MANNATECH INC

RESULTS OF OPERATIONS

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the three months ended June 30, 2024 and 2023(in thousands, except percentages):

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the six months ended June 30, 2024 and 2023(in thousands, except percentages):

Non-GAAP Financial Measures

To supplement our financial results presented in accordance with GAAP, we disclose operating results that have been adjusted to exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, including changes in: Net Sales, Gross Profit, and Income from Operations. We refer to these adjusted financial measures as Constant dollar items, which are non-GAAP financial measures. We believe these measures provide investors an additional perspective on trends and our operating results. To exclude the impact of changes due to the translation of foreign currencies into U.S. dollars in the current year, we calculate current year results at a constant exchange rate utilizing the prior year’s rate. Currency impact is determined as the difference between the actual GAAP results and the recalculated results for the current year at the Constant dollar rates.

For the three and six months ended June 30, 2024, our net sales decreased $4.2 million and $8.1 million, or 12.9% and 12.1% on a Constant dollar basis, respectively (see reconciliation of Non-GAAP Financial Measures in the tables below); and unfavorable foreign exchange caused a $0.7 million and $1.5 million decrease in GAAP net sales as compared to the same periods in 2023, respectively.

A reconciliation non-GAAP financial measures to GAAP results for the three and six months ended June 30, 2024 and 2023 is presented as follows(in millions, except percentages):

Net Sales by Region

Operations outside of the Americas accounted for approximately 65.7% of our consolidated net sales in the three months ended June 30, 2024, as compared to 67.5% in the same period last year. Our operations outside of the Americas accounted for approximately 65.5% of our consolidated net sales in the six months ended June 30, 2024, as compared to 68.4% in the same period last year.

Consolidated net sales by region for the three months ended June 30, 2024 and 2023 were as follows(in millions, except percentages):

Consolidated net sales by region for the six months ended June 30, 2024 and 2023 were as follows(in millions, except percentages):

For the three months ended June 30, 2024, net sales in the Americas decreased by $1.1 million, or 10.4%, to $9.5 million, as compared to $10.6 million for the same period in 2023. Revenue per active independent associate and preferred customer decreased by 13.3%, which was partially offset bya 3.3% increase in number of active independent associates and preferred customers. Foreign currency had no effect onrevenue for the three months ended June 30, 2024 when compared to the same period in 2023.

For the six months ended June 30, 2024, net sales in the Americas decreased by $1.4 million, or 6.6%, to $19.7 million, as compared to $21.1 million for the same period in 2023. Revenue per active independent associate and preferred customer decreased by 9.6%, which was partially offset by a 1.6% increase in number of active independent associates and preferred customers. Foreign currency had the effect of increasing revenue by $0.1 million for the six months ended June 30, 2024, as compared to the same period in 2023. The currency impact is primarily due to the strengthening of the Mexican Peso.

For the three months ended June 30, 2024, Asia/Pacific net sales decreased by $3.4 million, or 17.6%, to $15.9 million, as compared to$19.3 million for the same period in 2023. Revenue per active independent associate and preferred customer decreased 19.2%, which was partially offset by a 1.9% increasein the number of active independent associates and preferred customers. In addition, due to supply chain issues we deferred a key product promotion in Korea to later in the year, which drove the decline in revenue in Korea. Foreign currency exchange had the effect of decreasing revenue by $0.7 million for the three months ended June 30, 2024, as compared to the same period in 2023. The currency impact is primarily due to the weakening of the Korean Won and Japanese Yen.

For the six months ended June 30, 2024, Asia/Pacific net sales decreased by $7.4 million, or 18.3%, to 33.0 million, as compared to 40.4 million for the same period in 2023. Revenue per active independent associate and preferred customer decreased 19.8%, which was partially offset bya 5.1% increase in the number of active independent associates and preferred customers. We deferred a key product promotion in Korea to later in the yeardue to supply chain issues, which drove the decline in revenue in Korea. Foreign currency exchange had the effect of decreasing revenue by $1.5 million for the six months ended June 30, 2024, as compared to the same period in 2023. The currency impact is primarily due to the weakening of the Korean Won and Japanese Yen.

For the three months ended June 30, 2024, EMEA net sales decreased by $0.4 million, or 14.8%, to $2.3 million, as compared to $2.7 million for the same period in 2023. The decrease was primarily due to a 10.1% decrease in the number of active independent associates and preferred customers and a 5.2% decrease in revenue per active independent associate and preferred customer. Foreign currency exchange had a minimal effect on revenue for the three months ended June 30, 2024 as compared to the same period in 2023.

