Mannatech, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023, compared with FY2022. This is an annual filing; it does not provide a standalone fourth-quarter results summary.
Business context
Mannatech sells nutritional supplements, skin care and wellness products primarily through network marketing, with about 145,000 active associate and preferred-customer positions. It operates in the Americas, EMEA and Asia/Pacific; South Korea is its largest market. China sales use a cross-border e-commerce model. In June 2023, the company launched Trulu, a separate U.S. affiliate business.
Financial results and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $132.0 million | $137.2 million |
| Gross profit / gross margin | $102.9 million / 78.0% | $104.1 million / 75.9% |
| Operating loss | $1.0 million | $0.4 million |
| Loss before income taxes | $1.1 million | $0.5 million |
| Income tax provision | $1.1 million | $4.0 million |
| Net loss / loss per diluted share | $2.2 million / $1.20 | $4.5 million / $2.35 |
| Cash used in operating activities | $2.4 million | $2.6 million |
| Cash and cash equivalents at year-end | $7.7 million | $13.8 million |
| Working capital at year-end | $1.9 million | $5.1 million |
- GAAP sales fell 3.8%; on the company’s constant-dollar basis, they declined 2.1%. Unfavorable foreign exchange reduced reported sales by $2.3 million.
- Gross margin improved, mainly from lower freight and shipping costs and supply-chain initiatives, partly offset by raw-material price increases. Selling and administrative expenses rose $1.2 million to $48.6 million, including higher Trulu start-up legal and consulting costs and marketing expenses.
- Commissions and incentives were $53.6 million, or 40.6% of sales, versus $55.5 million, or 40.4%, in 2022. Management reports commissions and incentives typically range from 35% to 43% of sales.
- Net loss narrowed largely because the tax provision fell from $4.0 million to $1.1 million, despite a larger operating loss. The FY2023 effective tax rate was negative 98.1%; management cites earnings mix across jurisdictions and valuation allowances.
- Total assets were $41.2 million and total liabilities were $30.7 million at year-end; shareholders’ equity was $10.5 million. Current assets were $27.7 million against current liabilities of $25.8 million.
- The company had $0.2 million of current notes payable, $1.2 million of finance lease liabilities and $4.2 million of operating lease liabilities. The filing reports no material traditional long-term borrowing at year-end.
- Financing cash outflows included $0.7 million of dividends, $0.2 million of share repurchases and about $1.0 million of repayments of finance-lease and other financing obligations. The annual dividend was $0.20 per share.
Changes versus FY2022
- Americas sales increased 2.9% to $42.8 million. Asia/Pacific sales declined 5.3% to $79.4 million, and EMEA sales declined 16.9% to $9.8 million.
- Product sales decreased 3.8%; order volume fell 7.2%, partly offset by a higher average order value ($180 versus $175). Active positions were approximately unchanged at 145,000, but continuing positions fell from 70,000 to 66,000, while new positions increased from 75,000 to 79,000.
- Cash and cash equivalents declined by $6.0 million. Cash used in investing and financing activities also declined year over year.
- Net loss improved by $2.3 million, but operating loss increased by $0.6 million. Management says Trulu incurred a $1.1 million start-up operating loss; excluding it from constant-dollar operating results, management estimates FY2023 operating profit of about $0.7 million.
Outlook, risks and unusual items
- No quantified revenue or earnings guidance is provided. Management says existing liquidity and projected operating cash flows should fund normal operations for the next 12 months, while acknowledging that cash use has reduced short-term liquidity.
- A 2024 reorganization plan targets revenue growth, margin improvement and cost control, including a planned price increase, supply-chain savings, compensation-plan adjustments and lower fixed overhead. The company says execution and cash generation remain important to liquidity.
- A supplier agreement requires $4.2 million of purchases through 2024. Management was negotiating to amend the commitment to better match demand; failure to meet it could threaten exclusivity.
- Subsequent to year-end, the board authorized proposed unsecured promissory notes totaling about $3.6 million from related parties, including three directors, for working capital and other needs. The company said it intended to complete the financing after receiving a fairness opinion; this was not reported as completed in the filing.
- Leadership changes: CFO David Johnson resigned effective January 22, 2024. CEO Alfredo Bala announced retirement effective April 1, 2024, with severance of $0.4 million; President and COO Landen Fredrick was to become CEO and serve as interim CFO while the company searched for a permanent CFO.
- Regulatory and supply risks include scrutiny of network-marketing compensation and associate claims, dietary-supplement regulation, foreign-exchange exposure, and dependence on third-party manufacturers. The FDA refused admission of one Ambrotose Life powder lot in February 2023; the company arranged its return. Earlier labeling issues were corrected, but the company warns that future holds could disrupt supply.
- The company reported no open or pending litigation at December 31, 2023. Its independent auditor issued an unqualified opinion on the financial statements and identified transfer-pricing policy evaluation as a critical audit matter. Management assessed disclosure controls and internal control over financial reporting as effective; the auditor was not engaged to audit internal control.
Important facts for investors to verify
- Whether the proposed $3.6 million related-party financing closed, and its final terms, fairness review and use of proceeds.
- Whether the $4.2 million supplier commitment was renegotiated and how it affects cash needs, product supply and exclusivity.
- Whether the 2024 cost and pricing initiatives improve margins and operating cash flow without weakening associate retention or sales.
- Trulu’s sales, affiliate participation and ongoing losses, given results were below expectations and start-up losses were material relative to operating performance.
- Trends in continuing associates, order volumes and Asia/Pacific sales, including exposure to South Korea and foreign-exchange movements.
- The outcome of CEO/CFO transitions and recruitment of a permanent CFO, alongside the company’s low cash balance and negative operating cash flow.
- Any further FDA actions, product holds or supply-chain interruptions affecting Ambrotose products or other key offerings.