Financial Performance - Revenue for the first quarter of 2024 was $11.0 million, an 8% decrease from $11.9 million in the same quarter of 2023, attributed to a $1.0 million increase in deferred revenue[2] - The company reported a net income of $188,000, or $0.02 per diluted share, compared to $257,000, or $0.02 per diluted share, in the first quarter of 2023[2] - Positive cash flows from operations were reported at $549,000 for the first quarter of 2024, a significant improvement from a cash outflow of $696,000 in the same period last year[5] - The operating loss narrowed to $365,000 in the first quarter of 2024, compared to a loss of $394,000 in the same quarter of 2023[2] Membership and Orders - First quarter orders increased by 11% compared to the preceding fourth quarter, marking the first sequential increase in six years[1] - Active Members decreased by 2% to 31,620 as of March 31, 2024, down 18% from 38,330 a year ago[2] Cash and Dividends - Total cash, cash equivalents, and marketable securities were $54.4 million at March 31, 2024, down from $56.2 million at December 31, 2023[5] - The company declared a quarterly cash dividend of $0.20 per share, payable on May 24, 2024[5] Future Outlook - The company anticipates gradual recognition of deferred revenue in the coming months as orders are fulfilled[3] - Management remains cautiously optimistic about future performance, focusing on innovation and operational efficiency[4]

HONG KONG, April 24, 2024 (GLOBE NEWSWIRE) -- Natural Health Trends Corp. (NASDAQ: NHTC), a leading direct-selling and e-commerce company that markets premium quality personal care, wellness, and “quality of life” products under the NHT Global brand, today announced the Company will report its financial results for the first quarter ended March 31, 2024 on Wednesday, May 1, 2024 at 9:00 a.m. Eastern Time. Chris Sharng, Natural Health Trends’ President, and Scott Davidson, Senior Vice President and Chief Fin ...

Core Viewpoint - Natural Health Trends Corp. will report its financial results for the first quarter of 2024 on May 1, 2024, at 9:00 a.m. Eastern Time, followed by a conference call at 11:30 a.m. Eastern Time to discuss the results [1]. Group 1: Financial Reporting - The financial results for the first quarter ended March 31, 2024, will be announced on May 1, 2024 [1]. - A conference call will be hosted by Chris Sharng, President, and Scott Davidson, Senior Vice President and CFO, on the same day at 11:30 a.m. Eastern Time [1]. - Details for the conference call include dial-in numbers for domestic and international participants, as well as a webcast link [1]. Group 2: Company Overview - Natural Health Trends Corp. is an international direct-selling and e-commerce company operating in Asia, the Americas, and Europe [2]. - The company markets premium quality personal care products under the NHT Global brand [2]. - Additional information about the company can be found on its website [2].

Membership and Revenue Trends - Total active members decreased from 38,660 in 2022 to 32,410 in December 2023, representing a decline of approximately 16.2%[33] - Revenue from Hong Kong, which includes members residing in China, decreased from 28,550 to 23,490, a decline of about 17.7%[33] - In 2023, approximately 79% of the company's revenue was generated in Hong Kong, with most sales delivered to members in China[82] - The company experienced negative operating cash flows in 2023 and 2022, primarily due to revenue declines exceeding managed expenditure reductions[84] - The company experienced a 16% decrease in active members at the end of 2023 compared to the end of 2022, which significantly contributed to the decline in year-over-year sales[110] - Total net sales for the year ended December 31, 2023, were $43,924,000, a decrease of 10.0% from $49,134,000 in 2022[242] Operational and Regulatory Challenges - The company’s operations have been affected by recent political and social developments in Hong Kong and regulatory changes in China[37] - The regulatory environment in China imposes restrictions on multi-level compensation and member recruitment activities, impacting the company's operations[58] - The company is subject to extensive governmental regulations regarding product marketing and safety, including compliance with FDA and FTC requirements[61] - The product registration process in China can take from nine months to over 18 months, affecting product launches[64] - The company has increased its internal regulatory staff to comply with evolving dietary supplement regulations and ensure product safety[65] - The company is subject to various regulatory issues, including foreign exchange control and compliance with local direct selling laws, which may lead to scrutiny from government authorities[71] - The company is subject to ongoing scrutiny by Chinese government regulators, which has previously impacted member activities and could lead to enforcement actions[122] - The Chinese government's 100-day campaign targeting health product companies continues to affect the business environment, with potential long-term benefits as substandard products are driven from the market[126] Financial Performance and Risks - Gross profit for 2023 was $32,749,000, down from $36,473,000 in 2022, reflecting a gross margin of 74.5%[242] - Net income for 2023 increased to $568,000, compared to $313,000 in 2022, resulting in a net income per share of $0.05[242][245] - Total current assets decreased to $64,229,000 in December 2023 from $77,551,000 in December 2022, a decline of 17.1%[240] - Total liabilities decreased to $27,491,000 in December 2023 from $32,666,000 in December 2022, a reduction of 15.5%[240] - Stockholders' equity as of December 31, 2023, was $41,600,000, down from $50,151,000 in 2022, a decrease of 17.1%[240] - Operating expenses for 2023 totaled $34,420,000, a decrease of 6.5% from $36,743,000 in 2022[242] - The company reported a loss from operations of $1,671,000 for 2023, compared to a loss of $270,000 in 2022[242] - Deferred revenue increased to $6,166,000 in December 2023 from $5,597,000 in December 2022, an increase of 10.2%[240] Marketing and Compensation Structure - The company has implemented a hybrid marketing strategy combining in-person and virtual events due to disruptions from the COVID-19 pandemic[36] - The company’s marketing and distribution strategy relies on a network marketing system, emphasizing personal recommendations and customer service[30] - The