Natural Health Trends (NHTC) Q3 2025 Earnings Call

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Date

Wednesday, November 5, 2025 at 11:30 a.m. ET

Call participants

• President — Chris Sharng
• Senior Vice President and Chief Financial Officer — Scott Davidson

Takeaways

• Net Sales -- $9.5 million, an 11% decrease attributable in part to product promotion timing and new skincare presale in Hong Kong.
• Orders -- Declined 5% year over year, reflecting softer demand across markets.
• Hong Kong Revenue Concentration -- Accounted for 82% of total sales, with an 8% decline, or 4% excluding specific promotional impacts.
• Gross Profit Margin -- 73.7%, slightly down from 74.1%, primarily due to inventory write-offs of discontinued products.
• Commissions Expense Ratio -- 40.9% of total sales, up from 40.5%, driven by higher weekly commissions earned by members.
• Selling, General, and Administrative Expenses -- $3.6 million, a reduction of $262,000 from the prior year period.
• Operating Loss -- $495,000, compared to $275,000 in the prior-year quarter, impacted by promotional timing and inventory write-offs.
• Net Loss -- $431,000, or $0.04 per diluted share, versus net income of $35,000 or breakeven per diluted share last year.
• Tax Expense -- $142,000 recognized despite pre-tax loss, due to annual effective tax rate fluctuations.
• Net Cash Used in Operations -- $5 million during the first nine months of 2025, compared to $3.5 million in the comparable prior-year period.
• Excluding Tax Installments [from U.S. Tax Cuts and Jobs Act] -- Operating cash flow was $16,000 during the first nine months, versus $514,000 in the comparable period.
• Total Cash and Equivalents -- $32 million at quarter-end, down from $43.9 million at December 31, 2024.
• Quarterly Dividend -- $0.20 per share declared for November 28, with planned reduction to $0.10 per share starting next quarter.
• Restructuring Plan -- Expected to yield $1.5 million in annualized savings by mid-2026, with one-time charges of $250,000 in Q4 and a 10% workforce reduction.
• Manufacturing Transition -- Ongoing shift of U.S.-based product manufacturing nearer to Asia to manage tariffs and reduce logistics costs.
• Strategic Investments -- Announced development of AI-enabled marketing app and business suite for member engagement.
• New Product Initiatives -- Prelaunch of Soo:vea Korean skin care line in Hong Kong and upcoming global rollout planned.

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Risks

• The company reported, "The economic outlook in our largest market remains challenging in the near term," pointing to market uncertainty in Hong Kong.
• Gross profit margin pressure resulted from inventory write-offs associated with discontinued products.
• Management anticipates a one-time restructuring charge of approximately $250,000 and a reduction of the quarterly dividend due to current performance trends.
• Operating cash flow and total cash balance have both declined meaningfully year over year, reflecting ongoing cash usage in the business.

Summary

Natural Health Trends (NASDAQ:NHTC) presented double-digit sales contraction, deeper operating losses, and continued cash outflows as its largest market remained under pressure and promotional activities disrupted revenue timing. Executives detailed a significant restructuring plan, which includes cost reductions, a facility rightsizing, and manufacturing relocation, with expected annualized savings of $1.5 million by mid-2026. The company outlined a reduction in its quarterly cash dividend to $0.10 per share starting next period, citing the need to preserve resources for investment in new digital and product growth initiatives. Management reported an active product innovation pipeline, including the recent launch of Soo:vea skin care in Hong Kong, as a lever for long-term member engagement and global sales expansion.

• The upcoming 25th anniversary and related member engagement efforts are positioned as core to future growth initiatives.
• Quarterly tax expense rose despite a pre-tax loss, tied to annual effective tax rate volatility during the period.
• Cash flow from operations, excluding one-off tax payments, fell substantially compared to the prior year's comparable period.
• Management is prioritizing AI-driven marketing and new technology systems to support future scalability and global expansion.

Industry glossary

• Presale: Sale of a new product prior to its official launch or general availability, often used to generate early demand or gauge interest.
• Commissions Expense: Compensation paid to sales representatives or affiliates, typically as a percentage of sales, in direct-selling business models.
• Write-off of Components Inventory: Accounting treatment where the value of unused or obsolete inventory parts is removed from the books, impacting gross margin.

Full Conference Call Transcript

Chris Sharng: Thank you, Michelle, and thanks to everyone for joining us this morning to discuss our third quarter 2025 financial results. With me today is Scott Davidson, our Senior Vice President and Chief Financial Officer. Third quarter net sales decreased 11% to $9.5 million compared to the third quarter of 2024, while orders declined 5% year-over-year. The decrease in net sales is in part due to the timing of product promotion and the presale of our new skin care line at the end of September 2025 in Hong Kong. The economic outlook in our largest market remains challenging in the near term.

