Natural Health Trends Reports Fourth Quarter and Full Year 2017 Financial Results

  • First sequential quarter increase in net sales since the second quarter of 2016
  • Positive annual sales momentum in Southeast Asia, Europe and Japan
  • Maintained strong annual gross profit and operating income margins 
  • Increased quarterly dividend 8% to $0.13 per share

LOS ANGELES, Feb. 14, 2018 (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 its financial results for the fourth quarter and full year ended December 31, 2017.

Fourth Quarter 2017 Financial Highlights

  • Total revenue of $46.1 million decreased 26% compared to $62.3 million in the fourth quarter of 2016, and increased 15% compared to $40.1 million in the third quarter of 2017. 

    – Revenue from the Company’s Hong Kong operations, which represented 86% of total revenue, was $39.6 million, a decrease of 29% compared to $56.1 million in the fourth quarter of 2016, and an increase of 13% compared to $35.0 million in the third quarter of 2017.

    – Revenue outside of Hong Kong of $6.5 million increased 4% compared to $6.2 million in the fourth quarter of 2016, and increased 27% compared to $5.1 million in the third quarter of 2017.

  • Operating income of $8.7 million decreased 57% compared to $20.0 million in the fourth quarter of 2016, and increased 2% compared to $8.5 million in the third quarter of 2017.
  • Income tax provision of $13.3 million included a one-time net charge of $12.5 million, or an impact of $1.11 per diluted share, as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The one-time net charge is due to the repatriation tax on the deemed repatriation of foreign income and the re-measurement of net deferred tax assets.
  • Net loss was $4.5 million, or $0.40 per diluted share, compared to net income of $19.0 million, or $1.70 per diluted share, in the fourth quarter of 2016, and net income of $7.3 million, or $0.65 per diluted share, in the third quarter of 2017. Excluding the estimated impact of the Tax Act, Non-GAAP earnings per diluted share were $0.71 in the fourth quarter of 2017. Non-GAAP earnings per diluted share is defined below and is reconciled to earnings per diluted share in the table entitled “Reconciliation from earnings per diluted share to Non-GAAP earnings per diluted share.”
  • The number of Active Members1 decreased 4% to 95,670 at December 31, 2017, compared to 99,690 at September 30, 2017, and decreased 20% compared to 118,960 at December 31, 2016.

1    Natural Health Trends defines Active Members as those that have placed at least one product order with the Company during the preceding twelve month period.

Full Year 2017 Financial Highlights

  • Total revenue of $197.6 million decreased 31% compared to $287.7 million in 2016.
  • Operating income of $43.1 million decreased 33% compared to $64.1 million in 2016. As a percent of total revenue, operating income was 22%, consistent with 2016.
  • Net income was $23.6 million, or $2.09 per diluted share, compared to $55.1 million, or $4.83 per diluted share, in 2016. Excluding the estimated impact of the Tax Act, Non-GAAP earnings per diluted share were $3.20 for the full year of 2017.

Management Commentary

“While 2017 was a challenging year, we regained momentum in the fourth quarter with the first sequential quarter of sales growth since mid-2016,” commented Chris Sharng, President of Natural Health Trends Corp. “The overall sales decline can be traced to factors beyond our control which hindered our members’ ability to organize meetings and conduct business, including the G20 Summit in late 2016, the 20th Anniversary of Hong Kong’s handover and China’s Communist Party’s 19th National Congress.”

Mr. Sharng further commented, “We believe our ability to increase sales over the prior quarter was a result of the improvements we made to our commission plan, combined with a number of productive incentive trips and training programs held throughout the year. Additionally, we continued to gain traction in international markets such as Europe, Southeast Asia and Japan, which all grew sales over 2016. We have also worked hard to preserve our strong margin profile despite our top-line decline through diligent expense management that aligned our cost structure to current sales levels. As we look ahead to 2018, we believe our targeted training programs and promotions, opportunities for international expansion and new product introductions will translate into improved financial performance in the quarters to come.”

Balance Sheet and Cash Flow

  • Net cash provided by operating activities was $11.3 million, compared to $16.9 million in the fourth quarter of 2016. For the full year of 2017, net cash provided by operating activities was $26.6 million, compared to $53.2 million in 2016.
  • On February 6, 2018, the Company’s Board of Directors declared a quarterly cash dividend of $0.13, which represents an 8% increase over the prior quarter dividend. The dividend will be payable on March 9, 2018 to stockholders of record as of February 27, 2018.

