Q2 2020 Natural Health Trends Corp Earnings Call

Twentytwenty earnings Conference call.

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As a reminder, this conference is being recorded.

It does not appear to introduce your host.

Please go ahead.

Thank you and welcome to natural health trends second quarter 2020 earnings conference call. During today's call. There maybe statements made relating to the 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 such forward looking statement.

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 broadcast live and can be found on the investor section of the company's website that natural health trends core dot com.

Instructions can be found for accessing the archived version of the conference call today's financial results press release, which was issued at approximately nine am eastern time.

At this time I like to turn the call over to crush our president natural health trends.

Thank you Kim and thanks to everyone for joining us this morning to discuss our second quarter 2020 financial results with me today is Scott Davis, and our senior Vice President and Chief Financial Officer.

The second quarter marked a continuation of the challenging macroeconomic climate, we experienced during the first quarter 2020.

That's a cobot 19 pandemic persisted into the summer month.

That said, we were very pleased with the stability it resilience of our field leadership, which help us generate a 10% increase in total revenue over the prior quarter.

It was $16.4 million.

I'd like to sincerely. Thank our nearest members have preferred customers for their support and they should global through this unprecedented type.

Coping lighting has shown us that the world is truly interconnected.

Despite the mill challenges. This pandemic has presented a global scale.

We have enjoyed positively contributing our wealth of knowledge on health and wellness related products with our loyal consumer base.

In addition, our aggressive cost reduction measures enable us to return to profitability during the second quarter with positive operating income of $183000 compared to an operating loss of $1.4 million into first quarter of 2020.

As previously announced we put a program in place into second half of 2019 to position us for increase operating efficiencies in several areas, including reduced headcount and promotional spending.

Through this program, we made significant progress in reducing our SGN a expenses during the second quarter.

Through reductions of nearly 20% versus the first quarter out 2020.

More than one third versus the prior year period.

Since we last spoke in May.

Our main markets have begun to slowly we feel that economic activity, though various forms of government mandated travel restrictions have remain in place.

Well there has been some relaxation in personal mobility.

Companies sponsor in person activities.

Still remain highly limited.

No. We are cautiously optimistic the operating environment will continue to improve as we move forward.

We are well aware of the challenges our leaders continue to face without being fully able to support their groups in person.

By nature of our business model, we operate <unk> ecommerce platform.

Which does not require much physical contact.

This has served us well there was a pandemic.

But our leaders who are crucial to our success and effectively operate as our sales force a marketing team in the field.

Had been limited into your ability to support the are geographically diverse group.

Fortunately since we made the decision to suspend member activities in early 2019, we have successfully transition our business to function as a digital operation, which has allowed us to continue sharing information about our high quality products across the various different markets in channels.

We do get through informative product Webinars and worked very bad with online training being held regularly to help promote improve immunity healthy diet lifestyle and beauty care tips.

Through mostly online activities, we were able to slightly improved order volume over the first quarter of 2020.

Further given our efforts earlier this year to mitigate any potential supply chain disruptions, we have been able to few orders by working closely with our vendors and planning for ample product availability.

In addition, given international travel restrictions, we have also extended qualification periods and certain incentive trip from the first half of 2020 into the second half of 2020 and next year.

You may recall, we had the kids so our major first half you back into first quarter due to cover 19, we will continue to make modifications as necessary, though we remain hopeful we'll be able to can talk more in person events in the coming month.

Now turning to our geographical expansion priority, while we remain focused on further diversifying our operations into new and emerging markets, culminating delay our progress in this regard as a result of government mandated shelter in place orders.

However, we did make some positive strides during the quarter.

In China, we launch additional products to be so our E commerce site, including our new water purifier, which became available on the platform and do.

Along with my salary and closing water and Laura Lux, which launched in late July.

We pre face the introduction of our water purifier product with our first product roll show in 18 months, which was very well received.

In Peru operations continue to be adversely impacted by coven lighting.

However, since we had been able to receive on shipping into the larger Peruvian cities in late Q1.

We successfully introduced some new products, including argue focus.