compensation plan allows members to earn income through commissions based on bonus volume points from product purchases made by their down-line members[47] - Members can earn commissions weekly, with eligibility potentially requiring nominal monthly purchases of products[48] - The company employs a binary compensation plan with unilevel features, enabling members to sponsor others across different countries[47] Product and Supply Chain Management - The company sources products from manufacturers primarily located in the United States, South Korea, Hong Kong, Taiwan, Europe, and China[24] - The company relies on a limited number of independent third-party manufacturers, which poses risks related to product quality and timely supply[102] - The introduction of new products is critical for member engagement; failure to gain market acceptance could adversely affect the company's operations[99] Compliance and Legal Risks - The company faces risks from potential non-compliance with direct selling regulations, which could result in substantial fines and restrictions on business operations[128] - The company is subject to anti-bribery laws, and violations could result in significant expenses and reputational damage[164] - The company does not have a comprehensive product liability insurance program, which could expose it to various product liability claims[166] - The company faces risks from potential lawsuits, claims, and governmental proceedings that could harm its business[142] Cybersecurity and IT Risks - The company's operations are highly dependent on the accuracy and reliability of its information technology systems, with any interruptions potentially having a material adverse effect on its financial condition[171] - Cybersecurity risks are a significant concern, with potential disruptions or breaches possibly harming the company's reputation and financial results[174] - The company has implemented a cybersecurity risk management program, including third-party vendor engagement for monitoring and threat detection[185] - The company maintains cybersecurity insurance, but costs related to cybersecurity threats may not be fully covered[186] Market Competition - The company faces competitive risks from larger multinational corporations and local operators in the network marketing industry, which may affect its market position[77] - The company faces significant competition from larger direct selling organizations, which may hinder its ability to recruit and retain members effectively[97] - The company competes with other direct selling organizations for member recruitment, which is challenging due to high attrition rates[110] Economic and Geopolitical Factors - Political and economic risks in foreign markets may impede the company's growth and expansion efforts[103] - Ongoing geopolitical tensions between the United States and China may adversely affect trade relations and the company's operations in these markets[130] - The company has significant foreign exchange exposure, particularly if the Hong Kong dollar were no longer pegged to the U.S. dollar[145]

Financial Data and Key Metrics Changes - Total revenue for Q4 2023 was $10.9 million, a 3% increase from $10.6 million in Q3 2023, but a 13% decrease from $12.5 million in Q4 2022 [6][13] - For the full year 2023, total revenue was $43.9 million, down from $49.1 million in 2022, primarily due to changes in deferred revenue [13] - Net income for Q4 2023 was $358,000 or $0.03 per diluted share, compared to $172,000 or $0.02 per diluted share in Q3 2023 and $188,000 or $0.02 per diluted share in Q4 2022 [15] - Gross profit margin improved to 74.5% from 73.9% in the same quarter last year due to lower logistics costs [14] Business Line Data and Key Metrics Changes - Active member base declined 6% to 32,410 at December 31, 2023, from 34,660 at September 30, 2023, and down 16% from 38,660 at December 31, 2022 [13] - Commissions expense as a percentage of net sales decreased to 41.6% from 43% in the same quarter last year [14] Market Data and Key Metrics Changes - The company experienced a sequential increase in orders despite challenging consumer sentiment in China [6] - In-person activities, such as the Fly High event in Hong Kong and the Abu Dhabi trip, contributed to increased engagement and potential revenue growth [7][8] Company Strategy and Development Direction - The company plans to sponsor more in-person events to enhance market campaigns and member engagement [6] - 2024 plans emphasize training offerings for various consumer types to cultivate new talent and support existing members [8] - The company aims to innovate and strengthen its product offerings to support business growth [17] Management Comments on Operating Environment and Future Outlook - Management acknowledged the ongoing challenges in the macroeconomic environment but expressed optimism about future growth opportunities through enhanced member engagement and product offerings [6][17] - The company remains committed to returning capital to stockholders, having declared a quarterly cash dividend of $0.20 per share [16] Other Important Information - The company paid out $9.2 million in dividends for the full year 2023 [16] - The company was recognized by the Swedish Direct Selling Association as a top company in the market for the second consecutive year [10] Q&A Session Summary - No specific questions or answers were provided in the transcript, indicating the conclusion of the conference call [17]

Core Viewpoint - Natural Health Trends Corp. will report its financial results for Q4 2023 on February 7, 2024, with a conference call scheduled for the same day to discuss these results [1]. Group 1: Financial Reporting - The financial results for the fourth quarter ended December 31, 2023, will be announced on February 7, 2024, at 9:00 a.m. Eastern Time [1]. - A conference call to discuss the financial results will take place on the same day at 11:30 a.m. Eastern Time [1]. - Details for the conference call include dial-in numbers for domestic and international participants, as well as a webcast link [1]. Group 2: Company Overview - Natural Health Trends Corp. is a leading direct-selling and e-commerce company that markets premium quality personal care and wellness products under the NHT Global brand [2]. - The company operates internationally through subsidiaries in Asia, the Americas, and Europe [2]. - Additional information about the company can be found on its official website [2].

