David Johnson - CFO Al Bala - President and CEO.

Analysts:.

Greetings and welcome to the Mannatech, Incorporated Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen only mode, as a reminder, this conference is being recorded. Now, I would 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 2017 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, expects, potential, should, could, would, anticipate, estimate, project, predict, hope, feel 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.

In addition to results presented in accordance with GAAP, I will discuss a 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 strength and the performance of our ongoing business operations. This non-GAAP financial measure should not be considered an exclusive alternative to accompanying GAAP financial measures.

A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is available on our recently filed 10-Q under the heading Non-GAAP Financial Measures. At this time, I will make a few comments concerning our second quarter 2017 operating results.

Net income was $1.8 million or $0.65 per diluted share for the second quarter 2017 as compared to a net loss of $1.3 million or $0.49 per diluted share for the second quarter of 2016. The second quarter of 2017 net sales decreased by $1.1 million or 2.3% to 47.7 million compared to net sales of 48.8 million for the second quarter of 2016.

The net sales comparisons for the three months period ending June 30, 2017 and '16 were affected by the loyalty program and a number of pack orders placed. The loyalty program increased our second quarter 2017 net sales by $0.7 million as compared to the same period in 2016.

The number of packs sold to new and continuing independent associates and members decreased 12.8% during the second quarter of 2017 as compared to the same period in 2016. This decrease was further impacted by a $17 decrease in the average pack sale to $195 for the three months ending June 30, 2017 as compared to $212 for the same period in 2016.

For the second quarter of 2017 our operations outside of the Americas accounted for approximately 59.1% of our consolidated net sales compared to 61.1% of our consolidated net sales in the second quarter of 2016.

Second quarter 2017 Asia Pacific net sales decreased by $1.6 million or 6.1% to $24.7 million as compared to 26.3 million for the same period in 2016. This decrease was primarily due to a 9% decrease in revenue per active independent associate member, partially offset by a 3.2% increase in the number of active independent associates and members.

During the three months ending June 30, 2017, the loyalty program increased sales by $0.3 million, as compared to the same period in 2016.

In constant dollar net sales for the second quarter would have been $24.3 million; the currency impact is primarily due to the strengthening of the Korean Won and Taiwanese Dollar, partially offset by the weakening of the Japanese Yen and Chinese Renminbi.

EMEA net sales remained the same at $3.5 million for both the three months ending June 30, 2017, and 2016. During this comparative period, the number of active independent associates and members increased 1%, which was partially offset by 1% decrease in revenue per active associate member.

In constant dollar net sales for the second quarter would have been $3.3 million; the currency impact is primarily due to the strengthening of the South Africa Rand partially offset by the weakening of the British Pound and the Euro.

For the three months ending June 30 2017 net sales for the Americas increased by $0.5 million or 2.6% to 19.5 million as compared to $19 million for the same period in 2016.

This increase was primarily due to a 12.1% increase in revenue per independent associate member partially offset by an 8.5% decline in the number of active independent associates and members. During the three months ending June 30 2017 the loyalty program in the Americas increased sales by $0.4 million as compared to the same period in 2016.

In reviewing our operations our operating income for the second quarter was of 2017 was $2.8 million as compared to an operating loss of almost a $100,000 for the second quarter of 2016.

Commission expense for the three months ending June 30 2017 decreased by 5.7% or $1.1 million to $18.3 million as compared to $19.4 million for the same period in 2016. For the three months ending June 30 2017 commissions as a percentage of net sales decreased to 38.5% from 39.7% for the same period in 2016.

During the first quarter, we recorded a commission expense on the pre-launch of certain Asia Pacific markets for new products that were available after our annual convention in April of '17.

Incentive costs for the three months ending June 30 2017 decreased by 30% or $0.3 million to $0.7 million as compared to $1 million for the same period in 2016 due to a decline in the number of qualified individuals within the Americas attending these incentive trips.

For the three months ending June 30 2017 selling and administrative expenses increased by $0.3 million or 2.5% to $10 million as compared to $9.7 million for the same period in 2016. Our marketing related costs increased by %0.4 million due to increased expenses in our manifest event held in Las Vegas.

During the second quarter, we recorded severance charges of $0.2 million which were partially offset by decreases and other payroll costs stemming from fewer employees and a $0.1 million decrease in stock based compensation expense.

For the three months ending June 30 2017 other operating costs decreased by $1.5 million or 18.8% to $6.7 million as compared to $8.2 million for the same period in 2016.

This decrease was due to a $0.7 million decrease in travel and entertainment cost, a $0.3 million decrease in accounting and audit fees, a $0.3 million decrease in legal and consulting and a $0.2 million decrease in bad debt expense.

In reviewing the balance sheet at June 30, 2017 our cash and equivalents increased by 24% or $6.9 million to $35.6 million from $28.7 million at December 31, 2016.

