Q3 2020 Natural Health Trends Corp Earnings Call

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Please note. This conference is being recorded I will now turn the conference over to Kim I led dealt with.

Investor Relations. Thank you you may begin thank you and welcome to natural health trends third quarter 2020, <unk> earnings conference call. During todays 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. Due the result of certain factors, including those set forth in the Companys filings with the Securities Exchange Commission.

It should also be noted that today's call will be webcast live and can be found on the investor section of the company's corporate website at natural health trends Corp. dotcom 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 nine am eastern time.

This time I'd like to turn the call over to Chris Sharp President of natural health trends.

Thank you Kim and.

Thanks to everyone for joining us this morning to discuss our third quarter 2020 financial results with.

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

The challenging macroeconomic conditions inherent in the global economy as a result of the cold in 19 pandemic continue to weigh on our financial performance with our third quarter revenue totaling $14.1 million.

Despite a difficult operating environment and adverse impact to our top line art.

Our diligent expense management resulted in our second consecutive quarter of positive operating income.

Our total third quarter orders were relatively consistent with both the prior quarter and the first quarter of 2020 with our deferred revenue balance increasing by $832000 from June to September accounting for the change in revenue.

Additionally, there were a number of bright spots in certain markets with third quarter order volume exceeding that both Q1 and Q2 levels. According.

Accordingly revenue outside of Hong Kong increased 10% over the prior quarter with notable strength in Peru, Taiwan, Malaysia in India.

Well order volume in Hong Kong, and China remain under pressure, we have begun to see improving business conditions in the region with the economy slowly reopening throughout the third quarter.

Since late August our leaders have been able to south are relatively small meetings. The gradual reopening also allow us to reduce reliance on product promotion, which is part of the reason our margins improve.

As the severity and duration of the pandemic remains uncertain.

We have proactively adapt it part of our marketing programs to overcome some of the physical restrictions imposed through product promotions and virtual training opportunities.

We webcasts training sessions, nearly every weekend and how to larger success. He for any bad with 500 participants each week.

We also have plans for multiple end market why high incentive trip beginning this month as well as other internationally instead of travel schedule in 2021.

As previously announced we cancel both of our major a member events planned for 2020 as protecting the health and safety of our members employees and customers remains our top priority.

We are currently hopeful we will be able to hold larger in person member event sometime next summer.

Now turning to a discussion of our growth initiatives.

We made positive strides in this regard during the third quarter, despite galvanizing delaying some of our progress.

Our preferred customer program to engage those solely interested in product consumption has been gaining traction in several markets.

We now have to feature available in Europe, India in Russia, and expect to launch it in Peru, and Mexico by the end of the year.

Sales in Peru, which was one of our most affected markets by depend Danny have rebounded and exceeded those reported in the first quarter. This year.

Additionally, after all naming several new products in the prior quarter, we saw sales drastically improve in India in Q3, with a growing active and prefer a member base.

Finally, despite not holding a major in person remembering that we were thrilled to release, a new product during the third quarter, our twin fill informatics, which was designed to help support our weight management.

Twinkling probiotics positively contributed to our order volume in both August and September.

In summary, despite the adverse impact the pandemic continues to have our financial results I.

Hi, I'm very pleased with our ability to continue to manage the elements of our business that are within our control.

Compared to the prior quarter, we achieved double digit revenue growth in our emerging markets.

Both positive operating income and net income.

We remain encouraged by the stability and resilience of our field leadership.

Having retained all of our top leaders through this economic slowdown.

I like to extend my gratitude to all of our leaders members and preferred customers.

Oh wavering commitment to and if you go through.

Through all of the challenges 2020 has presented we are very grateful to continue supporting our mission of improving health and quality of life through our superior products in global opportunity.

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

Scott.

Thank you Chris total revenue for the third quarter was 14.1 million a decrease of 17% compared to 17 million in the third quarter of 2019.

The year over year decline was primarily due to the continued difficult operating conditions stemming from the COVID-19 environment and the resulting challenges. This has presented for our members as they work to overcome meeting event and travel restrictions to conduct their business well.

Well, we expect our financial results will continue to be adversely impacted by the pandemic.

We are encouraged by our members efforts to embrace technology coming.

Communicate virtually and adapt to the evolving operating environment.

As was the positive economic trends and progress towards recovery, we are witnessing across many of our markets.

Our active member base decreased 2% to 53300 at September Thirtyth.

I'm 54400 at June Thirtyth, and was down 22% from 68001 bit <unk> at September 30 of last year.

Turning to our third quarter cost and operating expenses.

Gross profit margin of 74.3% was consistent with the third quarter last year the increase in administrative fee revenue offset additional logistics cost and product promotions put into place to help support and incentivize our members impacted by the pandemic.

Commissions expense as a present, a total revenue declined to 39.8% from 43.2% in the third quarter last year.

Excluding the impact of the increase in administrative fee revenue commissions expense would have been roughly unchanged year over year.

Selling general and administrative expenses decreased 34% to 4.2 million from 6.4 million a year ago.

The decrease in <unk> versus the prior year period reflects the effectiveness of the cost reduction measures. We implemented in the second half of 2019 to better align our expense base with our current level of revenue.

We maintain positive operating income for the quarter, which totaled 668000.

Compared to operating loss of 1.1 million in the third quarter last year.

We recorded an income tax provision of 418000 for the quarter compared to 502000 in the third quarter last year.

Net income was 635000 or six cents per diluted share compared to a net loss of 1.2 million or 12 cents per diluted share in the third quarter last year.

Now I'll turn to our balance sheet and cash flow.

Total cash and cash <unk> equivalents were 90.8 million at September Thirtyth down slightly from 93.2 million at June Thirtyth.

Net cash used in operating activities was five <unk> 512000 in the third quarter compared to $3.7 million in the third quarter last year.

We remain very confident in the strength of our balance sheet and our conservative capital allocation strategy focused on delivering value to our shareholders and revitalizing growth in our business.

I'm pleased to announce that our strong liquidity position has enabled us to maintain our quarterly dividend.

On November 2nd our board of Directors declared another quarterly cash dividend of 20 cents per share, which will be payable on November 20 November 27th to stockholders of record as of November 17th or.

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.

As we look ahead, we remain committed to supporting our members.

Howard sizing the health and safety of our employees and member base.

And ultimately emerging from this crisis, well position to drive profitable and sustainable growth to maximize value for our key stakeholders.

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

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day.