The Company expects to issue its 2017 audited financial results in March with its Annual Report on Form 10-K to be filed with the Securities and Exchange Commission. The financial results are preliminary and the accompanying financial statements have not been audited or have not yet been reviewed by the Company’s independent accountants. Significant updates and revisions may be required before the release of the Company’s 2017 audited financial results.

Use of Non-GAAP Financial Measure

The Company included in this release a non-GAAP financial measure, “Non-GAAP earnings per diluted share,” which is derived by excluding the one-time net charge resulting from the Tax Act from the most directly comparable GAAP financial measure of “earnings per diluted share” for both the quarter and year ended December 31, 2017.

Management’s exclusion of the one-time net charge in calculating Non-GAAP earnings per diluted share is intended to facilitate a more useful period-to-period comparison of the Company’s financial results and to provide additional information about the incremental impact of the Tax Act, namely the repatriation tax on the deemed repatriation of foreign income and the re-measurement of net deferred tax assets to which the Company was subject in the fourth quarter and year ended December 31, 2017.  This non-GAAP financial measure is supplemental and should not be considered in isolation or as a substitute for the corresponding financial measure prepared in accordance with GAAP.

The Company’s financial statements provided with this release include a reconciliation of Non-GAAP earnings per diluted share to earnings per diluted share.

Fourth Quarter and Full Year 2017 Financial Results Conference Call

Management will host a conference call to discuss the fourth quarter and full year 2017 financial results today, Wednesday, February 14, 2018 at 11:30 a.m. Eastern Time. The conference call details are as follows:

   
Date: Wednesday, February 14, 2018
Time: 11:30 a.m. Eastern Time / 8:30 a.m. Pacific Time
Dial-in:

1-877-407-0789 (Domestic)
1-201-689-8562 (International)
Conference ID: 13675025
Webcast: http://public.viavid.com/index.php?id=127769
   

For those unable to participate during the live broadcast, a replay of the call will also be available from 2:30 p.m. Eastern Time on February 14, 2018 through 11:59 p.m. Eastern Time on February 28, 2018 by dialing 1-844-512-2921 (domestic) and 1-412-317-6671 (international) and referencing the replay pin number: 13675025.

About Natural Health Trends Corp.

Natural Health Trends Corp. (NASDAQ:NHTC) is an international direct-selling and e-commerce company operating through its subsidiaries throughout Asia, the Americas, and Europe.  The Company markets premium quality personal care products under the NHT Global brand.  Additional information can be found on the Company’s website at www.naturalhealthtrendscorp.com.

Forward-Looking Statements

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 — Forward-looking statements in this press release do not constitute guarantees of future performance.  Such forward-looking statements are subject to risks and uncertainties that could cause the Company’s actual results to differ materially from those anticipated.  Such risks and uncertainties include the risks and uncertainties detailed under the caption “Risk Factors” in Natural Health Trends Corp.’s Annual Report on Form 10-K filed on March 10, 2017 with the Securities and Exchange Commission.  The Company assumes no obligation to update any forward-looking information contained in this press release or with respect to the announcements described herein.

 

 
NATURAL HEALTH TRENDS CORP.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
  December 31, 2017   December 31, 2016
  (Unaudited)    
ASSETS      
Current assets:      
Cash and cash equivalents $ 135,311     $ 125,921  
Inventories 8,398     11,257  
Other current assets 7,534     4,066  
Total current assets 151,243     141,244  
Property and equipment, net 1,149     1,388  
Goodwill 1,764     1,764  
Restricted cash 3,167     2,963  
Deferred tax asset 1,435      
Other assets 796     692  
Total assets $ 159,554     $ 148,051  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 1,751     $ 2,145  
Income taxes payable 309     663  
Accrued commissions 11,170     13,611  
Other accrued expenses 7,605     14,989  
Deferred revenue 4,455     4,948  
Amounts held in eWallets 15,152     19,165  
Other current liabilities 1,479     1,633  
Total current liabilities 41,921     57,154  
Income taxes payable 19,052      
Deferred tax liability 56     268  
Long-term incentive 7,904     8,190  
Total liabilities 68,933     65,612  
Commitments and contingencies      
Stockholders’ equity:      
Preferred stock      
Common stock 13     13  
Additional paid-in capital 86,683     86,574  
Retained earnings 44,908     38,548  
Accumulated other comprehensive loss (413 )   (807 )
Treasury stock, at cost (40,570 )   (41,889 )
Total stockholders’ equity 90,621     82,439  
Total liabilities and stockholders’ equity $ 159,554     $ 148,051  
 

