Natural Health Trends Corp (NHTC) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Natural Health Trends Corporation fourth-quarter 2014 financial results call. Today's conference is being recorded. At this time I would like to turn the conference over to Jeff Stanlis with Hayden IR.

Thank you. I would like to point out that during the course of this conference 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 different 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 the webcast for today's call conference call may be found on the Internet by visiting the Investors section of the Company's corporate website at www.NaturalHealthTrendsCorp.com.

In addition, in the press release announcing the financial results there are instructions for accessing the archived version of the conference call via the Internet. At this time I would like to introduce Chris Sharng, President of Natural Health Trends, for opening comments. Mr. Sharng.

Thank you, Jeff, and thanks to everyone for joining us today. With me is Scott Davidson, our CFO.

2014 was a record-setting year for Natural Health Trends Corp. with strong improvement in every financial metric and operational progress. We delivered full-year revenue of $124.6 million, a 137% increase over 2013. We improved profitability, marked by a higher gross margin of 78.3% and a more than fourfold increase in our earnings per share.

Our business model focuses on our field leaders and their respective groups. We designed marketing plans, promotions and services to make our field leaders more effective in broadening the reach of our products. We are successful in deploying all of our business tools to support our leaders, increasing our product sales and building a strong foundation for future growth.

We continue to focus our resources in our most promising market, which we consider to be Greater China. Within the next 18 months we are investing up to $10 million of our available cash in our Mainland China entity in order to establish China-based manufacturing capabilities, opening additional healthy lifestyle centers or branch offices and ultimately funding the mandated deposits and other requirements for a China direct selling license application.

We are also exploring opportunities in those markets where our existing members have realistic connections to recruit prospects and to sell our product. An example of such a place is Southeast Asia. To that effect we just opened an office in Singapore and began hiring people and getting licenses to import product.

The steady and continual growth in both revenue and earnings are generating strong operating cash flow and provide us with the flexibility to continue our growth and return some capital to the shareholders through dividend in stock repurchase.

Our financial results also afforded us the opportunity to pursue an uplisting which we completed just this past month. On February 17 our common stock began trading on NASDAQ. As we take on this new year I am very optimistic about the opportunities before us and the Company's prospects for future growth.

Now I would like to turn the call over to Scott Davidson, our CFO, to discuss the financial details. Scott?

Thank you, Chris. And thank you to everyone for joining us today. Total revenues for the quarter were $35.4 million, an increase of 85% compared to $19.1 million in the fourth quarter last year. For the full year revenues were $124.6 million, up 137% compared to $52.5 million last year.

Our number of active distributors nearly doubled in 2014 to more than 54,000. We saw strong growth in Hong Kong with revenues increasing 174% over last year. This increase was partially offset by a 29% decline in our Commonwealth of Independent States market. Elsewhere 2014 revenues were up 38% over last year.

Gross profit margin for the fourth quarter was 78.9% compared to 77% in the same quarter last year. For the year gross profit margin was 78.3% compared to 76.1% last year.

In the fourth quarter net income was $5.8 million or $0.45 per diluted share compared to $1.6 million or $0.14 per diluted share last year. For the year income increased almost 400% to $20.4 million or $1.61 per diluted share compared to $4.1 million or $0.36 per diluted share last year.

Last Friday our Board of Directors declared a cash dividend of $0.02 per share on outstanding common stock, payable in cash on March 27 to stockholders of record on March 17.

That concludes our prepared remarks. I will now turn the call back over to the operator to begin the question-and-answer period. Operator?

(Operator Instructions). Michael Potter, Monarch Capital.

Congratulations on a tremendous year. And --.

Thank you and thank you for calling in.

Yes. Just a couple of questions. Can you give us a little bit more detail on what some of the growth drivers were in 2014? I understand obviously we had a big increase in our active distributors, but was it new product rollouts or anything along those lines? And what do you anticipate will be the growth drivers for 2015?

