Natural Health Trends Q4 2022 Earnings Call Transcript

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February 8, 2023

Key Takeaways

  • 7% sequential revenue growth to $12.5 million in Q4 despite ongoing COVID-19 restrictions in urban China.
  • 22% year-over-year revenue decline in Q4 and an 18% drop in full-year sales from $60.0 million to $49.1 million in 2022.
  • Returned to positive operating income of $43,000 and net income of $188,000 in Q4, along with positive cash flow from operations.
  • Active member count fell to 38,660 at year-end, down 12% from a year earlier, signaling challenges in member retention and recruitment.
  • Declared a quarterly cash dividend of $0.20 per share, payable March 3, underscoring the company’s commitment to returning capital to shareholders.
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Earnings Conference Call
Natural Health Trends Q4 2022
00:00 / 00:00

There are 4 speakers on the call.

Operator

Greetings. Welcome to the Natural Health Trends Corp. 4th Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. I will now turn the conference over to your host, Michelle Glidewell.

Operator

You may begin.

Speaker 1

Thank you, and welcome to Natural Health Trends 4th 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 results 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 naturalhealthtranscorp.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.

Speaker 1

M. Eastern Time. At this time, I'd like to turn the call over to Chris Scharm, President of Natural Health Trends.

Speaker 2

Thank you, Michelle, and thanks to everyone for joining us this morning to discuss our Q4 and full year 2022 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer. Though a lot has happened has changed since early December, most of the Q4 was still under some forms of COVID restrictions for much of the urban Chinese population. In this difficult operating environment, our revenue of $12,500,000 represented a 7% increase compared to our 3rd quarter's $11,700,000 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 and 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.

Speaker 2

This coordinated corporate and leader training approach coupled with smaller local and regional in person gatherings kept our members and teams engaged and connected. Now with a swift move away from a 0 COVID policy, we look forward to 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 mean incentive trip to Shanghai in early March. Our members have communicated their excitement to travel and convenient guests in larger recognition, training and motivation building events and we look forward to seeing them again in these settings.

Speaker 2

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. Outside Hong Kong and China, in 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 connective tissue support. For these markets, collagen supreme cells contributed meaningfully to their quarterly performance. We're currently working on registration for an European market introduction in the coming quarter.

Speaker 2

Later this month, we will hold the official grand opening for our Healthy Lifestyle Center Plus storefront in Northern Heights, California. This is the 3rd North American foodie 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 marks the close of our Caribbean cruise qualification period and we're pleased to share that we'll be accompanying over 70 qualifiers on an 8 day 7 9 cruise 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 Q4 with a whole series of events, road shows and trainings, both in person and online.

Speaker 2

In Peru, we hosted a 3 city tour to launch our TwinSlim probiotic weight management product that attracted more than 550 in attendance. Meanwhile, in October, our European market stage an educational wellness event in Gothenburg, Sweden, featuring one of the market's favorite products, Sandwich You. 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 are well underway and we are making progress towards this implementation. These initiatives are designed to improve new member and customer acquisition, member onboarding and retention and to enhance the overall shopping experience for those interested in our products.

Speaker 2

As previously shared, we believe this focus will be a key driver for future growth and enhance productivity in support of shareholder value. We're pleased to end the year with an increase in sequential revenue and we're hopeful carry this positive momentum into 2023. Now that 3 years of strict 0 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 NAC Global and our product line.

Speaker 2

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 means 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 healthy 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?

Speaker 1

Thank

Speaker 3

you, Chris. Total revenue for the 4th quarter was $12,500,000 an increase of 7 percent compared to $11,700,000 in the Q3 of 2022 and a decrease of 22% compared to $16,100,000 in the Q4 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 $49,100,000 compared to $60,000,000 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.

Speaker 3

Turning to our cost and operating expenses. Gross profit margin of 73.9 percent in the 4th quarter decreased slightly from 74.2% in the 4th quarter last year. Commissions expense as a percent of net sales for the 4th 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 Q4 last year. Selling, general and administrative expenses for the quarter were $3,800,000 compared to $4,400,000 a year ago.

Speaker 3

The decrease in SG and 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 $145,000 in the 3rd quarter and operating income of $487,000 in the Q4 of 2021. For the full year of 2022, our operating loss was $270,000 compared to operating income of $1,600,000 in 2021. We recorded an income tax provision of 200 and $55,000 for the quarter compared to $286,000 recognized in the Q4 of last year. Net income for the Q4 totaled $188,000 or $0.02 per diluted share compared to $47,000 or breakeven per diluted share in the Q3 and $232,000 or $0.02 per diluted share in the Q4 of 2021.

Speaker 3

For the full year, net income totaled $313,000 or $0.03 per diluted share compared to $1,100,000 or $0.09 per diluted share in 2021. Now I will turn to our balance sheet and cash flow. Total cash and cash equivalents were $69,700,000 at December 31, down from $70,700,000 at September 30. Total cash and cash equivalents decreased by $14,200,000 from $83,800,000 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 4th quarter compared to $1,600,000 in the Q4 of last year.

Speaker 3

For the full year, net cash used in operating activities was $4,900,000 compared to net cash provided by operating activities of $1,000,000 in 2021. For the full year 2022, we paid out $9,100,000 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 Q3 as well as generating positive operating income, net income and cash flow from operations for the quarter. As we cautiously emerge from the ongoing COVID restricted environment we've been operating under for the past 3 years, we're committed to revitalizing companywide growth and supporting the fundamentals of our business to deliver value to our investors.

Speaker 3

We are hopeful that with the ending of the 0 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 hard working members who have endured the past few years and demonstrated strong commitment to our products and our business. That completes our prepared remarks. I will now turn the call back over to the operator.

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