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

The following excerpt is from the company's SEC filing.

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 – February 14, 2018 – 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

Financial Highlights

Total revenue of

$46.1 million

decreased

compared to

$62.3 million

in the

, and increased 15% compared to $40.1 million in the third quarter of 2017.

Revenue from the Company’s Hong Kong operations, which represented

of total revenue, was

$39.6 million

, a decrease of

$56.1 million

, 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

$6.2 million

, and increased 27% compared to $5.1 million in the third quarter of 2017.

Operating income of

$8.7 million

$20.0 million

, 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

per diluted share, compared to net income of

$19.0 million

per diluted share, in the

, 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 Members

95,670

99,690

September 30, 2017

, and decreased

118,960

December 31, 2016

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

$197.6 million

$287.7 million

$43.1 million

$64.1 million

. As a percent of total revenue, operating income was

, consistent with 2016.

Net income was

$23.6 million

$55.1 million

. 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

. For the full year of 2017, net cash provided by operating activities was $26.6 million, compared to $53.2 million in

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.

Quarter and Full Year 2017 Financial Results Conference Call

Management will host a conference call to discuss the

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:

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.

CONTACTS:

Company Contact:

Scott Davidson

Senior Vice President and Chief Financial Officer

Tel: 310-541-0888

scott.davidson@nhtglobal.com

Investor Contact:

ADDO Investor Relations

Tel: 310-829-5400

investor.relations@nhtglobal.com

NATURAL HEALTH TRENDS CORP.

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents

135,311

125,921

Inventories

11,257

Other current assets

Total current assets

151,243

141,244

Property and equipment, net

Goodwill

Restricted cash

Deferred tax asset

Other assets

Total assets

159,554

148,051

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Income taxes payable

Accrued commissions

11,170

13,611

Other accrued expenses

14,989

Deferred revenue

Amounts held in eWallets

15,152

19,165

Other current liabilities

Total current liabilities

41,921

57,154

19,052

Deferred tax liability

Long-term incentive

Total liabilities

68,933

65,612

Commitments and contingencies

Stockholders’ equity:

Preferred stock

Common stock

Additional paid-in capital

86,683

86,574

Retained earnings

44,908

38,548

Accumulated other comprehensive loss

Treasury stock, at cost

(40,570

(41,889

Total stockholders’ equity

90,621

82,439

Total liabilities and stockholders’ equity

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three Months Ended

Year Ended

Net sales

46,092

62,312

197,563

287,728

Cost of sales

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

31,685

43,245

Depreciation and amortization

Total operating expenses

27,982

30,361

115,859

168,689

Income from operations

20,014

43,059

64,136

Other income (expense), net

Income before income taxes

19,915

43,426

64,077

13,317

19,848

Net income (loss)

(4,488

19,048

23,578

55,086

Net income (loss) per common share:

Diluted

Weighted-average number of common shares outstanding:

11,272

11,219

11,251

11,382

11,234

11,267

11,407

Cash dividends declared per common share

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash provided by operating activities:

Stock-based compensation

Cumulative translation adjustment realized in net income

Deferred income taxes

(1,644

Changes in assets and liabilities:

(3,399

(1,681

18,676

(2,417

(6,031

(6,033

(3,875

26,605

53,174

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Repurchase of common stock

(23,704

Dividends paid

(17,218

(6,891

Net cash used in financing activities

(30,595

Effect of exchange rates on cash and cash equivalents

Net increase in cash and cash equivalents

21,007

CASH AND CASH EQUIVALENTS, beginning of period

104,914

CASH AND CASH EQUIVALENTS, end of period

SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:

Cash paid for income taxes, net of refunds

Issuance of treasury stock for employee awards, net

RECONCILIATION FROM EARNINGS PER DILUTED SHARE TO NON-GAAP EARNINGS PER DILUTED SHARE

Net income (loss) per diluted share

Exclude Tax Act one-time net charge per share

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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