Alfredo Bala - President, Chief Executive Officer David Johnson - Chief Accounting Officer.

Analysts:.

Greetings and welcome to the Mannatech Incorporated Fourth Quarter 2015 Earnings conference call. At this time, all participants are in listen-only mode. As a reminder, this conference is being recorded. Now I’d like to introduce our moderator for the call today, Mr. David Johnson, Chief Accounting Officer. Mr. Johnson, you may begin..

Thank you. Good morning everyone. This is David Johnson, and welcome to Mannatech’s fourth quarter 2015 earnings call. Today, you will hear from both me and Mannatech’s President and Chief Executive Officer, Al Bala. 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, expect, potential, should and plan, or other similar words or the negative of such terminologies.

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 will make a few observations concerning our fourth quarter of 2015 operating results.

Overall, Mannatech had a strong fourth quarter of 2015. Income from operations increased 7.7% to $2.8 million for the fourth quarter from $2.6 million in the same period of 2014. Net income was $1.5 million or $0.56 per diluted share for the fourth quarter of 2015 as compared to $1.9 million or $0.68 per diluted share for the fourth quarter of 2014.

For 2015, net income was $5.8 million or $2.14 per diluted share as compared to net income of $6.5 million or $2.40 per diluted share for 2014. The fourth quarter of 2015 net sales increased $0.1 million or 0.2% to $45.3 million compared to net sales of $45.2 million for the fourth quarter of 2014.

The net sales comparison for the quarter was affected by foreign exchange rates. On a constant dollar basis, net sales for fourth quarter 2015 increased by $2.7 million or 6% as compared to the prior year.

We use constant dollar reporting to supplement our financial results presented in accordance to 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, gross profit and income from operations. We use these non-GAAP measures to provide investors with additional perspective on trends.

Mannatech continues to have a strong global presence where it’s attractive, high quality, innovative technology appeals to international regions where consumers are concerned about health and wellness.

Although the detrimental impact of foreign exchange on Mannatech’s realized revenue is an issue that is affecting all industries that have a strong global presence such as Mannatech, the company remains successful on a global scale.

During the year and into the fourth quarter of 2015, we continued to face foreign currency headwinds, especially in our major currencies of the Korean won, Japanese yen, Australian dollar, South African rand, and the euro.

Due to these challenges, fourth quarter net income was negatively impacted by approximately $0.4 million as compared to a negative impact of $1.7 million in the fourth quarter of 2014. During 2015, net income was negatively impacted by approximately $4.2 million as compared to a negative impact of $3 million during 2014.

Those occupying a member or associate position in our network decreased for the quarter by 2% compared to the same period in the prior year. The number of new positions created by independent associates and members for the fourth quarter of 2015 was approximately 21,400 as compared to 21,900 in 2014.

The total number of active associate and member positions held by individuals in our network based on a 12-month trailing period was approximately 219,000 as of December 31, 2015 as compared to 230,000 as of December 31, 2014.

For the fourth quarter of 2015, our operations outside of North America accounted for approximately 58.9% of our consolidated net sales, whereas in the same period of 2014, our operations outside of North America accounted for approximately 57.5% of our consolidated net sales.

Mannatech continues focusing on international expansion throughout the world. The company’s new international executive leadership team and strong global associate leaders well equip the company for growth in these regions are intended to be the driving force behind increasing revenue for the long term.

Asia Pacific net sales increased by $1.6 million or 7.4% to $23.1 million in the fourth quarter of 2015 as compared to $21.5 million for the same period in 2014. In constant dollars, net sales for the fourth quarter of 2015 would have been $24.9 million.

For the year, Asia Pacific net sales decreased by $1 million or 1.1% to $91.4 million as compared to $92.4 million in 2014. In constant dollars, net sales for the year would have been $100.3 million. The currency impact was primarily due to the depreciation of the Korean won, the Japanese yen, and the Australian dollar.

In Europe, Mideast and Africa, or EMEA, net sales decreased by $0.9 million or 20% in the fourth quarter of 2015 to $3.6 million as compared to $4.5 million in the same period of 2014. During 2015, net sales decreased by $1.3 million or 7.7% to $15.6 million as compared to $16.9 million for 2014.

In constant dollars, net sales for the three months ended December 31, 2015 would have been $4.4 million and net sales for the year would have been $18.3 million. The currency impact was primarily due to the depreciation of the South African rand.

North American net sales decreased by $0.6 million or 3.1% in the fourth quarter of 2015 to $18.6 million as compared to $19.2 million for the same period in 2014. During 2015, North American net sales decreased by $7.5 million or 9.3% to $73.3 million as compared to $80.8 million in 2014.

Decreases were due to a decline in active independent associates. Our operating income for the fourth quarter of 2015 increased 9.9% to $2.8 million as compared to an operating income of $2.6 million for the fourth quarter of 2014.

During the fourth quarter of 2015, selling and administrative costs decreased to $8 million as compared to $9.8 million for the fourth quarter of 2014. During the fourth quarter of 2015, selling and administrative costs decreased as a percentage of sales to 17.8% from 21.7% for the fourth quarter of 2014.

Operating income for 2015 decreased to $12.1 million as compared to operating income of $12.7 million for 2014. Operating income remained a consistent 6.7% of revenue for 2015 and 2014.

In reviewing the balance sheet at December 31, 2015, our cash and cash equivalents increased by approximately $4 million to a balance of $32 million as compared to $28 million on hand at December 31, 2014.

For the 12 months ended December 31, 2015, cash flow from operating activities was a $4.4 million inflow as compared to a $9.4 million inflow for the same period of 2014. During the year, we invested approximately $2 million in information technology and leasehold improvements.

