Mannatech Reports Fourth Quarter 2018 Financial Results
Published: Mar 11, 2019

Mon March 11, 2019 7:20 AM|Business Wire|About: MTEX

FLOWER MOUND, Texas--(BUSINESS WIRE)-- Mannatech, Incorporated (MTEX) (NASDAQ:MTEX), a global health and wellness company committed to transforming lives to make a better world, today announced financial results for its fourth quarter of 2018.

Quarter End Results

Fourth quarter net sales for 2018 were $44.0 million, a decrease of $2.3 million, or 5.0%, as compared to $46.3 million in the fourth quarter of 2017. Income (loss) from operations decreased to ($0.5) million for the fourth quarter 2018, from $1.1 million in the same period in 2017. Net (loss) was ($1.6) million, or ($0.66) per diluted share, for the fourth quarter 2018, as compared to ($3.7) million, or ($1.37) per diluted share, for the fourth quarter 2017.

Gross profit as a percentage of sales improved to 79.5% for the three months ended December 31, 2018, as compared to 78.7% for the same period in 2017.

Commissions as a percentage of net sales were 40.2% for the three months ended December 31, 2018, as compared to 40.6% for the same period in the prior year. Incentive costs as a percentage of net sales were 3.4% for the three months ended December 31, 2018, as compared to 2.8% for the same period in 2017.

For the three months ended December 31, 2018, overall selling and administrative expenses decreased by $0.2 million to $8.5 million, as compared to $8.7 million for the same period in 2017. The decrease in selling and administrative expenses consisted primarily of a $0.1 million decrease in payroll related costs and marketing costs and a $0.1 million decrease in warehouse costs.

For the three months ended December 31, 2018, other operating costs increased by $1.2 million to $7.4 million, as compared to $6.2 million for the same period in 2017. The increase in other operating costs was primarily due to an increase in legal and consulting fees as well as travel and entertainment costs associated with our corporate sponsored events.

The approximate number of new and continuing independent associate and preferred customer positions held by individuals in Mannatech’s network and associated with purchases of our packs or products as of December 31, 2018 and 2017 were approximately 200,000 and 215,000, respectively. Recruiting decreased 2.4% in the fourth quarter of 2018 as compared to the fourth quarter of 2017. The number of new independent associate and preferred customer positions in the company’s network for the fourth quarter of 2018 was approximately 20,000 as compared to 21,000 in 2017.

Year End Results

Overall net sales decreased $3.1 million, or 1.8%, for 2018, as compared to 2017. During 2018, fluctuations in foreign currency exchange rates had an overall favorable impact on our net sales. During 2018, our net sales declined 2.7% on a Constant dollar basis (a Non-GAAP financial measure); while favorable foreign exchange during 2018 caused an increase of $1.7 million in net sales as compared to 2017. Net loss for 2018 was ($3.9) million, or ($1.53) per diluted share, as compared to ($1.8) million, or ($0.66) per diluted share, for 2017.

Gross profit as a percentage of net sales improved to 80.1% for 2018, as compared to 79.8% for 2017.

Commission expenses decreased for the year ended December 31, 2018, by 3.1%, or $2.2 million to $69.1 million, as compared to $71.3 million for the same period in 2017. Commissions as a percentage of net sales were 39.8% for the year ending December 31, 2018 and 40.4% for the same period in the prior year due to transition costs as we transitioned from our legacy Associate Compensation Plan to the launch of our new Associate Compensation Plan on July 1, 2017.

Incentive costs increased for the year ended December 31, 2018 by 37.5%, or $1.2 million, to $4.4 million, as compared to $3.2 million, for the same period in 2017. The costs of incentives, as a percentage of net sales increased to 2.5% for the year ended December 31, 2018, as compared to 1.8% for the same period in 2017.

For the year ended December 31, 2018, overall selling and administrative expenses decreased by $1.3 million, or 3.7%, to $34.2 million, as compared to $35.5 million for the same period in 2017. The decrease in selling and administrative expenses consisted of a $1.8 million decrease in payroll related costs as we had a greater number of employees in the prior comparative period, and a $0.2 million decrease in marketing costs. These decreases were partially offset by a $0.6 million increase in stock based compensation expense and a $0.1 million increase in contract labor costs.

