David Johnson - CFO Al Bala - President & CEO.

Analysts:.

Welcome to the Mannatech Incorporated Second Quarter 2016 Earnings conference call. [Operator Instructions]. Now I'd like to introduce our moderator for the call today, Mr. David Johnson, Chief Financial Officer. Mr. Johnson, you may begin..

Thank you. Good morning everyone. This is David Johnson, and welcome to Mannatech's second quarter 2016 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, could, would, anticipate, estimate, project, predict, hope, feel and plan, or 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 comments concerning our second quarter 2016 operating results.

Net loss was $1.3 million or $0.49 per diluted share for the second quarter of 2016 as compared to $3.1 million net income or $1.15 per diluted share for the second quarter of 2015. The second quarter of 2016 net sales increased $2.1 million or 4.5% to $48.8 million compared to net sales of $46.7 million for the second quarter of 2015.

We're proud of the launch of our new fat loss system TruHealth in the U.S. and Korea which is the first market of a global rollout of the product to new regions through 2016. The net sales comparisons for the quarter were affected by foreign exchange rate.

During the second quarter of 2016 we faced these foreign currency headwinds especially in our major currencies of Korean Won, Australian Dollar and the South African Rand On a constant dollar basis which is a non-GAAP financial measure, net sales for the second quarter 2016 increased by $3.5 million or 7.5% 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 for GAAP and disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies in the U.S. dollars.

We use this non-GAAP measure to provide investors with an additional perspective on trends. During the quarter those occupying a new associate or member position in our network increased by 11.1% compared to the same quarter in the prior year.

The number due and independent associates and members for the second quarter of 2016 was approximately 28,400 as compared to 25,600 for same time period in 2015.

The total number of active associate positions held by individuals in our network based on a 12 month trailing period was approximately 222,000 as of June 30, 2016 as compared to 228,000 as of June 30, 2015.

For the second quarter of 2016 our operations outside of the Americas accounted for approximately 61.1% of our consolidated net sales whereas in the same period of 2015 our operations outside of the Americas accounted for approximately 60.9% of our consolidated net sales.

Asia Pacific net sales increased by $2.7 million or 11.4% to $26.3 million in the second quarter of 2016 as compared to $23.6 million for the same period in 2015. In constant dollars net sales for the second quarter 2016 would have been 27.1 million.

The currency impact was primarily due to depreciation of the Korean Won, Australian dollar and the New Zealand dollar. In Europe, Middle East and Africa or EMEA net sales decreased by $0.8 million or 18.6% in second quarter of 2016 to 3.5 million as compared to 4.3 million for the same period in 2015.

In constant dollars net sales for the three months ending June 30, 2016 would have been $4.1 million. The currency impact was primarily due to the depreciation of the South African Rand with second quarter of 2016 as compared to the same period during 2015 recruiting of associates in the EMEA region increased 6.3%.

America's net sales increased by 0.2 million or 1.1% in the second quarter of 2016 to $19 million as compared to 18.8 million for the same period in 2015. Our operating loss for the second quarter of 2016 was 0.1 million as compared to an operating income of 4.6 million for the second quarter of 2015.

During the second quarter of 2016 selling and administrative expenses increased to $9.7 million as compared $8.6 million during the second quarter of 2015.

The increase in selling and administrative expenses consisted primarily of a 0.6 million increase in marketing costs related to the timing of our annual manifest event that occurred during the second quarter of 2016 and during the first quarter of 2015.

Also impacting the change was a 0.4 million increase and payroll related costs at 0.1 million increase in warehouse charges. Selling and administrative expenses as a percentage of net sales for the three months ended June 30, 2016 increased to 19.9% from 18.4% for the same period in 2015..

Other operating costs increased to 8.2 million or 16.8% of sales from 5.9 million or 12.5% of net sales during the second quarter of 2015.

The increase was due to a $1 million increase in legal, consulting and other contractor fees, a 0.1 million increase in bad debt expense, a 0.1 million increase in miscellaneous administrative costs and 1.1 million increase in travel and event costs related to the timing of our annual manifest event that occurred during the second quarter in 2016 and during the first quarter of 2015.

In reviewing the balance sheet our cash and cash equivalents increased by approximately 4.9 million to a balance of 36.9 million as compared to 32 million at December 31, 2015. For the three months ending June 30, 2016 cash flow from operating activities was a 5.6 million inflow as compared to a 4.5 million inflow during the same period in 2015.