In summary, our cash inflow for 2015 was approximately $4 million as compared to a cash inflow of $7.6 million for the same period of 2014. Our working capital, defined as total current assets less total current liabilities, increased to $23.5 million as compared to $16.4 million at December 31, 2014.

During 2015, our finished goods inventory increased to 2.88 turns compared to 2.64 turns during 2014, which resulted in a decrease in our net inventory balances of approximately $1.4 million to $9.2 million at December 31, 2015 as compared to $10.6 million at December 31, 2014.

Total current liabilities decreased by $6.6 million to $26.4 million at December 31, 2015 as compared to $33 million at December 31, 2014. Finally, during 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, Mr. Al Bala..

Thank you, David. Hello everyone and thank you for joining us on our fourth quarter earnings call of 2015. I am Mannatech’s CEO and President, and I would like to discuss Mannatech’s fourth quarter of 2015. My focus as I took on the role of CEO has been to grow the business by increasing our effort on field support systems and international expansion.

With that being said, throughout 2014 and 2015, we have been investing in new initiatives that are designed to transform the company, which will enable us to best serve our customers and associates from around the world.

Before I go into more details about the new investments Mannatech has been making, I’d like to say a few words on what continues to make Mannatech special. Specifically, Mannatech’s innovative glyconutritional technology which differentiates the company from all of its competitors in the nutritional supplement industry.

In the last decade, Mannatech has spent tens of millions of dollars in research and development seeking ways to best leverage its glyconutritional technology.

Mannatech’s effort includes intensive industry-standard testing and clinical research to provide its customers and associated with valid science backed product with strong health and wellness benefits.

To date, Mannatech’s products have undergone 17 human clinical trials that have been published, 12 of which with double blind placebo controlled studies, the gold standard for product validation. Supporting its proprietary product worldwide is the extensive product patenting effort Mannatech uses to protect its products, value and uniqueness.

In 2015, Mannatech reached 100 patents in major global markets, and as of today we have 118 patents on our nutritional technologies.

Our strong intellectual property distinguishes Mannatech from most of its nutritional supplement industry competitors as few companies match Mannatech’s unique glyconutritional technology and have patent protection on their product technologies compared to Mannatech.

Many companies own patents on manufacturing processes, but few have patents on the formulation technologies that support a product line. Though the nutritional supplement industry was rocked with investigations in 2015, Mannatech has high standards for ensuring product quality.

Many of Mannatech’s core products undergo a third party certification by NSF International. Additionally, Mannatech has a thorough and advanced quality assurance program that complies with the U.S. Food and Drug Administration current good manufacturing practices for dietary supplements.

These practices elevate Mannatech and its products above much of the commodities-based nutritional supplement companies which it competes against. Looking forward to 2016, we believe that this will be a year of transformation for Mannatech.

Our transformational strategies support our goal of continued global expansion and increase growth in sales and recruiting.

These new initiatives include a new customer friendly product line to enable Mannatech with customer acquisition; two, a state-of-the-art business management technology or virtual back office for our associates that is more social, mobile, and global-centric; a new global composition plan, an enhanced composition plan that will enable associates and members to fully participate in a new economy.

We also have a strategic international expansion plan and we have launched a massive rebrand which will give Mannatech a more modern look and more attractive look to a new generation of consumers and potential associates from around the world.

These initiatives are designed to help boost revenues and spur growth across the globe while helping associates build their business and make a difference.

While investments in these new programs will continue throughout 2016, we are extremely excited to unveil them to thousands of Mannatech customers and associates that will be traveling from around the world to our global Mannafest Event in Dallas, Texas April 6 through 10.

As I mentioned, we have been investing in these initiatives for quite some time, and as a part of that planning strategy we also implemented some changes throughout the fourth quarter of 2015. These changes were designed to help engage associates with the company and drive positive sales growth.

Understanding that nearly 60% of our overall revenue that is generated by the company comes from outside of North America, we are continuing with our strategic international expansion plan and for 2016 we have identified strategies to increase our global market share with targeted markets in South America and Asia.

Leveraging this global success in the fourth quarter of 2015, Mannatech held its first ever board of directors meeting outside of the U.S. at our office in Seoul, Korea. This was the first time the board met outside of North America, which demonstrated our commitment to a strong Asian market.

Throughout the board and corporate executive two-week visit, they attended one of the largest Asia Mannafest events thus far and toured operations in Japan, Taiwan, Hong Kong, and Singapore.

Many board members and executives had the opportunity to come in direct contact with our sales associates, customers and employees from all over Asia, giving them a deeper insight into the successes, needs and potential of the Asian marketplace.

Mannatech continues to have a strong global presence where it’s attractive, high quality and innovative technologies appeal to international regions where customers are concerned about health and wellness.

Although the detrimental impact of foreign exchange on Mannatech’s realized revenue is an issue that is affecting all industries that have a strong global presence such as Mannatech, the company remains committed to achieving success on a global scale. For example, as you just heard from our Chief Accounting Officer, Mr.

David Johnson, our sales for the fourth quarter in constant dollars were $47.9 million rather than $45.3 million, which would have been an increase of 6% quarter-to-quarter, and our annual sales would have been $191 million instead of $180 million that we realized in 2015.

In 2016, Mannatech will continue its product innovation with the launch of our new weight management product line as well as other home health products. We will continue to provide associates with all that they need to build safe, long-term, sustainable businesses with unique and potent products.

We are leveraging our scientific legacy to become a strong marketing company. At the same time, we are continuing our emphasis on economical operations and enhancing share value. We are working to create greater opportunities for our associates and with a powerful culture supporting those efforts, we will be a force to be reckoned with.

Again, we want to thank you for joining us today..

Operator:.

Thank you for listening to Mannatech’s fourth 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 call..