Natural Health Trends Corp. (NHTC) Third Quarter 2022 Earnings Call Transcript

Natural Health Trends Corp. (NASDAQ: NHTC) Q3 2022 Earnings Conference Call Nov 2, 2022 11:30 a.m. ET

Participating companies

Michelle Glidewell – Senior Director, NHT Global Corp

Chris Sharng – President and Director

Scott Davidson – Senior Vice President and Chief Financial Officer

Operator

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

It is now my pleasure to introduce your host, Michelle Glidewell of Natural Health Trends Corp. Thank you, Michelle. You can start.

Michelle Glidewell

Thank you and welcome to the Natural Health Trends Third 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 third quarter 2022 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer.

In the third quarter, results were impacted by the prolonged and ongoing COVID-related measures in China, continued social restrictions, mass testing, surveillance and lockdown presents challenges for consumer-facing businesses like ours. But despite the unpredictable environment our members and customers must navigate, they remain engaged and work hard to share our superior health, wellness and beauty products.

For the quarter, we generated revenue of $11.7 million, a decrease of 12% compared to the second quarter of 2022. While this is not the result we hope to achieve, we are encouraged by signs Positive engagement as our team comes together safely and with caution Local gatherings attend our virtual conferences and go through the well-structured online training system that we fully implemented during the quarter.

As a refresher, this new online training program integrates company-sponsored product training and member-led business, motivation and leadership training, all to better support the continued development and engagement of our members.

We were delighted to have successfully organized a national incentive trip to Xiamen, which title is, [Super Me Journey], where approximately 150 members participated in well-deserved team-building activities and training. We look forward to hosting more of these national events [Super Me] events in the future as an opportunity to connect more with members and build their knowledge of our company’s products.

Outside of China and Hong Kong, a strategic calendar of in-person and virtual events supports team development and attracts new customers to our product lines and business opportunities.

In North America, successful trainings have been held at our 3 Healthy Lifestyle Center Plus locations in Richmond, BC in Canada; Metuchen, New Jersey; and Rowland Heights in California. And we celebrated the Mid-Autumn Festival with over 120 people in attendance for an event showcasing our premium noni juice.

During the quarter, we also launched an all-inclusive cruise qualifier that runs through Q4 in the Bahamas and departs in March 2023.

Last month, we held an in-person wellness event in Gothenburg, Sweden, which was attended by 140 European members. At this event, we held our January 2023 European event, and we are very happy with the response after selling all available tickets.

All over the world, our teams are ready to travel and rediscover new cultures and places. During the quarter, several markets undertook incentive travel, including: our members from Peru traveling to Punta Cana in the Dominican Republic; our European team traveling to Zadar, Croatia; our Russian team going to Lake Baikal; and our team from Taiwan traveling to Yilan.

Our ability to combine enriching travel experiences with business and product education helps strengthen the connection with our members, and members with their teams and peers to drive engagement and retention. We remain committed to designing local business initiatives to support our teams.

I am pleased to report that we recently launched global digital initiatives to improve our customer acquisition, member onboarding, and overall shopping experience for distributors and customers. We believe this online orientation will be a key driver of future growth, improve productivity and support our shareholder value.

Although ongoing COVID-19 regulations and global economic factors impacting many of our markets present challenges for our business. We believe our fundamentals are strong. Our continued focus on the key areas of customer growth, market expansion, new product innovation and digital enhancement initiatives to improve performance and productivity will benefit us in the long term.

We want to thank our loyal members who work day in and day out to grow their NHT business by sharing our amazing product line and opportunities with others. Our dedicated members are truly committed to improving the health, well-being and quality of life of others.

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

Scott Davidson

Thanks Chris. Total revenue for the third quarter was $11.7 million, down 12% from $13.4 million in the second quarter of 2022 and down 18% from $14.3 million in the third quarter of 2021. -Consumer-related measures in China negatively impacted our results in the third quarter of 2022. And present challenges for consumer-facing businesses like the our. We expect these challenges to continue to impact our financial results as Zero COVID policies remain in effect and the operating environment is unpredictable.

Our active membership base has decreased by 4% from 43,020 at June 30 to 41,170 at September 30, and by 10% from 45,950 at September 30 of last year.

With respect to our operating costs and expenses. Gross profit margin of 73.6% decreased from 74.3% in the third quarter of last year due to the impact of relatively fixed costs on a lower level of net sales as well as a decrease in revenue from administrative costs. Commission expense as a percentage of total revenue for the third quarter decreased to 41.5% from 42.2% in the prior year quarter due to lower additional incentive costs.

Selling, general and administrative expenses for the quarter were $3.9 million, compared to $4.1 million 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 $145,000 compared to an operating profit of $479,000 in the third quarter of the previous year. We recorded an income tax benefit of $5,000 for the quarter compared to $45,000 in the third quarter of the previous year.

Net income for the third quarter totaled $47,000 or the balance per diluted share, compared to $471,000 or $0.04 per diluted share in the third quarter of 2021.

I will now turn to our balance sheet and our cash flow. Total cash and cash equivalents were $70.7 million as of September 30, down from $75.6 million as of June 30.

As returning capital to our shareholders remains a top priority, I am pleased to announce that on October 31, our Board of Directors declared another quarterly cash dividend of $0.20 per share, which will be payable on November 25 to shareholders of record on November 15. .

As we continue to design and implement strategies to improve performance and productivity with our debt-free balance sheet and highly variable cost structure, we believe we are well positioned to improve long-term financial performance to support shareholder value.

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

Q&A session

Operator