Mannatech Reports Third Quarter 2018 Financial Results
Published: Nov 06, 2018

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 third quarter of 2018.

Third Quarter Results

Third quarter net sales for 2018 were $43.0 million, an increase of $1.0 million, or 2.4%, as compared to $42.0 million in the third quarter of 2017. For the three-month period ended September 30, 2018, our net sales increased 2.9% on a constant dollar basis (see Non-GAAP Financial Measures, below) as compared to the same period in 2017, while unfavorable foreign exchange caused a $0.2 million decrease in GAAP net sales as compared to the same period in 2017.

Income from operations was $1.7 million for the third quarter 2018, as compared to income of $0.7 million in the same period in 2017. Due to taxes, our net loss was $1.7 million, or $0.69 per diluted share, for the third quarter 2018, as compared to net income of $1.4 million, or $0.50 per diluted share, for the third quarter 2017.

For the three months ended September 30, 2018, the Company’s effective tax rate was 167.8% as compared to (58.5)% for the same period in 2017. The effective tax rate for the three months ended September 30, 2018 were different from the federal statutory rate due to the mix of earnings across jurisdictions, valuation allowances recorded on foreign losses in certain jurisdictions, and the impact of global intangible low-tax income ("GILTI") as a result of the Tax Cuts and Jobs Act.

For the three months ended September 30, 2018, Mannatech’s operations outside of the Americas accounted for approximately 69.1% of Mannatech’s consolidated net sales.

Commission expenses for the three months ended September 30, 2018 decreased by 4.5%, or $0.8 million, to $16.8 million, as compared to $17.6 million for the same period in 2017. For the three months ended September 30, 2018, commissions as a percentage of net sales decreased to 39.1% from 42.0% for the same period in 2017 due to the structure of the 2017 Associate Compensation Plan, which was implemented on July 1, 2017.

Incentive costs for the three months ended September 30, 2018 increased by 64.2%, or $0.5 million, to $1.2 million, as compared to $0.7 million for the same period in 2017 due to new incentives in growth markets. For the three months ended September 30, 2018, incentives as a percentage of net sales increased to 2.8% from 1.8% for the same period in 2017.

The approximate number of new and continuing active independent associates and preferred customers who purchased our packs or products or paid associate fees during the twelve months ended September 30, 2018 and 2017 were approximately 202,000 and 219,000, respectively. Recruitment of new independent associates and preferred customers increased 1.6% during the three months ended September 30, 2018 as compared to the same period in 2017. The number of new independent associate and preferred customer positions held by individuals in our network for the three months ended September 30, 2018 was approximately 25,802, as compared to 25,394 for the same period in 2017.

For the three months ended September 30, 2018, selling and administrative expenses decreased by $0.1 million, or 0.7%, to $8.1 million, as compared to $8.2 million for the same period in 2017. The decrease in selling and administrative expenses consisted of a $0.2 million decrease in payroll costs in our headquarters, Japan, Australia, and Europe offices, and a $0.1 million decrease in distribution and warehouse costs, offset by $0.1 million increase in stock-based compensation expense and a $0.1 million increase in contract labor costs.

Other operating costs, which include professional fees, travel and entertainment, bad debt, credit card processing fees, and other miscellaneous operating expenses, decreased by $0.4 million, or 7.3% for the three months ended September 30, 2018, as compared to the same period in 2017. The decrease in operating costs was primarily due to a $0.8 million decrease in travel and entertainment costs and a $0.1 million decrease in other miscellaneous operating expenses. This was partially offset by a $0.4 million increase in legal and consulting fees and a $0.1 million increase in office expenses.

As of September 30, 2018, our cash and cash equivalents decreased by 31.9%, or $12.0 million, to $25.7 million from $37.7 million as of December 31, 2017.

Cash provided by operating activities was $1.7 million for the nine months ended September 30, 2018, compared to cash provided by operating activities of $9.0 million for the same period in 2017. During the nine months ended September 30, 2018, we purchased inventory, collected cash from our income tax receivable, used less cash to pay commissions due to the timing of our commission payments, and managed our accrued expenses and other liabilities and taxes payable carefully. Our inventory balance at September 30, 2018 was $12.7 million, compared to $9.4 million at December 31, 2017. We invested in inventory in order to introduce Ambrotose Life to our growth markets.

During the nine months ended September 30, 2018, we invested approximately $0.8 million in back-office software projects, approximately $0.5 million in leasehold improvements and $0.5 million in furniture and equipment.

For the nine months ended September 30, 2018, we used $7.4 million to repurchase common stock pursuant to a tender offer and open market repurchases, $1.1 million in the repayment of capital lease obligations and $1.9 million in payments of dividends to shareholders.

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.

Conference Call

Mannatech will host a conference call to discuss the quarter’s results with investors on Tuesday, November 7, 2018 at 9 a.m. CDT, 10 a.m. EDT. The live call will be 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 9546587.

