Natural Health Trends Corp. (NHTC) Q3 2024 Earnings Report, Transcript and Summary

Greetings, and welcome to Natural Health Trends Corp. Third Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Michelle Glidewell, with Natural Health Trends Corp. Thank you. You may begin.

Thank you, and welcome to Natural Health Trends Third Quarter 2024 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 would 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 for excising the archived version of the conference call can be found 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 2024 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer. During the third quarter, revenue was $10.7 million, a 1% increase compared to the third quarter of 2023. Our business has been affected by the widely reported consumer hesitancy to invest or spend in our main market. Still, we managed to increase net sales sequentially and year-over-year at the same time improving our operating bottom line over 3 consecutive quarters. So the pace of growth is not where we like it to be. Our customers and leaders continue to demonstrate strong engagement, and we are working closely with them to navigate these changing times. Our ability to adapt, adjust programs and fine-tune our plans has been instrumental in supporting our customer base while also acting in the best interest of our shareholders. In China and Hong Kong, our teams maintained aggressive calendars of activities ranging from local, smaller scale in-person meetings to 2-day train-the-trainer professional and personal development sessions and charity activities to help drive business growth and support our branding. Also in Q3, more than 200 members joined us on an incentive trip to Turkey a great opportunity for knowledge sharing, motivation, personal growth and cultural exposure. This ambitious calendar of activities will continue through Q4 as we roll out new products in the region, including our Skindulgence revitalizing serum and eye cream, along with the new flavor collagen supreme supplement and Root Revive a new hair growth serum to promote a healthier, stronger looking hair. Around the world, our global staff and field teams are hard work, hosting local and regional meetings, providing team training and conducting recognition events. Their focus is on expanding product education, growing our member and customer base, driving product repurchase and developing strong teams to carry the business forward. In September, we held prelaunch activities in Colombia. And on October 1, we officially opened the market. We look forward to what this market may bring in terms of new customers and exposure to a broader Latin America base of entrepreneurs. During the quarter, we embarked on incentive trips to destinations abroad. In August, members from North America traveled together to Peru, visiting Lima and Machu Picchu for some inspiring team building and sizing. And earlier this month, several markets combined incentive activities as our leaders and qualifiers from Peru, Mexico and Japan, were treated to an incredible incentive trip to Paris. We continue to make steady advancements toward our digital enhancement project, which we believe will fuel future growth by boosting member productivity and improving the overall selling and shopping experience. We anticipate rolling out these developments to our members and customers early next year. We appreciate the hard work and dedication that our few leaders and members continue to demonstrate in spite of a complicated sales landscape. Our thoughtful planning and careful execution of strategies to support business growth and navigate this challenging economic environment remains key. Included in that is maintaining a vigilant focus on cost control, including expense management, inventory and product optimization to ensure the company remains positioned for future success. 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 $10.7 million, an increase of 1% compared to $10.6 million in the third quarter of 2023. As Chris stated, this represents an increase in net sales sequentially and year-over-year. Our active member base decreased slightly to 30,880 at September 30 from 31,110 at June 30 and was down 11% from 34,660 at September 30 last year. Turning to our cost and operating expenses. Gross profit margin declined of 74.1% from 74.7% in the third quarter of last year due to higher costs related to our Premium Noni Juice product. Commissions expense as a percent of total revenue for the third quarter was 40.5% compared to 41.1% a year ago due to lower weekly commissions earned outside of our Hong Kong business. Selling, general and administrative expenses for the quarter were $3.9 million, flat compared to a year ago. As a result, operating loss for the quarter was $275,000 compared to $292,000 in the third quarter last year, an improvement in our operating bottom line for 3 consecutive quarters. However, due to less interest income and a higher effective tax rate, Net income for the third quarter was $35,000 or breakeven per diluted share compared to $172,000 or $0.02 per diluted share in the third quarter of 2023. Now I’ll turn to our balance sheet and cash flow. Net cash used in operating activities was $3.5 million during the first 9 months of 2024 compared to $4.2 million during the comparable period a year ago. Excluding our required annual tax installment payment related to the 2017 U.S. Tax Cuts and Jobs Act, we generated $514,000 in cash flows from operations during this period which is an improvement of $1.7 million over the comparable prior year period. Total cash, cash equivalents and marketable securities was $46.3 million at September 30, down from $48.7 million at June 30 due to our quarterly dividend payment. As returning capital to our stockholders remains a top priority. I am pleased to announce that on October 28, our Board of Directors declared another quarterly cash dividend of $0.20 per share which will be payable on November 22 to stockholders of record as of November 12. Navigating the constantly evolving business landscape requires thoughtful development and implementation of programs that enhance performance and productivity of our members. We remain committed to this practice and are working alongside our leaders to support them and their team’s advancement by focusing on key strategic initiatives including product innovation, digital enhancement, market expansion and training. Our primary goal is to return to a healthy growth phase by executing strategies that increase top line revenue ultimately delivering value to our shareholders. That completes our prepared remarks. I will now turn the call back over to the operator.