Mannatech, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared with the same period in 2023. Mannatech sells nutritional supplements, skin-care and related wellness products primarily through a network-marketing model across 25 countries. It reported approximately 143,000 active associate and preferred-customer positions.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Net sales | $29.4 million | $34.1 million; down 13.8% |
| Gross profit / margin | $23.1 million / 78.6% | $26.7 million / 78.3% |
| Operating income / margin | $0.8 million / 2.8% | $0.7 million / 2.1% |
| Net income / net margin | $1.2 million / 4.0%; diluted EPS $0.63 | $0.6 million / 1.8%; diluted EPS $0.32 |
| Operating cash flow | $1.9 million provided | $1.4 million provided |
| Cash and cash equivalents | $7.9 million at March 31 | $7.7 million at December 31, 2023 |
| Working capital | $2.1 million | $1.9 million at December 31, 2023 |
Cash, cash equivalents and restricted cash totaled $9.5 million at quarter-end. Current notes payable were $0.5 million; finance lease liabilities totaled $1.2 million and operating lease liabilities $3.9 million. The company reported no long-term portion of notes payable. It used $0.1 million in investing activities and $0.3 million in financing activities during the quarter. No dividend was paid in Q1 2024.
Material changes and drivers
- Sales declined $4.7 million. Asia/Pacific sales fell 19.0% to $17.1 million, principally reflecting weaker revenue per active position and reduced recruiting amid weak economic conditions. Americas sales decreased 2.9% to $10.2 million; EMEA sales decreased 16% to $2.1 million.
- On the company’s non-GAAP constant-dollar basis, sales declined 11.4%; unfavorable currency translation reduced reported sales by approximately $0.8 million. The Korean won and Japanese yen were notable headwinds.
- Product sales decreased 12.5%; orders processed fell 7.1% and average order value declined to $168 from $185. Q1 recruiting decreased 13.6% to 16,027.
- Gross margin improved by 0.3 percentage points, attributed largely to lower freight and shipping costs and supply-chain initiatives. Selling and administrative expenses fell 15.5%, including lower legal and consulting fees and payroll costs.
- Net income increased despite lower sales, supported by lower expenses, improved gross margin and other income of $0.9 million, primarily from foreign-exchange gains and losses; the filing does not quantify the precise contribution of FX to earnings.
Outlook, risks and unusual items
- Management gave no specific numerical revenue or earnings guidance. It said cash and operating cash flows should fund normal expected operations for the next 12 months, while noting liquidity depends on maintaining or improving revenue relative to expenses.
- The 2024 reorganization plan targets revenue growth, margin improvement and cost control, including a price increase, supply-chain focus, compensation-plan adjustments and reduced fixed overhead. Management cautioned that unsuccessful execution, supply disruption or weaker consumer demand could harm sales and liquidity.
- Subsequent to quarter-end, on April 23, 2024, the company borrowed $3.6 million under three unsecured notes from directors/shareholders and related parties for working capital, non-U.S. operations and technology investment. The notes bear 16% annual interest, require quarterly interest payments beginning June 30, 2024, and mature September 30, 2026; they may be prepaid without penalty.
- CEO Alfredo Bala’s retirement was effective April 1, 2024; he became an advisor and is entitled to $0.5 million severance payable over two years. Landen Fredrick was identified as CEO and interim CFO in the filing.
- The company reported no open or pending litigation and no legal reserve at March 31. It disclosed ongoing international tax audits it believes are not material. Key risks include foreign-exchange exposure, recruitment and retention, regional demand, product competition, supply-chain performance and inventory obsolescence.
Important facts for investors to verify
- Whether recruiting, retention, order volume and average order value stabilize, particularly in Asia/Pacific.
- Execution and financial effects of the reorganization, pricing actions and compensation-plan changes.
- Cash generation and liquidity after the $3.6 million related-party borrowing, including the cost and use of the 16% financing.
- Whether foreign-exchange gains or losses and currency translation continue to materially affect reported results and cash.
- Progress on the CEO transition and the timing and payment of the $0.5 million severance obligation.