Natural Health Trends Corp. (NHTC) Q4 2022 Earnings Report, Transcript and Summary

Greetings. Welcome to the Natural Health Trends Corp. Fourth Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] I will now turn the conference over to your host Michelle Glidewell. You may begin.

Thank you, and welcome to Natural Health Trends fourth quarter and full year 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 o'clock 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 fourth quarter and full year 2022 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer. So a lot has happened has changed since early December. Most of the fourth quarter was still under some forms of COVID restrictions for much of the urban Chinese population. In this typical operating environment, our revenue of $12.5 million represented a 7% increase compared to our third quarter's $11.7 million. During the quarter, we also generated positive operating and net income as well as cash from operations due to our ability to protect margin by diligently controlling costs in exercising discipline in marketing and product mix. In Hong Kong, we continue to see traction around the structured online training system officially rolled out earlier in the year. This coordinated corporate and theater training approach coupled with smaller, local and regional in-person gatherings kept our members and teams engaged in connected. Now with a swift move away from a Zero COVID policy, we look forward to in the coming year. We have a full calendar of activities planned, complete with in-person product and business training, team building activities and international incentive travel. The first of which is our upcoming Super Me incentive trip to Shanghai in early March. Our members have communicated their excitement to travel and convene again in larger recognition, training and motivation building events, and we look forward to seeing them again in these settings. The commitment our members have demonstrated to our product offering and to our business, despite the challenging environment, is evidence of their resilience to overcome adversity, and for that, we are thankful. I’ll say Hong Kong and China and North America and Taiwan, we successfully launched Collagen Supreme, a unique formulation to help support healthier looking skin, hair, and nails along with joint and connected tissue support. But these markets, Collagen Supreme cells contributed meaningfully to their quarterly performance. We’re currently working on registration for a European market introduction in the coming quarter. Later this month, we will hold the official grand opening for our Healthy Lifestyle Center Plus storefront in Rowland Heights, California. This is the third North American fully branded location, designed to be a product pickup center, as well as a comprehensive training and prospecting venue for members in Southern California and beyond. Also in North America the end of the quarter March, the close of our Caribbean cruise qualification period, and we’re pleased to share that we’ll be accompanying over 70 qualifiers on an eight-day seven-night cruises in March. This marks the first incentive trip our North American team will embark on since the start of the pandemic and we look forward to celebrating with them. Our international markets were active during the fourth quarter with a whole series of events, road shows and trainings both in-person and online. In Peru, we hosted a three city tour to launch our TwinSlim Probiotics weight management product that attracted more than 550 in attendance. Meanwhile, in October, our European market stage and educational wellness event in Gothenburg, Sweden featuring one of the market’s favorite products standard view. In fact, many of our markets, including Taiwan, North America, and Peru, experienced sequential quarterly growth leading into 2023. The worldwide digital enhancements we announced and initiated last quarter or well underway, and we are making progress to world this implementation. These initiatives are designed to improve new member and customer acquisition, member onboarding and retention, and to enhance the overall shocking experience for those interested in our products. As previously share, we believe this focus will be a key driver for future growth and enhanced productivity in support of shareholder value. We’re pleased to end the year with an increase in sequential revenue and we’re hopeful to carry this positive momentum into 2023. Now that three years of strict zero COVID protocols, government restrictions and lockdowns are mostly behind us. We also look forward to when we can return to in-person meetings and events that are important to our operations. As we begin the new year, I’d like to thank our dedicated leaders, members, preferred customers, employees, and stockholders for their continued support of NHT Global and our product line. We believe our business provides a tremendous opportunity for consumers of all ages, professionals, and the millions of prospects around the world looking for alternative beings to improve their personal outlook, whether that be through earning a little extra or taking meaningful steps to improve their overall health and wellness with the use of our great product offering. With that, we wish everyone much health and success in 2023 and look forward to speaking with you again next quarter. And now, I will 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 12.5 million, an increase of 7% compared to 11.7 million in the third quarter of 2022, and a decrease of 22% compared to 16.1 million in the fourth quarter of 2021. As Chris mentioned, we were able to increase revenue sequentially, despite most of the quarter, still under some forms of COVID restrictions for much of the urban Chinese population. For the full year of 2022, total revenue was 49.1 million compared to 60 million in 2021. Our active member base declined slightly to 38,660 at December 31 from 41,170 at September 30 and was down 12% from 45,760 at December 31 last year. Turning to our cost and operating expenses. Gross profit margin of 73.9% in the fourth quarter, decreased slightly from 74.2% in the fourth quarter of last year. Commissions expense as a percent of net sales for the fourth quarter decreased to 43% from 44.1% in the prior year quarter. Excluding the impact of administrative fee revenue, commissions expense as a percent of net sales was flat compared with the fourth quarter last year. Selling, general, and administrative expenses for the quarter were 3.8 million compared to 4.4 million a year ago. The decrease in SG&A from the prior year quarter reflects lower professional and credit card fees. We returned to positive operating income for the quarter, which totaled 43,000 compared to operating loss of the 145,000 in the third quarter, an operating income of 487,000 in the fourth quarter of 2021. For the full year of 2022, our operating loss was 270,000 compared to operating income of $1.6 million in 2021. We recorded an income tax provision of 255,000 for the quarter compared to 286,000 recognized in the fourth quarter of last year. Net income for the fourth quarter totaled 188,000 or $0.02 per diluted share compared to 47,000 or breakeven per diluted share in the third quarter and 232,000 or $0.02 per diluted share in the fourth quarter of 2021. For the full year net income totaled 313,000 or $0.03 per diluted share compared to $1.1 million or $0.09 per diluted share in 2021. Now, I'll turn to our balance sheet and cash flow. Total cash and cash equivalent for $69.7 million at December 31 down from $70.7 million at September 30. Total cash and cash equivalent decreased by $14.2 million from $83.8 million at December 31 last year, primarily due to dividends paid in 2022 and cash used in operating activities during the year. Net cash provided by operating activities was 938,000 in the fourth quarter compared to $1.6 million in the fourth quarter of last year. For the full year, net cash used in operating activities was $4.9 million compared to net cash provided by operating activities of $1 million in 2021. For the full year of 2022, we paid out $9.1 million in dividends. As returning capital to our stockholders remains a priority, I am pleased to announce that on February 6, our Board of Directors declared a quarterly cash dividend of $0.20 per share, which will be payable on March 3 to stockholders of record as of February 21. In conclusion, I am very pleased we were able to close out the year by increasing revenue sequentially compared to the third quarter, as well as generating positive operating income, net income and cash flow from operations for the quarter. As we cautiously emerged from the ongoing COVID restricting environment we've been operating under for the past three years, we're committed to revitalizing company-wide growth and supporting the fundamentals of our business to deliver value to our investors. We are hopeful that with the ending of the zero-COVID policy, our members can conduct more in-person meetings. While we support more events and incentive trips. We wish to thank all of our hardworking members who have endured the past few years and demonstrated strong commitments to our product and our business. That completes our prepared remarks. I will now turn the call back over to the operator.

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.