Yes, thank you, Michael. I think that we have been successful in helping our leaders in broadening and to expanding the distribution of our product. And the reason that we are doing well is because we design and develop successful and effective marketing plans and promotions, we have training programs in addition to new product introductions and some additional services that we provide.

All of these things are important growth factors. They are the drivers of our continued revenue increases. We have all intentions and every intention to continue with our existing business model and, again, supporting our leaders with effective marketing plans and promotions, providing proper training and introducing new products.

And so, I mean, how many product launches were there last year?

We -- as a rule of thumb we try to introduce one product about every quarter. And we have a bigger [event] every six months roughly and then we will have a one or two product introduction session as part of the bigger event. So in general we have four, five products introduced each year.

And do you anticipate it will be the same for 2015?

Yes, definitely. We have a pretty full pipeline for new products.

Okay. I mean, we had terrific growth last year obviously; it will be hard to repeat that. What type of growth should the investors anticipate from this Company -- going forward?

That is true, 2014 was a tremendous year. I see good growth, probably not 137%, in 2015. I can't give guidance as a policy, but we are optimistic about our prospects for 2015 and beyond.

Okay. I will get back in the queue and let some other people answer. Thanks, guys.

(Operator Instructions). Chris Hensen, Manulife Financial.

I would just like to know -- how many licenses do you currently have in China?

Licenses?

Yes, to sell product. Yes.

Okay, within China we have a license to do retail and wholesale and e-commerce business. So that is what we do within China, our Chinese subsidiary.

Okay. Because I understand is it each -- you have to have a license for each province, very similar to some of the other similar companies such as like a Nu Skin or Herbalife or USANA. Is that sort of a similar model you guys are trying to implement in China?

Well, I think there is a process and it is a business that we aspire for, but currently we are not conducting in. You are referring to a direct selling license --.

That is correct.

Those companies, they have a license to operate based on the letters of the law within China. We don't have that license and we don't do that kind of business.

Okay. So predominantly you are -- how is the product distributed in China then?

We have -- our primary business is in Hong Kong. So we pretty much operate like an e-commerce. We take orders in Hong Kong, we ship product from Hong Kong, the inventory is sold off in Hong Kong and then we take commissions in Hong Kong. Everything we operate is within the Hong Kong administrative district.

Okay.

In China we have a very small business and we sell directly to consumers. And we would like to apply for a direct selling license in the future to conduct a business that currently we are not engaging. And that is the (inaudible) that you're referring to.

Yes, that is correct. So currently the -- your business in Hong Kong, like how much of that -- can any of that product be shipped to China?

The products are handed off to a courier or a delivery company and they are shipped to China. They are shipped within China, yes.

Okay. Okay. And is that the bulk of the business like versus domestic consumption in Hong Kong versus China? What is sort of the trade-off there?

That is a big part of our business, yes.

Okay. Thank you. I will go back in the queue.

[Dan Geiger], Heidtke & Co.

This is Buzz Heidtke there. My question was you don't pay any taxes right now, and I know you have got some loss carry forwards. How long do you think it will be before you start paying taxes?

Yes, we don't pay US taxes; we have no business in the US to speak of. We -- currently we have $27 million of operating loss carry forward as of the end of 2014. That will take us some time as part of our cash management and tax planning consideration.

Well, it said here you had more than that -- $54 million (inaudible) balance sheet, $54 million accumulated deficit.

Well, we will file our K by Friday, we will mention the information that I just talked to you about.

Oh, okay. Then it will be less than $54 million then, right?

Yes, it is $27 million.

$27 million, okay then. Okay. Thank you very much.

Thank you, Dan.

Thank you. And with no additional questions in the queue I would like to go ahead and turn the floor back over to the management for any additional or closing remarks.

Thank you, Catherine. And thank you everyone, your participation in today's call is greatly appreciated. I look forward to speaking to you in about two months about our first-quarter's progress. Thank you again. Have a good day.

Thank you. And, ladies and gentlemen, again that does conclude today's conference. Thank you all again for your participation.