Mannatech Reports Second Quarter 2016 Financial Results

COPPELL, Texas–(BUSINESS WIRE)–Mannatech, Incorporated (NASDAQ: MTEX), a global health and wellness company committed to transforming lives to make a better world, today announced financial results for its second quarter 2016.

Second Quarter Results

Second quarter net sales for 2016 were $48.8 million, an increase of $2.1 million or 4.5% as compared to $46.7 million in the second quarter of 2015. Our net sales increased 7.5% on a constant dollar basis (see Non-GAAP Financial Measure disclosures below). Loss from operations was $(0.1) million for the second quarter 2016, as compared to $4.6 million income in the same period in 2015. Net loss was $(1.3) million, or $(0.49) per diluted share, for the second quarter of 2016, as compared to $3.1 million net income, or $1.15 per diluted share, for the second quarter of 2015.

For the three months ended June 30, 2016, Mannatech’s operations outside of the Americas accounted for approximately 61.1% of Mannatech’s consolidated net sales.

For the three months ended June 30, 2016, Asia/Pacific net sales increased by $2.7 million, or 11.4%, to $26.3 million, as compared to $23.6 million for the same period in 2015. During the three months ended June 30, 2016, the loyalty program decreased sales by $0.4 million, as compared to the same period in 2015, and this decrease was offset by sales from the launch of the TruHealth™ fat-loss product line in Asia/Pacific. Foreign currency exchange had the effect of decreasing net sales by $0.8 million for the three months ended June 30, 2016, as compared to the same period in 2015. The currency impact is primarily due to the weakening of the Korean Won, Australian Dollar, New Zealand Dollar and Singapore Dollar partially offset by the strengthening of the Japanese Yen. This was offset by an increase of 9.7% in net sales per active independent associate and member during the three months ended June 30, 2016, as compared to the same period in 2015.

For the three months ended June 30, 2016, net sales for Europe, the Middle East, and Africa (“EMEA”) decreased by $0.8 million, or 18.6%, to $3.5 million, as compared to $4.3 million for the same period in 2015. Net sales per active independent associate and member decreased by 23.4% as compared to the same period in 2015. This was partially offset by an increase of 6.3% in active associates and members as compared to the same period in 2015. Foreign currency exchange had the effect of decreasing net sales by $0.6 million when the three-month period ending June 30, 2016 is compared to the same period in 2015. The currency impact is primarily due to the weakening of the South Africa Rand and British Pound.

For the three months ended June 30, 2016, net sales in the Americas increased by $0.2 million, or 1.1%, to $19.0 million, as compared to $18.8 million for the same period in 2015. This increase was primarily due to a 13.2% increase in net sales per active independent associate and member, offset by a 10.7% decline in the number of active independent associates and members. Further, during the three months ended June 30, 2016, the loyalty program decreased sales by $1.0 million, as compared to the same period in 2015, and this was offset by sales from the launch of the TruHealth fat-loss product line in the Americas.

Mannatech experienced positive net sales growth in the second quarter of 2016, growing more than $8.1 million in net sales over the first quarter of 2016. Mannatech’s second quarter’s net sales of $48.8 was the highest net sales figure posted in seven quarters. The growth was preceded by investment in a new company brand, infrastructure technology and the release of 13 new products at the start of the quarter. The quarter benefited by sales of the new fat-loss system, TruHealth, introduced during the second quarter in the United States and Korea, the first markets of a global rollout of the product to new regions that is expected to take place throughout the remainder of 2016.

The approximate number of new and continuing independent associate and member positions held by individuals in Mannatech’s network and associated with purchases of our packs or products during the 12-month period ended June 30, 2016 and 2015 were approximately 222,000 and 228,000, respectively. Recruiting increased 11.1% in the second quarter of 2016 as compared to the second quarter of 2015. The number of new independent associate and member positions in the Company’s network for the second quarter of 2016 was approximately 28,400, as compared to 25,600 for the same period in 2015.

Mannatech’s cash and cash equivalents increased by approximately $4.9 million to a balance of $36.9 million at June 30, 2016 as compared to $32.0 million at December 31, 2015.

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 currency 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.

Conference Call

Mannatech will host a conference call to discuss the quarter’s results with investors on Wednesday, August 10, 2016 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 57723377.

