance sheet and our cash flow. Total cash and cash equivalents was $79.4 million as of March 31, down from $83.8 million as of December 31. year.

As returning capital to our shareholders remains a top priority, I am pleased to announce that on May 2, our Board of Directors declared another quarterly cash dividend of $0.20 per share, which will be payable on May 27 to shareholders of record on May 17. .

In conclusion, I am pleased with the operational execution that our loyal members and employees have demonstrated in the face of the demanding and ever-changing needs of our global business. Looking ahead, we remain focused on supporting our members and capitalizing on any improvements in the operating environment in the months ahead.

This completes our prepared remarks. I will now return the call to the operator.

Operator

Thanks. Ladies and gentlemen, this concludes our conference call. Thank you for your interest and participation. You can now disconnect your lines.

Q&A session

End of Q&A