Natural Health Trends Corp.
Q4 2019 Earnings Call Transcript

Published: 12 Feb 2020

[Operator:]

Greetings and welcome to the Natural Health Trends Corporation Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.It is now my pleasure to introduce your host, Ariel Papermaster with ADDO Investor Relations. Thank you. You may begin.

[Ariel Papermaster:]

Thank you and welcome to Natural Health Trends' fourth quarter and full year 2019 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 due to 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 naturalhealthtrendscorp.com. Instructions can be found for accessing the archived version of the conference call and today's financial results press release, which was issued at approximately 9

[Chris Sharng:]

Thank you Ariel, and thanks to everyone for joining us. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer.2019 was a challenging year for our business, amid a host of macroeconomic and industry-specific factors that created a highly difficult operating environment. As a result, total revenue declined to $77.6 million from $191.9 million in 2018.In addition to China's 100-day campaign announced last January, in which we voluntarily suspended member activities and negative sentiment stemming from social media as it relates to health products companies in China, additional developments such as ongoing global trade tensions, China's slowing economy, and civil unrest in Hong Kong further contributed to the decline in total revenue. While these factors were beyond our control, I am pleased that we have continued to execute our strategy and run our operations efficiently to ensure the retention of our top leaders who are key to our success.As our business has been under pressure, we have been applying what we learned from our experience in this uncertain and evolving environment to help support our affected market. I'd like to also highlight the strength of our balance sheet that has enabled us to weather the adverse market conditions and ensure our inventory levels are sufficient to fulfill orders in a timely fashion, because of the persistent slowdown we have implemented a strategy to more effectively manage elements within our control including

[Scott Davidson:]

Thank you, Chris. Total revenue for the fourth quarter was $17.8 million, a decline of 57% compared to $41.6 million in the fourth quarter of 2018 and an increase of 5% compared to $17 million in the third quarter of 2019. The decrease year-over-year was primarily due to the macroeconomic challenges Chris discussed, which have continued to adversely impact our business.For the full year of 2019, total revenue was $77.6 million compared to $191.9 million in 2018. Our Active Member base decreased 16% to approximately 57,400 at December 31 from 68,000 at September 30 and was down 41% from 97,800 at December 31 last year.Turning to our cost and operating expenses. Gross profit margin of 71.4% declined from 78.8% in the fourth quarter last year, primarily as a result of special product promotions designed for the quarter and higher logistics costs. For the full year, our gross profit margin was 74.1% compared to 79.5% in 2018.Commissions' expense as a percent of total revenue for the fourth quarter declined to 40.9% from 48.6% in the prior year quarter, due to lower incentive costs. On a full year basis, commissions expense was 45.8% of total revenue, roughly in line with 45.6% for 2018. Selling, general and administrative expenses for the quarter increased 1% to $6.9 million from $6.8 million a year ago.For the full year, SG&A was $27.2 million, a decrease of 13% from $31.3 million for 2018. The decrease in full year SG&A versus 2018 was primarily due to a decrease in both employee-related costs and credit card fees, which were partially offset by higher professional fees.Our total operating expenses for the quarter also included a goodwill impairment charge of $1.8 million due to the early adoption of a new accounting standard pertaining to goodwill that arose from a merger transaction in March 2004.As a result, operating loss for the quarter was $3.2 million compared to operating income of $5.7 million in the fourth quarter last year. For the full year of 2019, operating loss was $7 million compared to operating income of $33.7 million in 2018. We recorded an income tax benefit of $106,000 for the quarter, compared to an income tax provision of $498,000 recognized in the fourth quarter of last year. For the full-year, we recognized an income tax provision of $14,000 compared to $3.5 million for 2018.Net loss for the fourth quarter totaled $2.8 million or a loss of $0.27 per diluted share compared to net income of $5.6 million or $0.49 per diluted share in the fourth quarter of 2018. For the full year, net loss totaled $5.6 million or $0.52 per diluted share compared to net income of $31 million or $2.74 per diluted share in 2018.Now I'll turn to our balance sheet and cash flow. Total cash and cash equivalents were $96 million at December 31, down from $101.1 million at September 30. The decrease was due to our payment of $4.6 million in dividends and repurchase of $552,000 worth of our common stock.Net cash provided by operating activities was $110,000 for the quarter and net cash used in operating activities was $18.6 million for the full year. We repurchased just over 97,000 shares of our common stock during the quarter at an average price of $5.64 for a total of $552,000.As of December 31, $21.9 million of the previously approved stock repurchase program remained available for future purchases. For the full year of 2019, we paid out $7.3 million in dividends. Earlier this week on February 10, our Board of Directors declared a quarterly cash dividend of $0.20 per share, which will be payable on March 6, 2020 to stockholders of record as of February 25, 2020.We expect to pay a comparable quarterly cash dividend in 2020 and 2021 at the sole discretion of our Board. As Chris highlighted, as a result of our effective working capital management, our balance sheet remained strong with no debt and sufficient liquidity to run our operations and continue our stockholder return priorities.That completes our prepared remarks. I will now turn the call back over to the operator.

[End of Q&A:]

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.