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Mannatech, CEO, Al Bala

Mannatech Reports 2017 Q4 Net Sales Up 8.9% to $46.4 Million

Mannatech, Incorporated (NASDAQ: MTEX), a global health and wellness company committed to transforming lives to make a better world, today announced financial results for its fourth quarter of 2017.

Fourth quarter net sales for 2017 were $46.4 million, an increase of $3.8 million, or 8.9%, as compared to $42.6 million in the fourth quarter of 2016.

Income (loss) from operations increased to $1.1 million for the fourth quarter 2017, from ($0.2) million in the same period in 2016. Net (loss) was ($3.7) million, or ($1.37) per diluted share, for the fourth quarter 2017, as compared to ($1.1) million, or ($0.42) per diluted share, for the fourth quarter 2016.

On July 1, 2017, we revised our 2017 Associate Compensation Plan, which was designed to stimulate business growth and development for our active business building associates and to maximize the buying experience for our preferred customers. In doing so, the Company hopes to better utilize commission dollars to stimulate Company growth.

The 2017 Associate Compensation Plan provides revised income streams, new leadership levels and titles, and modified various volume requirements for our associates. In addition, the 2017 Associate Compensation Plan re-designated members as preferred customers and modified their pricing structure.

For the three months ended December 31, 2017, Mannatechs operations outside of Americas accounted for approximately 67.5% of Mannatechs consolidated net sales.

For the three months ended December 31, 2017 and 2016, net sales for North America and South America (“the Americas”) decreased by $1.1 million, or 6.8%, to $15.1 million, as compared to $16.2 million for the same period in 2016. In constant dollars (a non-GAAP financial measure), fourth quarter 2017 net sales would have remained the same at $15.1 million.

For the three months ended December 31, 2017, Asia/Pacific net sales increased by $4.8 million, or 20.9%, to $27.8 million, as compared to $23.0 million for the same period in 2016. Net sales comparisons for the fourth quarter were affected by the impact of fluctuations in foreign currency exchange rates. In constant dollars (a non-GAAP financial measure), fourth quarter 2017 net sales would have been $0.8 million lower, or $27.0 million. The currency impact was primarily due to the appreciation of the Korean Won and Australian Dollar, partially offset by the depreciation of the Japanese Yen.

For the three months ended December 31, 2017, net sales for Europe, the Middle East and Africa (EMEA’) increased by $0.1 million, or 2.9%, to $3.5 million, as compared to $3.4 million for the same period in 2016. In constant dollars (a non-GAAP financial measure), net sales for the fourth quarter 2017 would have been $0.2 million lower, or $3.3 million. The currency impact was primarily due to the appreciation of the Euro and South African Rand.

As a result of higher sales, product mix and favorable exchange rates, gross profit increased by $2.2 million to $36.5 million for the three months ended December 31, 2017, as compared to $34.3 million for the same period in 2016.

Due to transition costs associated with implementing the 2017 Associate Compensation Plan, commissions as a percentage of net sales were 40.6% for the three months ended December 31, 2017, as compared to 39.3% for the same period in the prior year. Incentive costs as a percentage of net sales were 2.8% for the three months ended December 31, 2017, as compared to 3.4% for the same period in 2016.

For the three months ended December 31, 2017, overall selling and administrative expenses decreased by $0.3 million to $8.7 million, as compared to $9.0 million for the same period in 2016. The decrease in selling and administrative expenses consisted primarily of a $0.8 million decrease in payroll related costs and a $0.2 million decrease in stock based compensation expense, partially offset by a $0.5 million increase in marketing costs and $0.2 million increase in warehouse costs as we expand our non-direct selling business in China.

For the three months ended December 31, 2017, other operating costs decreased by $0.7 million to $6.2 million, as compared to $6.9 million for the same period in 2016. The decrease in other operating costs was primarily due to a decrease in legal and consulting fees as well as office expenses.

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (“Act”). Among other things, the Act changed the U.S. statutory rate to 21% effective January 1, 2018. The income tax provision for the three months ended December 31, 2017 was $4.4 million. We remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. In addition, the one-time transition tax is based on our total unrepatriated earnings and profits not previously subject to U.S. income tax.

The approximate number of new and continuing independent associate and member positions held by individuals in Mannatechs network and associated with purchases of our packs or products as of December 31, 2017 and 2016 were approximately 215,000 and 222,000, respectively. Recruiting decreased 18.9% in the fourth quarter of 2017 as compared to the fourth quarter of 2016. The number of new independent associate and member positions in the companys network for the fourth quarter of 2017 was approximately 21,000 as compared to 25,900 in 2016.

