Rob Sinnott - CEO and Chief Science Officer Mark Nicholls - Chief Financial Officer.

Greetings and welcome to the Mannatech Incorporated First Quarter 2015 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..

Thank you. Good morning everyone. This is Mark Nicholls, and welcome to Mannatech’s first quarter 2015 earnings call. Today, you’ll 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 comment concerning our first quarter 2015 operating results.

Net income for the first quarter of 2015 is $1.1 million or $0.40 a diluted share as compared to net income of $228,000 or $0.08 a diluted share for the first quarter of 2014. First quarter 2015 net sales was $544.4 million, a $1.4 million increase or a 3.3% increase from the first quarter of 2014 net sales of $43 million.

Constant dollar net sales for 2015 increased by $3.2 million or 7.4%, as compared to the prior year.

We use constant dollar reporting to supplement our financial results presented in accordance with generally accepted accounting principles in the United States or GAAP and disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into U.S.

dollars including changes in net sales, deferred revenue, gross profit and income from operations. We use these non-GAAP measures to provide investors with an additional perspective on trends.

In the first quarter 2015, we continue to face foreign currency headwinds especially in our major currencies of Korean Won, Japanese Yen, Australian Dollar and the South African Rand. Net income was negatively impacted by approximately $932,000 as compared to a negative impact of $336,000 in the first quarter of 2014.

Our effective tax rate improved to 31.7% in the first quarter of 2015 as compared to 78.1% for the same period in 2014. We believe the current effective tax rate reflects the general improvement to our global operating efficiencies.

Recruiting of new independent associates and members decreased 0.4% in the first quarter of 2015 as compared to the first quarter of 2014. The number of new independent associates and members for the first quarter of 2015 was approximately 25,500 as compared to 25,600 in 2014.

The total number of active independent associates and members based on a 12-month trailing period was approximately 230,000 as of March 31, 2015 as compared to 246,000 as of March 31, 2014.

For the first quarter of 2015, our operations outside of North America accounted for approximately 59.2% of our consolidated net sales whereas in the same period in 2014, our operations outside of North America accounted for approximately 52.8% of our consolidated net sales.

Asia-Pacific net sales, increased by $3.7 million or 19.5% to $22.7 million in the first quarter of 2015 as compared to $19 million in the same period 2014. The increase in net sales is due primarily to an increase in average order size and $600,000 in Uth skin care product sales.

For the same period in 2014, we deferred $800,000 in revenue from the loyalty program, and the Uth skin care product had not yet been launched in the market. Fluctuations in Asia-Pacific foreign currency exchange rates had $1.3 million unfavorable impact on net sales during the three months ended March 31, 2015.

Europe, Middle East and Africa or EMEA net sales decreased by $100,000 or 2.7% in the first quarter of 2015 to $3.6 million as compared to $3.7 million for the same period in 2014. Active independent associates and members increased 16% as compared to the same period in the previous year.

Fluctuation in EMEA foreign currency exchange rate had a $500,000 unfavorable impact on net sales during the three months ended March 31, 2015. Uth skin care product sales increased net sales by $100,000 during the first quarter of 2015.

For the same period in 2014, we deferred $200,000 in revenue from royalty program and Uth skin care products had not yet been launched in the market.

North America net sales decreased by $2.2 million or 10.8% in the first quarter of 2015 to $18.1 million as compared to $20.3 million in the same period in 2014 due to 15.7% declined in active independent associates and members. For the same period in 2014 $1.2 million in revenue was deferred from the royalty program.

Our operating income for the first quarter of 2015 is $2.5 million as compared to operating income of $1.4 for the first quarter of 2014.

The increase in operating income was attributable to the improvement in cost of sales as a percentage of net sales to 19.3% to 21.9% for the same period in 2014 due to a reduction in the charge of inventory obsolescence.

In reviewing the balance sheet at March 31, 2015, our cash and cash equivalents have increased by approximately $400,000 to a balance of $28.4 million as compared to $28 million on hand at December 31, 2014.

Cash flow from operating activities was $1.2 million in-flow for the quarter in 2015 as compared to $93,000 outflow during the same period in 2014. During the first quarter 2015, we invested $3.1 million in the acquisition of finished goods inventory. During the same period in 2014, we had a net inventory investment of $895,000.

