Q2 2023 Natural Health Trends Corp Earnings Call
Greetings and welcome to the natural Health trends Corp, second quarter 2023 earnings Conference call.
At this time all participants are in a listen only mode.
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As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Michelle Gladwell Natural Health trends Corp. Please go ahead.
Thank you and welcome to natural health trends second quarter 2023 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 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 natural health trends Corp Dotcom.
Instructions for accessing the archived version of the conference call can be found in today's financial results press release, which was issued at approximately nine o'clock a M eastern time.
At this time I'd like to turn the call over to Chris yarn President of natural health trends.
Thank you Michelle and thanks to everyone for joining us this morning to discuss our second quarter 2023 financial results.
With me today is Scott Davidson, our senior Vice President and Chief Financial Officer.
Second quarter, net sales were $10 $5 million compared to $13 $4 million for the second quarter of 2022.
The decrease in revenue was mostly attributed to the significant changes in deferred revenue in the two respective quarters.
Deferred revenue was up by $1.2 million in the second quarter of 2023, but down by $1.4 million in the same quarter last year.
That means during the second quarter, we took in more orders than we could ship this year and we should more than the orders taken last year.
That law accounted for $2 $6 million of the $2.8 million revenue variance.
Otherwise despite tepid consumer sentiment impulse zero Covid, China, we were able to January order, it's roughly comparable to a year ago as orders in Hong Kong increased 5% year over year.
However, since much of the orders we received came in mid to late June they did not all ship out during the quarter.
Starting in the increase in deferred revenue of $1.2 million.
The late surge in orders to follow our first large scale event in more than three years in Macau, where nearly 900 guests attended.
Immediately following this event and we kicked off any incentives that help bring in more order volume.
We think this positive response to the progress we designed to help increase sales and drive member growth reflects the fact, they resonate with our members.
Well, we had hoped for a faster rebound in China, where the government is lifting a zero Colgate regulations. Our experience has been a more cautious return by consumers.
They are uneasy about the economic outlook.
We believe this environment may present, an opportunity for our business such as ours.
Shifting focus to markets outside of China, and Hong Kong.
Peru demonstrated a positive increase in sales of 48% compared to both the prior quarter and year over year.
We're pleased our members are back to work and ready to Reengage in the business following their coldest struggles and political challenges.
During the quarter, our promotion of one of our most popular products in the country cluster of X two was very well received.
We also celebrated the market six anniversary in May with an event and VIP dinner at our Lima office.
We continue to see support for our high quality wellness products in the country.
Both are India, and Japan markets manage to achieve sequential quarter over quarter growth in Q2.
And they continue with the whole online and in person meetings and training to connect with the field and reach new customers.
In Europe , we launched collagen Supreme by hosting multi city launch event in Nuremberg and Gothenburg in June .
And in North America, we introduced a six month qualification window for our Machu Picchu incentive trip, which will take place next year.
And during the quarter in North America, Hong Kong and Europe , We launched our newest product met a boost.
Couple and uniquely formulated to promote healthy glucose levels and provide cardiovascular support.
We continue to make progress on key technology development projects to drive engagement and improve our customer and member experience.
We look forward to being able to showcase this new platform and future event, well, we are ready to do so.
In summary.
It is very hard to predict consumer sentiment and the outcomes of ongoing macro challenges.
And while we don't have control of economic conditions impacting many market. We are encourage by the enthusiasm of our members around the world embrace our initiatives.
And who day in and day I'll commit to and then she global and our product offering because they experience real result.
For the second half of the year, we remain focused on the executable and strategies that drive business growth and shareholder value.
With that I'd like to turn the call over to our CFO , Scott Davidson to discuss our financial results in greater detail.
Scott.
Chris total orders taken during the second quarter were relatively flat and Hong Kong orders increased 5% year over year, Despite a cautious consumer base in China during the quarter.
However, as Chris mentioned much of the orders came in after our Jim Mccallum that resulting in one 2 million dollar increase in deferred revenue at June 30th.
A year ago, the opposite happened with deferred revenue decreasing during the second quarter.
As a result total revenue recognized for the second quarter was $10 5 million.
A decrease of 21% compared to $13 4 million in the second quarter of last year.
Our active member base decreased 4% to 36730 of June 30th from 38330 at March 31st.
It was down 15% from 43020th June 30th of last year.
Turning to our cost and operating expenses.
Product margin was 74.6% consistent with the second quarter of last year.
Commissions expense as a percent of total revenue for the second quarter decreased slightly to 42, 9% from 43, 2% in the prior year quarter.
Selling general and administrative expenses for the quarter were $44 1 million compared to 4 million a year ago.
As a result operating loss for the quarter was 743000 compared to operating income of 215000 in the second quarter of last year.
We recorded an income tax benefit of 83000 for the quarter compared to income tax provision of 207000 in the second quarter of last year.
Net loss for the second quarter totaled 219000, or two cents per diluted share compared to net income of <unk>.
83000, or two cents per diluted share in the second quarter of 2022.
I'll now turn to our cash flows and balance sheet.
Net cash used in operating activities was $2 6 million in the second quarter compared to 1.2 million in the second quarter last year.
Excluding our required angled tax installment payments related to the 2017 U S tax cuts and jobs Act cash flows from operations was positive during the quarter and approved $1 6 million over the comparable six month period last year.
Total cash and cash equivalents were $61 6 million at June 30 down from $66 6 million at March 31st due to a required tax installment payment of 3 million and our quarterly dividend payment.
As returning capital to our stockholders remains a top priority I am pleased to announce that on July 31st our board of directors declared another quarterly cash dividend of <unk> 20 per share, which will be payable on August 20.
To stockholders of record as of August 15.
In closing we are encouraged to have successfully pulled off our first large in person events since the beginning of the pandemic.
Coming together in larger numbers helped strengthen member enthusiasm and provides an excellent platform for sharing training and generating momentum in the business.
For the second half of the year, we're committed to getting back to growth and executing well against the key priorities that are fundamental to our business.
We believe our strong balance sheet and expense management discipline position.
Positioning us well for success.
That completes our prepared remarks, I will now turn the call back over to the operator.
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.