David Johnson - Chief Financial Officer Alfredo Bala - President and Chief Executive Officer.

Greetings and welcome to the Mannatech Incorporated Fourth Quarter 2016 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. David Johnson, Chief Financial Officer. Mr. Johnson, you may begin..

Thank you. Good morning, everyone. This is David Johnson, and welcome to Mannatech’s fourth 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, project, predict or 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 to the results presented in accordance with the generally accepted accounting principles or GAAP, I will discuss non-GAAP financial measure constant dollar net sales, which is sales that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into U.S. dollars.

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

A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP is available in our most recently filed 10-K under the headings non-GAAP financial measures. I will now make a few comments concerning our financial results for the fourth quarter and full year 2016.

Our loss from operations for the fourth quarter 2016 was $0.2 million as compared to $2.8 million income from operations for the same period 2015. For the year 2016, income from operations was $0.7 million compared to $12.1 million in 2015.

Our net loss was $1.1 million or $0.42 per diluted share for the fourth quarter of 2016 as compared to $1.5 million of net income or $0.56 per diluted share for the fourth quarter 2015. For the year 2016, net loss was $0.6 million or $0.22 per diluted share as compared to a net income of $5.8 million or $2.14 per diluted share for 2015.

Our fourth quarter of 2016, net sales decreased $2.7 million to $42.6 million as compared to net sales of $45.3 million for the fourth quarter 2015. On a constant dollar basis, our net sales for the fourth quarter 2016 decreased by $3.1 million as compared to the prior year. In both years 2016 and 2015, our net sales were approximately $180.3 million.

On a constant dollar basis, net sales for the year 2016 increased $1.7 million compared to 2015. Those occupying and uncertainty position our network increased for the quarter by 21% compared to the same period in 2015.

The number of new positions created by independent associates and members for the fourth quarter of 2016 was approximately 25,900 as compared to 21,400 in the fourth quarter of 2015.

The total number of active associate positions held by members in our network based on a 12 month trailing period was approximately 222,000 as of December 31, 2016 as compared to 219,000 as of December 31, 2015. For the fourth quarter of 2016, our operations outside of North America accounted for approximately 62% of our consolidated net sales.

During the fourth quarter of 2016, sales for North and South America or the Americas decreased by $2.4 million to $16.2 million as compared to the same period in 2015. During the fourth quarter and for the year 2016, net sales were impacted by the depreciation of the Mexican peso.

Constant dollar sales during the fourth quarter would have been $0.1 million higher and constant dollars sales for the year would have been $0.3 million higher. Asia Pacific net sales decreased by $0.1 million during the fourth quarter of 2016 to $23 million as compared to the same period in 2015.

Net sales comparisons for the fourth quarter reflected by the impact of the fluctuation of foreign exchange, in constant dollars, fourth quarter net sales would have been $0.6 million lower or $22.4 million. The currency impact was primarily due to the appreciation of the Japanese yen.

For the year 2016, Asia Pacific sales increased by $4.8 million to $96.2 million as compared to $91.4 million for the same period in 2015. In constant dollars, net sales for the year would have been $0.1 million lower or $96.1 million as the impact from a stronger Japanese yen, which partially offset by the effects of a depreciating Korean won.

Net sales for the Europe, Middle East and Africa or EMEA decreased by $0.2 million in the fourth quarter of 2016 to $3.4 million as compared to the same period in 2015.

For the year 2016, EMEA sales decreased by $1.7 million to $13.9 million as compared to the same period in 2015, while the impact of foreign exchange was not material during the fourth quarter in constant dollars, net sales for the year would have been $1.5 million higher or $15.4 million the currency impact was primarily due to the depreciation of the South African rand and the British pound.

In reviewing our statement of operations, as a result of fewer sales, gross profit decreased by $2 million to $34.3 million in the fourth quarter 2016 as compared to $36.3 million for the same period in 2015. During the year 2016 gross profit decreased by $2.4 million to $143.7 million as compared to $146.2 million for the same period in 2015.

This decline in gross profit for the year 2016 was primarily due to promotional discounting, increases in transportation costs in the negative effects of foreign exchange. Commissions as a percentage of net sales were 39.3% for the fourth quarter of 2016 compared to 39.9% for the same period in the prior year.

For the year commissions as a percentage of net sales were 39.1% compared to 39% in 2015. Incentive costs increased in the fourth quarter of 2016 by $0.9 million to $1.5 million as compared to $0.6 million for the same period in 2015. For the year, these cost increased 37% to $3.7 million as compared to $2.7 million for the same period in 2015.

This increase is largely attributed to operations in the United States and South Korea were more associates qualified for incentives. During the fourth quarter of 2016, selling and administrative costs increased to $9 million as compared to $8.1 million during the fourth quarter of 2015.

The increase was primarily due to a $0.2 million increase in contract labor costs to $0.3 million increase in marketing costs and a $0.3 million increase in payroll related costs. For the year ended 2016, overall selling and administrative expenses increased by $2.7 million to $37.2 million as compared to the same period in 2015.

The increase in selling and administrative expenses consisted primarily of a $0.5 million increase in warehouse cost to $0.5 million increase in contract labor cost to $0.4 million increase in marketing and $1.2 million increase in payroll related costs to some non-recurring reductions in payroll costs were offset by the cost of additional employees.

Fourth quarter 2016, other operating costs increased by $0.6 million to $6.9 million as compared to $6.3 million for the same period in 2015 due to higher legal and consulting fees for the year 2016 other operating costs increased by $4.9 million to $29.7 million as compared to $24.8 million for the same period in 2015.