Core Viewpoint - Natural Health Trends Corp. is set to report its financial results for the fourth quarter of 2023 on February 7, 2024, with a conference call scheduled to discuss these results [1] Group 1: Financial Reporting - The financial results for the fourth quarter ended December 31, 2023, will be announced on February 7, 2024, at 9:00 a.m. Eastern Time [1] - A conference call will be hosted by the President and CFO of Natural Health Trends to discuss the financial results on the same day at 11:30 a.m. Eastern Time [1] - Details for the conference call include dial-in numbers for domestic and international participants, as well as a webcast link for online access [1] Group 2: Company Overview - Natural Health Trends Corp. operates as an international direct-selling and e-commerce company, marketing premium quality personal care products under the NHT Global brand [2] - The company has subsidiaries operating throughout Asia, the Americas, and Europe [2] - Additional information about the company can be found on its official website [2]

Financial Data and Key Metrics Changes - Total revenue for Q3 2023 was $10.6 million, a decrease of 9% compared to $11.7 million in Q3 2022, primarily due to changes in deferred revenue as orders were received later in the quarter [4][9] - Gross profit margin improved slightly to 74.7% from 73.6% in the prior year due to lower logistics costs [10] - Net income for Q3 2023 totaled $172,000 or $0.02 per diluted share, compared to $47,000 or breakeven per diluted share in Q3 2022 [10] Business Line Data and Key Metrics Changes - Active member base decreased 6% to 34,660 at September 30 from 36,730 at June 30, and was down 16% from 41,170 at September 30 last year [10] - Orders taken during Q3 2023 were roughly flat, with a 3% increase at constant exchange rates compared to Q3 2022, and an 8% increase year-to-date [4][5] Market Data and Key Metrics Changes - Strong performances were noted in markets outside of China and Hong Kong, particularly in Taiwan, Peru, North America, and Japan, where orders taken increased at constant exchange rates compared to the prior year [6] - The company is preparing to launch its business in Colombia in Q4 and is progressing regulatory requirements to operate in Bolivia [7] Company Strategy and Development Direction - The company is focusing on digital enhancements, new product introductions, and exceptional support to drive future growth [7] - Upcoming product launch includes Relaxo Pro, aimed at reducing stress and promoting confidence, indicating a commitment to innovation in product offerings [5] Management Comments on Operating Environment and Future Outlook - Management noted that the economic landscape is challenging, particularly with Chinese consumers being reluctant to spend, yet orders taken show resilience [4] - The company remains committed to careful planning and execution of strategic initiatives to return to growth and enhance shareholder value [11] Other Important Information - Total cash and cash equivalents were $58.4 million at September 30, down from $61.6 million at June 30 [11] - A quarterly cash dividend of $0.20 per share was declared, payable on November 24 to stockholders of record as of November 14 [11] Q&A Session Summary - The Q&A session concluded without any recorded questions or answers, indicating a lack of engagement during this segment [12]

[Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section highlights various risks that could materially affect the company's future results, including significant reliance on Hong Kong/China operations, geopolitical and economic instability, and regulatory compliance challenges [Summary of Risks](index=3&type=section&id=Summary%20of%20Risks) The company faces material risks from reliance on Hong Kong/China, geopolitical instability, negative cash flows, competition, and regulatory compliance - Substantial portion of overall business derived from Hong Kong operations, with sales primarily to members in China, making the company highly susceptible to adverse changes in these regions[10](index=10&type=chunk) - Experienced negative operating cash flows in 2022 and modest positive flows in 2020-2021, indicating a need for improved operating cash flows to avoid material adverse effects on business and stock price[10](index=10&type=chunk) - The business is subject to various laws and regulations, especially direct-selling laws in China, and faces risks from political and social developments in Hong Kong, epidemics (like COVID-19), and potential challenges to business legality[10](index=10&type=chunk)[11](index=11&type=chunk) [PART I - FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements, including balance sheets, income, equity, and cash flows, with detailed accounting notes [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) | Metric | Sep 30, 2023 (Unaudited) (in Thousands) | Dec 31, 2022 (in Thousands) | | :-------------------------------- | :------------------------------------- | :-------------------------- | | **ASSETS** | | | | Cash and cash equivalents | $58,412 | $69,667 | | Total current assets | $66,969 | $77,551 | | Total assets | $71,821 | $82,817 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total current liabilities | $20,778 | $20,438 | | Total liabilities | $28,511 | $32,666 | | Total stockholders' equity | $43,310 | $50,151 | | Total liabilities and stockholders' equity | $71,821 | $82,817 | - Total assets decreased by **$11.0 million** from December 31, 2022, to September 30, 2023, primarily driven by a decrease in cash and cash equivalents[17](index=17&type=chunk) - Total stockholders' equity