Mannatech, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited, consolidated results. Mannatech sells nutritional supplements, skin care and wellness products primarily through a network-marketing channel across three regions, plus e-commerce retail in China.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $38.3 million | $36.6 million | +4.7% |
| Gross profit / margin | $31.1 million / 81.2% | $29.6 million / 80.9% | +5.1% gross profit |
| Operating income / margin | $2.8 million / 7.3% | $2.0 million / 5.5% | +38.7% |
| Net income / margin | $2.2 million / 5.7% | $2.8 million / 7.6% | −21.3% |
| Diluted EPS | $1.04 | $1.15 | −9.6% |
| Cash from operations | $2.7 million | $2.1 million | +$0.6 million |
Revenue growth was primarily currency-driven: favorable foreign exchange added about $1.5 million to reported sales. On the company’s non-GAAP constant-dollar basis, sales increased 0.5%. Product sales were flat at $35.9 million, while pack sales and associate fees rose to $2.2 million from $0.5 million.
Operating expenses increased 2.6% to $28.3 million, slower than sales growth. The effective tax rate was 13.3%, compared with a tax benefit and a (50.4)% effective rate in Q1 2020; the prior-year result included a $1.2 million CARES Act net-operating-loss carryback benefit. This largely explains why net income declined despite higher operating income.
Regional and operating trends
- Americas sales fell 6.0% to $11.0 million, primarily due to lower revenue per active associate and preferred customer, partly offset by more active positions.
- Asia/Pacific sales rose 9.8% to $23.5 million; foreign exchange contributed about $1.4 million of the increase.
- EMEA sales rose 8.6% to $3.8 million, with foreign exchange contributing about $0.1 million.
- The company reported approximately 187,000 active associate and preferred-customer positions over the trailing 12 months, versus 166,000 a year earlier. Product orders declined 4.2% to 201,729.
Liquidity, debt and capital
At March 31, 2021, cash and cash equivalents were $23.6 million and restricted cash was $4.1 million. Working capital was $12.9 million, up from $10.5 million at year-end 2020. Operating cash flow was $2.7 million; investing activities used $0.1 million and financing activities used $1.0 million. Cash, cash equivalents and restricted cash totaled $27.6 million, a $0.1 million increase during the quarter.
Current notes payable were $0.8 million, with no long-term notes payable reported. Finance lease liabilities totaled $0.2 million; operating lease liabilities totaled $7.3 million. The company paid $0.3 million in dividends and repurchased $0.4 million of stock. Total contractual commitments and obligations were reported at $17.6 million, including purchase obligations, leases, financing arrangements and other items.
Outlook, risks and unusual items
- Outlook: No specific revenue or earnings guidance is provided. Management believes available liquidity and operating cash flows can fund normal business operations for the next 12 months, dependent on maintaining revenue and controlling expenses.
- COVID-19: Restrictions, disrupted events, workforce or supply-chain interruptions, and weaker consumer demand could affect sales and liquidity. Management says the full impact remains uncertain.
- Foreign exchange and concentration: Currency movements materially affected reported sales and cash. A significant share of cash and operating cash flows is concentrated in South Korea; adverse local economic conditions could harm results.
- Litigation: A South Korean product-liability case remained open; plaintiffs’ stated actual-damages request was reduced to about $82,533, with judgment then scheduled for June 16, 2021. A China product and consumer-law case seeks about $286,600. The company said outcomes could not be predicted and recorded no legal reserve at March 31, 2021.
- Other exposures: Ongoing tax audits and disputes, regulatory and product-related risks, dependence on recruiting and retaining distributors, and foreign-currency movements may affect results. The company reported effective disclosure controls and no material quarter-to-quarter change in internal control over financial reporting.
Important facts for investors to verify
- How much future sales growth reflects underlying demand versus foreign-exchange translation, and whether product-order declines persist.
- Whether the higher pack and associate-fee revenue continues, and how active-position growth translates into product sales.
- The sustainability of margins and earnings after the unusually favorable prior-year tax benefit is excluded from comparisons.
- Cash availability by jurisdiction, South Korea concentration, and the company’s ability to fund contractual obligations and operations from operating cash flow.
- Developments and potential financial exposure in the South Korean and China litigation, plus outcomes of tax audits.