Natural Health Trends Corp Q3 FY2023 Earnings Call

Greetings. Welcome to Natural Health Trends Corp. Third Quarter 2023 Earnings Conference Call. Please note, this conference is being recorded. I will now turn the conference over to Michelle Glidewell with Natural Health Trends Corp. Thank you. You may begin.

Thank you, and welcome to Natural Health Trends Third Quarter 2023 Earnings Conference Call. During today's call, there may be statements made relating to the future results of the company that are forward-looking 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 due to 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 for accessing 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 2023 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer. For the quarter, we generated revenue of $10.6 million, a decrease of 9% compared to the third quarter of 2022. The decrease was largely accounted for by changes in deferred revenue as orders were received later in the quarter this year. Our business is adapting to the economic landscape where Chinese consumers are reluctant to spend or invest and where overall consumer sentiment is cautious. Yet despite this environment, we are pleased to see that orders taken during the period were roughly flat even with continued headwinds of a stronger U.S. dollar. Q3 2023 orders compared to Q3 2022 at a constant exchange rate grew by 3%, while year-to-date 2023 orders compared to the same period last year increased 8%. The fact that our members remain responsive to our programs is a positive indicator of the promotions, incentives, and our high-quality product offering. In China and Hong Kong, our members participated in local gatherings and training events to engage and attract customers and to further develop skills such as improved product knowledge and leadership development. We look forward to an upcoming event this month and the launch of our newest product, Relaxo Pro, a supplement designed to help reduce stress and promote confidence. The product is formulated with clinically proven ashwagandha and other relaxation-inducing ingredients such as lemon balm and magnesium. Turning our focus outside of China and Hong Kong, several of our other markets delivered strong third quarter performances, mainly Taiwan, Peru, North America, and Japan. Each of these markets achieved an increase in orders taken at a constant exchange rate compared to the prior year. Growth was primarily driven through a combination of online training and in-person events shared with product promotions and incentive qualifications, successfully reengaging members in our worldwide activities, which helps create excitement and momentum around our business model and high-impact offerings. In Latin America, we are getting closer to launching our business in Colombia in the fourth quarter and will continue to progress the necessary regulatory requirements to operate in Bolivia. We steadily made progress on our digital enhancement initiatives that we believe will be a key driver for future growth by enhancing member productivity and improving the overall shopping experience with us. We look forward to when we can roll out these developments to our members and customers. I'd like to thank our loyal members who remain committed to our products and to helping others achieve improved health and wellness through our product lines as well. Their ability to rise to the changing economic environment speaks volumes about their perseverance and passion for our mission. We will continue to focus on careful planning and execution of our strategic key initiatives, including digital improvements, new product introductions, and the delivery of exceptional support. 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 $10.6 million, a decrease of 9% compared to $11.7 million in the third quarter of 2022. As Chris stated, the decrease was largely accounted for by the changes in deferred revenue as orders were received later in the quarter this year. Deferred revenue decreased $63,000 during the third quarter this year, as compared to $1.4 million in the third quarter last year, resulting in an $835,000 unfavorable revenue variance. Our active member base decreased 6% to 34,660 at September 30 from 36,730 at June 30 and was down 16% from 41,170 at September 30 last year. Turning to our cost and operating expenses, gross profit margin of 74.7% improved slightly to 73.6% in the third quarter last year due to lower logistics costs. Commissions expense as a percent of total revenue for the third quarter was 41.1% compared to 41.5% in the prior year quarter. Selling, general and administrative expenses for the quarter were $3.9 million, flat compared to a year ago. Operating loss for the quarter was $292,000 compared to $145,000 in the third quarter last year. We recorded an income tax provision of $121,000 for the quarter compared to an income tax benefit of $5,000 in the third quarter last year. Net income for the third quarter totaled $172,000 or $0.02 per diluted share compared to $47,000 or breakeven per diluted share in the third quarter of 2022. Now I'll turn to our balance sheet and cash flow. Total cash and cash equivalents were $58.4 million at September 30, down from $61.6 million at June 30. Net cash used in operating activities was $869,000 in the third quarter compared to $2.3 million in the third quarter last year. As returning capital to our stockholders remains a top priority, I'm pleased to announce that on October 30, our Board of Directors declared another quarterly cash dividend of $0.20 per share, which will be payable on November 24 to stockholders of record as of November 14. As we adjust to the ever-changing business environment, we continue to carefully devise and implement programs to improve performance and productivity. Our focus remains on returning to a period of growth through execution of our strategies to boost top-line revenue that ultimately delivers shareholder value. That completes our prepared remarks. I will now turn the call back over to the operator.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.