decreased by **$6.8 million**, mainly due to accumulated deficit and accumulated other comprehensive loss[17](index=17&type=chunk) [Consolidated Statements of Operations](index=7&type=section&id=Consolidated%20Statements%20of%20Operations) | Metric | Three Months Ended Sep 30, 2023 (in Thousands) | Three Months Ended Sep 30, 2022 (in Thousands) | Nine Months Ended Sep 30, 2023 (in Thousands) | Nine Months Ended Sep 30, 2022 (in Thousands) | | :--------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Net sales | $10,615 | $11,716 | $32,987 | $36,622 | | Gross profit | $7,926 | $8,618 | $24,601 | $27,224 | | Loss from operations | $(292) | $(145) | $(1,429) | $(313) | | Other income, net | $585 | $187 | $1,708 | $472 | | Income before income taxes | $293 | $42 | $279 | $159 | | Net income | $172 | $47 | $210 | $125 | | Basic Net income per common share | $0.02 | $0.00 | $0.02 | $0.01 | | Diluted Net income per common share | $0.02 | $0.00 | $0.02 | $0.01 | - Net sales decreased by 9% for the three months ended September 30, 2023, and by 10% for the nine months ended September 30, 2023, compared to the prior year periods[19](index=19&type=chunk) - Net income significantly increased for both the three-month period (from **$47 thousand** to **$172 thousand**) and the nine-month period (from **$125 thousand** to **$210 thousand**) year-over-year, despite a loss from operations, primarily due to higher other income[19](index=19&type=chunk) [Consolidated Statements of Comprehensive Income (Loss)](index=8&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) | Metric | Three Months Ended Sep 30, 2023 (in Thousands) | Three Months Ended Sep 30, 2022 (in Thousands) | Nine Months Ended Sep 30, 2023 (in Thousands) | Nine Months Ended Sep 30, 2022 (in Thousands) | | :------------------------------------------ | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Net income | $172 | $47 | $210 | $125 | | Foreign currency translation adjustment | $(23) | $(367) | $(272) | $(828) | | Unrealized gains (losses) on available-for-sale securities | $1 | $(34) | $9 | $(21) | | Comprehensive income (loss) | $150 | $(354) | $(53) | $(724) | - Comprehensive income improved significantly from a loss of **$354 thousand** in Q3 2022 to an income of **$150 thousand** in Q3 2023, largely due to a reduced negative impact from foreign currency translation adjustments[21](index=21&type=chunk) [Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) | Metric | Dec 31, 2022 (in Thousands) | Sep 30, 2023 (in Thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Total Stockholders' Equity | $50,151 | $43,310 | | Accumulated Deficit | $(9,056) | $(15,757) | | Accumulated Other Comprehensive Loss | $(1,004) | $(1,267) | | Treasury Stock (shares) | (1,556,875) | (1,462,641) | | Treasury Stock (amount) | $(25,904) | $(24,336) | - Total stockholders' equity decreased by **$6.8 million** from December 31, 2022, to September 30, 2023, primarily due to net income being offset by dividends declared and an increase in accumulated deficit[23](index=23&type=chunk) - The company reissued 97,900 treasury shares, reducing the treasury stock balance by **$1.6 million**, while also recognizing share-based compensation[23](index=23&type=chunk) [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Metric | Nine Months Ended Sep 30, 2023 (in Thousands) | Nine Months Ended Sep 30, 2022 (in Thousands) | | :-------------------------------------- | :------------------------------------ | :------------------------------------ | | Net cash used in operating activities | $(4,209) | $(5,790) | | Net cash used in investing activities | $(32) | $(130) | | Net cash used in financing activities | $(6,911) | $(6,855) | | Effect of exchange rates on cash | $(145) | $(858) | | Net decrease in cash, cash equivalents and restricted cash | $(11,297) | $(13,633) | | Cash, cash equivalents and restricted cash, end of period | $58,449 | $70,732 | - Net cash used in operating activities improved from **$5.8 million** in 2022 to **$4.2 million** in 2023, driven by increased interest earned and more orders[26](index=26&type=chunk)[122](index=122&type=chunk) - Cash, cash equivalents, and restricted cash decreased by **$11.3 million** during the first nine months of 2023, primarily due to operating activities and dividend payments[26](index=26&type=chunk)[120](index=120&type=chunk) [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=1.%20NATURE%20OF%20OPERATIONS%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Details the company's direct-selling and e-commerce operations under "NHT Global," global market, and key accounting policies - The Company operates as an international direct-selling and e-commerce entity, marketing personal care, wellness, and 'quality of life' products under the 'NHT Global' brand[28](index=28&type=chunk) - The Company maintains cash balances in the United States, Hong Kong, and China, with **$3.6 million** in China subject to foreign currency controls as of September 30, 2023[32](index=32&type=chunk) - The adoption of ASU 2016-13 and ASU 2019-11 (Credit Losses) effective after December 15, 2022, did not have a material impact on the Company's financial statements[36](index=36&type=chunk) [2. REVENUE](index=14&type=section&id=2.