For the year ended December 31, 2018, other operating costs increased by $2.8 million, or 10.6%, to $29.4 million, as compared to $26.6 million for the same period in 2017. For the year ended December 31, 2018, other operating costs, as a percentage of net sales, were 17.0%, as compared to 15.1% for the same period in 2017. The increase was due to a $1.5 million increase in office expenses, largely attributed to the $1.3 million non-recurring cost of moving to a new corporate headquarters, a $0.7 million increase in travel and entertainment costs associated with corporate sponsored events, a $0.5 million increase in legal and consulting fees, a $0.2 million increase in bad debt expense, a $0.1 million increase in accounting and auditing fees, offset by a $0.1 million decrease in credit card fees and a $0.1 million decrease in auto and equipment leases.

For the year ended December 31, 2018 our tax provision was $4.4 million and for the comparable period of 2017, our tax provision was $4.3 million. For 2018, the Company’s provision was impacted by the mix of earnings across jurisdictions, valuation allowance recorded on losses in certain jurisdictions, and the impact of global intangible low-tax income as a result of the Tax Cuts and Jobs Act (the "Act") passed last year. For 2017, the Company had a significant increase in its rate due to the impact of the Act. Items impacting the 2017 provision included the rate differences in foreign jurisdictions, utilization of foreign tax credits against the transition tax, and certain tax reserve items removed due to expiration of applicable statute of limitations. Items increasing the provision included the transition tax, return to provision and prior year adjustments, and change in valuation allowance.

As of December 31, 2018, our cash and cash equivalents decreased by 34.6%, or $16.2 million, to $30.6 million from $46.8 million as of December 31, 2017. On declining revenues and profits, cash provided by operating activities decreased by $10.5 million for the year ended December 31, 2018 as compared to the same period in 2017. During the year ended December 31, 2018, we invested $2.2 million in computer hardware and software, $1.9 million for leasehold improvements and $0.5 million in office furniture and equipment as we moved our corporate headquarters to a new building. During this period, our financing activities included repayments of $1.5 million for capital lease obligations. Finally, we are proud that we have returned shareholder value with $1.4 million for dividends to shareholders and repurchases of $0.2 million in common stock.

Non-GAAP Measures

In addition to results presented in accordance with GAAP, this press release and related tables include certain non-GAAP financial measures, including a presentation of constant dollar measures. We disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, including changes in: Net Sales, Gross Profit, and Income from Operations.

We believe that these non-GAAP financial measures provide useful information to investors because they are an indicator of the strength and performance of ongoing business operations. The constant currency figures are financial measures used by management to provide investors an additional perspective on trends. Although we believe the non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an exclusive alternative to accompanying GAAP financial measures. Please see the accompanying table entitled "Non-GAAP Financial Measures" for a reconciliation of these non-GAAP financial measures.

We have included a second non-GAAP measure, which reconciles net loss, as reported to net earnings, as adjusted. This presentation isolates the effects of some items that vary from period to period without any correlation to core operating performance and eliminates certain items that management believes do not reflect the Company’s operations and underlying operational performance. Please see Schedule A: Reconciliation of Non-GAAP Financial Measures (Net Earnings, as Adjusted).

Conference Call

Mannatech will host a conference call to discuss the quarter’s results with investors on Tuesday, March 12, 2019 at 9 a.m. CT, 10 a.m. ET. The live call was webcast and can be accessed on Mannatech’s website at http://ir.mannatech.com.

For those unable to listen to the live broadcast, a replay will be available shortly after the call. The toll-free replay number is (855) 859-2056 (International (404) 537-3406); the Conference ID to access the call is 8539789.

Individuals interested in Mannatech’s products or in exploring its business opportunity can learn more at Mannatech.com.

MANNATECH, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share information)

 

 

 

 

 

 

 

December 31, 2018

 

December 31, 2017

ASSETS

 

 

 

 

Cash and cash equivalents

 

$

21,845

 

 

$

37,682

 

Restricted cash

 

1,514

 

 

1,514

 

Accounts receivable, net of allowance of $770 and $582 in 2018 and 2017, respectively

 

106

 

 

273

 

Income tax receivable

 

291

 

 

907

 

Inventories, net

 

12,821

 

 

9,385

 

Prepaid expenses and other current assets

 

3,361

 

 

2,607

 

Deferred commissions

 

2,449

 

 

3,880

 

Total current assets

 

42,387

 

 

56,248

 

Property and equipment, net

 

5,860

 

 

3,537

 

Construction in progress

 

904

 

 

777

 

Long-term restricted cash

 

7,225

 

 

7,565

 

Other assets

 

3,894

 

 

3,876

 