During the six months ending June 30, 2016, we invested approximately a $0.5 million in back office software projects, approximately $0.1 million in leasehold improvements in various international offices and training centers, and $0.1 million in office equipment.

For the three months ending June 30, 2017 and 2016 the company's effective tax rate was 36.5% compared to a benefit of 18.3% during the same period in the prior year, for the three months ending June 30, 2016 the tax benefit was attributed to the loss before income tax.

Our working capital defined is total current assets less total current liabilities is $22.2 million as of June 3, 2017 compared to 20.8 million at December 31, 2016.

Our net inventory balance decreased by $1.1 million to 10.9 million at June 30, 2017 as compared to $12 million at December 31, 2016 reflecting sales at our successful MannaFest event in Las Vegas, Nevada in April.

During the three months ending April -- during the three months ended June 30, 2017 finished goods inventory finished goods inventory turns increased to 2.54 turns as compared to 2.27 for the same period in 2016. Our accounts payable at June 30, 2017 increased to $6.1 million compared to $5.2 million at December 31, 2016 due to those event costs.

Also during the second quarter of 2017 we paid $0.3 million in dividends and stock repurchases. At this time, I will turn the call over to Mannatech’s CEO, Mr. Al Bala..

Thank you, David and hello everyone. Thank you for joining us on our second quarter earning call for 2017. I am Mannatech’s CEO and President and I would like to discuss the company’s second quarter of 2017. We believe the second quarter results, represents a very positive step for Mannatech and demonstrates our commitment to shareholder value.

While our overall revenues were down slightly from last year, we exuded strong institutional control that managed costs helping to create a positive profit margin for the second quarter. To this we streamlined operations in a number of regions and adopted business practices to ensure cost management was front and center.

I'm very pleased with the quarter's results because while we continue to invest in the companies and ramp up major elements of the new Mannatech we were still able to generate a profit and provide positive results to our shareholders.

We were encouraged by the development during our second quarter, starting with our MannaFest event in April which we held for the first time outside of Texas and Las Vegas, Nevada where we assembled thousands of independent associates from around the world and also where we launched two new products.

GinMAX, an advanced ginseng product and GlycoCafe, a nutrition pack coffee. During the three-day event, we sold more than $3 million worth of products helping to centre stage for global release of these two new products. The new products GinMAX and GlycoCafe have also been now released in the U.S.

and Korea and we're especially pleased with the popularity with our Korean customers and associates which is currently our biggest market. GlycoCafe is building momentum as an impactful consumer friendly product easy to share, easy to taste that comes at a very competitive cost. We are excited about the future prospects for both of these new products.

During the second quarter, we also announced the launch of a new skin care line, Luminivasion developed and created in Korea for our Korean market. The Luminivasion skin care line is part of the K beauty trend or advanced beauty and skin care products that are in great demand both in Korea but also rest of Asia.

Currently Luminivasion consists of eight products that feature exclusive technologies that you won't see in any other skin care line. Luminivasion was announced at the end of June where we saw a great response and we're expecting that this new skin care line will be a strong part of Mannatech's product portfolio going forward.

A major point of emphasis during the second quarter was to ramp up the launch our new compensation plan for our sales associates. The new compensation plan is a business model for which our associates can earn and grow their business.

It is a key element along with our recent rebrand, our aggressive new product pipeline, our international expansion that makes up what we call the new Mannatech. The new compensation plan went into effect in July and we are seeing positive responsive signs that it could be a catalyst for company's momentum.

Again, this is part of our investment into the company to make us more competitive, more global and more modern.

The industry has long regarded Mannatech as having attractive products and now we have an attractive compensation plan that is equally appealing for our current associates and also for new associates -- and our new associate base as well as any other direct sales entrepreneurs interested in building a long term global business.

We feel that the compensation plan will create new opportunities for our sales associates and give them a simpler way to approach our business.

It was designed to reward our associates for the right behavior and to draw a straight line between effort and result and give our associates more opportunities and stronger incentives to share our product and our opportunity.

To support the compensation plan launch we toured major markets around the world, met with key leaders to go over the benefits of the new program, we called it a co-creation process between us here at Corporate and our field.

We also work extensively with outside consultants, ran hundreds of computer simulations and fine-tuned the compensation plan until it was right.

So far, we received a lot of great feedback from our sales force and I feel that the new compensation plan will take Mannatech to the next step in its growth evolution, as we strive to reach the top of the direct sales industry. We are moving forward with a sense of optimism and confidence as all the pieces of the new Mannatech are coming together.

With a critical eye towards cost management and profit we will continue to strive to accelerate Mannatech's growth opportunity while maintaining great shareholder value in order to increase that shareholder value. Thank you again for joining us on this call today..

Thank you for listening to Mannatech’s second quarter 2017 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 does conclude today’s call..