MANNATECH INC

RESULTS OF OPERATIONS

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

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

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the nine months ended September 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 nine months ended September 30, 2024, our net sales decreased $0.4 million and $8.5 million, or 1.2% and 8.6% on a Constant dollar basis, respectively (see reconciliation of Non-GAAP Financial Measures in the tables below); and unfavorable foreign exchange caused a $0.5 million and $1.9 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 nine months ended September 30, 2024 and 2023 is presented as follows(in millions, except percentages):

Net Sales by Region

Operations outside of the Americas accounted for approximately 66.6% of our consolidated net sales in the three months ended September 30, 2024, as compared to 67.2% in the same period last year. Our operations outside of the Americas accounted for approximately 65.8% of our consolidated net sales in the nine months ended September 30, 2024, as compared to 68.0% in the same period last year.

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

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

For the three months ended September 30, 2024, net sales in the Americas decreased by $0.1 million, or 0.9%, to $10.6 million, as compared to $10.7 million for the same period in 2023. The number of active independent associates and preferred customers decreased by 3.7%, which was partially offset by a 2.9% increase in revenue per active independent associate and preferred customer. Foreign currency had the effect of decreasing revenue by $0.2 million for the three months ended September 30, 2024 when compared to the same period in 2023. The currency impact is primarily due to the weakening of the Mexican Peso.

For the nine months ended September 30, 2024, net sales in the Americas decreased by $1.4 million, or 4.4%, to $30.4 million, as compared to $31.8 million for the same period in 2023. Revenue per active independent associate and preferred customer decreased 0.7%, which was partially offset by a 0.5% increase in number of active independent associates and preferred customers. Foreign currency had no effect on revenue in the Americas for the nine months ended September 30, 2024, as compared to the same period in 2023.

For the three months ended September 30, 2024, Asia/Pacific net sales decreased by $1.0 million, or 5.1%, to $18.6 million, as compared to$19.6 million for the same period in 2023. The number of active independent associates and preferred customers decreased by 9.2%, which was partially offset by a 4.5% increase in revenue per active independent associate and preferred customer. Foreign currency exchange had the effect of decreasing revenue by $0.4 million for the three months ended September 30, 2024, as compared to the same period in 2023. The currency impact is primarily due to the weakening of the Korean Won.

For the nine months ended September 30, 2024, Asia/Pacific net sales decreased by $8.4 million, or 14%, to $51.6 million, as compared to $60.0 million for the same period in 2023. A challenging economic environment in Korea led to a 5.3% decrease in revenue per active independent associate and preferred customer, whichwas partially offset bya 1.5% increase in the number of active independent associates and preferred customers. Foreign currency exchange had the effect of decreasing revenue by $2.0 million for the nine months ended September 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 September 30, 2024, EMEA net sales increased by $0.2 million, or 8.7%, to $2.5 million, as compared to $2.3 million for the same period in 2023. The increase was primarily due to a 16.2% increase in revenue per active independent associate and preferred customer, which was partially offset by a 6.4% decrease in the number of active independent associates and preferred customers. Foreign currency exchange had the effect of increasing revenue by $0.1 million for the three months ended September 30, 2024 as compared to the same period in 2023. The currency impact is primarily due to the weakening of the South African Rand.

For the nine months ended September 30, 2024, EMEA net sales decreased by $0.6 million, or 8%, to $6.9 million, as compared to $7.5 million for the same period in 2023. The decreasewas primarily due to a 10.6% decreasein the number of active independent associates and preferred customers and a 1.7% decrease in revenue per active independent associate and preferred customer. Foreign currency exchange had a minimal effect on revenue for the three months ended September 30, 2024 as compared to the same period in 2023.

Sales Mix

Our sales mix for the three and nine months ended September 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 September 30, 2024 decreased by $0.9 million, or 2.9%, as compared to the same period in 2023. On a Constant dollar basis, product sales for the three months ended September 30, 2024 decreased $0.5 million, or 1.6%, as compared to the same period in 2023. The decrease in product sales for the three months ended September 30, 2024 reflects a 6.4% decrease in the number of orders processed and a decrease in the average order value to $178, as compared to $177 for the same period in 2023.

The Company experienced supply chain issues with some products during 2024, which led to stock outs of certain products and affected the timing of certain key product promotions during the year. Product sales for the nine months ended September 30, 2024 decreased by $9.6 million, or 10.2%, as compared to the same period in 2023. On a Constant dollar basis, product sales for the nine months ended September 30, 2024 declined $7.8 million, or 8.3%, as compared to the same period in 2023. The decrease in product sales for the nine months ended September 30, 2024 reflects a 7.2% decrease in the number of orders processed and a decrease in the average order value to $171, as compared to $178 for the same period in 2023.

Pack sales, Associate Fees and Recruiting

Recruitment of new independent associates and preferred customers decreased by 28.1% to 16,741 in the third quarter of 2024, as compared with 23,296 in the third quarter of 2023. We attribute the lower number of orders processed in the three months ended September 30, 2024 to a combination of the lower number of new independent associates and preferred customers recruited during the period.

