Natural Health Trends Corp. (NHTC) Q4 2021 Earnings Report, Transcript and Summary

Greetings. Welcome to Natural Health Trends Corp Fourth Quarter and Full-Year 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. [Operator Instructions] Please note this conference is being recorded. At this time, I will now turn the conference over to Kim Orlando with ADDO Investor Relations. Kim, you may begin.

Thank you and welcome to Natural Health Trends. Fourth Quarter and full-year 2021 Earnings Conference Call. During today's call, there may be statements made relating to the future results of the company that are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results, performance or achievements could differ materially from those anticipated in such forward-looking statements through the result 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 found on the Investors section of the company's corporate website at naturalhealthtrendscorp.com. Instructions can be found for accessing the archived version of the conference call in today's financial results press release, which was issued at approximately nine o'clock AM Eastern Time. At this time, I'd like to turn the call over to Chris Sharng, President of Natural Health Trends.

Thank you, Kim (ph). And thanks to everyone for joining us this morning to discuss our fourth quarter and full year 2021 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer. We ended the year on a high note with a strong fourth-quarter. Our revenue of $16.1 million increased 13% over the third quarter of 2021. In addition, we achieved our seven consecutive quarter of positive operating income and net income. The sequential improvement in revenue reflected strength in order volume, given our increase ability to adapt to the ever-changing macroeconomic environment resulting from the pandemic. We are extremely proud of our skilled leaders who have remained flexible and operated through these trying times. As discussed on our last conference call, the third quarter of 2021 was the first quarter since the beginning of the pandemic in which we were unable to organize any in-person events in China, Macau, or Hong Kong. In late December, we were able to cautiously resume some in-person activities. We sponsored a domestic fly-high training and climbing with over 500 attendees that you then were designed to help motivate and better equip our existing leaders to conduct business amid ongoing government-mandated restrictions and lockdowns. While it is still difficult to ensure normal levels of attendance, demand for our products in the weeks that follow, remain at healthy levels. We also held multiple webinars, online training sessions, and events during the quarter to help sustain momentum. Our deferred revenue balance grew by $2.5 million from September 30th to December 31st, 2021. This is a testament to our strong order volume which increased 29% compared to the third quarter of 2021, and 20% over the fourth quarter of last year. For the full-year of 2021 our order volume improved 9% over 2020 levels, which was supported by our successful second quarter event held in Macau, along with multiple in-person fly high training and roadshows throughout the year. We were very pleased to see that our Vivian incentives structure and programs have resonated well with our leader base. In addition, our quarter volume trends demonstrate ongoing strength in demand for our high-quality products, which are designed to improve health and overall wellness. Additionally, we were pleased to unveil a new product. Biotech Trio, which became available for sale in late November and contributed meaningfully to net sales. Biotech Trio is a daily supplement featuring not only pre - biotics, but also post - biotics together in one comprehensive formula to help restore beneficial gut bacteria. We look forward to releasing additional innovative products throughout 2022. In regard to our markets outside of Hong Kong and China, we delivered encouraging results in Japan and Malaysia during the fourth quarter with net sales increasing over the prior quarter. In Japan, we achieved triple-digit growth in sales over both the prior quarter and year-ago period driven by the persistence of our leaders in the region to grow their business successfully due to the pandemic. Japan alone contributed more than $0.5 million of revenue in the fourth quarter, which increased by more than $400,000 year-over-year. Additionally, we remain optimistic that our operations in South America, will further expand based on our success in Peru. We continue to direct additional resources to this region. And with the support of our Peruvian leadership team, we are making progress in establishing a presence in Colombia and Bolivia. As the economy continues to recover, we believe we are well-positioned to benefit from positive trends as consumers across the globe are increasingly focused on wellness-related products to support a healthy lifestyle. As we look ahead into 2022, the effect of the COVID-19 pandemic and the associated government-mandated restrictions and lockdowns will likely continue to present headwinds to our business. These types of disruptions may ever for the effect our abilities to hold in-person meetings and events in the future. We started important to our operations. However, in the interim, we believe we can continue to support our order volume due to the unwavering hard work and dedication of our employees, leaders, and members, coupled with our ability to quickly respond and adapt to changing marketing conditions. In summary, we were very pleased to end the year on a high note, despite the uncertain operating environment since the onset of the pandemic. We remain focused on managing the elements of our business that are within our control to improve both our operational and financial performance. As such, we are guardedly optimistic, we will benefit from a gradual resumption of in-person member events and activities going forward. Thank you again, to all of our loyal leaders, members, preferred customers, employees, and stockholders for your ongoing support of NHT Global. With that, I'd like to turn the call over to our CFO, Scott Davidson to discuss our financial results in greater detail. Scott.

Thank you, Chris. Total revenue for the fourth quarter was $16.1 million, a decline of 3% compared to $16.6 million in the fourth quarter of 2020 and an increase of 13% compared to the $14.3 million in the third quarter of 2021. As Chris mentioned, the 29% increase in order volume over the prior quarter drove the sequential increase as in-person member events and activities gradually resumed on a limited basis. For the full-year of 2021, total revenue was $60 million compared to $62.1 million in 2020. The decrease in net sales primarily resulted from the $5.5 million increase in deferred revenue during the year. Additionally, variance and scattered outbreaks of COVID-19 continued to present challenges to our business as the operating environment remains restricted. Our active member base declined slightly to 45,760 at December 31st from 45,950 at September 30th and was down 12% from 52,230 at December 31st last year. Turning to our cost and operating expenses, gross profit margin was 74.2% in the 4th quarter compared to 75.8% in the fourth quarter last year. For the full year, our gross profit margin of 75% increased from 72.6% in 2020 due to our negotiation of a lower logistics cost and offer a fewer product promotions. Despite a decrease in administrative fee revenue. Commissions expense as a percent of net sales for the fourth quarter increased to 44.1% from 41.4% in the prior year quarter due to higher incentivize costs. On a full-year basis, excluding the impact of administrative fee revenue, commissions expense as a percentage of net sales was relatively consistent with 2020. Selling general administrative expenses for the quarter decreased 2% to $4.4 million from the fourth quarter last year. For the full-year, SG&A was $17.8 million compared to $18.2 million for 2020. We maintained positive operating income for the quarter, which totaled $487,000 compared to $1.3 million in the fourth quarter last year. For the full-year 2021, our operating income increased to $1.6 million from $669,000 in 2020, supported by our strong growth margin and reduced operating expenses despite lower administrative fee revenue. We recorded an income tax provision of $286,000 for the quarter compared to $737,000 recognized in the fourth quarter last year. For the full-year, we recognized an income tax provision of $425,000 compared to $647,000 for 2020. Net income for the fourth quarter totaled $232, 000 or $0.02 per diluted share compared to $747,000 or $0.07 per diluted share in the fourth quarter of 2020. For the full year, net income totaled $1.1 million or $0.09 per diluted share, compared to $843,000 or $0.07 per diluted share in 2020. Now, I'll turn to our balance sheet and cash flow. Total cash and cash equivalents were $83.8 million at December 31st down from $84.6 million at September 30th. Total cash and cash equivalents decreased by $8.5 million from $92.4 million at December 31, 2020, primarily due to dividends paid in 2021 offset by net cash provided by operating activities during the year. Net cash provided by operating activities was $1.6 million in the 4th quarter, compared to $3.4 million in the 4th quarter of last year. For the full year, net cash provided by operating activities was $1 million compared to $1.9 million in 2020. For the full-year of 2021, we paid out $9.1 million in dividends. As returning capital to our stockholders remains our priority, I am pleased to announce that on February 7th, our board of directors declared a quarterly cash dividend of $0.20 per share, which will be payable on March 4th to stockholders of record as of February 22nd. In conclusion, I am very pleased with our financial and operational performance, despite the difficult operating environment during 2021. The fourth-quarter marked our seventh consecutive quarter of positive operating income and net income. And we generated $1.6 million in cash flow from operations for the quarter. As we look ahead, notwithstanding the residual effects of the pandemic, we are guardedly optimistic that we can carry our strong fourth quarter momentum into 2022. We remain focused on supporting our members and growing our business to ensure we are able to capitalize on any improvements in the operating environment in the coming months. That completes our prepared remarks. I will now turn the call back over to the operator. End of Q&A: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.