We also unveiled new products in India, including trial team.

In his essential probiotics and glucose and then.

Lastly, we were very pleased to a pay our direct selling license in Thailand in our gearing up to commence activity beginning with product registrations.

In summary, I'm very pleased with our ability to manage elements within our control throughout this global crisis, which led us to achieving positive growth in total revenue gross profit operating income and net income for the second quarter compared to the first quarter of 2020.

I like to once again, thank all of our leaders who have proven themselves time and time again in navigating difficult and complex operating environments such as this one.

We remain cautiously optimistic the macroeconomic situation will continue to improve in the second half two dozen 20.

I would like to conclude by reiterating that the health and safety of our members.

Employees and customers.

Serves as the foundation of our success.

We thank them for their dedication and commitment to an HD global I wish good health to all.

We'd like to turn the call over to our CFO, Scott Davidson to discuss our second quarter 2020 financials in detail.

Scott I think.

Thank you Chris total revenue for the second quarter was 16.4 million a decrease the 30% compared to 23.4 million in the second quarter of 2019.

The year over year decline was primarily due to the challenging and uncertain operating environment arising from the cobot 19, pandemic and the resulting effects on our members ability to hold meetings and events, which negatively impacted our performance.

Well, we anticipate the effects from Covidien acting will continue to adversely impact our results in the near term. We're encouraged by recent trends in our in many cities in our key market Greater China have started the process of opening back up including lessening restrictions on travel and small gatherings.

Our active member base decreased 4% to 54400 at June Thirtyth from 56500 at March 31st It was down 31% from 78300 at June 30 of the last year.

Turning to our second quarter cost in operating expenses.

Gross profit margin of 70.6% decline from 76.9% in the second quarter last year, due primarily to additional logistics cost and product promotions put into place to help alleviate the impact of the pandemic and its restrictions on our business.

Commissions expense as a percent of total revenue declined to 43.4% from 48.7 per se in the prior year quarter as a result of our proactive efforts to reduce incentive cost.

Selling general and administrative expenses decreased 35% to 4.3 million from 6.6 million a year ago, reflecting our proactive cost reduction reduction measures that reduced employee related costs professional fees and I've been spending.

The highly variable in nature of our cost structure affords us the flexibility to continue adapting expenses in line with order volume.

As evidenced by the 37% year over year decline in our total operating expenses for the second quarter.

As a result of these actions despite the challenging operating environment that has persisted over the past several months, we were able to return to profitability in the second quarter.

Operating income totaled 183000 compared to operating loss of 4000, and the second quarter last year.

We recorded a income tax provision of 274000 for the quarter compared to income tax benefit of 28000 in the second quarter last year.

Net income totaled 34000 or breakeven per diluted share compared to net income of 397000 or four cents per diluted share in the second quarter last year.

I will now turn to our balance sheet and cash flow.

Total cash and cash equivalents were 93.2 million at June Thirtyth down slightly from 95.4 million at March 31st.

Net cash used in operating activities was 28000 into second quarter compared to 3.7 million. It in the second quarter last year.

We have a strong balance sheet and a conservative capital allocation philosophy designed to help support our members and business.

Further we have ample liquidity with zero debt and no big clones of any kind of.

I am pleased turned out that the strong liquidity position has enabled us to maintain our dividend on August 3rd our board of directors declared another quarterly cash dividend, a 20 cents per share which would be payable on August 28 to stockholders of record as of August 18 2020.

Our board of directors will continue to monitor the economic environment and evaluate our capital allocation strategy going forward to determine the most efficient use of capital to drive shareholder value.

Well, we're continuing to execute through this uncertain and volatile environment. We remain highly focused on the fundamentals of our business, including supporting our members maintaining a strong balance sheet and ensuring proactive expense management.

These elements position us to benefit from many economic recovery that is to come.

I'd like to Echo Chris' comments and that I'm extremely proud of our employees dedication to our business and the commitment and support shown by our members during these difficult times.

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

Ladies and gentlemen.

Today's conference. Thank you for Germany Maam, you may now disconnect your lines.

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