Mannatech, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated results compared with Q1 2022. Mannatech sells nutritional supplements, skin-care and weight-management products primarily through network marketing across three regions. It reports one operating segment.
Financial performance and position
- Revenue: Net sales were $34.1 million, up 5.3% from $32.4 million. On a constant-currency, non-GAAP basis, sales increased 10.2% to $35.7 million. Foreign exchange reduced reported sales by $1.6 million.
- Regional sales: Americas $10.5 million (+1.9%); Asia/Pacific $21.1 million (+10.5%); EMEA $2.5 million (-16.7%). Asia/Pacific growth included a March promotion generating $3.3 million; the comparable promotion occurred in April 2022.
- Profit and margins: Gross profit was $26.7 million, up 5.6%; gross margin was 78.3%, versus 78.1%. Operating income was $0.7 million, compared with $0.04 million. Net income was $0.6 million, versus $0.1 million; diluted EPS was $0.32, versus $0.06. The effective tax rate rose to 43.6% from 0.7%, primarily reflecting jurisdictional earnings mix and valuation allowances.
- Expenses: Operating expenses increased 2.9% to $26.0 million. Selling and administrative expense declined 7.1% to $6.4 million, while other operating costs rose 14.6% to $5.6 million, primarily due to higher consulting fees, travel and entertainment, and bad debt expense.
- Cash flow: Operating activities provided $1.4 million, versus $0.6 million. Investing used $0.1 million and financing used $0.6 million, including $0.4 million of dividends. Cash, cash equivalents and restricted cash ended at $15.1 million, down $0.1 million from year-end; foreign exchange reduced cash by $0.8 million.
- Liquidity and obligations: Cash and cash equivalents were $13.7 million; working capital was $5.2 million. Current assets were $36.5 million and current liabilities $31.3 million. Notes payable were $0.6 million, mainly short-term insurance financing. Lease liabilities totaled $6.7 million ($5.4 million operating and $1.3 million finance). The company reported no long-term borrowing balance.
- Capital returns: A $0.20-per-share dividend, totaling approximately $0.4 million, was paid in March. No shares were repurchased during the quarter.
Changes, outlook and risks
- Sales growth reflected higher average order value ($185 versus $179) and increased Asia/Pacific sales; order volume fell 3.7%. The reported active associate and preferred-customer base declined to approximately 143,000 from 157,000 a year earlier. EMEA weakness was attributed in part to fewer active positions, the war in Ukraine and inflation.
- Management said existing liquidity and operating cash flows should fund normal operations for the next 12 months. This depends on maintaining or increasing revenue and/or controlling expenses; additional funding could be needed if resources become insufficient, and may not be available on favorable terms.
- Management cited foreign-exchange volatility, associate recruitment and retention, inflation, supply-chain disruption, consumer demand, regulation, competition and adverse publicity as risks. Approximately 69.2% of sales came from outside the Americas. Cash and operating activity are concentrated in South Korea, creating geographic exposure.
- A South Korean customs audit concluded in April 2023 and required a tariff modification for one product. The company estimated a $0.1 million 2023 financial impact.
- The company received an FTC notice letter in April concerning substantiation of product claims and endorsements. The filing says receipt is not a determination of wrongdoing and no formal action was known to the company at the time.
- The company entered a five-year sublease for 10,000 square feet of its Flower Mound office, but remains responsible under the head lease. It also has a supplier commitment of $4.5 million through 2023 and $2.6 million annually through 2024.
- No specific earnings or revenue guidance was provided. Management noted that interim results are not necessarily indicative of full-year results. It reported effective disclosure controls and no material quarter-over-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Whether constant-currency sales growth and regional trends persist, particularly after the Asia/Pacific promotion and amid declining active positions and order counts.
- Whether operating cash flow remains adequate after tax payments, dividends, lease obligations and supplier commitments.
- The effect of currency movements and South Korea business concentration on reported sales, cash and earnings.
- Developments from the FTC notice and the customs audit, including any additional regulatory or tax exposure.
- Whether management’s cost-control and recruitment efforts can offset elevated operating costs and weakness in EMEA.