Deferred tax assets, net

 

1,928

 

 

4,239

 

Total assets

 

$

62,198

 

 

$

76,242

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

Current portion of capital leases

 

$

75

 

 

$

228

 

Accounts payable

 

6,724

 

 

6,008

 

Accrued expenses

 

5,995

 

 

5,771

 

Commissions and incentives payable

 

12,189

 

 

9,658

 

Taxes payable

 

2,655

 

 

2,404

 

Current notes payable

 

702

 

 

815

 

Deferred revenue

 

5,274

 

 

8,561

 

Total current liabilities

 

33,614

 

 

33,445

 

Capital leases, excluding current portion

 

72

 

 

144

 

Deferred tax liabilities

 

3

 

 

1,147

 

Long-term notes payable

 

883

 

 

 

Other long-term liabilities

 

2,302

 

 

1,265

 

Total liabilities

 

36,874

 

 

36,001

 

Commitments and contingencies (Note 11)

 

 

 

 

Shareholders’ equity:

 

 

 

 

Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding

 

 

 

 

Common stock, $0.0001 par value, 99,000,000 shares authorized, 2,742,857 shares issued and 2,381,149 shares outstanding as of December 31, 2018 and 2,742,857 shares issued and 2,702,940 shares outstanding as of December 31, 2017

 

 

 

 

Additional paid-in capital

 

33,939

 

 

34,928

 

Retained earnings (deficit)

 

(2,782

)

 

4,190

 

Accumulated other comprehensive income

 

4,337

 

 

5,984

 

Treasury (TSRMF) stock, at average cost, 361,708 shares as of December 31, 2018 and 39,917 shares as of December 31, 2017, respectively

 

(10,170

)

 

(4,861

)

Total shareholders’ equity

 

25,324

 

 

40,241

 

Total liabilities and shareholders’ equity

 

$

62,198

 

 

$

76,242

 

 

 

 

 

 

 

 

 

 

MANNATECH, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share information)

 

 

 

 

 

 

 

For the three months

ended December 31,

 

For the years ended

December 31,

 

 

2018

 

2017

 

2018

 

2017

Net sales

 

$

44,024

 

 

$

46,372

 

 

$

173,558

 

 

$

176,696

 

Cost of sales

 

9,049

 

 

9,886

 

 

34,476

 

 

35,667

 

Gross profit

 

34,975

 

 

36,486

 

 

139,082

 

 

141,029

 

Operating expenses:

 

 

 

 

 

 

 

 

Commissions and incentives

 

19,153

 

 

20,105

 

 

73,514

 

 

74,550

 

Selling and administrative expenses

 

8,450

 

 

8,667

 

 

34,156

 

 

35,470

 

Depreciation and amortization

 

543

 

 

485

 

 

2,064

 

 

1,864

 

Other operating costs

 

7,352

 

 

6,179

 

 

29,438

 

 

26,626

 

Total operating expenses

 

35,498

 

 

35,436

 

 

139,172

 

 

138,510

 

Income (loss) from operations

 

(523

)

 

1,050

 

 

(90

)

 

2,519

 

Interest income

 

76

 

 

216

 

 

288

 

 

274

 

Other expense (income), net

 

(390

)

 

(542

)

 

291

 

 

(333

)

Income before income taxes

 

(837

)

 

724

 

 

489

 

 

2,460

 

Income tax provision

 

(738

)

 

(4,440

)

 

(4,375

)

 

(4,247

)

Net loss

 

$

(1,575

)

 

$

(3,716

)

 

$

(3,886

)

 

$

(1,787

)

Loss per common share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.66

)

 

$

(1.37

)

 

$

(1.53

)

 

$

(0.66

)

Diluted

 

$

(0.66

)

 

$

(1.37

)

 

$

(1.53

)

 

$

(0.66

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

2,381

 

 

2,707

 

 

2,541

 

 

2,708

 

Diluted

 

2,381

 

 

2,707

 

 

2,541

 

 

2,708

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Financial Measures (Sales, Gross Profit and Income From Operations in Constant Dollars)

To supplement our financial results presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, including changes in: Net Sales, Gross Profit, and Income from Operations. We refer to these adjusted financial measures as constant dollar items, which are non-GAAP financial measures. We believe these measures provide investors an additional perspective on trends. To exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, we calculate current year results and prior year results at a constant exchange rate, which is the prior year’s rate. Currency impact is determined as the difference between actual growth rates and constant currency growth rates.