We invest approximately $1.4 million in information technology and leasehold improvements. In summary, our net cash inflow for the first quarter of 2016 was approximately $4.9 million as compared to a net cash inflow of 2.7 million for the same period in 2015.

Our working capital defined as total current assets plus total current liabilities was $23.5 million at June 30, 2016. Our net inventory balance increased by approximately 2.5 million to 11.7 million at June 30, 2016 as compared to 9.2 million at December 31, 2015.

Our current liabilities increased by 7.6 million to 34 million at in June 30, 2016 as compared to the 26.4 million at December 31, 2015. Finally during 2016 we did not pay dividends and did not repurchase shares in 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 in our second quarter earnings call of 2016. I'm Mannatech's CEO and President and I would like to discuss the Company's second quarter of 2016. In the second quarter we saw the results of two years of planning and investing and effort in creating a new Mannatech tick.

We were pleased to have a highest net sales quarter in the past seven quarters. We saw an increase in net sales quarter over quarter, an increase of 8.1 million to 48.8 million in a year over year growth of 2.1 million. Though the continued investment in transforming Mannatech was reflected in our bottom-line results as just explained by our CFO, Mr.

Dave Johnson. Our cash position is stronger overall growth recognized in the quarter, give us some indication that our investment and strategy are on target.

Specifically in the second quarter we continue to invest heavily in global deployment of the new Mannatech that included a new company brand, state of the art back office technology and new consumer friendly products.

The resulting growth during the quarter can be attributed ready acceptance of the new global brand and sales of Mannatech new fat loss system called TruHealth.

A clear demonstration of the expected of the new Mannatech could be seen in two important event during the quarter, our global manifest event held in Dallas on the first week of April and the [indiscernible] Mannatech Vision Program event held during the last week of June.

1000s of associates attended this event and experienced the new brand and embraced the TruHealth product line resulting in sales of TruHealth that were above expectation. Our associates enthusiastic response to TruHealth at these event that book ended the second quarter played an important part in our overall revenue growth.

The high demand for TruHealth products from our associates around the globe has Mannatech taking an aggressive approach to launching the product around the world throughout 2016.

We are very positive about TruHealth as a cornerstone product line for Mannatech and it's ready embraced tells a story of how disruptive this product is to be in a weight management industry. The TruHealth system is focused on fat loss not weight loss which is a big differentiator from just about every other product on the market.

This high protein Glyconutrient four or five product line helps create lean muscle, support the metabolism and helps the customer drop back. Most other diet products and program simply do not offer the approach and long term benefit TruHealth provides, so we feel good about the investments and results we have seen in a TruHealth product line.

TruHealth and the new brand can also be valuable tools to attracting new sales associates and opening up Mannatech to an old new customer base. During the quarter we saw a strong upturn in our recruiting as a force of new independent sales associates increased 11.1% over the same period last year to a total 28,500 new sales associates.

Asia including Hong Kong, Japan, Taiwan and Korea continues to be one of the strongest region of growth and we’re working on leading the company down a path of profitability in all these markets. Just days ago I returned from the grand opening of our Hong Kong office where we’re already experiencing exponential growth in 2016.

Our Japanese operation has rebounded beyond all forecast as business has taken off under the direction of new corporate leadership. Additionally we continue to create synergies around our Spanish speaking countries including Mexico and Columbia while strengthening our Hispanic business in North America.

In the second quarter Mannatech also ramped up it's global expansion effort as we continue to prepare to open business in China later this year with a non-direct sales business model. We believe this business opportunity will enable us to provide our unique Glyconutritional products to support the needs of families in China.

These families are growing more cognizant of the health and wellness challenges they face on a daily basis and are ready to address them with high quality products such as the nutritional technologies that we provide. Finally our investment in creating a new global brand is contributing heavily to our second quarter success.

The new brand matches how our loyal customers and associates feel about who we’re as well of where we’re headed. We’re a company that as adopted the idea of being more social, mobile and global and investments made during the second quarter are helping to make this idea a reality.

During the quarter we demonstrated our commitment to creating a new Mannatech through strategic investments. Fortunately we have seen the results and we believe they are positive and foundational.

As we continue on I want to express my commitment to continued revenue growth, and expense management in order to create profit and maximize shareholder value. We’re very excited for the things that lie ahead for Mannatech. Thank you for joining us today..

Thank you for listening to Mannatech's second quarter 2016 earnings call. As a reminder company information and filings can be found at the company's investor relations website at ir.mannatech.com or by reviewing SEC submission. This concludes today's call..