%20REVENUE) Outlines revenue recognition policies, including product sales, returns, shipping, deferred revenue, and sales concentration in Hong Kong/China - Revenue is recognized when performance obligations are satisfied, primarily from product sales upon shipment and title transfer to independent members[38](index=38&type=chunk) | Metric | Three Months Ended Sep 30, 2023 (in Thousands) | Three Months Ended Sep 30, 2022 (in Thousands) | Nine Months Ended Sep 30, 2023 (in Thousands) | Nine Months Ended Sep 30, 2022 (in Thousands) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Product sales | $10,303 | $10,534 | $31,505 | $32,889 | | Administrative fees, freight and other | $373 | $1,235 | $1,628 | $3,865 | | Less: sales returns | $(61) | $(53) | $(146) | $(132) | | Total net sales | $10,615 | $11,716 | $32,987 | $36,622 | - Deferred revenue, primarily from unshipped product orders and unredeemed product vouchers, totaled **$4.5 million** as of September 30, 2023, up from **$3.8 million** at December 31, 2022[42](index=42&type=chunk)[49](index=49&type=chunk) [3. BALANCE SHEET COMPONENTS](index=16&type=section&id=3.%20BALANCE%20SHEET%20COMPONENTS) Provides a detailed breakdown of balance sheet accounts, including cash, inventories, accrued expenses, and deferred revenue | Component | Sep 30, 2023 (in Thousands) | Dec 31, 2022 (in Thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Cash, cash equivalents and restricted cash | $58,449 | $69,746 | | Inventories | $4,882 | $4,525 | | Other accrued expenses | $1,100 | $1,181 | | Deferred revenue | $6,248 | $5,597 | - Cash and cash equivalents decreased by **$11.3 million** from December 31, 2022, to September 30, 2023[49](index=49&type=chunk) - Deferred revenue increased by **$651 thousand**, primarily due to an increase in unshipped product and unredeemed product vouchers[49](index=49&type=chunk) [4. FAIR VALUE MEASUREMENTS](index=16&type=section&id=4.%20FAIR%20VALUE%20MEASUREMENTS) Details fair value measurements for financial instruments, including money market, government, and corporate debt securities, categorized by fair value hierarchy levels | Investment Category | Sep 30, 2023 Fair Value (in Thousands) | Dec 31, 2022 Fair Value (in Thousands) | | :-------------------------------- | :------------------------------------- | :------------------------------------- | | Money market funds (Level 1) | $19,102 | $2,143 | | Government and municipal debt securities (Level 2) | $5,625 | $6,759 | | Corporate debt securities (Level 2) | $24,137 | $47,931 | | Total investments | $48,864 | $56,833 | - Total investments classified as cash equivalents decreased by **$8.0 million** from December 31, 2022, to September 30, 2023[54](index=54&type=chunk) - Unrealized losses on available-for-sale securities were primarily driven by market risk, not credit risk, and no allowance for credit losses was deemed necessary[56](index=56&type=chunk) [5. LEASES](index=17&type=section&id=5.%20LEASES) Details operating lease commitments for global office and retail spaces, including lease costs, terms, and discount rates - The company leases office and retail spaces in multiple countries, including significant operations in Hong Kong and China, with terms extending up to September 2030[57](index=57&type=chunk)[58](index=58&type=chunk) | Lease Cost Component | Three Months Ended Sep 30, 2023 (in Thousands) | Three Months Ended Sep 30, 2022 (in Thousands) | Nine Months Ended Sep 30, 2023 (in Thousands) | Nine Months Ended Sep 30, 2022 (in Thousands) | | :------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Operating leases | $320 | $292 | $971 | $954 | | Short-term leases | $38 | $36 | $114 | $124 | | Total lease cost | $358 | $328 | $1,085 | $1,078 | | Metric | As of Sep 30, 2023 | | :--------------------------------- | :----------------- | | Weighted-average remaining lease term | 4.3 years | | Weighted-average discount rate | 4.5% | | Present value of lease liabilities | $3,721 thousand | [6. INCOME TAXES](index=18&type=section&id=6.%20INCOME%20TAXES) Discusses income tax provisions, effective tax rate, deferred tax assets/liabilities, valuation allowances, and the impact of U.S. tax legislation - The company has a valuation allowance against deferred tax assets in certain foreign jurisdictions with an overall net operating loss, but not against U.S. deferred tax assets[62](index=62&type=chunk)[134](index=134&type=chunk) - Income taxes payable for the repatriation tax on deemed repatriation of deferred foreign income totaled **$9.0 million** as of September 30, 2023, with **$5.1 million** classified as a noncurrent liability[64](index=64&type=chunk) - The company intends to reinvest all undistributed earnings in excess of 50% of current earnings annually indefinitely, and has not recorded a state deferred tax liability for future repatriations as all earnings no longer deemed indefinitely reinvested have already been repatriated[65](index=65&type=chunk)[135](index=135&type=chunk) [7. COMMITMENTS AND CONTINGENCIES](index=18&type=section&id=7.%20COMMITMENTS%20AND%20CONTINGENCIES) Discloses commitments and contingencies, particularly employment agreements with management regarding change in control or termination - The company has employment agreements with management that include provisions for payments upon a change in control or termination without cause[67](index=67&type=chunk) [8. STOCK-BASED INCENTIVE PLANS](index=20&type=section&id=8.%20STOCK-BASED%20INCENTIVE%20PLANS) Details stock-based incentive plans, including restricted stock and phantom equity, with information on grants, vesting, and compensation expense - Under the 2016 Equity Incentive Plan, 97,900 shares of restricted common stock were granted in February 2023, with 70,115 nonvested shares remaining at September 30, 2023[70](index=70&type=chunk)[71](index=71&type=chunk) | Metric | Three Months Ended Sep 30, 2023 (in Thousands) | Nine Months Ended Sep 30, 2023 (in Thousands) | | :------------------------------------ | :------------------------------------- | :------------------------------------ | | Share-based compensation expense (Restricted Stock) | $38 | $123 | | Share-based compensation expense (Phantom Equity) | $144 | $404 | - Phantom shares, accounted for as liabilities, resulted in compensation expense of **$144 thousand** for the three months and **$404 thousand** for the nine months ended September 30, 2023, related to cash settlement[76](index=76&type=chunk)[77](index=77&type=chunk) [9. STOCKHOLDERS' EQUITY](index=22&type=section&id=9.