Mannatech Inc. Q2 2010 Earnings Call Transcript

Mannatech Inc. Q2 2010 Earnings Call Transcript
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Mannatech Inc. (MTEX)

Q2 2010 Earnings Call

August 5, 2010 10:00 am ET

Executives

Gary Spinnell - VP of Finance and Adminsitration

Dr. Robert Sinnott - Co-CEO and CSO

Steve Fenstermacher - Co-CEO and CFO

Analysts

Presentation

Operator

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Greetings and welcome to the Mannatech Incorporated second quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, the conference is being recorded.

Now, I would like to introduce our moderator for call today, Mr. Gary Spinnell, Senior Vice President of Finance and Administration. Thank you, Mr. Spinnell, you may begin your conference.

Gary Spin

n

ell

Thank you and good morning everyone. This is Gary Spinnell and I welcome you to Mannatech’s second quarter 2010 earnings call. Today you will hear from Mannatech's Co-CEO's, Dr. Robert Sinnott and Stephen Fenstermacher. Before we begin the call, I will first read the Safe Harbor statement.

During this conference call, we may make forward-looking statements, which can involve future events or future financial performance. Forward-looking statements generally can be identified by the use of phrases or terminology such as will continue, may, believe, intend, expects, potential, should, and plan or other similar words or the negative of such terminology. We caution listeners that such forward-looking statements are subject to certain events, risks, uncertainties and other factors and speak only as of today. We also refer our listeners to review our SEC submission.

Thank you. And now, I will turn the call over to Dr. Robert Sinnott, Co-CEO and Chief Science Officer.

Dr. Robert Sinnott

Thank you, Gary. Good morning everyone. This is Rob Sinnott, Co-CEO and Chief Science Officer of Mannatech. I am joined on our call by Co-CEO Steve Fenstermacher and President of International, Randy Bancino. We appreciate your interest in our company. I will make a few opening comments and then turn the call briefly to Steve Fenstermacher.

Before I begin, I would like to provide some perspective on Mannatech’s business. Although sales softened in the quarter, on an operating basis we were cash flow positive and now have over $20 million in cash on the balance sheet, with essentially no long-term debt.

We continue to bring compelling research results to market. We are building new partnerships and our expansion plans are right on schedule. Once we have completed our key associate support initiatives later this year, our associates will having the convincing and comprehensive set of tolls and programs to interest new customers the world over.

Before I comment further on the quarter and on our future, I would like to turn the call briefly over to my Co-CEO Steve Fenstermacher.

Ste

v

e Fenstermacher

Thanks Rob and good morning everyone. We have now completed the first half of 2010 and the Mannatech along with many of our competitors can more clearly view the current landscape of nutritional supplement business along with the networking direct sale model. Many of our contemporaries so far this earning season have mentioned the difficult domestic sales environment in the United States and Canada. And that difficult environment also had a major impact on Mannatech’s domestic and over all sales results for the second quarter. Rob now has additional comments.

Dr. Robert Sinnott

Thanks Steve. The second quarter of 2010 was one of mixed results for Mannatech. Mannatech's cost of sales and commission expenses were lower than prior year and also lower as the percentage of sales. Also, expense levels remained low prior year levels and that’s all good news. At the same time, our second quarter sales were somewhat sluggish. Sales slowed in the first quarter of this year during a transition to new programs, being implemented at the start of the incentive program. And the incentive was pushed back into late February.

Some of this slowdown in momentum continued into the second quarter. Although we experienced an increase in recruiting and pack sales in the second quarter, compared to the first quarter, sales were impacted by a decrease in finished product sales.

Lastly, there remains some lingering impact on the business worldwide related to the recent economic environment. Consequently, our associates stated some additional challenges in the marketplace. However, we are addressing these challenges which I will discuss in greater detail in just a few moments.

For the second quarter we reported a net loss of $3.8 million or $0.14 per share. This compares to a net loss of $5.5 million or $0.21 per share in the second quarter of 2009. However, our EBITDA was positive by a $158,000, meaning that we were cash flow positive from operations in the second quarter.

Second quarter sales for 2010 were $57.6 million, a decrease of 26% from the same quarter in 2009. North American sales declined 32% compared to the second quarter of 2009. Last year’s sales were void by a one-time program designed to increase recruiting which drove North American sales levels higher for part of the year. Although the program enjoyed the significant increase in pack sales, it did not generate continuing automatic order sales.

International sales were soft during the second quarter of 2010 compared to the same quarter for 2009. Regarding recruiting activity, we added 22,775 new associates and members in the second quarter versus 20,913 in the first quarter of 2010, and compared to 43,953 added in the second quarter of 2009. Most of the decrease in recruiting occurred in our North American market. Total associates and members who made a purchase in the 12 months were approximately 450,000 as of the end of this quarter, compared to 532,000 at the end of 2009.

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