For the six months ended June 30, 2024, EMEA net sales decreased by $0.8 million, or 15.4%, to $4.4 million, as compared to $5.2 million for the same period in 2023. The decreasewas primarily due to a 11.8% decreasein the number of active independent associates and preferred customers and a 5.9% decrease in revenue per active independent associate and preferred customer. Foreign currency exchange had the effect ofdecreasing revenue by $0.1 million for the six months ended June 30, 2024 as compared to the same period in 2023. The currency impact is primarily due to the weakening of the South African Rand.

Sales Mix

Our sales mix for the three and six months ended June 30, was as follows(in millions, except percentages):

Product Sales

Our product sales consist primarily of sales made to our independent associates and preferred customers at published wholesale prices. Product sales for the three months ended June 30, 2024 decreased by $4.7 million, or 15.2%, as compared to the same period in 2023. On a Constant dollar basis, product sales for the three months ended June 30, 2024 decreased $4.0 million, or 12.9%, as compared to the same period in 2023. The decrease in product sales for the three months ended June 30, 2024 reflects a 7.9% decrease in the number of orders processed and a decrease in the average order value to $166, as compared to $173 for the same period in 2023.

Product sales for the six months ended June 30, 2024 decreased by $8.7 million, or 13.8%, as compared to the same period in 2023. On a Constant dollar basis, product sales for the six months ended June 30, 2024 declined $7.3 million, or 11.6%, as compared to the same period in 2023. The decrease in product sales for the six months ended June 30, 2024 reflects a 7.5% decrease in the number of orders processed and a decrease in the average order value to $167, as compared to $179 for the same period in 2023.

Pack sales, Associate Fees and Recruiting

Recruitment of new independent associates and preferred customers decreased by 13.6% to 16,690 in the second quarter of 2024 from 19,309 in the second quarter of 2023.We attribute the lower number of orders processed in the three months ended June 30, 2024 to a combination of the lower number of new independent associates and preferred customers recruited during the period.

The approximate number of new and continuing active independent associates and preferred customers who purchased our packs or products or paid associate fees during the twelve months ended June 30, 2024 and 2023 were as follows:

The Company collects associate fees in lieu of selling packs in certain markets. Associate fees are paid annually by new and continuing associates to the Company, which entitle them to earn commissions, benefits and incentives for that year. The Company collected associate fees in lieu of pack sales within the United States, Canada, South Africa, Japan, Australia, New Zealand, Singapore, Hong Kong, Taiwan, Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, Spain, Sweden and the United Kingdom.

In the Republic of Korea and Mexico, packs may still be purchased by our associates who wish to build a Mannatech business. These packs contain products that are discounted from both the published retail and associate prices. There are several pack options available to our associates. In certain of these markets, pack sales are completed during the final stages of the registration process and can provide new associates with valuable training and promotional materials, as well as products for resale to retail customers, demonstration purposes, and personal consumption. Business-building associates in these markets can also purchase an upgrade pack, which provides the associate with additional promotional materials. We also do not collect associate fees or sell packs in our non-direct selling business in mainland China. The decline in pack sales occurred principally in Korea.

Other Sales

Other sales consisted of: (i) sales of promotional materials; (ii) monthly fees collected for the Success Tracker™ and Mannatech+ customized electronic business-building and educational materials, databases and applications; (iii) training and event registration fees; and (iv) a reserve for estimated sales refunds and returns. Promotional materials, training, database applications and business management tools support our independent associates, which in turn helps stimulate product sales.

For the three months ended June 30, 2024 and 2023, other sales were $0.4 million and $0.2 million, respectively.

For the six months ended June 30, 2024 and 2023, other sales were $0.8 million and $0.3 million, respectively.

Gross Profit

For the three months ended June 30, 2024, gross profit decreased by $4.2 million, or 16.5%, to $21.4 million, as compared to $25.6 million for the same period in 2023. The decrease in gross profit in dollar terms is principally due to the decline in sales. For the three months ended June 30, 2024, gross profit as a percentage of net sales decreased to 77.1%, as compared to 78.5% for the same period in 2023. Some of the increase in costs were related to increased freight costs related to back ordered items and running some sales promotions on products thereby reducing our margin.

For the six months ended June 30, 2024, gross profit decreased by $7.8 million, or 14.9%, to $44.5 million, as compared to $52.3 million for the same period in 2023. The decrease in gross profit in dollar terms is principally due to the decline in sales. For the six months ended June 30, 2024, gross profit as a percentage of net sales decreased to 77.8%, as compared to 78.4% for the same period in 2023.

Commissions and Incentives

Commission expense for the three months ended June 30, 2024 decreased by 12.5%, or $1.6 million, to $11.1 million, as compared to $12.7 million for the same period in 2023. Commissions are earned on sales. Commission expense in dollar terms decreased during the three months ended June 30, 2024 primarily due to a decline in our sales. For the three months ended June 30, 2024, commissions as a percentage of net sales increased to 40.0% from 38.9% for the same period in 2023. The increase in commissions was due partially to running promotions on our products.

