Mannatech, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 26, 2020. This is an annual report, not a standalone fourth-quarter report. Mannatech sells nutritional supplements, skin care and wellness products primarily through network marketing in 25 countries, with cross-border e-commerce in China.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $157.7 million | $173.6 million |
| Gross profit / margin | $126.2 million / 80.0% | $139.1 million / 80.1% |
| Operating income (loss) | $6.4 million | $(0.1) million |
| Net income (loss) | $3.3 million | $(3.9) million |
| Diluted EPS | $1.35 | $(1.53) |
| Cash from operations | $4.9 million | $(0.2) million |
- Sales fell 9.1% reported and 6.1% on a constant-currency basis; unfavorable foreign exchange reduced reported sales by $5.3 million.
- Operating expenses declined 14.0% to $119.7 million. Lower commissions and incentives, selling and administrative costs, and other operating costs helped return the company to operating and net profitability.
- Gross margin was nearly flat; management attributed the slight decline to increased inventory write-offs. Inventory reserves rose to $0.9 million from $0.5 million.
- Cash, cash equivalents and restricted cash totaled $31.0 million at year-end, including $6.2 million of restricted cash. Working capital was $12.1 million, up from $8.8 million.
- Year-end notes payable were $1.1 million and finance lease liabilities were $0.3 million. Operating lease liabilities were $6.9 million. The company reported no off-balance-sheet arrangements.
- Net cash used in investing was $1.2 million; financing activities used $2.7 million, including $1.2 million in dividends and $0.3 million in share repurchases. Dividends paid were lower than in 2018, when the company also repurchased $7.5 million of stock.
Changes and operating trends
- Active associate and preferred-customer positions fell to approximately 169,000 from 200,000. Product orders declined 5.8% to approximately 841,700, and average order value fell 3.6% to $190.
- Americas sales decreased 18.2% to $48.0 million; Asia/Pacific sales decreased 5.6% to $96.0 million; EMEA sales increased 3.8% to $13.7 million. Asia/Pacific generated 60.9% of total sales.
- The five largest named product lines accounted for 56.5% of sales, versus 55.6% in 2018. Ambrotose Life sales rose to $35.0 million, while Advanced Ambrotose sales declined to $22.4 million from $44.1 million.
- The effective tax rate was 42.5%, versus 894.7% in 2018, when the rate was unusually high due to jurisdictional earnings mix, valuation allowances and tax-law effects.
Outlook, risks and unusual items
- No specific 2020 financial guidance is provided. Management said year-end liquidity and operating cash flows were expected to fund normal operations for the next 12 months, but noted this depended on sales and cost performance.
- COVID-19 developments after year-end had already disrupted events and sales meetings and created raw-material, transportation and product-distribution challenges. The company said it could not estimate the impact on 2020 results, liquidity or operations.
- Key risks include ongoing declines in the active network, dependence on independent associates, intense competition, regulatory scrutiny of network marketing and product claims, foreign-currency exposure, and concentration in a few product lines. Foreign markets generated 76.6% of sales; the company did not hedge currency exposure.
- Four suppliers represented 56.0% of 2019 cost of sales. A supply agreement requires $5.3 million of purchases through 2022; the company identified Arabinogalactan and Manapol as ingredients without identified alternative suppliers.
- A Korean Fair Trade Commission audit report proposed no fines or sanctions, but final disposition was pending. Product-liability cases in China and Korea remained open; the filing said outcomes and potential losses could not be estimated clearly.
- The FDA had reported no objections to corrective actions addressing its prior warning letter, but requested a follow-up meeting in 2019. Management did not anticipate further action, while acknowledging further requests remained possible.
- The company adopted lease-accounting rules in 2019, recognizing lease assets and liabilities; management reported no significant effect on earnings or cash flows. The auditor issued an unmodified opinion on the financial statements.
Investor verification points
- Track associate/customer counts, order volumes and average order value to assess whether the sales decline is stabilizing.
- Review 2020 sales, cash generation and liquidity against COVID-related demand, event and supply-chain disruptions; distinguish restricted from available cash.
- Monitor product-line concentration and the sales trajectory of Ambrotose Life and Advanced Ambrotose.
- Check the final KFTC audit disposition, status of the Korea and China litigation, and any further FDA actions.
- Verify inventory write-offs and reserves, supplier concentration and fulfillment of minimum purchase commitments.