Natural Health Trends Reports Third Quarter and Year-to-Date Financial Results

Sixth Consecutive Quarter of Profitability
Year-to-Date Revenues Increased 28.1% and Operating Income Increased 48.5%

DALLAS, TX, November 13, 2012 -- Natural Health Trends Corp. (OTCQB: NHTC), a leading direct selling company that markets premium quality personal care, wellness and “quality of life” products under the NHT Global brand, today announced financial results for the third quarter and nine month period ended September 30, 2012.

Third Quarter Financial Highlights

  • Total revenues were $9.3 million compared to $10.6 million for the same period in 2011, a decrease of 11.6%. The decrease in revenues for the third quarter reflects the promotional event during 2011 related to the Company’s 10-year anniversary celebration in Hong Kong, which did not benefit 2012.
    • Sales in Hong Kong decreased 20.5% compared to last year, primarily due to last year’s major promotion.
    • Net sales outside of Hong Kong increased 23.9%, primarily due to sales in the Russian market.
  • Gross profit was $6.9 million compared to $8.0 million last year.
  • Gross profit margin was 74.5% compared to 76.0% last year.
  • Operating income was $789,000 compared to $1.2 million last year.
  • Net income attributable to common stockholders of Natural Health Trends was $743,000, or $0.07 per basic and diluted share, compared to net income of $1.6 million, or $0.15 per basic and diluted share last year. 
  • Cash and cash equivalents increased to $3.7 million as of September 31, 2012 from $1.6 million as of December 31, 2011.

Year-to-Date Financial Highlights

  • Net sales for the nine months ended September 30, 2012 were up $6.5 million, or 28.1%, to $29. 4 million from $22.9 million in the same period last year. Year-to-date (nine month) revenues are 94.4% of the full-year (12 month) revenue from the year ended December 31, 2011.
    • Sales in Hong Kong increased 35.3% compared to the prior-year nine month period.
    • Net sales outside of Hong Kong increased 13.3%, primarily due to sales in the Russian market.
  • Year-to-date gross profit increased 28.6% to $21.7 million from $16.9 million in the same period last year.
  • Year-to-date gross profit margin was 73.9% compared to 73.7% in the first nine months of last year.
  • Year-to-date operating income increased 48.5% to $2.2 million from $1.5 million in the same period last year. Nine month operating income this year exceeds 12 month operating income of $1.8 million for all of last year.
  • Year-to-date net income attributable to common stockholders of Natural Health Trends increased 14.9% to $2.1 million from $1.8 million in the same period last year.

“We are pleased with the progress and growth we’ve experienced in 2012 and attribute the success to several factors, mainly our strong field leadership, systemic training initiatives, rewarding incentive and promotional planning and high-quality product offering,” said Chris Sharng, President of Natural Health Trends Corp. “Through nine months our revenue is nearly 95% of the full-year revenue for last year, and we have already exceeded operating income for all of last year.”

Operational Highlights

  • The Company continued to evolve and enhance its technology platform integrating a unique loyalty program called the Personal Consumption Program. Members earn points for product purchases, attending trainings and events and reaching business milestones. These accumulated points can be used toward future product purchases or for gifting to team members.   
  • The Company introduced a new product, HerBalance, in July and readies another, Soothe, for Hong Kong and Russia in the fourth quarter. HerBalance is a daily supplement to help alleviate women’s pre- and post-menopausal symptoms while supporting healthier blood circulation. Soothe is an all-over super hydrating body moisturizer ideal for extreme weather conditions.   
  • The Company continued to roll out its systemic training initiatives in Hong Kong, Taiwan and Russia. These multi-faceted trainings support enhanced product knowledge, business fundamentals for success and leadership training.
  • Incentive trips brought our members to Hawaii, Dubai and Las Vegas, among other locations just this year.

