Natural Health Trends Corp.

Greetings. Welcome to the Natural Health Trends Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I will now turn the conference over to your host, Michelle Gladwell. You may begin.

Thank you, and welcome to Natural Health Trends Fourth Quarter and Full Year 2022 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 through the 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 investor section of the company's corporate website, at naturalhealthtrendscorp.com. 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 9 o'clock a.m. Eastern Time. At this time, I'd like to turn the call over to Chris Sharm, President of Natural Health Trends.

Thank you, Michelle, and thanks to everyone for joining us this morning to discuss our fourth quarter and full year 2022 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer. Though a lot has happened, has changed since early December, most of the fourth quarter was still under some forms of COVID restrictions for much of the urban Chinese population. In this difficult operating environment, our revenue of $12.5 million represented a 7% increase compared to our third quarter's $11.7 million. During the quarter, we also generated positive operating and net income, as well as cash from operations due to our ability to protect margin by diligently controlling costs and exercising discipline in marketing and product mix. In Hong Kong, we continue to see traction around the structured online training system officially rolled out earlier in the year. This coordinated corporate and leader training approach coupled with smaller local and regional in-person gatherings, kept our members and teams engaged and connected. Now, with a swift move away from a zero COVID policy, we look forward to the coming year. We have a full calendar of activities planned, complete with in-person product and business training, team building activities, and international incentive travel. the first of which is our upcoming super mean incentive trip to Shanghai in early March. Our members have communicated their excitement to travel and convene again in larger recognition, training, and motivation-building events, and we look forward to seeing them again in these settings. The commitment our members have demonstrated to our product offerings and to our businesses despite the challenging environment, is evidence of their resilience to overcome adversity. And for that, we are thankful. Outside of Hong Kong and China, in North America and Taiwan, we successfully launched Collagen Supreme, a unique formulation to help support healthier-looking skin, hair, and nails, along with joint and connective tissue support. For these markets, Collagen Supreme cells contributed meaningfully to their quarterly performance. We're currently working on registration for an European market introduction in the coming quarter. Later this month, we will hold the official grand opening for our Healthy Lifestyle Center Plus storefront in Roland Heights, California. This is the third North American fully branded location designed to be a product pickup center, as well as a comprehensive training and prospecting venue for members in Southern California and beyond. Also in North America, the end of the quarter marks the close of our Caribbean cruise qualification period. And we're pleased to share that we'll be accompanying over 70 qualifiers on an eight-day, seven-night cruise in March. This marks the first incentive trip our North American team will embark on since the start of the pandemic, and we look forward to celebrating with them. Our international markets were active during the fourth quarter with a whole series of events, roadshows, and trainings, both in person and online. In Peru, we hosted a three-city tour to launch our Twin Slim probiotic weight management product that attracted more than 550 in attendance. Meanwhile, in October, our European market staged an educational wellness event in Gothenburg, Sweden, featuring one of the market's favorite products, Standard U. In fact, many of our markets, including Taiwan, North America, and Peru, experienced sequential quarterly growth leading into 2023. The worldwide digital enhancements we announced and initiated last quarter are well underway. and we are making progress towards this implementation. These initiatives are designed to improve new member and customer acquisition, member onboarding and retention, and to enhance the overall shocking experience for those interested in our product. As previously shared, we believe this focus will be a key driver for future growth and enhance productivity in support of shareholder value. We're pleased to end the year with an increase in sequential revenue. And we're hopeful to carry this positive momentum into 2023. Now that three years of strict zero COVID protocols, government restrictions and lockdowns are mostly behind us. We also look forward to when we can return to in-person meetings and events that are important to our operations. As we begin the new year, I'd like to thank our dedicated leaders, members, preferred customers, employees, and stockholders for their continued support of NAC Global and our product line. We believe our business provides a tremendous opportunity for consumers of all ages, professionals, and the millions of prospects around the world looking for alternative means to improve their personal outlook, whether that be through earning a little extra or taking meaningful steps to improve their overall health and wellness. with the use of our great product offering. With that, we wish everyone much health and success in 2023 and look forward to speaking with you again next quarter. And now, I will turn the call over to our CFO, Scott Davidson, to discuss our financial results in greater detail. Scott?

Thank you, Chris. Total revenue for the fourth quarter was $12.5 million. an increase of 7% compared to 11.7 million in the third quarter of 2022, and a decrease of 22% compared to 16.1 million in the fourth quarter of 2021. As Chris mentioned, we were able to increase revenue sequentially despite most of the quarter still under some forms of COVID restrictions for much of the urban Chinese population. For the full year of 2022, Total revenue was $49.1 million compared to $60 million in 2021. Our active member base declined slightly to $38,660 at December 31st from $41,170 at September 30th and was down 12% from $45,760 at December 31st last year. Turning to our cost and operating expenses. Growth profit margin of 73.9% in the fourth quarter decreased slightly from 74.2% in the fourth quarter last year. Commissions expense as a percent of net sales for the fourth quarter decreased to 43% from 44.1% in the prior quarter. Excluding the impact of administrative fee revenue, commissions expense as a percent of net sales was flat compared with the fourth quarter last year. Selling general and administrative expenses for the quarter were $3.8 million compared to $4.4 million a year ago. The decrease in SG&A from the prior quarter reflects lower professional and credit card fees. We returned a positive operating income for the quarter, which totaled $43,000 compared to operating loss of $145,000 in the third quarter and operating income of $487,000 in the fourth quarter of 2021. For the full year of 2022, our operating loss was $270,000 compared to operating income of $1.6 million in 2021. We recorded an income tax provision of $255,000 for the quarter compared to $286,000 recognized in the fourth quarter last year. Net income for the fourth quarter totaled $188,000 or two cents per deleted share, compared to $47,000 or break-even per deleted share in the third quarter, and $232,000 or $0.02 per deleted share in the fourth quarter of 2021. For the full year, net income totaled $313,000 or $0.03 per deleted share, compared to $1.1 million or $0.09 per deleted share in 2021. Now I will turn to our balance sheet and cash flow. Total cash and cash equivalents were 69.7 million at December 31st, down from 70.7 million at September 30th. Total cash and cash equivalents decreased by 14.2 million from 83.8 million at December 31st last year, primarily due to dividends paid in 2022 and cash used in operating activities during the year. Net cash provided by operating activities was $938,000 in the fourth quarter, compared to $1.6 million in the fourth quarter of last year. For the full year, net cash used in operating activities was $4.9 million, compared to net cash provided by operating activities of $1 million in 2021. For the full year of 2022, we paid out $9.1 million in dividends. As returning capital to our stockholders remains a priority, I am pleased to announce that on February 6th, our Board of Directors declared a quarterly cash dividend of 20 cents per share, which will be payable on March 3rd to stockholders of record as of February 21st. In conclusion, I am very pleased we were able to close out the year by increasing revenue sequentially compared to the third quarter, as well as generating positive operating income, net income, and cash flows from operations for the quarter. As we cautiously emerge from the ongoing COVID-restricted environment we've been operating under for the past three years, we're committed to revitalizing company-wide growth and supporting the fundamentals of our business to deliver value to our investors. We are hopeful that with the ending of the zero COVID policy, our members can conduct more in-person meetings while we support more events and incentive trips. We wish to thank all of our hardworking members who have endured the past few years and demonstrated strong commitment to our product and our business. That completes our prepared remarks. I will now turn the call back over to the operator.

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.