 
NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 
  Three Months Ended
December 31,
  Year Ended
December 31,
  2017   2016   2017   2016
  (Unaudited)   (Unaudited)    
Net sales $ 46,092     $ 62,312     $ 197,563     $ 287,728  
Cost of sales 9,424     11,937     38,645     54,903  
Gross profit 36,668     50,375     158,918     232,825  
Operating expenses:              
Commissions expense 19,796     21,503     83,638     125,050  
Selling, general and administrative expenses 8,064     8,740     31,685     43,245  
Depreciation and amortization 122     118     536     394  
Total operating expenses 27,982     30,361     115,859     168,689  
Income from operations 8,686     20,014     43,059     64,136  
Other income (expense), net 143     (99 )   367     (59 )
Income before income taxes 8,829     19,915     43,426     64,077  
Income tax provision 13,317     867     19,848     8,991  
Net income (loss) $ (4,488 )   $ 19,048     $ 23,578     $ 55,086  
Net income (loss) per common share:              
Basic $ (0.40 )   $ 1.70     $ 2.10     $ 4.84  
Diluted $ (0.40 )   $ 1.70     $ 2.09     $ 4.83  
Weighted-average number of common shares outstanding:              
Basic 11,272     11,219     11,251     11,382  
Diluted 11,272     11,234     11,267     11,407  
Cash dividends declared per common share $ 0.27     $ 0.43     $ 1.52     $ 0.61  
                               

 
NATURAL HEALTH TRENDS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
   
  Year Ended December 31,
  2017   2016
  (Unaudited)    
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 23,578     $ 55,086  
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 536     394  
Stock-based compensation 35     104  
Cumulative translation adjustment realized in net income (258 )   132  
Deferred income taxes (1,644 )   217  
Changes in assets and liabilities:      
Inventories 2,843     (851 )
Other current assets (3,399 )   (1,681 )
Other assets (61 )   (90 )
Accounts payable (392 )   (714 )
Income taxes payable 18,676     303  
Accrued commissions (2,417 )   (6,031 )
Other accrued expenses (6,033 )   51  
Deferred revenue (481 )   947  
Amounts held in eWallets (3,875 )   2,752  
Other current liabilities (179 )   135  
Long-term incentive (324 )   2,420  
Net cash provided by operating activities 26,605     53,174  
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of property and equipment (278 )   (905 )
Net cash used in investing activities (278 )   (905 )
CASH FLOWS FROM FINANCING ACTIVITIES:      
Repurchase of common stock     (23,704 )
Dividends paid (17,218 )   (6,891 )
Net cash used in financing activities (17,218 )   (30,595 )
Effect of exchange rates on cash and cash equivalents 281     (667 )
Net increase in cash and cash equivalents 9,390     21,007  
CASH AND CASH EQUIVALENTS, beginning of period 125,921     104,914  
CASH AND CASH EQUIVALENTS, end of period $ 135,311     $ 125,921  
SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:      
Cash paid for income taxes, net of refunds $ 6,772     $ 8,791  
Issuance of treasury stock for employee awards, net 1,393     1,741  
           

 
NATURAL HEALTH TRENDS CORP.
RECONCILIATION FROM EARNINGS PER DILUTED SHARE TO NON-GAAP EARNINGS 
PER DILUTED SHARE
 
  Three Months Ended
December 31, 2017
  Year Ended
December 31, 2017
  (Unaudited)
Net income (loss) per diluted share $ (0.40 )   $ 2.09  
Exclude Tax Act one-time net charge per share 1.11     1.11  
Non-GAAP earnings per diluted share $ 0.71     $ 3.20  
 

CONTACTS:

Company Contact:
Scott Davidson
Senior Vice President and Chief Financial Officer
Natural Health Trends Corp.
Tel: 310-541-0888
scott.davidson@nhtglobal.com

Investor Contact:
ADDO Investor Relations
Tel: 310-829-5400
investor.relations@nhtglobal.com

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