The increases consisted primarily of $2.5 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 $1.2 million increase in travel and entertainment costs attributed to events for independent associates travel to Colombia for market launch support, travel to China for the new market launch, which occurred in the fourth quarter.

A $1 million increase in miscellaneous administrative costs such as research and development professional fees and bad debt, a $0.4 million abandonment charge of internally developed back office software, which was partially offset by a $0.2 million decrease in office expenses.

In reviewing the balance sheet at December 31, 2016, we finish the year 2016 with cash and cash equivalents of $28.7 million as compared to $32 million on hand at December 31, 2015.

Cash provided by operating activities decreased by $4.4 million during the year compared to 2015 as a result of increases in operating expenditures such as our new brand introduction, exploring expansion into new markets support for new market launches and our $3.2 million investment in inventory.

During 2016, we invested approximately $2.2 million in information and technology and leasehold improvements during 2016, we paid $1.6 million in capital lease obligations, we paid $0.7 million in dividends to shareholders and we invested $0.3 million to repurchase shares on the open market.

In summary, our net cash outflow, for 2016 was approximately $3.3 million as compared to a net cash inflow $4 million for the same period in 2015.

Our working capital defined as total current assets less total current liabilities decreased to $20.8 million as compared to $23.5 million at December 31, 2015 total current liabilities increased by $3.6 million to $30 million at December 31, 2016 as compared to $26.4 million at December 31, 2015.

During 2016, our finished goods inventory turns decreased to $2.73 million as compared to $2.88 million during 2015. Our net inventory balance has increased to $12 million at December 31, 2016 as compared 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 fourth quarter earnings call for 2016. I’m Mannatech’s CEO and President, and I would like to also discuss the Company's fourth quarter of 2016.

This past year we made the company through a series of strategic investment that injected the company with the energy of a start-up we get with the stability and credibility of 23 years of experience.

This new energy and investment made in the company during the fourth quarter and the entirety of 2016 we believe will lead us to a path of growth while reducing our operating income in the near term. We firmly believe that the investments we have made with the right investment.

Our focus on building up the company has helped us establish a number of major foundational pieces for Mannatech that will support progress into 2017 and beyond. This includes establishing Mannatech’s new global brand that is more modern and appealing to a new market and audience, especially a millennial audience.

We found that our independent sales associates are able to better tell the Mannatech’s story and expand their reach beyond our traditional markets.

The new brand has been a critical step for us as we reshape the company to meet the new business realities of the new economy in a social mobile and global world that is driven by entrepreneurs who are breaking away from normal careers and are seeking to be their own bosses and create their own opportunities.

Another major foundational step we took was the establishment of Mannatech’s own weight management program, the TruHealth fat loss system.

TruHealth has been a disruptive force in a weight management industry as it shatters the mess of the Body Mass Index, BMI and scale weight and establishes fat loss as the key to long term weight management health and wellness.

At this disruptive force has entered several markets we have found substantial success and we believe it has shown constant incremental growth wherever it is introduced. While TruHealth has been a success in North America, they have also become a staple for our associate success in Korea.

Because of the global demand for TruHealth it will be available in most of our 26 market by the end of the second quarter of this year. We view TruHealth as the strongest growth initiative we have ever undertaken.

It has allowed us to enter an entirely new market with a fully-fledged products system it is so different from the competition that our associates will be able to build entire businesses just on the TruHealth fat loss system.

TruHealth has created a new revenue line they have showed up a lagging market for our traditional products in North America, and has help to drive recruitment in all markets. Also we've seen the value of average orders and automatic orders increase which was directly driven by TruHealth.

TruHealth has been a worthwhile investment for us, and we expect to leverage this product line into greater growth. The other foundational area where we expanded considerable amount of resources and effort was into our international expansion. This included the opening of operations in Colombia the gateway to South America during the first quarter.

We also invested into a new office in Shibuya district in Tokyo, Japan, which will maximize our public exposure while reducing our ongoing overhead costs. We also heavily invested in the launching of a Cross-Border E-commerce business in China during the last week of 2016.

The heavy investment in the launch of our Cross-Border E-commerce operation in China enables Mannatech to open its first ever Cross-Border E-commerce business in the largest nation in the world, which we believe we present a massive opportunity for Mannatech.

With the launch of this business model, we were able to bring 16 of our renewed revolutionary wellness technology to a Chinese market that is constantly seeking ways to support their family’s health and wellness needs.

Among those 16 high quality nutritional supplements it includes several of our Ambrotose base product Manapol and a TruHealth fat loss system.

We are confident that we could establish an important market with our exciting Cross-Border E-commerce business model and now one of the kind products, which appeal to customers in China who are concerned about their family's health and wellness.

We are keeping our commitment to growth by investing heavily in bringing other new products to global markets to several international product launch. For example we launch essential oils line and product line very much in great demand in Canada, Korea, Taiwan, Australia, New Zealand, Japan and South Africa.

Helping to expand our brand and provide our innovative products to more markets around the world. The commitment to growth can be felt by the enthusiasm of our associates with a jump in recruitment. In the fourth quarter we experienced an increase in our recruitment by 21% as compared to the fourth quarter of 2015.

This excellent growth trend indicates that prospective associates I excited about our new brand, opportunity, products and international footprint and I deciding to join the Mannatech business.

While our net sales year-over-year were flat, we believe the investment in our new branding global product launches and international expansion puts the company on a steady path to future growth.

Throughout the year - throughout the quarter, we have continued to see excitement and momentum in the field due to our initiatives and investments and we look forward to continuing to bring our product line to a worldwide consumer base in order to maximize shareholder value and improve overall revenue growth. Thank you for joining us today..

Thank you for listening to Mannatech’s fourth 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 submission. This concludes today’s call..

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