David Johnson - CFO Al Bala - President & CEO.

Analysts:.

Greetings. And welcome to the Mannatech Incorporated Third Quarter 2016 Earnings conference call. At this time all participants are in a listen-only mode. As reminder, this conference is being recorded. 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 third quarter 2016 earnings call. Today, you will hear from both me and Mannatech's President and Chief Executive Officer, Al Bala. Before I 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 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.

In addition, results presented in accordance with GAAP, I will discuss the non-GAAP financial measure in constant dollar sales, which is sales that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into the US dollars.

I believe that this non-GAAP financial measure provides useful information to investors as an indicator of the strength and the performance of our ongoing business operations. This non-GAAP financial measure should not be considered an alternative to US GAAP measures.

A reconciliation of these non-GAAP financial measure to net sales is available on our recently filed 10-Q. At this time, I will make a few comments concerning our third quarter of 2016 operating results.

Net income was $1.3 million or $0.46 per diluted share for the third quarter of 2016, as compared to $0.1 million net income or $0.03 per diluted share for the third quarter of 2015. Our third quarter of 2016 net sales increased 9.8% to $48.1 million. Sales from new products and promotions increased third quarter net sales by $4.1 million.

This net sales comparison for the quarter also benefited by foreign exchange rates.

At our global Mannafest event in April of 2016, we were proud to launch 11 new products and reveal our new brand, since then, those operating in new associate or member position on our distribution network increased by 11.1% during the second quarter and by 6.2% during the third quarter when these quarters are compared to the same periods in the prior year.

The total number of active associate positions held by individuals in our network based on a trailing 12 month period was approximately 221,000 as of September 30, 2016 and September 30, 2015. For the third quarter of 2016, our operations outside of the Americas accounted for approximately 60.5% of our consolidated net sales.

Asia Pacific net sales increased 15.9% to $25.5 million in the third quarter 2016, as compared to the same period in 2015. In constant dollars, net sales for the third quarter of 2016 would have been $23.9 million.

The currency impact was primarily due to depreciation of the Korean won, Japanese yen, Australian dollar and other currencies in the region. In Europe, Mid East and Africa or EMEA, net sales decreased by $0.5 million dollars in the third quarter of 2016 to $3.6 million, as compared to the same period in 2015.

In constant dollars, net sales for the three months ending September 30, 2016 would have been $3.9 million. The currency impact was primarily due to the depreciation of the South African rand and British pound.

America's net sales increased by $1.2 million in the third quarter of 2016 to $19 million, as million as compared to $17.8 million for the same period in 2015. Our operating income for the third quarter of 2016 was $0.6 million, as compared to an operating income of $2.2 million for the third quarter of 2015.

During the third quarter of 2016, selling and administrative costs increased to $9.9 million, as compared to 9 million during the third quarter 2015.

The increase in selling and administrative costs consisted primarily of a $0.4 million increase in marketing related costs, a $0.2 million increase in contract labor, a $0.2 million increase in warehouse charges and a $0.1 million increase in payroll related costs with some non-recurring reductions in payroll costs were offset by the cost of new employees.

For the three months ended September 30, 2016, other operating costs increased by $1.4 million or 24.1% as compared to $6.1 million for the same period in 2015.

The increase in other operating costs was due to a $0.7 million increase in legal and consulting fees as we continue to explore expansion in new markets, transform our supply chain and defend our patents.

A $0.4 million of abandonment [ph] charge from internally developed back office software and research and development cost, credit card fees and traveler and entertainment costs.

In reviewing the balance sheet at September 30, 2016, our cash and cash equivalents increased by approximately $6.3 million to a balance of $38.3 million, as compared to $32 million at December 31, 2015.

For the nine months ended September 30, 2016, cash flow from operating activities was a $7.2 million cash inflow, as compared to $7.8 million inflow during the same period of 2015. We invested approximately $1.7 million in information technology and leasehold improvements.

