Mannatech's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Mannatech Inc. (MTEX)

Q2 2012 Results Earnings Call

August 9, 2012 10:00 AM ET


Mark Nicholls – Chief Financial Officer

Dr. Rob Sinnott – CEO and Chief Science Officer




Greetings. And welcome to the Mannatech Incorporated Second Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded.

Now, I’d like to introduce our moderator for the call today, Mr. Mark Nicholls, Chief Financial Officer. Mr. Nicholls, you may begin.

Mark Nicholls

Thank you. Good morning, everyone. This is Mark Nicholls, and welcome to Mannatech’s second quarter 2012 earnings call. Today you will hear from both me and Mannatech’s CEO and Chief Science Officer, Dr. Rob Sinnott. 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 terminologies 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 submissions.

At this time, I’d like to make a few brief comments concerning the second quarter. The second quarter 2012 net sales were $43.6 million, a 15.1% decrease from the second quarter 2011 net sales of $51.3 million.

The total number of active independent associates and members eligible to purchase our product based on a 12-month trailing period are approximately 378,000 as of June 30, 2012, compared to approximately 385,000 as of March 31, 2011, excuse me, June 30, 2011.

The recruitment of new independent associates and members accelerated in the second quarter of 2012 by $27.3 million -- 27.3% over the recruitment occurring in the first quarter 2012.

Recruitment of new independent associates and members in the second quarter of 2012 was approximately 27,570, compared to 20,000 in the second quarter of 2011, or an increase of 37.5%.

As stated in the first quarter 2012 earnings call, we view this as a positive development given new recruits, a leading indicator to our business. This is the second quarter for this leading indicator suggests the positive outlook, but we are cautious that our overall revenue trend has not changed at this time.

Net loss for the quarter was $2.4 million, or $0.93 a diluted share, as compared to a net loss of $5.2 million, or $1.98 per diluted share for the second quarter of 2011. A significant portion of the difference between quarters is attributed to our continued focus on reducing operating expenses. In the second quarter 2012, operating expenses were 44.7% of net sales, as compared to 49.1% in the second quarter 2011.

In the second quarter 2011, we under took a reorganization that dramatically reduced our headcount and associated expenses. Since then we are continued to identify areas to improving our operational efficiencies and reduce operating costs.

Our operating expenses in the second quarter of 2012 were $19.5 million, compared to $25.2 million in the second quarter of 2011.

The activities undertaken in the second quarter of 2012 included consolidating management responsibilities that created redundancy that led to a reduction in headcount and exploring opportunities to chang how we conduct our business. We recruit for redundancy related costs in the periods of reduction occurs.

For example, we recently began sourcing our distribution and warehousing functions to third-party logistic company for product fulfillment to our associates and members located in the United States.

We believe this arrangement presents an opportunity for Mannatech to reduce the time of delivery to an associate and member. Additionally, by subleasing our existing warehouse stake to the third-party logistics company, we are able to reduce our future operating expenses. I’ll refer listeners to the 8-K filed on July 9, 2012 for additional details.

For the quarter, gross profit as a percentage of net sales showed an increase of 0.8% as compared to the second quarter 2011. This improvement is primarily due to a decline in commissions and incentives expenses as a percentage of sales.

As mentioned above, we believe the increases in recruitment along with our continue identification of opportunities to improve our operational efficiencies are creating a foundation for growth and improved operating results.

For the six months of the year, net sales were [$88.1] million or down 13.8%, as compared to the $102.3 million net sales in the first six months of 2011.

Our gross profits for the first six months slightly improved 0.2% to $42.2 of net sales as compared to the first six months in 2011.

Operating expenses declined $11.5 million or 22% to $40.6 million for the first six months of 2012, compared to the $52.1 million of operating expenses for the first half of 2011.

Finally, our operating loss of $3.5 million for the first half of 2012 was an improvement of $5.7 million from the operating loss of $9.2 million reported in the first half of 2012.

In reviewing the balance sheet at June 30, 2012, our cash and cash equivalents have decreased by approximately $500,000 to a balance of $12.1 million at June 30, 2012, as compared to the $12.6 million on hand at March 31, 2012. This reduction in cash is primarily due to the purchases of inventories that occurred during the quarter.

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