%20STOCKHOLDERS'%20EQUITY) Details changes in stockholders' equity, including dividends, stock repurchases, and components of accumulated other comprehensive loss - The company declared and paid quarterly cash dividends of **$0.20** per common share, totaling **$6.9 million** for each of the nine-month periods ended September 30, 2023 and 2022[79](index=79&type=chunk) - As of September 30, 2023, **$21.9 million** remained available under the **$70.0 million** stock repurchase program[80](index=80&type=chunk) | Component of Accumulated Other Comprehensive Loss | Dec 31, 2022 (in Thousands) | Sep 30, 2023 (in Thousands) | | :------------------------------------------------ | :-------------------------- | :-------------------------- | | Foreign Currency Translation Adjustments | $(988) | $(1,260) | | Unrealized Gains (Losses) on Available-For-Sale Investments | $(16) | $(7) | | Total Accumulated Other Comprehensive Loss | $(1,004) | $(1,267) | [10. RELATED PARTY TRANSACTIONS](index=22&type=section&id=10.%20RELATED%20PARTY%20TRANSACTIONS) Discloses a related party royalty agreement with Broady Health Sciences, L.L.C. for ReStor™, involving a former director's family - The company has a Royalty Agreement with Broady Health Sciences, L.L.C. (BHS) for the product ReStor™, where BHS is indirectly owned by a former director and managed by his daughter[82](index=82&type=chunk) | Metric | Three Months Ended Sep 30, 2023 (in Thousands) | Three Months Ended Sep 30, 2022 (in Thousands) | Nine Months Ended Sep 30, 2023 (in Thousands) | Nine Months Ended Sep 30, 2022 (in Thousands) | | :--------------- | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Royalties paid | $11 | $13 | $33 | $39 | [11. SEGMENT INFORMATION](index=23&type=section&id=11.%20SEGMENT%20INFORMATION) Provides disaggregated financial information by operating segment, including net sales and operating income for Primary Reporting, China, and Russia/Kazakhstan - The company operates in three reportable segments: Primary Reporting Segment (including Hong Kong), China, and Russia/Kazakhstan[84](index=84&type=chunk) | Segment | Three Months Ended Sep 30, 2023 Net Sales (in Thousands) | Three Months Ended Sep 30, 2022 Net Sales (in Thousands) | Nine Months Ended Sep 30, 2023 Net Sales (in Thousands) | Nine Months Ended Sep 30, 2022 Net Sales (in Thousands) | | :---------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Primary Reporting Segment | $10,249 | $11,241 | $31,719 | $34,888 | | China | $254 | $346 | $917 | $1,313 | | Russia and Kazakhstan | $112 | $129 | $351 | $421 | | Total net sales | $10,615 | $11,716 | $32,987 | $36,622 | - Hong Kong, part of the Primary Reporting Segment, accounted for **$8.4 million** (79.2%) of total net sales for the three months ended September 30, 2023, with substantially all revenues derived from sales to members in China[86](index=86&type=chunk) [12. SUBSEQUENT EVENT](index=24&type=section&id=12.%20SUBSEQUENT%20EVENT) Reports a subsequent event: the Board declared a quarterly cash dividend of $0.20 per common share on October 30, 2023 - On October 30, 2023, the Board of Directors declared a quarterly cash dividend of **$0.20** per common share, payable on November 24, 2023[87](index=87&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, condition, operations, revenue, expenses, and liquidity, emphasizing Greater China's impact and regulatory challenges [Business Overview](index=25&type=section&id=Business%20Overview) Overview of the "NHT Global" direct-selling business, highlighting challenges in Greater China from declining members, currency, and regulatory issues - The company is an international direct-selling and e-commerce company selling personal care, wellness, and 'quality of life' products under the 'NHT Global' brand[88](index=88&type=chunk) | Metric | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :------------- | :----------- | :----------- | :----------- | | Active members | 34,660 | 38,660 | 41,170 | - Approximately **92%** of net sales are generated from subsidiaries outside the Americas, with Hong Kong subsidiary sales (primarily to members in China) representing **79%** of net sales in the latest fiscal quarter[90](index=90&type=chunk) - The company does not hold a direct selling license in China and has faced significant adverse impacts from Chinese government campaigns (e.g., 100-day campaign) and COVID-19 control measures, which disrupted operations and member activities[91](index=91&type=chunk)[93](index=93&type=chunk)[95](index=95&type=chunk) [Statement of Operations Presentation](index=28&type=section&id=Statement%20of%20Operations%20Presentation) Explains revenue recognition, cost of sales, member commissions, SG&A expenses, and foreign currency impact on financial results - Revenue is primarily derived from product sales to independent members, recognized upon shipment and title transfer, with shipping charges included in net sales[100](index=100&type=chunk) - Member commissions are the most significant expense, paid weekly based on personal and group bonus volume points from product purchases by down-line networks[102](index=102&type=chunk) - Sales and net