Q3 2023 Natural Health Trends Corp Earnings Call

Participants

Michelle Glidewell; Senior Manager; Natural Health Trends Corp

Chris Sharng; President & Director; Natural Health Trends Corp

Scott Davidson; SVP and CFO; Natural Health Trends Corp

Presentation

Operator

Greetings. Welcome to Natural Health Trends Corp third-quarter 2023 earnings conference call. (Operator Instructions) Please note this conference is being recorded.
I will now turn the conference over to Michelle Glidewell with Natural Health Trends Corp. Thank you. You may begin.

Michelle Glidewell

Thank you and welcome to Natural Health Trends third-quarter 2023 earnings conference call.
During today's call, there may be statements made relating to the future results of the company that are forward-looking statements as assigned 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 or as a results 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 investor section of the company's corporate at website naturalhealthtrendscorp.com. Instructions for accessing the archived version of the conference call can be found at today's financial results press release, which was issued at approximately 9:00 AM Eastern Time.
At this time, I'd like to turn the call over to Chris Sharng, President of Natural Health Trends.

Chris Sharng

Thank you, Michelle, and thanks to everyone for joining us this morning to discuss our third-quarter 2023 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer.
For the quarter, we generated revenue of $10.6 million, a decrease of 9% compared to the third quarter of 2022. The decrease was largely accounted for by changes in deferred revenue as orders were received later in the quarter this year. Our business is adapting to the economic landscape where Chinese consumers are reluctant to spend or invest and where overall consumer sentiment is terrific.
Yet despite this environment, we are pleased to see that orders taken during the period were roughly flat, even with continued headwinds of a stronger US dollar. Q3 2023 orders compared to Q3 2022 had a constant exchange rate grew by 3%, while year-to-date 2023 orders compared to the same period last year increased 8%.
The fact that our members remain responsive to our programs is a positive indicator that the promotions, incentives, and our high quality product offerings continue to resonate and make an impact. In China and Hong Kong, our members participated in local gatherings and training events to engage and attract customers and to further develop skills such as improved product knowledge and leadership development. We look forward to an upcoming event in this month and the launch of our newest product, [Relaxer Pro], a supplement designed to help reduce stress and promote calmness. The product is formulated with clinically proven ashwagandha and other relaxation-inducing ingredients such as lemon balm and magnesium.
Turning our focus outside of China and Hong Kong. Several of our other markets delivered strong third-quarter performances, mainly Taiwan, Peru, North America, and Japan. Each of these markets achieved an increase in orders taken at a constant exchange rate compared to prior year. Growth was primarily driven through the combination of online training and in person events paired with product promotions and incentive qualifications. Successfully reengaging members in our worldwide activities helps create excitement and momentum around our business model and high impact product offerings.
In Latin America, we are getting closer to launch our business in Colombia in the fourth quarter and will continue to progress the necessary regulatory requirements to operate in Bolivia. We steadily made progress on our digital enhancement initiatives that we believe will be a key driver for future growth by enhancing member productivity and improving the overall shopping experience with us. We look forward to where we can roll out these developments to our members and customers.
I'd like to thank our loyal members who remain committed to our products and to helping others achieve improved health and Wellness through our product lines as well. Their ability to rise to the challenging economic environment speaks volumes about their perseverance and passion for our mission. We will continue to focus on careful planning and execution of our strategic key initiatives, including digital improvements, new product introductions, and the delivery of exceptional support.
With that, I'd like to turn the call over to our CFO, Scott Davidson, to discuss our financial results in greater detail. Scott?

Scott Davidson

Thank you, Chris. Total revenue for the third quarter was $10.6 million, a decrease of 9% compared to $11.7 million in the third quarter of 2022. As Chris stated, the decrease was largely accounted for by the changes in deferred revenue as orders were received later in the quarter of this year.
Deferred revenue decreased $603,000 during the third quarter of this year as compared to $1.4 million in the third quarter last year, resulting in an $835,000 unfavorable revenue variance. Our active member base decreased 6% to 34,660 at September 30 from 36,730 at June 30, and was down 16% from 41,170 at September 30 last year.
Turning to our cost and operating expenses. Gross profit margin of 74.7%, improved slightly from 73.6% in the third quarter of last year due to lower logistics costs. Commissions expense as a percent of total revenue for the third quarter was 41.1% compared to 41.5% in the prior year quarter. Selling, general, and administrative expenses for the quarter were $3.9 million flat compared to a year ago.
As a result, operating loss for the quarter was $292,000 compared to $145,000 in the third quarter of last year. We recorded an income tax provision of $121,000 for the quarter compared to an income tax benefit of $5,000 in the third quarter last year. Net income for the third quarter totaled $172,000 or $0.02 per diluted share, compared to $47,000 or break even per diluted share in the third quarter of 2022.
Now, I'll turn to our balance sheet and cash flow. Total cash and cash equivalents were $58.4 million at September 30, down from $61.6 million at June 30. Net cash used in operating activities was $869,000 in the third quarter compared to $2.3 million in the third quarter of last year.
As returning capital to our stockholders remains a top priority, I'm pleased to announce that on October 30, our Board of Directors declared another quarterly cash dividend of $0.20 per share which would be payable on November 24 to stockholders of record as of November 14.
As we adjust to the everchanging business environment, we continue to carefully devise and implement programs to improve performance and productivity. Our focus remains on returning to a period of growth through execution of our strategies to boost topline revenue and ultimately deliver shareholder value.
That completes our prepared remarks. I will now turn the call back over to the operator.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.