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



CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

ASSETS	June 30, 2016 (unaudited)			December 31, 2015
Cash and cash equivalents	$	36,921		$	31,994
Restricted cash		1,512			1,511
Accounts receivable, net		116			369
Income tax receivable		13			4
Inventories, net		11,714			9,199
Prepaid expenses and other current assets		2,512			2,905
Deferred commissions		4,208			3,443
Deferred tax assets, net		490			460
Total current assets		57,486			49,885
Property and equipment, net		3,388			3,848
Construction in progress		1,826			839
Long-term restricted cash		6,664			6,586
Other assets		3,687			3,759
Long-term deferred tax assets, net		3,986			3,725
Total assets	$	77,037		$	68,642
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current portion of capital leases	$	397		$	447
Accounts payable		6,427			2,683
Accrued expenses		5,383			6,221
Commissions and incentives payable		8,805			6,818
Taxes payable		1,301			736
Current deferred tax liability		85			84
Current notes payable		859			713
Deferred revenue		10,698			8,677
Total current liabilities		33,955			26,379
Capital leases, excluding current portion		430			612
Long-term deferred tax liabilities		26			24
Long-term notes payable		843			1,069
Other long-term liabilities		2,084			1,994
Total liabilities		37,338			30,078

Shareholders’ equity:
Preferred stock		—			—
Common stock		—			—
Additional paid-in capital		37,825			40,494
Retained earnings		7,849			8,589
Accumulated other comprehensive income		2,190			686
Treasury stock, at average cost, 76,986 shares as of June 30, 2016 and 91,894 shares as of December 31, 2015, respectively		(8,165	)		(11,205	)
Total shareholders’ equity		39,699			38,564
Total liabilities and shareholders’ equity	$	77,037		$	68,642


CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)

	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
Net sales	$	48,810		$	46,726		$	89,518		$	91,096
Cost of sales		10,100			8,270			18,489			16,823
Gross profit		38,710			38,456			71,029			74,273

Operating expenses:
Commissions and incentives		20,417			18,887			36,034			36,429
Selling and administrative expenses		9,730			8,598			18,322			17,411
Depreciation and amortization		477			495			920			891
Other operating costs		8,198			5,866			15,329			12,421
Total operating expenses		38,822			33,846			70,605			67,152

Income (loss) from operations		(112	)		4,610			424			7,121
Interest income		23			31			11			61
Other expense, net		(1,037	)		(452	)		(703	)		(1,384	)
Income (loss) before income taxes		(1,126	)		4,189			(268	)		5,798

Provision for income taxes		(206	)		(1,046	)		(472	)		(1,556	)
Net income (loss)	$	(1,332	)	$	3,143		$	(740	)	$	4,242

Earnings (loss) per common share:
Basic	$	(0.49	)	$	1.17		$	(0.27	)	$	1.58
Diluted	$	(0.49	)	$	1.15		$	(0.27	)	$	1.55

Weighted-average common shares outstanding:
Basic		2,707			2,680			2,701			2,678
Diluted		2,707			2,729			2,701			2,730

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	June 30, 2016					June 30, 2015		Change
	GAAP Measure: Total $			Non-GAAP Measure: Constant $		GAAP Measure: Total $		Dollar			Percent
Net Sales	$	48.8		$	50.2	$	46.7	$	3.5		7.5	%
Product		40.1			41.1		36.3		4.8		13.2	%
Pack		7.5			7.8		8.9		(1.1	)	(12.4	)%
Other		1.2			1.3		1.5		(0.2	)	(13.3	)%
Gross Profit		38.7			39.7		38.5		1.2		3.1	%
Income from Operations		(0.1	)		—		4.6		(4.6	)	(100.0	)%


Six month period ended	June 30, 2016					June 30, 2015		Change
	GAAP Measure: Total $			Non-GAAP Measure: Constant $		GAAP Measure: Total $		Dollar			Percent
Net Sales	$	89.5		$	93.0	$	91.1	$	1.9		2.1	%
Product		73.8			76.5		70.5		6.0		8.5	%
Pack		13.2			14.0		17.8		(3.8	)	(21.3	)%
Other		2.5			2.5		2.8		(0.3	)	(10.7	)%
Gross Profit		71.0			73.6		74.3		(0.7	)	(0.9	)%
Income from Operations		0.4			0.9		7.1		(6.3	)	(88.7	)%

The approximate number of new and continuing positions held by independent associates and members who purchased our packs or products during the twelve months ended June 30, 2016 and 2015 were as follows: