Q1 2020 Earnings Call

So I'm all participants are in listen only mode. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded I would now like to turn the conference over to host came Orlando of Addo Investor Relations for natural health trends. Thank you you may begin.

Thank you and welcome to natural health trends first quarter 2000, and <unk> 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 1995.

Actual results performance or achievements could differ materially from those anticipated in such forward looking statements do the 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 lives and can be found on the investor section of the company's corporate web site at natural health trends Corp, Dot com and.

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 90 and eastern time.

At this time I'd like to turn the call over to Chris Shaw, President Natural health trends.

Thank you again, and thanks to everyone for joining us.

With me today, Scott Davis, and our senior Vice President and Chief Financial Officer.

It wasn't jogging first quarter for our business with total revenue of $14.9 million declining 23% compare to the prior year period.

Before Scott walk you through the financials in greater detail I'd like to begin by discussing the cobot 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 had been impacted by the Cardona virus.

Well these circumstances RPL or 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 decision as our top priority.

The impact other pandemic, followed that already difficult operating conditions, we experienced throughout 2019.

Related to China is 100 day campaign.

Negative sentiment associated with health products companies, Oh, social media in China.

Ongoing global trade cases, and civil unrest in Hong Kong.

As discussed prior conference calls we.

We made the decision since early 2019 to voluntarily suspended our member activities as a result, Oh the affirmation factors.

Despite the negative impact our financial performance.

That decision has served us well into occurring environment.

Well, we could have never foreseeing the impact Kobin 19 would have on the global economy.

We focus our efforts in 2019, I'm, comparing our business to adapt to new realities.

Following China was 100 day campaign and had been applying key learnings from our experience to support our affected markets.

In January coping I think spread throughout the who'll be province.

Which one is the capital into greater China.

Directly impacting our largest markets and resulting in a government mandate quarantine and extensive delays to parcel delivery.

So we started implementing aggressive cost reduction measures beginning in the second half of 2019, we were able to effectively narrowed the scope of our first quarter operating loss and corresponding decline in casual from operations.

Like the fact that our main markets were under severe locked out for most of the first quarter of 2020.

Further we continue with the January orders into prudent measures to mitigate supply chain disruptions and ensure ample product availability do feel those water.

We were pleased that our members reacted positively to the incentives we put into place.

Even though we did not hold a major E band in March as originally planned.

We came to this decision ahead of the government restrictions related to covert 19 to ensure the health and safety of our employees members and customers.

I feel confident our members will work together through these unprecedented times with our support and that we will emerge from this downturn even stronger than before.

Given the nature of our superior business model.

Hi quality product lineup.

Robust marketing plan.

Strong balance sheet in high level of financial flexibility and stable and resilient few leadership.

I will now walk through each of these in detail.

First we have a superior business model.

We operate in ecommerce platform, which does not require much physical contact.

A wide array of technology enables us to keep hearing information about our high quality products with anyone in the world.

Many of our markets move the a training events to Webinars and adapted their member services to various social media platforms to overcome restrictions on personal mobility.

We want to be connected to our members as intently and if not more than before the coven 19 pandemic.

Second we have a great lineup of products, we firmly believe into advocacy and the quality of our products.

This health crisis facilitated the sells a several of our immuno boosting product in particular, including art in his essential probiotics and premium Tony juice.

In addition, we have plans to launch several new products in various markets beginning into second quarter of this year.

Third we have a robust marketing plan in place, we are deploying new and rewarding promotional programs made possible by our effective inventory management and are adapting our marketing programs as needed.

Boy, we have a strong balance sheet in a conservative capital allocation philosophy to support our members in business.

We have ample liquidity with $95 million in cash and cash equivalent zero debt and no bank loans up anytime.

Further our highly variable cost structure allows us the flexibility to adapt in line with water volume.

As previously noted we've put a program in place in the second half 2018 to position us for increased operating efficiencies in several areas, including reducing headcount and promotional spending.

As a result, we now expect to realize annualized cost savings of approximately $8 million in 2020.

Last but not least.

We have the stability and resilience of our few leadership.

I can't emphasize enough how important do.

We have retained all of our leaders.

Oh, the downturn that has persisted over the past couple of years.

Our leaders have proven themselves by navigating highly complex operating environments in many situations.

I have confidence they rely on their ability to help support and lead our members by example.

In terms of our geographical expansion priority.

Happy to report that a number of our new and emerging markets performed well during the first quarter of 2020.

Including South Korea, Taiwan and Japan.

On the other hand, Peru, which had been a very strong market for us was significantly impacted by coven 19.

A nation wide locked down has disrupted our members abilities to hold meetings any bad and also affected the delivery of products to certain parts of the country.

Since the onset of the crisis, we have fortunately being able to resume shipping into the larger cities in Peru.

We're working diligently to support our leadership in the region through additional online training and technological capabilities as the situation stabilizes.

In summary in light of the high level of uncertainty that's do exist in the marketplace.

2020 will be another challenging year for our business given the significant adverse impact coordinating has had on the global economy.

That said I'm pleased that we have continued to execute our strategy and run our operations sufficiently to ensure they the retention of our top leaders who are key to our success.

Our leaders did an excellent job navigating this highly fluid complex situation and I applaud them for their efforts.

Well, we remain cautious on both macro economic factors into spread other corona virus in 2020.

I have confidence we will emerge from the other side of this pandemic as a much stronger company than before.

I'd like to thank all of our leaders.

Members employees and investors for their ongoing support of energy Global and wish you all good health.

With that I'd like to turn the call over to Scott Davis, our CFO to discuss our first quarter 2020 financials in detail.

Scott.

Thank you Chris.

Total revenue for the first quarter 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 go bit 19 pandemic.

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 in the aftermath or the Chinese governments 100 day campaign.

Our active member base decreased 2% to 56500 at March 31st from 57400 at December 31st and was down 35% from 87300 at March 31st last year.

Turning to our first quarter cost in operating expenses.

Gross profit gross profit margin of 69.8% decline 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.

By the Corona bars, and the government restrictions put into place to control it 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 cost.

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 I've been spending.

When looking at our total operating expenses the aggressive cost reduction measures, we started implementing and the second half a 2019 were partially offset by additional spending during the first quarter in direct response to covert 19, and the government's measures to control it.

As a result at 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 lot down for most of the first quarter.

As it was all operating loss was 1.4 million compared to a loss of 2.7 million in the first quarter last year.

We recorded income tax benefit of 782000 for the quarter compared to a benefit of 354000 in the first quarter last year.

The increased tax benefit for the first quarter as a result, or the enactment of the cares Act in March 2020, as we now expect our 2019 loss to be carry back to offset taxable income and years with higher tax rates.

Net loss totaled 573004, or five cents per diluted share compared to a net loss of 1.9 million or 17 cents 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 31st down slightly from 96 million at December 31st.

Net cash used in operating activities was 990000 in the first quarter of 2020 compared to 11.3 million in the first quarter of 2019 I.

I'm pleased to announce that May 4th our board of directors declared another quarterly cash dividend of 20 cents per share, which will be payable on may 29 to stockholders of record as a may 19th 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.

Well no one can predict the duration of the Kobin 19 pandemic and as a result, <unk> 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 and our cost reduction and cash preservation efforts.

As we continue to navigate the evolving and certain situation, we remain focused on the task at hand.

Supporting the health and safety of our members our employees and customers, while operating our business as efficiently as possible.

That completes our prepared remarks, I will now turn the call back over to the operator.

Thank you ladies and gentlemen. This concludes today's call. Thank you for your interest and participation you may now disconnect your lines.