SOURCE: Mannatech, Inc.

November 09, 2006 13:59 ET

Mannatech, Inc. Reports Third Quarter Earnings

COPPELL, TX -- (MARKET WIRE) -- November 9, 2006 --Mannatech, Inc. (NASDAQ: MTEX) today reported record earnings for its third quarter 2006 of $0.36 cents per diluted share, up 13% from third quarter 2005 earnings of $0.32 per diluted share. Net income for the quarter reached a record of $9.7 million with a net profit ratio of 9.7%. The 1 point net profit rate improvement versus prior year was partially due to a lower effective tax rate in the quarter. Pretax profit was $12.7 million for the quarter compared to $13.0 million, down 0.2% versus prior year.

Total third quarter net sales were $99.6 million, slightly below prior year sales of $100.2 million. Total current Mannatech independent Associates and Members grew to 536,000 as of September 30, 2006, an increase of 14% compared with the same period of the prior year. The record current independent Associate and Member count resulted from a higher retention of continuing Associates, partially offset by a decrease in new Associates for the period.

Sam Caster, Board Chairman and CEO, commented, "Several factors contributed to our sales softness in the quarter. As I indicated in our second quarter call, sales momentum was impacted by a key product reformulation late last year. In addition, the VP of Sales position has remained open since April of this year and that combined with an overhang from negative press may have also impacted recruiting. However, we are pleased with our high retention rate for our Associates, as evidenced by the 36% growth in our continuing associate base and a 4% sales increase in finished product sales for the third quarter versus the prior year quarter."

Mr. Caster continued, "We believe we have taken the necessary steps to address these issues which included the launch of a reformulated Advanced Ambrotose™ in mid 2006 and the introduction of a new recruiting incentive program. We expect to announce the addition of a highly experienced direct selling professional for our VP of Sales position in the near future. In addition in the Fourth Quarter we are launching PhytoMatrix, a revolutionary new vitamin/mineral supplement, which we believe will help revitalize both revenue and recruiting."

Net income for the 9 months ending September 30, 2006, grew to $24.2 million, an increase of 26% compared to prior year, and diluted earnings per share grew to $0.89, up 29% through September 2006 versus the prior year. Year-to-date sales through September reached $303.3 million, up 5.3% from 2005. Sales of finished product grew 9% in the same period.

Mannatech also expended $3.0 million to repurchase 213,701 shares of its common stock in the third quarter

The number of new and continuing independent Associates and Members during the last 12-months ended September 30, 2005 and 2006 were as follows:

                             For the twelve months ended September 30,
                          ------------------------------------------------
                                                            Number and
Current Independent         (revised*)                      percentage
Associates and Members         2005            2006           change
                          --------------- --------------- ---------------
   New                    228,000   48.5% 208,000   38.9% (20,000)   (8.8%)
   Continuing             242,000   51.5% 328,000   61.1%  86,000    35.5%
                          ------- ------  ------- ------  -------
   Total                  470,000    100% 536,000    100%  66,000    14.0%
                          ======= ======  ======= ======  =======

* In the third quarter 2005, we originally reported on our Form 10-Q, the
  split between new and continuing independent Associates and members to be
  219,000, 46.6%, and 251,000, 53.4%, respectively. The original
  calculation included a miscalculation in the allocation between new and
  continuing Associates. However, the total number of independent
  associates was correctly reported at 470,000.
Net sales primarily shipped to customers in these locations, in dollars, and as a percentage of consolidated net sales, were as follows:
                        Three months ended          Nine months ended
                           September 30,               September 30,
                        2005          2006          2005          2006
                    ------------- ------------- ------------- -------------
                          (in millions)               (in millions)
                    --------------------------- ---------------------------
United States       $ 66.5  66.3% $ 65.7  66.0% $192.3  66.8% $202.8  66.9%
Canada                 7.0   7.0%    6.7   6.7%   20.9   7.3%   21.6   7.1%
Australia              9.3   9.3%    7.5   7.5%   26.3   9.1%   22.8   7.5%
United Kingdom         2.1   2.1%    1.8   1.9%    6.9   2.4%    5.7   1.9%
Japan                  9.1   9.1%   10.0  10.0%   25.9   9.0%   30.1   9.9%
New Zealand            3.7   3.7%    2.1   2.1%   11.3   3.9%    6.8   2.2%
Republic of Korea      1.5   1.5%    3.3   3.3%    2.9   1.0%    7.2   2.4%
Taiwan*                0.9   0.9%    0.8   0.8%    1.3   0.5%    2.7   0.9%
Denmark**              0.1   0.1%    1.0   1.0%    0.1   0.0%    2.4   0.8%
Germany***               -     -%    0.7   0.7%      -     -%    1.2   0.4%
                    ------ -----  ------ -----  ------ -----  ------ -----
Totals              $100.2   100% $ 99.6   100% $287.9   100% $303.3   100%
                    ====== =====  ====== =====  ====== =====  ====== =====

*   Taiwan began operations in June 2005.
**  United Kingdom began shipping products to Denmark in August 2005.
*** United Kingdom began shipping products to Germany in March 2006.
Conference Call

Mannatech will hold a conference call and webcast to discuss this announcement with investors on Friday, November 10, 2006 at 10:00 AM ET. Investors may listen to the call by accessing Mannatech's website at http://www.mannatech.com.