In response, we're executing a targeted major restructuring plan, which we expect will result in $1.5 million annualized savings by mid-2026. Our ongoing measures include optimizing our workforce by approximately 10%, reducing operating costs and cutting back or exiting certain facility leases. Also, as reported last quarter, we already begun the process of transitioning U.S.-based product manufacturing to be closer to Asia to mitigate tariff uncertainty, streamline logistics and reduce costs. As part of these restructuring initiatives, we expect to incur a onetime charge of approximately $250,000 in the fourth quarter and anticipate a reduction in our quarterly cash dividend to $0.10 per share in the first quarter next year.

These actions will enable investments in new systems and technologies, including an AI-enabled marketing app and a member interface business suite as well as new marketing initiatives designed to drive growth and engagement. By aligning costs with global sales performance, we are positioning the company for sustainable growth, profitability and long-term value creation. In mid-September, we hosted a 4-day cruise to Kagoshima Japan, recognizing our top-performing and up-and-coming members and qualifiers with immersive training and team building experiences designed to strengthen collaboration and performance. Our Greater China market remains focused on continuous training and leadership development to deepen product expertise and reinforce the strong foundation needed for sustained business growth.

In Hong Kong, we prelaunched a new Korean formulated moisturizing skin care series called Soo:vea in September. The 4-step line features a cleanser, toner, probiotic-infused booster serum and cream design to support skin barrier repair and deliver lasting hydration. Our markets and product team are working to roll out these new products to the global markets in the near future. To honor 10 successful years in Sweden, we also hosted a celebratory in-person event in September, unveiling [indiscernible], a limited edition anti-aging cream formulated to hydrate, restore and diminish the signs of aging.

Next year marks 25 years of our company's journey, a legacy built on meaningful relationships, share wellness traditions and providing opportunity to all to achieve their health and wellness goals. We are thoughtfully preparing a year-long celebration designed to deepen member engagement, strengthen our brand and create new opportunities for growth. We're excited about this opportunity to showcase our 25-year history while setting the groundwork for our future. Together, we will honor our past, celebrate our presence and embrace the promise of the future. With that, I'd like to turn the call over to our CFO, Scott Davidson, to discuss our financial results in greater detail. Scott?

Timothy Davidson: Thank you, Chris. Net sales in the third quarter were $9.5 million, a decline of 11% compared to $10.7 million in the third quarter a year ago. Our sales in Hong Kong, which made up 82% of our sales during the quarter, declined 8% over a year ago or 4% excluding the impact of the product promotion and the presale of our new skin care line at the end of September that Chris mentioned. Gross profit margin was 73.7% for the third quarter compared with 74.1% last year due to the write-off of components inventory related to discontinued products. Commissions expense as a percent of total sales for the third quarter was 40.9% compared with 40.5% a year ago.

Commissions expense as a percent of net sales increased primarily due to higher weekly commissions earned by our members during the third quarter of this year. Selling, general and administrative expenses declined $262,000 to $3.6 million for the quarter from $3.9 million in the third quarter a year ago. As a result, operating loss for the quarter was $495,000 compared to $275,000 in the third quarter of last year, partially due to, as I mentioned previously, the timing of product promotions and new product presales in Hong Kong during the quarter as well as the write-off of component inventory related to discontinued products during the third quarter.

Net loss for the third quarter was $431,000 or $0.04 per diluted share compared to net income of $35,000 or breakeven per diluted share in the third quarter of 2024. Despite the loss before income taxes in the third quarter of this year, tax expense of $142,000 was recognized during the quarter due to the fluctuation in our annual effective tax rate quarter-over-quarter. I'll now turn to our cash flows and balance sheet. Net cash used in operating activities was $5 million during the first 9 months of 2025 compared to $3.5 million during the comparable period a year ago. Excluding our required annual tax installment payments related to the 2017 U.S.

Tax Cuts and Jobs Act, cash provided by operating activities was $16,000 in the first 9 months of 2025 compared to $514,000 during the same period a year ago. Total cash, cash equivalents and marketable securities were $32 million at September 30, down from $43.9 million at December 31, 2024. In regard to our quarterly dividend, I am pleased to announce that on November 3, our Board of Directors declared another cash dividend of $0.20 per share, which will be payable on November 28 to stockholders of record as of November 18. In closing, we continue to navigate near-term challenges in our largest market, and our priority in the coming quarters is to execute the restructuring plan outlined by Chris.

By realizing the estimated $1.5 million in annualized savings by mid-2026, we will free resources to drive top line growth, invest in new systems and technologies and implement global programs and incentives that support our members' success. These necessary actions position the company for sustainable growth, long-term profitability and continued value creation for both shareholders and customers. That completes our prepared remarks. I will now turn the call back over to the operator.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines at this time, and have a wonderful day.

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