Natural Health Trends Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2023

There are 4 speakers on the call.

Operator

Greetings, and welcome to the Natural Health Trends Corp. 2nd Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michelle Glidewell with Natural Health Trends Corp.

Operator

Please go ahead.

Speaker 1

Thank you, and welcome to Natural Health Trends' Q2 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 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 as a 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 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 o'clock a.

Speaker 1

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

Speaker 2

Thank you, Michelle, and thanks to everyone for joining us this morning to discuss our Q2 2023 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer. 2nd quarter net sales were $10,500,000 compared to $13,400,000 for the Q2 of 2022. The decrease in revenue was mostly attributed to the significant changes in deferred revenue in the 2 respective quarters. Deferred revenue was up by $1,200,000 in the Q2 of 2023, but down by $1,400,000 in the same quarter last year.

Speaker 2

That means during the Q2, we took in more orders than we could ship this year and we shipped more than the orders taken last year. That alone accounted for $2,600,000 of the $2,800,000 revenue variance. Otherwise, despite tepid consumer sentiment in post 0 COVID China, we were able to generate orders roughly comparable to a year ago as orders in Hong Kong increased 5% year over year. However, since much of the orders we received came in mid to late June, they did not all ship out during the quarter, resulting in the increase in deferred revenue of $1,200,000 The late surge in orders follow our first large scale event in more than 3 years in Macau, where nearly 900 guests attended. Immediately following this event, we kicked off an incentive that helped bring in more order volume.

Speaker 2

We think this positive response to the programs we designed to help increase sales and drive member growth reflects the fact they resonated with our members. While we had hoped for a faster rebound in China with the government's lifting a 0 COVID regulations, our experience has been a more cautious return by consumers as they are uneasy about the economic outlook. Nonetheless, we believe this environment may present an opportunity for a business such as ours. Shifting focus to markets outside China and Hong Kong, Peru demonstrated a positive increase in sales, up 48% compared to both the prior quarter and year over year. We're pleased our members are back to work and ready to reengage in the business following their COVID struggles and political challenges.

Speaker 2

During the quarter, a promotion, one of our most popular products in the country, ClusterX2 was very well received. We also celebrated the market's 6th anniversary in May with an event and VIP dinner at our Lima office. We continue to see support for our high quality wellness products in the country. Both our India and Japan markets managed to achieve sequential quarter over quarter growth in Q2 and they continue to hold online and in person meetings and trainings to connect with the field and reach new customers. In Europe, we launched Collagen Supreme by hosting multi city launch events in Nuremberg and Gothenburg in June.

Speaker 2

And in North America, we introduced a 6 month qualification window for our Machu Picchu incentive trip, which will take place next year. And during the quarter in North America, Hong Kong and Europe, we launched our newest product, Medaboost, a supplement uniquely formulated to promote healthy glucose levels and provide cardiovascular support. We continue to make progress on key technology development projects to drive engagement and improve our customer and member experience. We look forward to being able to showcase this new platform at future events when we are ready to do so. In summary, it is very hard to predict consumer sentiment and the outcomes of ongoing macro challenges.

Speaker 2

And while we don't have control of economic conditions impacting many market, we are encouraged by the enthusiasm of our members around the world to embrace our initiatives and who day in and day out commit to NHE Global and our product offering because they experience real results. For the second half of the year, we remain focused on the executables and strategies that drive business growth and shareholder value. With that, I'd like to turn the call over to our CFO, Scott Davidson, to discuss our financial results in greater detail. Scott?

Speaker 3

Thank you, Chris. Total orders taken during the Q2 were relatively flat and Hong Kong orders increased 5% year over year despite a cautious consumer base in China during the quarter. However, as Chris mentioned, much of the orders came in after our June Macau event resulting in $1,200,000 increase in deferred revenue at June 30. A year ago, the opposite happened with deferred revenue decreasing during the Q2. As a result, total revenue recognized for the Q2 was 10,500,000 dollars a decrease of 21% compared to $13,400,000 in the Q2 of last year.

Speaker 3

Our active member base decreased 4% to 36,730 at June 30 from 38,330 at March 31st and was down 15% from 43,020 at June 30th last year. Turning to our cost and operating expenses. Gross profit margin was 74.6 percent consistent with the Q2 last year. Commissions expense as a percent of total revenue for the Q2 decreased slightly to 42.9% from 43.2% in the prior year quarter. Selling, general and administrative expenses for the quarter were $4,100,000 compared to $4,000,000 a year ago.

Speaker 3

As a result, operating loss for the quarter was $743,000 compared to operating income of $215,000 in the Q2 last year. We recorded an income tax benefit of $82,000 for the quarter compared to an income tax provision of $207,000 in the Q2 last year. Net loss for the Q2 totaled $219,000 or $0.02 per diluted share compared to net income of $183,000 or $0.02 per diluted share in the Q2 of 2022. I'll now turn to our cash flows and balance sheet. Net cash used in operating activities was $2,600,000 in the 2nd quarter compared to $1,200,000 in the 2nd quarter last year.

Speaker 3

Excluding our required annual tax installment payments related to the 2017 U. S. Tax Cuts and Jobs Act, cash flows from operations was positive during the quarter and improved $1,600,000 over the comparable 6 month period of last year. Total cash and cash equivalents were $61,600,000 at June 30, down from $66,600,000 at March 31, due to our required tax installment payment of $3,000,000 and our quarterly dividend payment. As returning capital to our stockholders remains a top priority, I am pleased to announce that on July 31, our Board of Directors declared another quarterly cash dividend of $0.20 per share, which will be payable on August 25 to stockholders of record as of August 15.

Speaker 3

In closing, we are encouraged to have successfully pulled off our 1st large in person event since the beginning of the pandemic. Coming together in larger numbers help strengthen member enthusiasm and provides an excellent platform for sharing, training and generating momentum in the business. For the second half of the year, we are committed to getting back to growth and executing well against key priorities that are fundamental to our business. We believe our strong balance sheet and expense management discipline position us well for success. That completes our prepared remarks.

Speaker 3

I will now turn the call back over to the operator.

Operator

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Powered by Quartr
Earnings Conference Call
Natural Health Trends Q2 2023
00:00 / 00:00