Financial Results for the Three Months Ended September 30, 2012
Total revenues for the three months ended September 30, 2012 were $9.3 million compared to $10.6 million for the same period in 2011, a decrease of 11.6%. The decrease in revenues for the third quarter reflects the impact of a significant, non-recurring promotional event during 2011 related to the Company’s 10-year anniversary celebration in Hong Kong. This promotion resulted in revenue increases, and did not re-occur in 2012. Gross profit was $6.9 million, or 74.5% of net sales, compared to $8.0 million, or 76.0%, in the same period last year. Total expenses for the three months ended September 30, 2012 were $6.2 million, down 9.4%, compared to $6.8 million in the comparable period of 2011. The decrease in operating expenses relates to costs associated with the 10-year anniversary event in 2011, which did not re-occur in 2012.
Operating income for the quarter was $789,000 compared to operating income of $1.2 million in the third quarter of 2011. Net income attributable to common stockholders of Natural Health Trends was $743,000, or $0.07 per basic and diluted share compared to net income of $1.6 million, or $0.15 per basic and diluted share in the same period of 2011.
 
Financial Results for the Nine Months Ended September 30, 2012
Total revenues for the nine months ended September 30, 2012 were $29.4 million compared to $22.9 million for the same period in 2011, an increase of 28.1%. Hong Kong net sales increased 35.3% over the comparable period last year primarily due to renewed focus on training as well as new incentive programs launched at the beginning of the year surrounding the Company’s recognition program. Net sales outside of Hong Kong increased 13.3%, primarily due to incentive trip programs that occurred in Russia throughout the first nine months of 2012, as well as the introduction of new product promotions in Russia and North America during late 2011. The North American market also benefited from increased orders received from members located in Kazakhstan and Ukraine.

Gross profit for the nine months ended September 30, 2012 increased 28.6% to $21.7 million, or 73.9% of net sales, from $16.9 million, or 73.7%, in the same period last year. Total expenses for the nine months ended September 30, 2012 were $19.5 million compared to $15.4 million in the comparable period of 2011.

Operating income for the nine months ended September 30, 2012 was $2.2 million compared to operating income of $1.5 million in the comparable period in 2011. Net income attributable to common stockholders of Natural Health Trends was $2.1 million, or $0.19 per basic and diluted share, compared to net income of $1.8 million, or $0.17 per basic and diluted share in the same period of 2011.

Balance Sheet
Stockholders’ equity was $1.4 million as of September 30, 2012 compared to a deficit of $809,000 as of December 31, 2011.  The Company had $3.7 million in cash compared to $1.6 million as of December 31, 2011, and no long-term debt. 

Shareholder Conference Call

Management will conduct a conference call to discuss its third quarter and year-to-date financial results for the period ended September 30, 2012.

Details of the call are as follows:

A replay will be available from 7:30 p.m. ET on November 13 through 11:59 p.m. ET on November 20, by dialing 1-877-870-5176 (domestic) and 1-858-384-5517 (international) and referencing replay pin number 4573019.

About Natural Health Trends Corp.
 
Natural Health Trends Corp. is an international direct-selling and e-commerce company operating through its subsidiaries throughout Asia, North America, and Europe. The company markets premium quality personal care, wellness and “quality of life” products under the NHT Global brand. Additional information can be found on the company's website, www.naturalhealthtrendscorp.com.
 
Forward Looking Statement

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 -- Forward-looking statements in this release do not constitute guarantees of future performance. Such forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those anticipated. Such risks and uncertainties include the risks and uncertainties detailed under the caption "Risk Factors" in our Annual Report on Form 10-K filed on March 27, 2012, with the Securities and Exchange Commission. We assume no obligation to update any forward-looking information contained in this press release or with respect to the announcements described herein.

-- Tables follow --


 

NATURAL HEALTH TRENDS CORP.

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)

 

December 31, 2011

 

September 30, 2012

 

 

 

(Unaudited)

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$1,617

 

$3,651

Restricted cash

494

 

Accounts receivable

93

 

166

Inventories, net

1,089

 

1,261

Other current assets

537

 

446

Total current assets

3,830

 

5,524

Property and equipment, net

68

 

129

Goodwill

1,764

 

1,764

Restricted cash

220

 

231

Other assets

241

 

252

Total assets

$6,123

 

$7,900

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

Current liabilities:

 

 

 

Accounts payable

$2,208

 

$1,795

Income taxes payable

11

 

79

Accrued distributor commissions

1,177

 

1,293

Other accrued expenses

1,471

 

1,531

Deferred revenue

967

 

768

Deferred tax liability

148

 

148

Other current liabilities

950

 

896

Total current liabilities

6,932

 

6,510

Commitments and contingencies

 

 

 

Stockholders’ equity (deficit):

