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Mannatech Reports Second Quarter 2018 Financial Results

August 6, 2018

FLOWER MOUND, Texas--(BUSINESS WIRE)--Aug 6, 2018--(NASDAQ:), a global health and wellness company committed to transforming lives to make a better world, today announced financial results for its second quarter of 2018.

Second Quarter Results

Second quarter net sales for 2018 were $45.1 million, a decrease of $2.6 million, or 5.3%, as compared to $47.7 million in the second quarter of 2017. For the three-month period ended June 30, 2018, our net sales declined 7.3% on a constant dollar basis (see Non-GAAP Financial Measures, below) as compared to the same period in 2017, while favorable foreign exchange caused a $0.9 million increase in GAAP net sales as compared to the same period in 2017.

Loss from operations was $0.3 million for the second quarter 2018, as compared to income of $2.8 million in the same period in 2017. Net loss was $0.4 million, or $0.14 per diluted share, for the second quarter 2018, as compared to net income of $1.8 million, or $0.65 per diluted share, for the second quarter 2017. Loss from operations included approximately $0.2 million in non-recurring costs related to the corporate office move.

For the three months ended June 30, 2018, Mannatech’s operations outside of the Americas accounted for approximately 61.6% of Mannatech’s consolidated net sales.

Second quarter 2018 Asia/Pacific net sales decreased by $0.2 million, or 0.8%, to $24.5 million, as compared to $24.7 million for the same period in 2017. This decrease was primarily due to a 19.8% decline in the number of active independent associates and preferred customers, which was partially offset by a 23.6% increase in revenue per active independent associate and preferred customer. During the three months ended June 30, 2018, the loyalty program increased sales by $0.6 million, as compared to the same period in 2017. Foreign currency exchange had the effect of increasing revenue by $0.8 million for the three months ended June 30, 2018, as compared to the same period in 2017. The currency impact is primarily due to the strengthening of the Korean Won, Japanese Yen, Chinese Yuan (Renminbi), Australian Dollar, Taiwanese Dollar, and Singapore Dollar partially offset by the weakening of the Hong Kong Dollar.

Second quarter 2018 net sales for Europe, the Middle East and Africa (“EMEA”) decreased by $0.2 million, or 5.7%, to $3.3 million, as compared to $3.5 million for the same period in 2017. This decrease was primarily due to a 21.6% decline in revenue per active independent associate and preferred customer, which was partially offset by a 20.2% increase in the number of active independent associates and preferred customers. Foreign currency exchange had the effect of increasing revenue by $0.2 million for the three months ended June 30, 2018, as compared to the same period in 2017. The currency impact is primarily due to the strengthening of the South African Rand, the Euro, and the British Pound.

For the three months ended June 30, 2018, net sales in the Americas decreased by $2.2 million, or 11.3%, to $17.3 million, as compared to $19.5 million for the same period in 2017. This decrease was primarily due to a 9.6% decline in revenue per active independent associate and preferred customer as well as a 1.8% decrease in the number of active independent associates and preferred customers.

Commission expenses for the three months ended June 30, 2018 increased by 0.4%, or $0.1 million, to $18.4 million, as compared to $18.3 million for the same period in 2017. For the three months ended June 30, 2018, commissions as a percentage of net sales increased to 40.8% from 38.5% 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 June 30, 2018 increased by 37.9%, or $0.2 million, to $0.9 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 June 30, 2018, incentives as a percentage of net sales increased to 2.0% from 1.4% 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 June 30, 2018 and 2017 were approximately 202,000 and 218,000, respectively. Recruitment of new independent associates and preferred customers decreased 19.2% during the three months ended June 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 June 30, 2018 was approximately 21,400, as compared to 26,500 for the same period in 2017.

For the three months ended June 30, 2018, selling and administrative expenses decreased by $0.4 million, or 3.6%, to $9.6 million, as compared to $10.0 million for the same period in 2017. The decrease in selling and administrative expenses consisted of a $0.6 million decrease in payroll costs in our headquarters, Japan, Australia, and Europe offices, and a $0.4 million decrease in marketing related costs, offset by $0.5 million increase in stock-based compensation expense and a $0.1 million increase in distribution and warehouse costs.

Other operating costs, which include professional fees, travel and entertainment, bad debt, credit card processing fees, and other miscellaneous operating expenses, increased by $1.2 million, or 18.3% for the three months ended June 30, 2018, as compared to the same period in 2017. The increase in operating costs was primarily due to a $0.5 million increase in travel and entertainment costs, a $0.4 million increase in office expenses partially due to non-recurring office expenses incurred with the corporate office move, and a $0.3 million increase in other miscellaneous operating expenses.

As of June 30, 2018, our cash and cash equivalents decreased by 23.6%, or $8.9 million, to $28.8 million from $37.7 million as of December 31, 2017. Our inventory balance at June 30, 2018 was $10.3 million, compared to $9.4 million at December 31, 2017. At June 30, 2018, our commissions and incentives payable increased to $10.1 million from $9.7 million at December 31, 2017, due to timing of our commission payments. Our accounts payable balance at June 30, 2018 increased to $6.4 million, compared to $6.0 million at December 31, 2017. During the second quarter of 2018, we paid dividends of $0.3 million.

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, August 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 8382307.

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

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.

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