The table below reconciles fourth quarter 2018 constant dollar sales to GAAP sales.

 

 

Sales - Q4 2018

 

 

GAAP
Measure: 
Total $

 

Non-GAAP

Measure:
Constant $

 

Constant $

Change

Americas

 

$

14.4

 

 

$

14.5

 

 

$

0.1

Asia Pacific

 

26.4

 

 

26.7

 

 

0.3

EMEA

 

3.2

 

 

3.4

 

 

0.2

Total

 

$

44.0

 

 

$

44.6

 

 

$

0.6

 

 

 

 

 

 

 

 

 

 

 

 

The table below reconciles fiscal year 2017 and 2018 constant dollar net sales, gross profit and income from operations to GAAP net sales, gross profit and income from operations.

 

 

2018

 

2017

 


Constant $ Change

 

 

GAAP
Measure: 
Total $

 

Non-GAAP

Measure:
Constant $

 

GAAP
Measure: 
Total $

 

Dollar

 

Percent

Net sales

 

173.6

 

 

171.9

 

 

$

176.7

 

 

(4.8

)

 

(2.7

)%

Product

 

170.2

 

 

168.6

 

 

157.9

 

 

10.7

 

 

6.8

%

Pack and associate fees(a)

 

2.5

 

 

2.4

 

 

14.2

 

 

(11.8

)

 

(83.1

)%

Other

 

0.9

 

 

0.9

 

 

4.6

 

 

(3.7

)

 

(80.4

)%

Gross profit

 

139.1

 

 

137.7

 

 

141.0

 

 

(3.3

)

 

(2.3

)%

Income (loss) from operations

 

(0.1

)

 

(0.5

)

 

0.7

 

 

(3.0

)

 

(120.0

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

a)Coincident with the introduction of the 2017 Associate Compensation Plan, which was implemented on July 1, 2017, the Company collects associate fees, which each associate pays to the Company annually in order to be entitled to earn commissions, benefits and incentives for that year. The Company collected associate fees within the United States, Canada, South Africa, Japan, Australia, New Zealand, Singapore, Hong Kong, Taiwan, Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, Spain, Sweden and the United Kingdom during the year ended December 31, 2018. Prior to the change, associates purchased packs that were bundles of products within these respective geographic markets. Since implementing the 2017 Associate Compensation Plan, total associate fees represented an immaterial amount of total sales.

Schedule A: Reconciliation of Non-GAAP Financial Measures (Net Earnings, as Adjusted)

(Unaudited and unreviewed), (Table provides Dollars in thousands)

In addition to its reported results and guidance calculated in accordance with GAAP, the Company has included in this release adjusted net earnings, a performance measure that the Securities and Exchange Commission defines as a “non-GAAP financial measure.” Management believes that such non-GAAP financial measures, when read in conjunction with the Company’s reported results, in each case calculated in accordance with GAAP, can provide useful supplemental information for investors because they facilitate a period to period comparative assessment of the Company’s operating performance relative to its performance based on reported results under GAAP, while isolating the effects of some items that vary from period to period without any correlation to core operating performance and eliminate certain items that management believes do not reflect the Company’s operations and underlying operational performance.

The following is a reconciliation of net loss, presented and reported in accordance with U.S. generally accepted accounting principles, to net earnings, as adjusted for certain items:

 

 

Three Months Ended

 

Twelve Months Ended

 

 

12/31/2018

 

12/31/2017

 

12/31/2018

 

12/31/2017

Net loss, as reported

 

$

(1,575

)

 

$

(3,716

)

 

$

(3,886

)

 

$

(1,787

)

Expenses related to moving the corporate headquarters

 

 

 

266

 

 

1,305

 

 

266

 

Legal settlements

 

 

 

200

 

 

 

 

700

 

Provisional tax impact(a)

 

 

 

3,381

 

 

 

 

3,381

 

Net earnings, as adjusted

 

$

(1,575

)

 

$

(3,716

)

 

$

(2,581

)

 

$

(1,787

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

a) Relates to the estimated income tax effect of the Tax Cuts and Jobs Act on the Company’s Consolidated Financial Statements as of December 31, 2017 as discussed in Note 7, Income Taxes, to the Consolidated Financial Statements included in the annual report on form 10-K for the year ended December 31, 2017.

 

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Donna Giordano
Manager, Executive Office Administration
972-471-6512
ir@mannatech.com

www.mannatech.com

Source: Mannatech, Incorporated

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