Pack sales and associate fees are closely related to recruiting and retention of business-building associates. 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 September 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, Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, the Netherlands, Norway, Spain, Sweden the United Kingdom. Japan, Australia, New Zealand, Singapore, Hong Kong, and Taiwan.

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. The decline in pack sales occurred principally in Korea.

We do not collect associate fees or sell packs in our non-direct selling business in mainland China.

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 September 30, 2024 and 2023, other sales were $0.3 million and $0.4 million, respectively.

For the nine months ended September 30, 2024 and 2023, other sales were $1.2 million and $0.7 million, respectively.

Gross Profit

For the three months ended September 30, 2024, gross profit decreased by $2.3 million, or 8.9%, to $23.6 million, as compared to $25.9 million for the same period in 2023. For the three months ended September 30, 2024, gross profit as a percentage of net sales decreased to 74.5%, as compared to 79.6% for the same period in 2023. The decrease in gross profit in dollar terms is principally due to increased product costs, including inventory markdowns, and increased freight costs. The timing of certain sales promotions also reduced gross profit as a percentage of net sales during the quarter, compared with the same period in 2023.

For the nine months ended September 30, 2024, gross profit decreased by $10.1 million, or 12.9%, to $68.1 million, as compared to $78.2 million for the same period in 2023. The decrease in gross profit in dollar terms is principally due to increased costs related to supply chain challenges, including increased product costs and increased freight costs. For the nine months ended September 30, 2024, gross profit as a percentage of net sales decreased to 76.6%, as compared to 78.8% for the same period in 2023.

Commissions and Incentives

Commission expense for the three months ended September 30, 2024 decreased by 2.0%, or $0.2 million, to $12.2 million, as compared to $12.4 million for the same period in 2023. Commissions are earned on sales. Commission expense in dollar terms decreased during the three months ended September 30, 2024 primarily due to a decline in our sales. For the three months ended September 30, 2024, commissions as a percentage of net sales remained constant at 38.3%.

Commission expense for the nine months ended September 30, 2024 decreased by 9.2%, or $3.5 million, to $34.5 million, as compared to $38.0 million for the same period in 2023. Commissions are earned on sales. Commission expense in dollar terms decreased during the nine months ended September 30, 2024 primarily due to a decline in our sales. For the nine months ended September 30, 2024, commissions as a percentage of net sales increased to 38.8% from 38.3% for the same period in 2023.

Incentive costs for the three months ended September 30, 2024 and 2023 remained constant at $0.7 million. For the three months ended September 30, 2024, incentives as a percentage of net sales remained constant at 2.3%.

Incentive costs for the nine months ended September 30, 2024 decreased to $1.8 million, as compared to $2.2 million for the same period in 2023 . For the nine months ended September 30, 2024, incentives as a percentage of net sales decreased to 2.0% from 2.2% 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 September 30, 2024, selling and administrative expenses decreased by $2.8 million, or 21.8%, to $9.8 million, as compared to $12.6 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 $0.6 million decrease in marketing costs, a $0.6 million decrease to bad debt, a $0.3 million decrease in professional and consulting fees, a $0.2 million decrease in office expenses, $0.1 million decrease in depreciation expense and a $0.1 million decrease in travel and entertainment costs. Selling and administrative expenses, as a percentage of net sales, for the three months ended September 30, 2024 decreased to 31.0% from 38.6% for the same period in 2023.

For the nine months ended September 30, 2024, selling and administrative expenses decreased by $6.8 million, or 17.8%, to $31.3 million, as compared to $38.1 million for the same period in 2023. The decrease in selling and administrative expenses was the result of judicious cost reductions, including a $2.3 million decrease in payroll costs, a $1.7 million decrease in professional and consulting fees, a $0.9 million decrease in marketing costs, a $0.6 million decrease to bad debt, a $0.5 million decrease in costs of office space, a $0.4 million decrease in travel and entertainment costs, a $0.2 million decrease in contract labor costs and a $0.2 million decrease in credit card fees. Selling and administrative expenses, as a percentage of net sales, for the nine months ended September 30, 2024 decreased to 35.2% from 38.4% for the same period in 2023.

Other Income (Expense), Net

Foreign exchange losses were $1.5 million for the three months ended September 30, 2024. Foreign exchange gains were $0.3 million for the three months ended September 30, 2023.

Foreign exchange gains were $0.5 million and $0.8 million for the nine months ended September 30, 2024 and 2023, respectively.

Income Tax (Provision) Benefit

Income tax benefit was $0.4 million for the three months ended September 30, 2024 as compared to income tax expense of $0.5 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 nine months ended September 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 across countries of operation. For the three and nine months ended September 30, 2024, the Company’s effective tax rate was 83.9% and 71.1%, respectively. For the three and nine months ended September 30, 2023, the Company’s effective tax rate was 43.0% and 166.1%, respectively.

The effective tax rates for the three and nine months ended September 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.