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized; 1,761,900 shares designated Series A convertible preferred stock, 138,400 shares issued and outstanding at December 31, 2011 and September 30, 2012, aggregate liquidation value of $324

 

124

 

 

124

Common stock, $0.001 par value; 50,000,000 shares authorized; 11,326,323 shares issued and outstanding at December 31, 2011 and September 30, 2012

 

11

 

 

11

Additional paid-in capital

80,493

 

80,553

Accumulated deficit

(81,338)

 

(79,238)

Accumulated other comprehensive loss:

 

 

 

      Foreign currency translation adjustments

(99)

 

(60)

Total stockholders’ equity (deficit)

(809)

 

1,390

Total liabilities and stockholders’ equity (deficit)

$6,123

 

$7,900


 

NATURAL HEALTH TRENDS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, Except Per Share Data)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2011

 

2012

 

2011

 

2012

 

 

 

 

 

 

 

 

Net sales

$10,562

 

$9,333

 

$22,945

 

$29,403

Cost of sales

2,536

 

2,384

 

6,042

 

7,667

Gross profit

8,026

 

6,949

 

16,903

 

21,736

Operating expenses:

 

 

 

 

 

 

 

Distributor commissions

4,166

 

3,897

 

8,642

 

12,474

Selling, general and administrative expenses (including            stock-based compensation expense of $22 and $20            during the three months ended September 30, 2011 and            2012, respectively, and $57 and $60 during the nine months ended September 30, 2011 and 2012, respectively)

 

 

2,613

 

 

 

2,255

 

 

 

6,479

 

 

 

7,005

Depreciation and amortization

23

 

8

 

281

 

28

Total operating expenses

6,802

 

6,160

 

15,402

 

19,507

Income from operations

1,224

 

789

 

1,501

 

2,229

Other income (expense), net

425

 

(27)

 

356

 

(88)

Income before income taxes

1,649

 

762

 

1,857

 

2,141

Income tax provision

16

 

15

 

36

 

41

Net income

1,633

 

747

 

1,821

 

2,100

Plus:  Net loss attributable to the noncontrolling interest

 

 

9

 

Net income attributable to Natural Health Trends

1,633

 

747

 

1,830

 

2,100

 

 

 

 

 

 

 

 

Preferred stock dividends

(4)

 

(4)

 

(12)

 

(12)

Net income attributable to common stockholders of Natural Health Trends

 

$1,629

 

 

$743

 

 

$1,818

 

 

$2,088

 

 

 

 

 

 

 

 

Income per share of Natural Health Trends – basic and diluted

$0.15

 

$0.07

 

$0.17

 

$0.19

 

 

 

 

 

 

 

 

Weighted-average number of shares outstanding:

 

 

 

 

 

 

 

Basic

10,732

 

10,970

 

10,669

 

10,918

Diluted

10,898

 

11,232

 

10,699

 

11,225


 

NATURAL HEALTH TRENDS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)

 

Nine Months Ended September 30,

 

2011

 

2012

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

Net income

$1,821

 

$2,100

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

 

 

 

Depreciation and amortization of property and equipment

81

 

28

Amortization of intangibles

200

 

Stock-based compensation

57

 

60

Deferred income taxes

(1)

 

Changes in assets and liabilities:

 

 

 

Accounts receivable

12

 

(69)

Inventories, net

(362)

 

(163)

Other current assets

72

 

93

Other assets

170

 

(4)

Accounts payable

(661)

 

(416)

Income taxes payable

(15)

 

68

Accrued distributor commissions

318

 

108

Other accrued expenses

(706)

 

51

Deferred revenue

418

 

(205)

Other current liabilities

33

 

(56)

Net cash provided by operating activities

1,437

 

1,595

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

Purchases of property and equipment, net

(7)

 

(88)

Decrease (increase) in restricted cash

(72)

 

493

Net cash provided by (used in) investing activities

(79)

 

405

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

Advance from related party

233

 

Repayment to related party

(114)

 

 Net cash provided by financing activities     

119

 

       

 

 

 

Effect of exchange rates on cash and cash equivalents

(398)

 

34

Net increase in cash and cash equivalents

1,079

 

2,034

CASH AND CASH EQUIVALENTS, beginning of period

648

 

1,617

CASH AND CASH EQUIVALENTS, end of period

$1,727

 

$3,651

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