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 and per share amounts)

 

ASSETS

 

 

 

September 30,
2018
(unaudited)

 

 

December 31,
2017

Cash and cash equivalents

 

 

 

$

25,678

 

 

 

$

37,682

 

Restricted cash

 

 

 

1,514

 

 

 

1,514

 

Accounts receivable, net of allowance of $726 and $582 in 2018 and 2017, respectively

 

 

 

124

 

 

 

273

 

Income tax receivable

 

 

 

 

 

 

907

 

Inventories, net

 

 

 

12,711

 

 

 

9,385

 

Prepaid expenses and other current assets

 

 

 

3,570

 

 

 

2,607

 

Deferred commissions

 

 

 

3,124

 

 

 

3,880

 

Total current assets

 

 

 

46,721

 

 

 

56,248

 

Property and equipment, net

 

 

 

6,231

 

 

 

3,537

 

Construction in progress

 

 

 

638

 

 

 

777

 

Long-term restricted cash

 

 

 

7,268

 

 

 

7,565

 

Other assets

 

 

 

3,828

 

 

 

3,876

 

Long-term deferred tax assets, net

 

 

 

4,455

 

 

 

4,239

 

Total assets

 

 

 

$

69,141

 

 

 

$

76,242

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current portion of capital leases

 

 

 

$

74

 

 

 

$

228

 

Accounts payable

 

 

 

6,402

 

 

 

6,008

 

Accrued expenses

 

 

 

6,617

 

 

 

5,771

 

Commissions and incentives payable

 

 

 

11,489

 

 

 

9,658

 

Taxes payable

 

 

 

3,925

 

 

 

2,404

 

Current notes payable

 

 

 

802

 

 

 

815

 

Deferred revenue

 

 

 

6,960

 

 

 

8,561

 

Total current liabilities

 

 

 

36,269

 

 

 

33,445

 

Capital leases, excluding current portion

 

 

 

92

 

 

 

144

 

Long-term deferred tax liabilities

 

 

 

1,103

 

 

 

1,147

 

Long-term notes payable

 

 

 

1,009

 

 

 

 

Other long-term liabilities

 

 

 

2,796

 

 

 

1,265

 

Total liabilities

 

 

 

41,269

 

 

 

36,001

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2,381,244 shares outstanding as of September 30, 2018 and 2,742,857 shares issued and 2,702,940 shares outstanding as of December 31, 2017

 

 

 

 

 

 

 

Additional paid-in capital

 

 

 

33,859

 

 

 

34,928

 

Retained earnings (deficit)

 

 

 

(3

)

 

 

4,190

 

Accumulated other comprehensive income

 

 

 

4,227

 

 

 

5,984

 

Treasury (TSRMF) stock, at average cost, 361,613 shares as of September 30, 2018 and 39,917 shares as of December 31, 2017

 

 

 

(10,211

)

 

 

(4,861

)

Total shareholders’ equity

 

 

 

27,872

 

 

 

40,241

 

Total liabilities and shareholders’ equity

 

 

 

$

69,141

 

 

 

$

76,242

 

 

 

 

 

 

 

 

 

 

 

 

MANNATECH, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS – (UNAUDITED)

(in thousands, except per share information)

 

 

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

Net sales

 

 

 

$

43,014

 

 

 

$

41,997

 

 

$

129,534

 

 

 

$

130,324

Cost of sales

 

 

 

9,037

 

 

 

8,233

 

 

25,426

 

 

 

25,781

Gross profit

 

 

 

33,977

 

 

 

33,764

 

 

104,108

 

 

 

104,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commissions and incentives

 

 

 

18,054

 

 

 

18,370

 

 

54,361

 

 

 

54,445

Selling and administrative expenses

 

 

 

8,111

 

 

 

8,171

 

 

25,706

 

 

 

26,803

Depreciation and amortization expense

 

 

 

475

 

 

 

424

 

 

1,521

 

 

 

1,379

Other operating costs

 

 

 

5,667

 

 

 

6,115

 

 

22,086

 

 

 

20,447

Total operating expenses

 

 

 

32,307

 

 

 

33,080

 

 

103,674

 

 

 

103,074

Income from operations

 

 

 

1,670

 

 

 

684

 

 

434

 

 

 

1,469

Interest income

 

 

 

50

 

 

 

10

 

 

212

 

 

 

58

Other income (expense), net

 

 

 

(83

)

 

 

177

 

 

681

 

 

 

209

Income before income taxes

 

 

 

1,637

 

 

 

871

 

 

1,327

 

 

 

1,736

Income tax benefit (provision)

 

 

 

(3,300

)

 

 

510

 

 

(3,637

)

 

 

193

Net income (loss)

 

 

 

$

(1,663

)

 

 

$

1,381

 

 

$

(2,310

)

 

 

$

1,929

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

$

(0.69

)

 

 

$

0.51

 

 

$

(0.89

)

 

 

$

0.71

Diluted

 

 

 

$

(0.69

)

 

 

$

0.50

 

 

$

(0.89

)

 

 

$

0.69

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 

2,396

 

 

 

2,711

 

 

2,595

 

 

 

2,708

Diluted

 

 

 

2,396

 

 

 

2,766

 

 

2,595

 

 

 

2,773

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Financial Measures

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.

