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Executives

Dr. Robert A. Sinnott - CEO and Chief Science Officer

Mark Nicholls - Chief Financial Officer

Analysts

Mannatech, Inc. (MTEX) Q3 2012 Earnings Conference Call November 8, 2012 10:00 AM ET

Operator

Greetings. And welcome to the Mannatech Incorporated Third Quarter 2012 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.

Mark Nicholls

Thank you. Good morning, everyone. This is Mark Nicholls, and welcome to Mannatech’s third quarter 2012 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’ll make a few comments concerning the third quarter. The third quarter 2012 net sales were $43 million, a 14.8% decrease from the third quarter 2011 net sales of $50.5 million.

The total number of active independent associates and members based on a 12-month trailing period were approximately 233,000 as of September 30, 2012, compared to approximately 239,000 as of September 30, 2011, a decrease of only 2.5%.

Recruitment of new independent associates and members in the third quarter of 2012 was approximately 27,600 compared to approximately 20,000 in the third quarter of 2011 or an increase of 38.4%. The increase in recruitment is due to an increase in the number of numbers. As a reminder, a member is a customer of an associate who purchases the company’s products at a discount from published retail prices primarily for personal use.

During the second quarter of 2012, the North American associates were offered a business building opportunity not previously available to them. The four free discount program offered the business builder the opportunity to build their consumer business by providing an opportunity for member to obtain larger discounts on purchases. With the new opportunity that became available in the second quarter of 2012 the North American associates were able to increase their sales to new and existing members in the third quarter of 2012.

The increase in the sales numbers and the related associated activities has now resulted in a reversal of the overall sales trend. The decline in packed sales and the attrition of the existing associates and members continued in the third quarter as compared to earlier quarters of 2012 and the third quarter of 2011.

The net income for the quarter was $2.2 million or $0.83 of diluted share as compared to a net loss of $3.7 million or $1.38 for diluted share for the third quarter of 2011. Our ongoing reduction of operational expenses assisted in our achieving net income for the third quarter of 2012. Other non-cash items impacting profitability included reduction and a previously recognized deferred tax asset evaluation allowance of approximately $1 million, a release of reserves awaited to transaction taxes of 800,000 due to the expiration of statute to limitations and income from foreign currency exchange rate fluctuations of $500,000 as illustrated we remain dedicated to our 2012 goal of restoring profitability.

For the nine months ended September 30, 2012, we had a net loss of $1.6 million or $0.62 per share compared with a net loss of $13.7 million or $5.17 per share for the same period in 2011. Our ongoing focus on target expense reductions continue to show positive results in 2012 as compared to 2011.

Selling and Administrative Expenses for the nine-month ended September 30, 2012 were $33.8 million compared to $43.2 million for the same period in 2011, a reduction of approximately 22%. For the third quarter 2012, selling and administrative expenses were reduced to $10.5 million compared to $12.4 million for the third quarter of 2011. This represents an approximate 15% reduction in Selling and Administrative Expenses during the third quarter of 2012 as compared to the same period in 2011. Per the quarter, gross profit as a percentage of net sales showed a decline of 0.7% as compared to the third quarter of 2011. The decrease in gross profit is primarily due to an increase in the cost of inventory as compared to the same period in 2011. The nine-month ended September 30, 2012, our gross profit and the percentage of sales has only decreased to 0.1% as compared to the same period in 2011. As mentioned above, we believe the increases in recruitment along with the continued identification of opportunities to improve our operational efficiencies are creating a foundation for growth and improved operating results in the future.

In reviewing the balance sheet at September 30, 2012, our cash and cash equivalents have increased by approximately $680,000 to a balance of $12.8 million at September 30, 2012 as compared to $12.1 million on hand at June 30, 2012. This increase in cash and cash equivalents is primarily due to the end of the associate business period coinciding with the end of the first fiscal quarter.

Our cash flow for the nine-month ended September 30, 2012 as compared to the same period in 2011 is down approximately $4.5 million due to the payment of approximately $2.6 million in litigation settlements in the first quarter of 2012 with the remaining use of the cash being the general reduction and approved conditions in paid payables.

Working capital, which represents the total current assets lesser, total current liability increased $0.4 million to $12.3 million from $11.9 million at December 31, 2011. A significant component of our working capitals inventory. Inventory represents approximately 49% of our current assets at September 30, 2012 as compared to approximately 43% at December 31, 2011. This overall increase as a percentage of current assets is primarily due to the decline in cash and cash equivalents of $5.3 million and a net increase of approximately $300,000 in inventory balances. Current liabilities have decreased by %5.4 million to a balance of $24.4 million at September 30, 2012 from $29.9 million at December 31, 2011.

As in prior quarters, we essentially have no long term debts. Finally, during the third quarter 2012 we did not pay dividends, we did not re-purchase 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 2012 primary goals of becoming profitable and generating positive cash flow by increasing sales volumes and continuing to reduce operations expenses. At this time, I’ll turn the call over to Mannatech’s CEO and Chief Science Officer Dr. Rob Sinnott.

Dr. Rob Sinnott

Good morning everyone. During the third quarter of 2012 Mannatech continued it’s focus on honing its sales proposition to increase the number of people recruited into our company. The third quarter saw the recruiting trend continue from the first and second quarters of 2012. There were 27,610 new independent associates and members in the third quarter. As compared to 19,950 new independent associates and members in the third quarter of last year. This third data point have increased year-over-year recruiting suggest that a sustainable recruiting trend maybe occurring for Mannatech.

During the third quarter Mannatech continued rolling out our global value innovation strategy to the world. The lead product in this strategy is NutriVerus. NutriVerus is a cost effective natural vitamin supplement powder that can be added to virtually any food or beverage that people consume. It provides vitamins and minerals, antioxidants and Mannatech’s patented glyconutrient technology in a base of organic fruits and vegetables plus nutrients (inaudible). Mannatech’s associates and members have hosted 100s of events including many home parties featuring NutriVerus’ way to introduce new customers to natural food supplementation. We believe these events called extreme food makeovers or XFM events in short, have been very popular with both new and long established customers. The extreme food makeover kit containing instructions, DVD, invitations, recipes, and other support materials were introduced at the North American MannaQuest Convention in September 2012. And since that even they have been rolling out worldwide.

Also, in the third quarter Mannatech’s sales and training conventions were held in Japan, Taiwan, and Australia. These events were customized to specific cultures, but had common thematic[ph] threads running throughout. These threads consisted of using new products and tools as well as proven techniques in an effort to cast a wider recruiting net. With the goal of catching many brand new customers who use dietary supplements but are currently unaware of Mannatech’s real food technology product offerings.

I am excited and have renewed enthusiasm about Mannatech because of what I am seeing among our independent associates. They are holding many more meetings per month than they had in many years and as a result they are having increasing success recruiting new members into their Mannatech businesses. We believe our joint efforts in the field and in the corporate office are positively impacting the associate recruiting in North America and also influencing key business metrics in our other markets as well. As a corporate management team, we have grown in our experience by working together as an increasingly cohesive team. As Mannatech is matured we’ve been through some significant growth challenges that have actually strengthened our core structure. Over the past couple of years, we have renewed our attention to bottom line expenses focusing on core business activities and building on sales initiatives that truly resonate with our unique set of independent associates.

As always I thank you for your support and your continuing interest in our company.

Operator

That concludes today’s conference call, you may now disconnect your line.

Question-and-Answer Session

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