Natural Health Trends Corp.

Greetings, and welcome to Natural Health Trends Corp's first quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. I'll now turn the conference over to Michelle Glidewell with Natural Health Trends. Michelle, you may begin.

Thank you, and welcome to Natural Health Trends first 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 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 Sharn, President of Natural Health Trends.

Thank you, Michelle. And thanks to everyone for joining us this morning to discuss our first quarter 2023 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer. Since the end of zero COVID policies last December, our Greater China business and leaders are still adjusting and adapting to a fluid and dynamic operating environment. Our experience in the first quarter is that consumers have been slow and gradual to participate in the reopening. And they're taking a cautious approach to spending and to meeting new people and gathering in group settings. In spite of this consumer sentiment, we are encouraged that our Hong Kong businesses show good progress with revenue increasing 10% year over year. Company-wide revenue of $11.9 million increased 3% compared to $11.5 million in the first quarter of 2022. This marked our first year-over-year increase since the third quarter of 2021 and the second increase since the third quarter of 2018. Despite the overall consumer sentiment, our leaders executed aggressive plans to resume local, small-scale in-person meetings. During the period, we hosted a Shanghai incentive trip with more than 500 attendees. Feedback from this activity was positive, and we are eager to return to a robust calendar of these types of large-scale activities to re-engage with leaders and members in the region. Looking ahead to the second quarter, we are preparing for the launch of our newest wellness supplement, Metaboost. This supplement is uniquely formulated to promote healthy glucose levels and provide cardiovascular support. Shifting our attention outside of our Hong Kong and China markets to North America, in February, we officially opened the Los Angeles Area Healthy Lifestyle Center in Roland Heights, California. This location is the third in North America and is designed to support the local team members' business building and training activities. serves as an order pickup location and is a showcase center for all of our products. In March, we were pleased to embark on the first incentive trip for this market since the beginning of the COVID pandemic, hosting a group of nearly 100 enthusiastic members on a cruise to the Bahamas. In our other local markets, we were excited to connect with members at local in-person events and on several incentive trips during the quarter to great destinations such as Grand Canary, Spain, Rajasthan, India, Honolulu, Hawaii, and Cartagena, Colombia. In Europe, we held a successful event in Gothenburg, Sweden, featuring our top-selling premium noni product, and in March, we pre-launched the previously mentioned Metaboost product. Response from the field for this upcoming product was tremendous, having sold through our initial pre-launch inventories. Progress continues to be made on our worldwide digital enhancement initiatives. As a reminder, this is a long-term development project and transitioning away from our legacy platform to a new robust end-to-end ecosystem will help improve the customer experience on our digital platforms and make doing business with us as seamless as possible. Wrapping up my commentary for the quarter, we are cautiously optimistic about the future. If the current trend of an improving operating environment continues, we are hopeful that our business will benefit from the prospect that people are more willing and comfortable to meet, gather, and travel, all activities that are important to how we facilitate our business development. 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 first quarter was $11.9 million, an increase of 3% compared to $11.5 million in the first quarter of 2022, and our Hong Kong business was able to increase revenue 10%. This increase was partially offset by the impact of the current geopolitical and industry regulatory environments in certain of our other markets. Our active member base declined slightly to 38,330 at March 31st, from $38,660 at December 31st and was down 14% compared to $44,490 at March 31st last year. Turning to our cost and operating expenses. Gross profit margin was 74.5% compared to 74.8% in the first quarter last year, which was relatively consistent year over year, excluding the impact of administrative fee revenue. Commissions expense as a percent of net sales for the first quarter was 42.1%, compared with 41% in the prior quarter. Excluding the impact of administrative fee revenue, commissions expense as a percent of net sales increased slightly due to higher commission payouts and more supplemental incentive costs. Selling general and administrative expenses of $4.2 million for the quarter decreased slightly from $4.3 million in the first quarter of last year. The decrease in our SG&A from the prior year quarter reflects lower employee-related costs. As a result, operating loss for the quarter was $394,000 compared to $383,000 in the first quarter last year. We recognize the income tax provision of $30,000 for the quarter compared to an income tax benefit of $168,000 recorded in the first quarter last year. Net income for the first quarter totaled $257,000 or $0.02 per deleted share, compared to net loss of $105,000, or $0.01 per deleted share in the first quarter of 2022. Now I'll turn to our balance sheet and cash flow. Total cash and cash equivalents were $66.6 million at March 31st, down from $69.7 million at December 31st. Net cash used in operating activities was $696,000 for the first quarter, compared to $2.3 million in the first quarter last year. I am pleased to announce that on May 1st, our Board of Directors declared a quarterly cash dividend of $0.20 per share, which will be payable on May 26th to stockholders of record as of May 16th. In conclusion, having personally spent some time this past quarter with our key leaders in several markets, their enthusiasm to get back to business-building activities was expressed, along with their eagerness to travel, though this type of activity remains challenging in many cases. We are hopeful that the moderately improved operating environment continues to trend in the right direction and that our business will benefit accordingly. We wish to thank all of our dedicated members for their commitment to their business activities, to our product offerings, and to fully embracing our mantra of helping to create wellness creations around the world. That completes our prepared remarks. I will now turn the call back over to the operator.

Thank you. This will conclude today's conference. Let me disconnect your lines at this time. Thank you for your participation.