The 27% increase in inventory as compared to December 31, 2014 was proportionately spread across all geographic regions.

We invested approximately $787,000 in property and equipment and repaid approximately $369,000 in capital lease obligations during the first quarter of 2015, as compared to approximately $123,000 investment in property and equipment and capital lease payments of approximately $266,000 in the same period of 2014.

In summary, our net cash inflow for the first quarter of 2015 was approximately $400,000 as compared to a net cash outflow of $220,000 for the same period of 2014. Our working capital defined as total current assets plus total current liabilities increased by $700,000 to $17.1 million as compared to $16.4 million at December 31, 2014.

Our net inventory balances increased to $13.5 million at March 31, 2015 as compared to $10.6 million at December 31, 2014. Total liabilities increased $2.3 million to $38.3 million at March 31, 2015 as compared to $36 million at December 31, 2014.

Finally, during the first quarter of 2015, we did not pay dividends and we did not repurchase shares on the open market. At this time, I will turn the call over to Mannatech’s CEO and Chief Science Officer, Dr. Rob Sinnott..

Thank you, Mark. Welcome to our shareholders, associates, customers and employees. Thank you for joining us on this quarterly call. Mark Nicholls has briefed you on the financials for this quarter. Producing good financial results is important for all of us.

We are pleased that we have been able to continue our year-over-year sales growth, keep our SG&A expenses below budget and create operating profit that exceeds that of Q1 last year. Mannatech has a clear vision of how we want to continue growing.

This includes expanding it to new global markets, increasing the public awareness around our high-quality product offerings and encouraging more people to become entrepreneurs to take part in our generous compensation plan. We will be exposing our current associates and thousands of potential new associates to this vision.

With our new sales and marketing efforts, we have strong core values that give us solid foundation on which to build our revitalized Mannatech brand. Over the past two decades since Mannatech was founded, communications technologies have improved. The people’s attention spans have shortened.

Our power to reach an audience has expanded but the likelihood of engaging the consumer has lessened. People are bombarding with information and messages daily via e-mail, social media and traditional media. This constant deluge has resulted in a consumer base that wants simple crisp messages.

Therefore our wellness proposition is being distilled and crystallized to create a concise and compelling message that can be recited by every associate with confidence. We will reinforce our messaging at every global event and in every piece of communication that Mannatech produces.

Our whole business model is about people taking ownership of their lives. Mannatech is all about entrepreneurialism and wellness. Both of these trends are on an upswing globally. So we plan on riding these waves up.

The way we contribute value to the world is by providing wellness entrepreneurs with top quality products that they can proudly represent and sell. Mannatech has shown that it can do well where people value entrepreneurial business opportunity and highest quality wellness products.

Therefore we have a lot more opportunity to expand globally, especially in developing economies. We initiated this with our new entry in the Hong Kong and Spain. We also intend to capture more market share where we already have markets open and operating, by increasing our recruiting, training and retention.

We create value to our business model and our proprietary wellness technologies. We have built a strong foundation over two decades that we can leverage for future growth. We have a strong culture and an extensive portfolio of high quality scientifically validated products.

We have a large global footprint that currently includes 24 countries of operation. We have strong global growth opportunities available to us as we continue to improve our attractiveness for new associates and customers to join us. The remaining issues facing us are that sales growth has been very uneven globally.

So, our mandate is to feed growth opportunities where they exist while insisting on profitability from all our markets through restructuring, to increase operational efficiency. Much of the world has changed in two decades since Mannatech was founded.

Our global footprint has evolved dramatically over the past several years, so that most of our sales are outside North America. Knowing that this trend will continue, we are committed to getting product to our associates and customers faster and more affordably. Mannatech still has a lot of growth potential to unlock.

We are very pleased how we support our current associates and customers. And we look forward to welcoming many new people to come along with us into the future. We have a strong partnership amongst our global employees and our associates which supports our growth.

The management team has succeeded in building the value of this company for our shareholders in the recent years. We are fully committed to continue our growth going into the future. Thank you for joining us on this quarterly call..

Thank you for listening to Mannatech’s first quarter 2015 earnings call. As a reminder company information and filings can be found at the company’s investor relations website ir.mannatech.com or by reviewing SEC submissions. This concludes today’s conference call..

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