Mannatech, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited consolidated results. Mannatech develops and sells nutritional supplements, skin-care, anti-aging and weight-management products, primarily through network marketing across three regions. It reported approximately 146,000 active associate and preferred-customer positions over the trailing 12 months, versus 152,000 a year earlier.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $32.6m | $35.5m | $99.3m | $102.9m |
| Gross profit / margin | $25.9m / 79.6% | $28.1m / 79.1% | $78.2m / 78.8% | $80.4m / 78.2% |
| Operating income (loss) | $0.2m | $1.4m | $(0.1)m | $2.2m |
| Net income (loss) | $0.018m | $1.2m | $(0.5)m | $2.0m |
| Diluted EPS | $0.01 | $0.61 | $(0.26) | $1.01 |
- Q3 sales fell 8.3% year over year; nine-month sales fell 3.5% in reported dollars and 1.2% on the company’s constant-currency, non-GAAP basis. Currency translation reduced nine-month sales by $2.4m.
- Nine-month gross margin improved 0.6 percentage points, which management attributed to price increases in certain markets. Operating expenses were nearly flat overall, but other operating costs rose $1.4m, including higher consulting and bad-debt costs.
- Nine-month operating cash flow was $(1.0)m, versus $0.5m provided a year earlier. Capital spending was $0.5m. Cash, cash equivalents and restricted cash totaled $9.7m at September 30, compared with $15.2m at year-end 2022; unrestricted cash was $7.9m.
- Working capital was $2.3m, down from $5.1m at year-end. Current liabilities were $26.3m against current assets of $28.6m. Current notes payable were $0.3m; finance lease liabilities totaled $1.3m and operating lease liabilities $4.7m. The filing reports no material conventional long-term borrowing.
- Total assets were $42.2m and shareholders’ equity was $10.7m. Nine-month foreign-currency translation losses were $2.3m, and exchange-rate effects reduced cash by $2.3m.
Changes and operating trends
- Asia/Pacific, the largest region, generated $19.6m of Q3 sales, down 8.4%; nine-month sales were $60.0m, down 5.1%. Management cited lower revenue per active position, with currency also weighing on nine-month results.
- Americas Q3 sales decreased 3.6% to $10.7m, while nine-month sales increased 3.9% to $31.8m. EMEA sales declined 23.3% in Q3 and 17.6% for nine months; management cited fewer active positions and, in EMEA, the war in Ukraine and inflation.
- Q3 product sales fell 7.7%; orders processed declined 11.9% to 179,456, partly offset by higher average order value ($177 versus $171). For nine months, orders fell 7.9% to 541,574.
- Active associate and preferred-customer positions declined about 4% year over year. New recruitment increased 20.9% in Q3 to 23,296, but this did not offset the broader sales decline.
Outlook, commentary and risks
- Management said existing liquidity and operating cash flows should fund normal operations for the next 12 months, contingent on maintaining or increasing revenue and/or reducing operating expenses. It suspended quarterly dividends for the immediate future to preserve cash; no Q3 dividend was paid.
- The company recorded a $1.4m cumulative increase in nine-month revenue from an out-of-period correction to loyalty-program breakage calculations, with a corresponding $0.5m increase in commission expense. Management described the error as immaterial.
- Management identified foreign-exchange volatility, inflation, supply-chain disruption, consumer demand, associate recruitment and retention, competition, regulation, product quality and publicity as risks. A significant portion of cash and operating activity is concentrated in South Korea; the filing cites $26.2m of net assets there at September 30.
- The company has ongoing tax audits and ordinary-course legal claims. It said no legal reserve was necessary at September 30 and believed current claims could be resolved without material adverse effect, while noting outcomes remain uncertain. A supply agreement requires purchases of $1.9m through 2023 and $2.6m annually through 2024.
- Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported during the quarter. Management gave no specific sales or earnings forecast.
Investor facts to verify
- Whether the sales decline and lower order volumes stabilize, particularly in Asia/Pacific and EMEA, and whether recruitment gains translate into recurring sales.
- The effect of the loyalty-program adjustment on reported revenue, commissions and future periods, and whether any further accounting correction is needed.
- Cash generation, working-capital needs and the company’s ability to fund operations while dividends are suspended.
- Exposure to South Korea and foreign-exchange movements, including the impact of further currency changes on cash, sales and reported equity.
- Progress on cost control and the returns from increased consulting expenditure, including the Trulu innovation-hub initiative.