Natural Health Trends Corp. (NHTC) Q3 2022 Earnings Report, Transcript and Summary

Greetings, and welcome to the 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 with Natural Health Trends Corp. Thank you, Michelle. You may begin.

Thank you, and welcome to Natural Health Trends Third Quarter 2022 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 9:00 a.m. Eastern time. At this time, I'd like to turn the call over to Chris Sharng, President of Natural Health Trends.

Thank you, Michelle, and thanks to everyone 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 adversely impacted by extended and ongoing COVID-related measures in China, the continued social restrictions, mass testing, surveillance and lockdown present challenges for consumer-facing businesses such as ours. But despite the unpredictable environment our members and customers must navigate through, they remain engaged and hard at work sharing 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 not the outcome we hope to achieve, we are encouraged by positive signs of engagement as our team safely and cautiously meet as small local gatherings attend our virtual conferences and are following the well-structured online training system we put into full effect during the quarter. As a refresher, this new online training program incorporates company-sponsored product training and member-led business, motivational and leadership training, all in an effort to better support the ongoing development and engagement of our members. We were pleased to have successfully hosted an income to domestic incentive trip in Xiamen, title are, [Super Me Journey], where around 150 members took part in some much deserved team bonding activities and training. We look forward to holding more of these domestic [Super Me] events in the future as an opportunity to further connect with members and strengthen their knowledge of products in our business. Outside of China and Hong Kong, a strategic calendar of both in-person, in-virtual events is supporting team development and attracting new customers to our product lines and business opportunities. In North America, successful trainings were held at our 3 Healthy Lifestyle Center Plus locations in Richmond, British Columbia in Canada; Metuchen, New Jersey; and Rowland Heights in California. And we celebrated the Mid-Autumn Festival with more than 120 in attendance for an event spotlighting our Premium Noni Juice. During the quarter, we also launched an all-inclusive cruise qualification that runs through Q4 to the Bahamas and will set sail in March 2023. Last month, we held an in-person wellness event in Gothenburg, Sweden attended by 140 European members. At this event, we teed up our January 2023 European event, and we're very pleased by the response having sold out all available tickets. Around the world, our teams are ready to travel and experience new cultures and locations again. During the quarter, several markets embarked on incentive trips, including: our Peru members traveling to Punta Cana in the Dominican Republic; our European team traveling to Zadar, Croatia; our Russian team traveling to Lake Baikal; and our Taiwan team traveling to Yilan. Our ability to couple rewarding travel experiences with business and product training helps strengthen the connection with our members, and members with their teams and peers to help drive engagement and retention. We remain committed to designing sales initiatives at a local level to support our teams. I'm pleased to announce that we recently kicked off worldwide digital initiatives to improve our customer acquisition, member onboarding and the overall shopping experience for both distributors and customers alike. We believe this online focus will be a key driver for future growth and enhance productivity and support our shareholder value. While lingering COVID-19 regulations and global economic factors impacting many of our markets presents challenges to 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 run. We want to thank our loyal members who day in and day out work to build their NHT business by sharing our incredible product line and opportunity with others. Our dedicated members are truly committed to improving the health, wellness and quality of life of others. 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 third quarter was $11.7 million, a 12% decrease compared to $13.4 million in the second quarter of 2022 and a decrease of 18% compared to $14.3 million in the third quarter of 2021. As Chris stated, the extended and ongoing COVID-related measures in China adversely impacted our results during the third quarter of 2022. And present challenges for consumer-facing businesses such as ours. We anticipate these challenges will continue to impact our financial results as Zero COVID policies remain in effect and the operating environment unpredictable. Our active member base decreased 4% to 41,170 at September 30 from 43,020 at June 30, and was down 10% from 45,950 at September 30 of last year. Turning to our cost and operating 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 cost on a lower level of net sales as well as a decrease in administrative fee revenue. Commissions expense as a percent of total revenue for the third quarter decreased to 41.5% from 42.2% in the prior year quarter due to less supplemental 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 SG&A from the prior year quarter reflects lower professional and credit card fees. As a result, operating loss for the quarter was $145,000 compared to operating income of $479,000 in the third quarter last year. We recorded an income tax benefit of $5,000 for the quarter compared to $45,000 in the third quarter last year. Net income for the third quarter totaled $47,000 or breakeven per diluted share compared to $471,000 or $0.04 per diluted share in the third quarter of 2021. Now I'll turn to our balance sheet and cash flow. Total cash and cash equivalents were $70.7 million at September 30, down from $75.6 million at June 30. Net cash used in operating activities was $2.5 million in the third quarter compared to $1.1 million in the third quarter last year. As returning capital to our stockholders 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 stockholders of record as of November 15. As we continue to devise 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 financial performance in the long run in support of shareholder value. That completes our prepared remarks. I will now turn the call back over to the operator.