 

 

 

 

 

 

 

 

 

 

 

Three-month period ended 
(in millions, except percentages)

 

 

 

September 30, 2018

 

 

September 30,
2017

 

 

Constant $ Change

 

 

 

 

GAAP
Measure:
Total $

 

 

Non-GAAP
Measure:
Constant $

 

 

GAAP
Measure:
Total $

 

 

Dollar

 

 

Percent

Net sales

 

 

 

$

43.0

 

 

 

$

43.2

 

 

 

$

42.0

 

 

 

$

1.2

 

 

 

2.9

%

Product

 

 

 

42.5

 

 

 

42.7

 

 

 

40.4

 

 

 

2.3

 

 

 

5.7

%

Pack sales and associate fees(a)

 

 

 

0.6

 

 

 

0.6

 

 

 

1.8

 

 

 

(1.2

)

 

 

(66.7

)%

Other

 

 

 

(0.1

)

 

 

(0.1

)

 

 

(0.2

)

 

 

0.1

 

 

 

(50.0

)%

Gross profit

 

 

 

34.0

 

 

 

34.0

 

 

 

33.8

 

 

 

0.2

 

 

 

0.6

%

Income from operations

 

 

 

1.7

 

 

 

1.6

 

 

 

0.7

 

 

 

0.9

 

 

 

128.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine-month period ended 
(in millions, except percentages)

 

 

 

September 30, 2018

 

 

September 30,
2017

 

 

Constant $ Change

 

 

 

 

GAAP
Measure:
Total $

 

 

Non-GAAP
Measure:
Constant $

 

 

GAAP
Measure:
Total $

 

 

Dollar

 

 

Percent

Net sales

 

 

 

$

129.5

 

 

 

$

127.0

 

 

 

$

130.3

 

 

 

$

(3.3

)

 

 

(2.5

)%

Product

 

 

 

128.1

 

 

 

125.6

 

 

 

117.0

 

 

 

8.6

 

 

 

7.4

%

Pack sales and associate fees(a)

 

 

 

1.7

 

 

 

1.7

 

 

 

13.5

 

 

 

(11.8

)

 

 

(87.4

)%

Other

 

 

 

(0.3

)

 

 

(0.3

)

 

 

(0.2

)

 

 

(0.1

)

 

 

50.0

%

Gross profit

 

 

 

104.1

 

 

 

102.0

 

 

 

104.5

 

 

 

(2.5

)

 

 

(2.4

)%

Income (loss) from operations

 

 

 

0.4

 

 

 

(0.2

)

 

 

1.5

 

 

 

(1.7

)

 

 

(113.3

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 independent 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, and Taiwansince the implementation of 2017 Associate Compensation Plan. Prior to the change, independent 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 adjusted net earnings, a performance measure that the Securities and Exchange Commission defines as a “non-GAAP financial measure”, in this release. 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 GAAP, to net earnings, as adjusted for certain items:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

Net loss, as reported

 

 

 

$

(1,663

)

 

 

$

1,381

 

 

$

(2,310

)

 

 

$

1,929

Expenses related to moving the corporate headquarters

 

 

 

 

 

 

 

 

1,305

 

 

 

Net earnings, as adjusted

 

 

 

$

(1,663

)

 

 

$

1,381

 

 

$

(1,005

)

 

 

$

1,929

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

About Mannatech

Mannatech, Incorporated offers a full body wellness experience through its global network of independent associates and preferred customers. With more than 20 years of experience and operations in 26 markets, Mannatech is committed to transforming lives. For more information, visit Mannatech.com.

Please Note: This release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by use of phrases or terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “approximates,” “predicts,” “projects,” "hopes," “potential,” and “continues” or other similar words or the negative of such terminology. Similarly, descriptions of Mannatech’s objectives, strategies, plans, goals or targets contained herein are also considered forward-looking statements. This release should be read in conjunction with all of its filings with the United States Securities and Exchange Commission and Mannatech cautions its readers that these forward-looking statements are subject to certain events, risks, uncertainties, and other factors. Some of these factors include, among others, Mannatech’s inability to attract and retain independent associates and preferred customers, increases in competition, litigation, regulatory changes, and its planned growth into new international markets. Although Mannatech believes that the expectations, statements, and assumptions reflected in these forward-looking statements are reasonable, it cautions readers to always consider all of the risk factors and any other cautionary statements carefully in evaluating each forward-looking statement in this release, as well as those set forth in its latest Annual Report on Form 10-K, and other filings filed with the United States Securities and Exchange Commission, including its current reports on Form 8-K. All of the forward-looking statements contained herein speak only as of the date of this release.

 

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

www.mannatech.com

Source: Mannatech, Incorporated