Natural Health Trends Corp.
Q1 2020 Earnings Call Transcript

Published: 9 May 2020

[Operator:]

Greetings and welcome to the Natural Health Trends Corp. First Quarter 2020 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.I would now like to turn the conference over to your host, Kim Orlando, ADDO Investor Relations for Natural Health Trends. Thank you. You may begin.

[Kim Orlando:]

Thank you, and welcome to Natural Health Trends' First Quarter 2020 Earnings Conference Call. During today's call, there may be statements made relating to 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 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

[Chris Sharng:]

Thank you, Kim, and thanks to everyone for joining us. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer.It was a challenging first quarter for our business with total revenue of $14.9 million, declining 23% compared to the prior year period. Before Scott walks you through the financials in greater detail, I'd like to begin by discussing the COVID-19 pandemic and its impact to our business as well as the actions we have been taking to address this unprecedented situation.First and foremost, our thoughts are with all of those around the world who have been impacted by the coronavirus. While these circumstances are beyond our control, I am pleased we have continued to run our operations efficiently with the health and safety of our employees, members and customers guiding our decisions as our top priority. The impact of the pandemic followed the already difficult operating conditions we experienced throughout 2019 related to China's 100-day campaign

[Scott Davidson:]

Thank you, Chris. Total revenue for the first quarter of 2020 was $14.9 million, a decrease of 23% compared to $19.3 million in the first quarter of 2019. The year-over-year decline was due to the increasingly difficult operating environment and suspension of events and member activities associated with the COVID-19 pandemic, which significantly impacted our results. As Chris mentioned, we did not hold a major event in the first quarter this year, which positively benefited our first quarter of 2019 revenue. To a lesser extent, our revenue was further adversely impacted by the extension of the Chinese New Year holiday and the aftermath of the Chinese government's 100-day campaign.Our active member base decreased 2% to 56,500 at March 31 from 57,400 at December 31 and was down 35% from 87,300 at March 31 last year.Turning to our first quarter cost and operating expenses, gross profit margin of 69.8% declined from 73% in the first quarter last year due primarily to additional logistics costs and product promotions put into place to help address the challenges posed by the coronavirus and the government restrictions put into place to control its spread.Commissions expense as a percent of total revenue declined to 44.2% from 49.1% in the prior year quarter as a result of our proactive efforts to reduce incentive costs.Selling, general and administrative expenses decreased 28% to $5.3 million from $7.3 million a year ago, reflecting our cost reduction measures, including reduced headcount and event spending.When looking at our total operating expenses, the aggressive cost reduction measures we started implementing in the second half of 2019 were partially offset by additional spending during the first quarter in direct response to COVID-19 and the government's measures to control it. As a result of the net effect of these actions, we were able to narrow our first quarter operating loss despite the fact that our main markets were under severe lockdown for most of the first quarter. As a result, operating loss was $1.4 million compared to a loss of $2.7 million in the first quarter last year.We recorded an income tax benefit of $782,000 for the quarter compared to a benefit of $354,000 in the first quarter last year. The increased tax benefit for the first quarter is a result of the enactment of the CARES Act in March 2020 as we now expect our 2019 loss to be carried back to offset taxable income in years with higher tax rates.Net loss totaled $573,000 or $0.05 per diluted share compared to a net loss of $1.9 million or $0.17 per diluted share in the first quarter of 2019.Now I'll turn to our balance sheet and cash flow. Total cash and cash equivalents were $95.4 million at March 31, down slightly from $96 million at December 31. Net cash used in operating activities was $990,000 in the first quarter of 2020 compared to $11.3 million in the first quarter of 2019.I am pleased to announce that on May 4, our Board of Directors declared another quarterly cash dividend of $0.20 per share, which will be payable on May 29 to stockholders of record as of May 19, 2020. Our Board of Directors will continue to monitor the economic conditions and evaluate our capital allocation strategy going forward to determine the most efficient use of capital to deliver value to our shareholders.While no one can predict the duration of the COVID-19 pandemic and its resulted impact on our business longer term, we have maintained a very strong balance sheet and a business model that enables financial flexibility to quickly react to changing market conditions and align our cost structure with current sales levels.As Chris highlighted, we have ample liquidity with zero debt, and we remain disciplined in our cost reduction and cash preservation efforts. As we continue to navigate the evolving and uncertain situation, we remain focused on the task at hand

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your interest and participation. You may now disconnect your lines.