Also during the third quarter of 2016, we paid a $0.3 million dividend and repurchased 9009 shares of our common stock.

We received a benefit from taxes, from favorable rate differences, from foreign jurisdictions, fluctuation of income between quarters resulting in a refund, a further valuation allowance release from Switzerland and finally certain tax reserve items that are removed due to the expiration of the applicable statute of limitations.

Our working capital, defined as total current assets, plus total current liabilities is $24 million as of September 30, 2016, compared to $23.5 million at December 31, 2015. Finally, our net inventory balances have decreased from the second quarter balance of $11.7 million to $10.4 million at September 30, 2016.

This compares to $9.2 million at December 31, 2015. 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 third quarter earnings call of 2016. I am Mannatech's CEO and Pres and I would like to discuss the company's third quarter of 2016. Overall, we are very pleased with our results for the third quarter of 2016.

We're coming off a very strong second quarter where our global Mannafest event and Korea MVP events enable us to launch a new brand and new consumer friendly products. Our third quarter was a positive follow through on those launches and investments.

The main take away in a good quarter is about developing a path to consistency, that is, while our second quarter seemed exceptional, as we saw the highest revenue numbers in seven quarters, we are endeavoring to have fewer big revenue swings quarter-to-quarter and create consistent revenue numbers that reflect a strengthening position in a market.

Coming off such a positive second quarter, we are satisfied that our third quarter reflect this first step in our goal to create steady, reliable and consistent business results. In the third quarter, we continue to see the results of our planning, investing and efforts in creating a new Mannatech.

We experienced an increase in net sales year-over-year, an increase of $4.2 million to $48.1 million, as compared to $43.9 million in the third quarter of last year.

And while our net sales, was slightly down from last quarter from $48.8 million to $48.1 million, we are pleased with our third quarter net sales coming off the second quarter, which reflected a spike in net sales compared to several previous quarter.

Through our planning product international expansion and field program, we believe our investments has taken the company to a consistent place, continued heavy investments in the company, as well as operating costs directly related to our strategic transformation effort, affected our bottom line results.

But our cash position remained stronger than it was in 2015, which was increased by $6.3 million since the end of last year. Specifically in the third quarter, we continue to dedicate resources to the global rollout of our new consumer friendly products.

The result of the third quarter can be attributed partly to sales of the new fat loss system TruHealth, which launch in Australia, while we continue to see great success in North America and Asia during the third quarter. Mannatech's operation outside of the Americas decreased from 61.1% in the second quarter to 60.5% in the third quarter.

We felt this that our global TruHealth sales are beginning to impact other markets such as North America, where as you just heard from David we experienced a 6.7% growth in sales in the third quarter.

We believe this shift is due to the increase in positive response to TruHealth which is helping attracting new sales associate, by focusing on an innovative fat loss program, unlike other type of weight loss programs that already exist in the market. During the third quarter TruHealth sales increased by $1 million over the prior quarter.

Thousands of associates are embracing the TruHealth product line, creating a high demand for TruHealth product around the globe. This product line continues to play an important part in our overall revenue growth and we are pleased with the investment and results that we have seen so far with the TruHealth product line.

We are working to bring TruHealth to many of the markets in which we operate. So that this revolutionary fat loss program can be experienced and embraced by associates and customers around the world.

Also in the third quarter, we focused our efforts on international expansion, specifically in a great country of China, as we prepare to open business in China later this year, with a non-direct sales business model we invested in hiring personnel and staff that will help lead our international effort in China.

During the quarter, we were able to see the momentum and excitement of our strategic investment and we look forward to continuing our strong business management and investments in order to maximize shareholder value. We believe the establishment of consistency to new products and program would help build a solid foundation for the future.

And I really look forward to the efforts and upcoming initiatives that are on the horizon. Again, we want to thank you today for joining us for this call..

Operator Thank you for listening to Mannatech's third quarter 2016 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..