S. Mark Nicholls – Chief Financial Officer
Robert A. Sinnott – Chief Executive Officer and Chief Science Officer
Mannatech, Incorporated (MTEX) Q1 2013 Earnings Call May 14, 2013 10:00 AM ET
Greetings. And welcome to the Mannatech Incorporated First Quarter 2013 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. Mark Nicholls, Chief Financial Officer. Mr. Nicholls, you may begin.
S. Mark Nicholls
Thank you. Good morning, everyone. This is Mark Nicholls, and welcome to Mannatech’s first quarter 2013 earnings call. Today, you will hear from both me and Mannatech’s CEO and Chief Science Officer, Dr. Rob Sinnott. 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, 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.
At this time, I’d like to make a few brief comments concerning our first quarter of 2013 operating results and our balance sheet at March 31, 2013.
We are pleased to announce net income for the first quarter of 2013 at $644,000 or $0.24 a diluted share as compared to a net loss of $1.4 million or $0.53 per diluted share for the first quarter of 2012. Our operating income for the first quarter of 2013 is $655,000 as compared to an operating loss of $2.1 million for the first quarter of 2012.
Operating expenses decreased by approximately $5 million as compared to the first quarter of 2012. This decrease is composed of $3.2 million decline due to our continued efforts to increase the efficiencies and reduce operational expenses and $1.8 million from the decrease in depreciation associated with the enterprise resource system, which was placed in service in April 2007 and fully depreciated by March 2012.
During the first quarter of 2013, we accrued into selling and administrative expenses approximately $400,000 related to the separation agreement with B. Keith Clark. We do not anticipate future costs related to this agreement. The first quarter of 2013 net sales was $41.7 million, a $2.8 million decrease or a 6.3% decrease from the first quarter of 2012 net sales of $44.5 million.
North American net sales decreased by $2 million or 8.9% in the first quarter of 2013 to $20.5 million, as compared to $22.5 million for the same period in 2012.
For the first quarter of 2013, our operations outside of North America accounted for approximately 50.8% of our consolidated net sales, whereas in the same period in 2012 our operations outside of North America accounted for approximately 49.5% of our consolidated net sales. Fluctuations in foreign currency exchange rates had an overall unfavorable impact on our net sales of approximately $800,000 for the first quarter of 2013.
Asia/Pacific net sales decreased by $300,000 or 1.7% to $17.8 million in the first quarter of 2013, as compared to $18.1 million for the same period in 2012, due to the impact of the fluctuations in foreign currency exchange rates. Excluding the unfavorable impact of foreign currency exchange rates, net sales would have increased by 1.1% for Asia/Pacific in the first quarter of 2013 as compared to the same period in 2012.
Europe, the Middle East and Africa or EMEA net sales decreased by $500,000 or 12.8% in the first quarter of 2013 to $3.4 million as compared to $3.9 million for the same period in 2012. Excluding the unfavorable impact of foreign currency exchange rates, EMEA net sales would have decreased by 5.1% in the first quarter of 2013 as compared to the same period in 2012.
Recruiting of new associates and members increased 10.1% in the first quarter of 2013 as compared to the first quarter of 2012. The number of new independent associates and members for the first quarter of 2013 was approximately 23,900 as compared to 21,700 in 2012.
The total number of active independent associates and members based on a 12-month trailing period was approximately 231,000 as of March 31, 2013, as compared to 227,000 as of March 31, 2012.
In reviewing the balance sheet at March 31, 2013, our cash and cash equivalents have increased by approximately $700,000 to a balance of $15.1 million as compared to the $14.4 million on hand at December 31, 2012. Cash flow from operating activities was positive $2.3 million for the first quarter of 2013, as compared to a negative $3.6 million for the first quarter of 2012.
Our net inventory balance is decreased by approximately $1.5 million or 9.9% at March 31, 2013, as compared to December 31, 2012. This decline is due to our continued management of the amount of finished goods on hand. Total liabilities decreased $1.1 million to $26.2 million at March 31, 2013, as compared to $27.3 million at December 31, 2012. As in prior quarters, we essentially have no long-term debt.
Shareholders equity decreased in the first quarter of 2013 by $300,000 due to a $944,000 decrease in comprehensive loss due to the effects of foreign currency translation offset by net income of $644,000 generated in the first quarter of 2013.
Finally, during the first quarter of 2013, we did not pay dividends, we did not repurchase shares on the open market and we did not initiate any equity raises through our agreement with Dutchess Opportunity Fund.
In summary, we remain committed to our 2013 primary goals of increasing sales volume becoming profitable and generating positive cash flow. A result of our positive operating income in the first quarter of 2013 is the improvement in our balance sheet, particularly in the inventory balance and the improvement in cash flow from operating activities.
At this time, I will turn the call over to Mannatech’s CEO and Chief Science Officer, Dr. Rob Sinnott.
Robert A. Sinnott
Thank you, Mark. Good morning, everyone. Mannatech’s senior management team has worked together with unprecedented cooperation to craft and execute a strategy that has brought the Company back to profitable operation after several unprofitable years. We fulfilled our profitability commitment during the third and fourth quarters of 2012 and continued that profitability trend in the first quarter of 2013.
All of our officers, general managers and corporate management are keenly aware of our financial situation and all areas of the company are proactively managing expenses as we implement our strategy to grow our top line revenue.
We fully intend to remain profitable and increase our profitability for many years to come by seeking out and applying best practices to all areas of our business. Our experiences over the past years, both positive and negative, will be turned into improvements that will make Mannatech a world-class company.
Recently Mannatech has bolstered our management expertise by the addition of an industry veteran, Mr. Roy Truett, as the Chief Operating Officer and President of International. We believe there are gains to be made in improving our global operations and realigning our international offices to all run efficiently and profitably. We will continue streamlining our global operations and adding appropriate management talent to drive our strategy forward.
Mannatech is known for its caring culture and its high-quality innovative products. We have very good customer loyalty because of our strong mission and purpose, which generously rewards customers and independent distributors who champion our cause. I believe that we have virtually all of the building blocks for success in the direct selling industry. It is time to put all of our assets to their best use.
From my viewpoint, I believe that during 2013 we will see a reinvigoration of our business. We will see a continuation of the strong recruiting and sales performance in global Asian communities. We will see our investment in Mexico and other recent expansion markets begin to bear fruit. And we will see a moderate, but measurable rekindling of our core business in North America, Europe, and Australia, New Zealand.
So I am confident that as our company experiences more quarters of financial performance and have success in increasing global sales, the shareholders, independent associates and employees of Mannatech will all have significant upside benefit. Our goal is to unlock that full potential.
So thank you for your continuing interest in Mannatech.
This concludes the Mannatech, Incorporated first quarter 2013 earnings conference call.
[No Q&A session for this event].
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