Natural Health Trends Corp (NHTC) 2016 Q2 法說會逐字稿

Greetings and welcome to the Natural Health Trends Corporation second-quarter 2016 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Whitney Steininger of Addo Investor Relations. Thank you, Ms. Steininger. You may now begin.

Thank you and welcome to Natural Health Trends second-quarter 2016 earnings conference call.

During today's call, there may be statements relate 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 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 www.naturalhealthtrendscorp.com.

Additionally, in today's financial results press release, which was issued at approximately 9:00 a.m. Eastern time, instructions can be found for accessing the archived version of the conference call via the Internet.

At this time, I would like to turn the call over to Chris Sharng, President of Natural Health Trends.

Thank you, Whitney, and thanks to everyone for joining us. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer.

We had an excellent second quarter. Product orders set a Company quarterly record. Revenue of $80.4 million grew 15% year over year and was once again driven by our focus on products, training, marketing and services.

Operating profit was also the highest in our history at $14.9 million, a 22% year-over-year increase.

During the first half of 2016, our two concurrent incentives, coupled with Supreme Bonus Program, help us maintain strong momentum. Our Supreme Bonus Program offers annual supplemental rewards for our members based on their overall performance and their advancements in our international recognition program.

We are also very excited to celebrate our upcoming 15th anniversary at an event in Hong Kong next month. During the first half of 2016, we provided our qualifying members with performance-based incentive opportunities, including travel, lodging, and tickets. We expect that this event will draw 12,000 people with members present from all of our global markets, including North America, Korea, Russia, as well as several European and Southeast Asian countries.

Consumer demand for our products remains strong during the second quarter. Our active member base grew from 76,400 a year ago to 126,440 at June 30. Our top three selling products, Premium Noni Juice, Essential Probiotics, and Triotein comprised slightly over half of our second-quarter revenue.

As mentioned on our last call, we launched StemRenu in North America during the second quarter and have been rolling it out internationally. StemRenu is a unique product based on a proprietary blend and incorporates a Norwegian avian egg extract available only through NHT Global through an exclusive licensing agreement. Initial interest for the product has been very positive, and given its existing consumer base, it is creating new avenues for international expansion.

In China, we continue to add new products to our portfolio with the recent introduction of a line of toothpaste. This patented product will become available in August.

In regard to our geographical expansion, Southeast Asia is a top priority. We recently commenced operations in Singapore, and we are taking steps to establish local presence in Vietnam and Malaysia.

China is our ongoing focus. In terms of our direct selling license application, we are making progress, even though the timing of obtaining the license or whether or not we can obtain one remains beyond our control.

Further, to enhance consumer services, we currently have offices or personnel in 11 Chinese cities or 17 member operated healthy lifestyles centers or HLCs with a view of adding to both in the near future.

Following the successful openings of the company-operated HLC plus in Monterey Park and Vancouver, we are evaluating new locations for expansion.

In summary, we are very pleased with our record quarter results, which reflect continued momentum from our strategies to drive sustainable long-term growth.

Our capital allocation plans, on which Scott will elaborate shortly, have not changed, and we remain committed to maximizing value for our stockholders through quarterly cash dividends and stock repurchase.

Now I would like to turn the call over to Scott Davidson, our CFO, to discuss our second-quarter financials. Scott?

Thank you, Chris. Total revenue for the second quarter was $80.4 million and increased up 15% compared to $69.7 million in the second quarter of 2015. Sales in Hong Kong, which accounted for 91% of our second-quarter revenue, increased 13% year over year, and revenue outside of Hong Kong increased 43% year over year. Our e-commerce sales in China were up 209% year over year to $2.5 million, primarily driven by air and water purifier sales.

In regards to our cost and operating expenses, gross profit margin for the second quarter was 81.3% compared to 79.8% in the second quarter last year, due to both higher product margins and lower logistics costs. Commissions that spent as a percent of total revenue decreased to 47.1% compared to 50.2% in the second quarter of last year, due to decreased costs for the ongoing cash and other incentive programs. This was in line with our full-year 2015 rate of 47.8% and consistent with the first quarter of this year.

Selling, general and administrative expenses were $12.4 million versus $8.3 million a year ago and $10.9 million in the first quarter of this year. The increase versus the prior year period was primarily due to increased employee-related costs, member training, professional fees, event costs, and facility costs, as well as increased credit card fees due to higher net sales.

As for profitability measures for the quarter, operating income totaled $14.9 million, an increase of 22% compared to $12.3 million in the second quarter last year. As a percent of total revenue, operating income increased to 18.6% as compared to 17.6% in the second quarter last year.

We recorded an additional income tax provision of $2.4 million for the expected partial repatriation of overseas profits, resulting in an effective tax rate of 18.3% for the second quarter. Net income was $12.2 million or $1.07 per diluted share as compared to net income of $12.3 million or $0.98 per diluted share in the second quarter last year.

Net income, excluding the impact of additional tax charge, would have increased 19% to $14.6 million or $1.29 per diluted share.

Now for our balance sheet and cash flows. As of June 30, cash and cash equivalents totaled $109.6 million, an increase of $4.7 million compared to year-end. The increase was due to our cash provided by operations, offset primarily by our share repurchase activity as we repurchased just over 903,000 shares of our common stock for $23.7 million in the first half of 2016.

Since November 2014, we have repurchased 1.8 million shares at a cost of $44.3 million. We now have 11.3 million shares outstanding.

We generated strong cash provided by operations during the quarter of $16.6 million. As such, our Board of Directors declared a quarterly cash dividend of $0.07 per share, representing a 17% increase over the prior quarter. The dividend will be payable on August 26 to stockholders of record as of August 16.

In summary, we are very pleased with our strong financial performance and look forward to continuing our positive momentum in the coming quarters.

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

(Operator Instructions) Paige Johnson, NHTC.

You mentioned an addition of the new product, StemRenu. Could you give us an update on how that product is doing?

Ladies and gentlemen, please stand by. We are experiencing technical difficulties. Thank you. Please proceed with your question.

Congratulations, Chris, on your success. You mentioned an addition of a new product, StemRenu. Could you give us an update on how that product is doing?

Yes. Yes, we are very happy that we had the opportunity to introduce StemRenu to our members, and this product is already made and it came also with a group of followers. And there are existing consumers for the products, and they are in the United States, primarily, and also in several other countries where we have no presence.

And in the second quarter, we started to take orders of StemRenu. We have a net order of about $500,000. So it is exceeding our expectations, and we are very pleased with this product.

(Operator Instructions) Chuck Schroeder, Natural Health Trends.

First of all, congratulations on another great quarter. I wonder if the gross profit margin improvement is sustainable. Thank you.

Yes. Thank you for calling in, Chuck, and we think that we are taking a very conservative and disciplined approach to continue to improve our gross profit margin. Every time we introduce a new product, we try to introduce the gross margin of this new product, that it is better than average. So we continue to improve it.

I think that the gross profit margin in the low 80s% level is our good target. We will continue to try to maintain if not improve it.

At this time, this concludes today's teleconference. Thank you for your participation, and you may now disconnect your lines at this time, and have a wonderful day.