Commission expense for the six months ended June 30, 2024 decreased by 12.9%, or $3.3 million, to $22.3 million, as compared to $25.6 million for the same period in 2023. Commissions are earned on sales. Commission expense in dollar terms decreased during the six months ended June 30, 2024 primarily due to a decline in our sales. For the six months ended June 30, 2024, commissions as a percentage of net sales increased to 39.0% from 38.4% for the same period in 2023, due in part to the product promotions run in the quarter ended June 30, 2024.

Incentive costs for the three months ended June 30, 2024 decreased to $0.6 million, as compared to $0.8 million for the same period in 2023 . For the three months ended June 30, 2024, incentives as a percentage of net sales decreased to 2.0% from 2.4% for the same period in 2023. The decrease was related to travel incentives in the Americas and Asia/Pacific.

Incentive costs for the six months ended June 30, 2024 decreased to $1.1 million, as compared to $1.4 million for the same period in 2023 . For the six months ended June 30, 2024, incentives as a percentage of net sales decreased to 1.8% from 2.1% for the same period in 2023. The decrease was related to travel incentives in the Americas and Asia/Pacific.

Selling and Administrative Expenses

Selling and administrative expenses include a combination of both fixed and variable expenses. These expenses consist of compensation and benefits for employees; temporary and contract labor; accounting, legal and consulting fees; compensation to our board of directors; warehouse and fulfillment costs; depreciation and amortization; marketing-related expenses; travel and entertainment expenses; credit card processing fees; costs for software maintenance agreements; insurance; charitable contributions; office lease expense; utilities; bad debt; and other miscellaneous operating expenses.

For the three months ended June 30, 2024, selling and administrative expenses decreased by $2.2 million, or 17.0%, to $10.9 million, as compared to $13.1 million for the same period in 2023. The decrease in selling and administrative expenses was the result of a $0.9 million reduction in payroll costs, a $0.7 million decrease in legal and consulting fees, a $0.3 million decrease in travel and entertainment costs, a $0.2 million decrease in marketing costs and a $0.1 million decrease in office expenses. Selling and administrative expenses, as a percentage of net sales, for the three months ended June 30, 2024 decreased to 39.1% from 40.1% for the same period in 2023.

For the six months ended June 30, 2024, selling and administrative expenses decreased by $4.0 million, or 15.9%, to $21.5 million, as compared to $25.5 million for the same period in 2023. The decrease in selling and administrative expenses was the result of judicious cost reductions, including a $1.4 million decrease in payroll costs and a $1.3 million decrease in consulting fees. Selling and administrative expenses, as a percentage of net sales, for the six months ended June 30, 2024 decreased to 37.5% from 38.2% for the same period in 2023.

Other Income (Expense), Net

Due to the strengthening of the U.S. Dollar foreign exchange gains were $1.1 million and $0.2 million for the three months ended June 30, 2024 and 2023, respectively.

Foreign exchange gains were $2.0 million and $0.5 million for the six months ended June 30, 2024 and 2023, respectively.

Income Tax (Provision) Benefit

Income tax expense was $0.5 million for the three months ended June 30, 2024 as compared to $0.3 million in the same period last year.

Income tax (provision) or benefit includes current and deferred income taxes for both our domestic and foreign operations. Our statutory income tax rates for key jurisdictions are as follows, for the six months ended June 30:

(1)For 2024, the Company qualified for a reduced tax rate of 5% in China as a Small Low Profit Enterprise.

(2)Includes blended state effective rate of 1.2% for 2024 and 2023 in addition to U.S. federal statutory rate of 21%.

Income from our international operations is subject to taxation in the countries in which we operate. Although we may receive foreign income tax credits that would reduce the total amount of income taxes owed in the United States, we may not be able to fully utilize our foreign income tax credits in the United States.

We use the recognition and measurement provisions of the FASB ASC Topic 740, Income Taxes (“Topic 740”), to account for income taxes. The provisions of Topic 740 require a company to record a valuation allowance when the “more likely than not” criterion for realizing net deferred tax assets cannot be met. Furthermore, the weight given to the potential effect of such evidence should be commensurate with the extent to which it can be objectively verified. As a result, we reviewed the operating results, as well as all of the positive and negative evidence related to realization of such deferred tax assets to evaluate the need for a valuation allowance in each tax jurisdiction.

The provision for income taxes is directly related to our profitability and changes in the taxable income among countries of operation. For the three and six months ended June 30, 2024, the Company’s effective tax rate was (277.4)% and 74.8%, respectively. For the three and six months ended June 30, 2023, the Company’s effective tax rate was (20.8)% and (228.0)%, respectively.

The effective tax rates for the three and six months ended June 30, 2024 and 2023 was different from the federal statutory rate due primarily to the mix of earnings across jurisdictions and the associated valuation allowances recorded on losses in certain jurisdictions.