Natural Health Trends Reports Fourth Quarter And Full Year 2018 Financial Results

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

Full year net income increased 32% year-over-year to $31.0 million

Full year cash flow from operations increased 12% year-over-year to $29.7 million

Declared special dividend of

per share for the fourth quarter

Returned $31.5 million to shareholders via dividends in 2018, up 83% year-over-year from $17.2 million

HONG KONG – February 22, 2019 – 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 f inancial results for the fourth quarter and full year ended

December 31, 2018

Fourth

Quarter

Financial Highlights

Total revenue of

$41.6 million

decreased

compared to

$46.1 million

in the

quarter of

, and

$47.0 million

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

of total revenue, was

$35.8 million

a decrease

$39.6 million

Revenue outside of Hong Kong of

$5.8 million

$6.5 million

Gross profit was

$32.8 million

$36.7 million

quarter of 2017, and

$37.1 million

. As a percent of total revenue, gross profit was

Operating income was

$5.7 million

$8.7 million

$7.8 million

. As a percent of total revenue, operating income was

Net income was

$5.6 million

per diluted share, compared to a net loss of $4.5 million, or $0.40 per diluted share, in the

, and net income of

$7.6 million

. Net loss for the fourth quarter of 2017 included a one-time net charge of $12.5 million, or $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 was due to the repatriation tax on the deemed repatriation of foreign income and the re-measurement of net deferred tax assets. Excluding the 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

97,840

97,160

September 30, 2018

95,670

December 31, 2017

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

$191.9 million

$197.6 million

$152.5 million

$158.9 million

, consistent with 2017.

$33.7 million

$43.1 million

in 2017. As a percent of total revenue, operating income was

per diluted share, compared to net income of

$23.6 million

per diluted share, in 2017. Excluding the impact of the Tax Act, Non-GAAP earnings per diluted share were $3.20 in 2017.

Management Commentary

“While 2018 was a challenging year, I’m very pleased with the ability of our company and members to navigate the difficult macroeconomic environment,” commented Chris Sharng, President of Natural Health Trends Corp. “This unpredictable and challenging operating climate, driven by increased global trade tensions, China’s slowing economy and a weaker currency resulted in a decline in revenue. Notably, the Chinese Yuan’s depreciation of 10% against the Hong Kong dollar since February essentially made our products more expensive for our Chinese consumers in 2018. Without the impact of the Yuan devaluation, revenue for the full year of 2018 would have been flat with 2017.”

Mr. Sharng further commented, “While we experienced attractive growth in many global markets and are encouraged by the continuing positive sentiment from our leaders, given the global macroeconomic backdrop and the increased regulatory and media scrutiny in China, we are cautious regarding our performance in 2019 due to the potential impact on our operations from the global trade environment, exchange rate fluctuations, adverse local publicity and the Chinese government’s 100-day campaign. As a result of this campaign and consistent with our past strategies and those of peers, we voluntarily decided in January to temporarily suspend our member activities while proactively cooperating with all relevant government agencies to ensure we continue to conduct our business in compliance with all applicable laws in China. While I am confident this is the best approach to position our Company to successfully operate in the long-term, this suspension of member activities may have a material adverse effect on our business in the near-term. Despite these elements that are beyond our control, we remain focused on geographical expansion opportunities and leader education to further our progress.”

Corporate Development

The Company has relocated its corporate headquarters from Los Angeles, California to Hong Kong. The strategic decision was made to align with and further expand the Company’s presence in Asia, where the majority of its business is conducted, improve operational efficiency, and provide greater access between leaders, members and the Company.

Balance Sheet and Cash Flow

Net cash provided by operating activities was $4.4 million, compared to $11.3 million in the

. For the full year of 2018, net cash provided by operating activities was

$26.6 million

Total cash and cash equivalents were $132.7 million at the end of the fourth quarter of 2018, up from $132.2 million as of the third quarter of 2018, and down slightly from $135.3 million as of the fourth quarter 2017.

January 27, 2019

, the Company’s Board of Directors declared a quarterly cash dividend of

, as well as a special cash dividend of

per share on outstanding common stock. The dividends will be payable on

March 15, 2019

to stockholders of record as of

March 5, 2019

As of December 31, 2018, $32.0 million of the stock repurchase program previously approved on July 28, 2015 and increased on January 13, 2016 remained available for future purchases, inclusive of related estimated income tax.

The Company expects to issue its 2018 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 2018 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 2018 Financial Results Conference Call

Management will host a conference call to discuss the

quarter and full year 2018 financial results today, Thursday, February 21, 2019 at 4:30 p.m. Eastern Time. The conference call details are as follows:

4:30 p.m. Eastern Time / 1:30 p.m. Pacific Time

Dial-in:

1-877-407-0789 (Domestic)

1-201-689-8562 (International)

Conference ID:

13687705

Webcast:

http://public.viavid.com/index.php?id=133312

For those unable to participate during the live broadcast, a replay of the call will also be available from 7:30 p.m. Eastern Time on February 21, 2019 through 11:59 p.m. Eastern Time on March 7, 2019 by dialing 1-844-512-2921 (domestic) and 1-412-317-6671 (international) and referencing the replay pin number: 13687705.

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 27, 2018 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 (Hong Kong): +852-3107-0800

Tel (U.S.): 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

132,653

135,311

Inventories

12,165

Other current assets

Total current assets

150,187

151,243

Property and equipment, net

Goodwill

Restricted cash

Deferred tax asset

Other assets

Total assets

157,921

159,554

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

Income taxes payable

Accrued commissions

12,502

11,170

Other accrued expenses

Deferred revenue

Amounts held in eWallets

14,611

15,152

Other current liabilities

Total current liabilities

43,084

41,921

16,982

19,052

Deferred tax liability

Long-term incentive

Total liabilities

68,060

68,933

Commitments and contingencies

Stockholders’ equity:

Preferred stock

Common stock

Additional paid-in capital

86,415

86,683

Retained earnings

44,431

44,908

Accumulated other comprehensive loss

(1,250

Treasury stock, at cost

(39,748

(40,570

Total stockholders’ equity

89,861

90,621

Total liabilities and stockholders’ equity

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three Months Ended December 31,

Year Ended

Net sales

41,590

46,092

191,910

197,563

Cost of sales

39,367

38,645

32,769

36,668

152,543

158,918

Operating expenses:

Commissions expense

20,211

19,796

87,502

83,638

Selling, general and administrative expenses

31,309

32,221

Total operating expenses

27,036

27,982

118,811

115,859

Income from operations

33,732

43,059

Other income, net

Income before income taxes

34,521

43,426

Income tax provision

13,317

19,848

Net income (loss)

(4,488

31,035

23,578

Net income (loss) per common share:

Diluted

Weighted-average number of common shares outstanding:

11,321

11,272

11,304

11,251

11,329

11,318

11,267

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:

Depreciation and amortization

Stock-based compensation

Cumulative translation adjustment realized in net income

Deferred income taxes

(1,644

Changes in assets and liabilities:

(3,879

(3,399

(2,077

18,676

(2,417

(6,033

(3,875

29,710

26,605

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Dividends paid

(31,512

(17,218

Net cash used in financing activities

Effect of exchange rates on cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash

(2,827

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of period

138,478

128,884

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period

135,651

SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION:

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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