Mannatech, Inc. — Q1 2022 Form 10-Q
Business context and period. Mannatech develops and sells nutritional supplements, skin care, anti-aging, and weight-management products through a network-marketing business and China e-commerce operations. This unaudited report covers the three months ended March 31, 2022, compared with Q1 2021. The company reported one operating segment and approximately 157,000 active associate and preferred-customer positions over the prior 12 months.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $32.4 million | $38.3 million |
| Gross profit / margin | $25.3 million / 78.1% | $31.1 million / 81.2% |
| Operating income / margin | $0.04 million / 0.1% | $2.8 million / 7.3% |
| Net income | $0.13 million | $2.2 million |
| Diluted EPS | $0.06 | $1.04 |
| Cash provided by operating activities | $0.6 million | $2.7 million |
- Sales fell 15.5% year over year; on the company’s non-GAAP constant-dollar basis, sales declined 11.5%. Foreign exchange reduced GAAP sales by approximately $1.5 million.
- Gross margin contracted 3.1 percentage points, with management citing rising supply-chain costs. Operating expenses declined 10.8%, but increased as a share of sales to 78.0% from 73.9%.
- Cash and cash equivalents were $23.4 million at March 31, 2022, versus $24.2 million at year-end 2021. Working capital was $12.1 million, compared with $12.7 million at year-end.
- Current notes payable were $0.6 million. Finance lease liabilities totaled approximately $0.1 million; operating lease liabilities were $5.9 million. The company reported no off-balance-sheet arrangements.
- Cash used in investing was $0.2 million, primarily for back-office software. Financing used $0.5 million, including $0.4 million of dividends. The board declared a $0.20-per-share dividend, paid March 30, 2022.
Changes and business drivers
- Sales decreased in all regions: Americas to $10.3 million (down 6.4%), Asia/Pacific to $19.1 million (down 18.7%), and EMEA to $3.0 million (down 21.1%). Asia/Pacific remained the largest region, contributing 60% of sales.
- Product sales declined 14.2%; pack sales and associate fees declined 40.9%. Product orders decreased 6.0% to 189,700, while average product order value fell 4.3% to $179.
- Management attributed weaker sales to supply constraints and postponed promotions, lower active associate/customer counts in several regions, and foreign-exchange headwinds. Asia/Pacific sales also reflected COVID-19 disruption in Hong Kong and $0.9 million of revenue deferred for shipped orders not yet received by customers.
- Net income declined 93.9%. The income tax provision was approximately $1,000, with a reported effective tax rate of 0.7%, versus 13.3% in Q1 2021.
Outlook, risks, contingencies, and unusual items
- Management believes existing liquidity and operating cash flows are adequate for normal business needs over the next 12 months, but this depends on maintaining or improving revenue relative to operating expenses. No numerical sales or earnings guidance was provided.
- Key risks include supply-chain disruption, inflation, COVID-19 effects on customers and distributors, the Russia-Ukraine conflict, foreign-currency movements, changing consumer demand, and the ability to recruit and retain associates. The company noted that a significant portion of cash and operating cash flows is concentrated in South Korea; net assets there were $21.1 million at quarter-end.
- A supplier agreement requires $3.3 million of purchases through 2022. The company also disclosed ongoing tax audits and disputes, but said it could not predict potential liabilities; it considered the audits not material and recorded no legal reserve at March 31.
- A China product-liability case seeking approximately $286,600 was decided in the company’s favor; the appellate court affirmed the decision in April 2022, and the company considered the matter closed.
- The company received an FTC notice concerning money-making opportunity and endorsement/testimonial claims. The filing says receipt is not a determination of wrongdoing, but a formal enforcement action could potentially seek civil penalties of up to $43,792 per violation.
Important facts for investors to verify
- Whether supply availability, deferred shipments, and planned promotions improved after quarter-end, especially in Asia/Pacific.
- Whether sales and active associate/customer trends stabilized, and whether the decline in order value and pack/fee revenue continued.
- How gross margins and operating cash flow evolved amid higher supply-chain costs and lower sales.
- How much cash is practically available across jurisdictions, given the South Korea concentration and restricted cash.
- Any subsequent developments in FTC matters, tax audits, or other contingencies, and the status of the $3.3 million supplier commitment.