earnings are affected by changes in currency exchange rates, generally increasing with a weakening U.S. dollar and decreasing with a strengthening U.S. dollar[107](index=107&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Analyzes financial performance for Q3 and YTD 2023, detailing changes in net sales, gross profit, expenses, and other income, noting decreased sales but increased net income | Metric (% of Net Sales) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net sales | 100.0% | 100.0% | 100.0% | 100.0% | | Gross profit | 74.7% | 73.6% | 74.6% | 74.3% | | Commissions expense | 41.1% | 41.5% | 42.0% | 42.0% | | Selling, general and administrative expenses | 36.3% | 33.3% | 36.9% | 33.2% | | Loss from operations | (2.7)% | (1.2)% | (4.3)% | (0.9)% | | Other income, net | 5.5% | 1.6% | 5.2% | 1.3% | | Net income | 1.6% | 0.4% | 0.7% | 0.3% | [Net Sales](index=30&type=section&id=Net%20Sales) Net sales decreased by 9% (Q3) and 10% (YTD) due to lower Hong Kong sales, deferred revenue changes, and reduced administrative fees | Market | Three Months Ended Sep 30, 2023 Net Sales (in Thousands) | Three Months Ended Sep 30, 2022 Net Sales (in Thousands) | Nine Months Ended Sep 30, 2023 Net Sales (in Thousands) | Nine Months Ended Sep 30, 2022 Net Sales (in Thousands) | | :-------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Total Net Sales | $10,615 | $11,716 | $32,987 | $36,622 | | Hong Kong Net Sales | $8,412 | $9,424 | $26,391 | $28,916 | | China Net Sales | $254 | $346 | $917 | $1,313 | - Net sales decreased by **$1.1 million** (9%) for the three months and **$3.6 million** (10%) for the nine months ended September 30, 2023, year-over-year[112](index=112&type=chunk)[113](index=113&type=chunk) - Hong Kong net sales, primarily from products shipped to members in China, decreased by **$1.0 million** (11%) for the three months and **$2.5 million** (9%) for the nine months, mainly due to changes in deferred revenue and lower administrative fees[112](index=112&type=chunk)[113](index=113&type=chunk) [Gross Profit](index=30&type=section&id=Gross%20Profit) Gross profit margin slightly improved to 74.7% (Q3) and 74.6% (YTD), mainly due to lower logistics costs | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :----------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Gross profit | 74.7% | 73.6% | 74.6% | 74.3% | - The slight improvement in gross profit margin for the three-month period was primarily attributable to lower logistics costs, excluding the impact of decreased administrative fee revenue[114](index=114&type=chunk) [Commissions Expense](index=30&type=section&id=Commissions%20Expense) Commissions expense as a percentage of net sales slightly decreased to 41.1% (Q3) and remained 42.0% (YTD) due to lower incentives | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Commissions expense | 41.1% | 41.5% | 42.0% | 42.0% | - Commissions as a percentage of net sales decreased slightly due to lower supplemental incentive costs[115](index=115&type=chunk)[116](index=116&type=chunk) [Selling, General and Administrative Expenses](index=31&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) SG&A expenses remained stable in absolute terms but increased as a percentage of net sales due to decreased sales | Metric | Three Months Ended Sep 30, 2023 (in Thousands) | Three Months Ended Sep 30, 2022 (in Thousands) | Nine Months Ended Sep 30, 2023 (in Thousands) | Nine Months Ended Sep 30, 2022 (in Thousands) | | :------------------------------------------ | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Selling, general and administrative expenses | $3,857 | $3,900 | $12,169 | $12,167 | - SG&A expenses as a percentage of net sales increased in the current year periods due to decreased net sales and the inelastic nature of these expenses[117](index=117&type=chunk) [Other Income, Net](index=31&type=section&id=Other%20Income,%20Net) Other income, net, significantly increased to $585 thousand (Q3) and $1.7 million (YTD), primarily from higher interest on cash equivalents | Metric | Three Months Ended Sep 30, 2023 (in Thousands) | Three Months Ended Sep 30, 2022 (in Thousands) | Nine Months Ended Sep 30, 2023 (in Thousands) | Nine Months Ended Sep 30, 2022 (in Thousands) | | :---------------- | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Other income, net | $585 | $187 | $1,708 | $472 | - The increase in other income is primarily due to greater interest earned on cash equivalents[118](index=118&type=chunk) [Income Taxes](index=32&type=section&id=Income%20Taxes) Income tax provision of $121 thousand (Q3) and $69 thousand (YTD) resulted from foreign income inclusions and tax benefits | Metric | Three Months Ended Sep 30, 2023 (in Thousands) | Three Months Ended Sep 30, 2022 (in Thousands) | Nine Months Ended Sep 30, 2023 (in Thousands) | Nine Months Ended Sep 30, 2022 (in Thousands) | | :-------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Income tax provision (benefit) | $121 | $(5) | $69 | $34 | - The tax provision primarily resulted from foreign income inclusions (GILTI and Subpart F income) and tax benefits in foreign jurisdictions[119](index=119&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and equivalents decreased to $58.4 million, primarily due to operations and dividends, yet liquidity remains adequate with a 3.2:1 current ratio | Metric | Sep 30, 2023 (in Thousands) | Dec 31, 2022 (in Thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $58,412 | $69,667 | | Working capital | $46,191 | $57,113 | | Current assets to current liabilities ratio | 3.2 to 1.0 | 3.8 to 1.0 | - Cash and cash equivalents decreased by **$11.3 million** from