Year End Results

Overall net sales decreased $3.6 million, or 2.0%, for 2017, as compared to 2016. During 2017, fluctuations in foreign currency exchange rates had an overall favorable impact on our net sales. During 2017, our net sales declined 3.3% on a Constant dollar basis (a Non-GAAP financial measure); favorable foreign exchange during 2017 caused an increase of $2.3 million. Net loss for 2017 was ($1.8) million, or ($0.66) per diluted share, as compared to ($0.6) million, or ($0.22) per diluted share, for 2016.

For the year ended December 31, 2017, our operations outside of the Americas accounted for approximately 63.7% of our consolidated net sales, whereas in the same period in 2016, our operations outside of the Americas accounted for approximately 61.1% of our consolidated net sales.

Sales for the Americas decreased by $6.0 million, or 8.5%, to $64.2 million for 2017 as compared to $70.2 million for the same period in 2016. During 2017, Asia/Pacific sales increased by $2.6 million, or 2.7%, to $98.8 million, as compared to $96.2 million for 2016. During 2017, EMEA sales decreased by $0.2 million, or 1.4%, to $13.7 million, as compared to $13.9 million for 2016.

Gross profit as a percentage of net sales increased to 79.8% for 2017, as compared to 79.7% for 2016.

Commission expenses increased for the year ended December 31, 2017, by 1.1%, or $0.8 million, to $71.3 million, as compared to $70.5 million for the same period in 2016. Commissions as a percentage of net sales were 40.4% for the year ending December 31, 2017 and 39.1% for the same period in the prior year due to transition costs as we transitioned from our legacy Associate Compensation Plan to the launch of our new Associate Compensation Plan on July 1, 2017.

Incentive costs decreased for the year ended December 31, 2017 by 13.5%, or $0.5 million, to $3.2 million, as compared to $3.7 million, for the same period in 2016. The costs of incentives, as a percentage of net sales increased to 1.8% for the year ended December 31, 2017, as compared to 2.1% for the same period in 2016.

For the year ended December 31, 2017, overall selling and administrative expenses decreased by $1.7 million, or 4.7%, to $35.5 million, as compared to $37.2 million for the same period in 2016. The decrease in selling and administrative expenses consisted of a $1.5 million decrease in payroll related costs as we had a greater number of employees in the prior comparative period, a $0.2 million decrease in marketing costs, and a $0.4 million decrease in stock based compensation expense. These decreases were partially offset by a $0.4 million increase in warehouse costs as we expand our non-direct selling business in China.

For the year ended December 31, 2017, other operating costs decreased by $3.1 million, or 10.5%, to $26.6 million, as compared to $29.7 million for the same period in 2016. For the year ended December 31, 2017, other operating costs, as a percentage of net sales, were 15.1%, as compared to 16.5% for the same period in 2016. The decrease was due to a $1.2 million decrease in travel and entertainment costs, a $0.5 million decrease in legal and consulting fees, a $0.3 million decrease in office expenses, and a $0.2 million decrease in each of the following expense categories: bad debt expense, accounting and auditing fees, and research and development. In addition, the decrease was further caused by a $0.4 million impairment of internally developed software during the third quarter of 2016.

As of December 31, 2017, our cash and cash equivalents increased by 31.4%, or $9.0 million, to $37.7 million from $28.7 million as of December 31, 2016. Cash provided by operating activities increased by $10.0 million for the year ended December 31, 2017 compared to the same period in 2016. During the year ended December 31, 2017, we invested $1.1 million in computer hardware and software, $0.1 million for leasehold improvements and $0.1 million in office furniture and equipment. During this period, our financing activities included repayments of $1.6 million for capital lease obligations, payments of $1.4 million for dividends to shareholders, and repurchases of $0.2 million in common stock.

Our accounts payable balance at December 31, 2017 increased to $6.0 million, compared to $5.2 million at December 31, 2016, primarily due to event costs. At December 31, 2017, our commissions and incentives payable increased to $9.7 million from $8.8 million at December 31, 2016, due to a new schedule of commission payments that was implemented with the rollout of the 2017 Compensation Plan.

About Mannatech

Mannatech, Incorporated, offers a profound wellness experience that makes a difference in the lives of people across the world. Through its innovative Glyconutrition products, Mannatech changes lives, providing an unprecedented level of natural wellness, freedom and purpose. With more than 20 years of experience and operations in more than 26 markets, Mannatech is committed to changing lives. For more information, visit Mannatech.com.

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