December 31, 2022, to September 30, 2023, primarily due to cash used in operating activities and dividends paid[120](index=120&type=chunk) - Cash used in operations improved to **$4.2 million** for the first nine months of 2023, from **$5.8 million** in 2022, mainly due to increased interest earned and more orders[122](index=122&type=chunk) - The company expects to continue paying a quarterly cash dividend of **$0.20** per common share and has **$21.9 million** remaining in its stock repurchase program[124](index=124&type=chunk)[125](index=125&type=chunk) [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Outlines critical accounting policies and estimates, including revenue recognition, commissions expense, and income taxes, requiring significant management judgment - Critical accounting policies include revenue recognition, commissions expense, and income taxes, requiring significant management judgment and estimates[129](index=129&type=chunk) [Revenue Recognition](index=33&type=section&id=Revenue%20Recognition) Revenue is recognized upon product shipment, with deferred revenue from unshipped orders, vouchers, and auto ship advances totaling $4.5 million - Revenue is recognized when performance obligations are satisfied, primarily from product sales upon shipment and title transfer to independent members[130](index=130&type=chunk) | Deferred Revenue Component | Sep 30, 2023 (in Thousands) | Dec 31, 2022 (in Thousands) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Unshipped product and unredeemed product vouchers | $4,492 | $3,822 | | Auto ship advances | $1,756 | $1,775 | | Total Deferred Revenue | $6,248 | $5,597 | [Commissions Expense](index=33&type=section&id=Commissions%20Expense) Commissions are accrued when earned and recognized with revenue, with estimates for incentives and promotions regularly reviewed - Independent members earn commissions based on total personal and group bonus volume points, accrued when earned and recognized with related revenue[132](index=132&type=chunk) - Accrued commissions, including estimated costs for international recognition and other supplemental programs, totaled **$2.6 million** at September 30, 2023[133](index=133&type=chunk) [Income Taxes](index=34&type=section&id=Income%20Taxes) Deferred income taxes are recognized for temporary differences, with valuation allowances and assessments of tax benefits and foreign earnings repatriation - Deferred income taxes are recognized for temporary differences, with a valuation allowance against deferred tax assets in certain foreign jurisdictions but not in the U.S[134](index=134&type=chunk) - The company periodically reassesses its indefinite reinvestment assertion for foreign earnings, expecting minimal federal tax impact on repatriation due to the Tax Act, but potential state income tax provisions[135](index=135&type=chunk) - The effective tax rate is estimated quarterly based on anticipated annual pre-tax income, with adjustments for business variations, corporate structure changes, and geographic income mix[137](index=137&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exempt from providing quantitative and qualitative market risk disclosures as a smaller reporting company - The company is not required to provide quantitative and qualitative disclosures about market risk under smaller reporting company disclosure rules[138](index=138&type=chunk) [Item 4. Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management confirmed effective disclosure controls and procedures as of September 30, 2023, with no material changes in internal control - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[139](index=139&type=chunk) - There were no material changes in internal control over financial reporting during the fiscal quarter ended September 30, 2023[140](index=140&type=chunk) [PART II - OTHER INFORMATION](index=36&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) No legal proceedings to report - No legal proceedings to report[143](index=143&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors since the Annual Report on Form 10-K for December 31, 2022 - No material changes to the risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2022[144](index=144&type=chunk) [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds,%20and%20Issuer%20Purchases%20of%20Equity%20Securities) No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities to report - No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities to report[145](index=145&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities to report - No defaults upon senior securities to report[146](index=146&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[147](index=147&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) No other information to report - No other information to report[148](index=148&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including officer certifications and Inline XBRL taxonomy files - The exhibits include certifications from the Principal Executive Officer and Principal Financial Officer, as well as Inline XBRL taxonomy extension files[149](index=149&type=chunk) [Signatures](index=37&type=section&id=Signatures) [Exhibit Index](index=38&type=section&id=Exhibit%20Index)

Natural Health Trends Corp. (NASDAQ:NHTC) Q2 2023 Earnings Conference Call August 2, 2023 11:30 AM ET Company Participants Michelle Glidewell - Senior Manager, NHT Global Corp Chris Sharng - President Scott Davidson - SVP & CFO Conference Call Participants Operator 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. [Operator Instructions] As a reminder, this conference is being recorded. It is now ...