About Mannatech

Mannatech, Incorporated is a global wellness solutions provider that develops innovative, high-quality, proprietary nutritional supplements, topical and skin care products, and weight management products that are sold through approximately 536,0000 independent Associates and Members located in the United States and the international markets of Canada, Australia, the United Kingdom, Japan, New Zealand, the Republic of Korea, Taiwan, Denmark, and Germany.

Please Note: This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by use of phrases or terminology such as "may," "believes," "enthusiastic," "demonstrates," " intends," "optimistic," and "plans" or other similar words or the negative of such terminology. Similarly, descriptions of Mannatech's objectives, strategies, plans, goals or targets contained herein are also considered forward-looking statements. Mannatech believes this release should be read in conjunction with all of its filings with the United States Securities and Exchange Commission and cautions its readers that these forward-looking statements are subject to certain events, risks, uncertainties, and other factors. Some of these factors include, among others, Mannatech's inability to attract and retain associates and members, increases in competition, litigation, regulatory changes, and its planned growth into new international markets. Although Mannatech believes that its expectations, statements, and assumptions reflected in these forward-looking statements are reasonable, it cautions its readers to always consider all of the risk factors and any other cautionary statements carefully in evaluating each forward-looking statement in this release, as well as those set forth in its latest Annual Report on Form 10-K, and other filings filed with the United States Securities and Exchange Commission, including its current reports on Form 8-K. All of the forward-looking statements contained herein speak only as of the date of this release.

                          MANNATECH, INCORPORATED
                        CONSOLIDATED BALANCE SHEETS
            (in thousands, except share and per share amounts)


                                                 December 31, September 30,
                                                     2005         2006
                                                  -----------  -----------
                     ASSETS                                    (unaudited)
Cash and cash equivalents                         $    56,207  $    39,943
Short-term investments                                  1,974           --
Restricted cash                                         2,777        3,129
Accounts receivable                                       548        1,442
Income tax receivable                                      --          809
Inventories, net                                       19,811       20,145
Prepaid expenses and other current assets               3,471        4,052
Deferred tax assets                                       671          628
Note receivable from affiliate                            153          160
                                                  -----------  -----------
   Total current assets                                85,612       70,308
Long-term investments                                  15,375       25,375
Property and equipment, net                            10,951       14,961
Construction in progress                                8,157       21,175
Long-term restricted cash                               1,476        2,191
Other assets                                            1,121        1,450
Long-term deferred tax assets                             103          144
                                                  -----------  -----------
   Total assets                                   $   122,795  $   135,604
                                                  ===========  ===========

       LIABILITIES AND SHAREHOLDERS’ EQUITY
Current portion of capital lease                  $        23  $        76
Accounts payable                                        5,476        4,742
Accrued expenses                                       16,941       16,584
Commissions and incentives payable                     15,588       13,414
Taxes payable                                           5,773        1,865
Deferred revenue                                        3,712        3,954
Current deferred tax liabilities                           --          184
                                                  -----------  -----------
   Total current liabilities                           47,513       40,819
Capital lease, excluding current portion                   --          302
Long-term royalties due to an affiliate                 3,341        2,990
Long-term deferred tax liabilities                      1,086        6,155
Long-term liabilities                                     537          630
                                                  -----------  -----------
   Total liabilities                                   52,477       50,896

Commitments and contingencies

Shareholders’ equity:
Preferred stock, $0.01 par value, 1,000,000
 shares authorized, no shares issued or
 outstanding                                               --           --
Common stock, $0.0001 par value, 99,000,000
 shares authorized, 27,404,513 shares issued and
 26,738,364 shares outstanding in 2005 and
 27,607,081 shares issued and 26,399,987 shares
 outstanding in 2006                                        3            3
Additional paid-in capital                             36,699       38,650
Retained earnings                                      42,505       62,459
Accumulated other comprehensive loss                   (1,098)      (1,613)
                                                  -----------  -----------
                                                       78,109       99,499
Less treasury stock, at cost, 666,149 shares in
 2005 and 1,207,094 in 2006                            (7,791)     (14,791)
                                                  -----------  -----------
   Total shareholders’ equity                          70,318       84,708
                                                  -----------  -----------
   Total liabilities and shareholders’ equity     $   122,795  $   135,604
                                                  ===========  ===========





                          MANNATECH, INCORPORATED
            CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED)
               (in thousands, except per share information)


                                 Three months ended     Nine months ended
                                    September 30,         September 30,
                                --------------------  --------------------
                                  2005       2006       2005       2006
                                ---------  ---------  ---------  ---------
Net sales                       $ 100,216  $  99,558  $ 287,960  $ 303,300
   Cost of sales                   14,478     13,497     43,186     42,777
   Commissions and incentives      44,403     43,977    129,326    135,349
                                ---------  ---------  ---------  ---------
                                   58,881     57,474    172,512    178,126
                                ---------  ---------  ---------  ---------

Gross profit                       41,335     42,084    115,448    125,174

Operating expenses:
   Selling and administrative
    expenses                       16,136     16,562     48,595     52,569
   Other operating costs           12,415     14,051     36,587     39,724
                                ---------  ---------  ---------  ---------
      Total operating expenses     28,551     30,613     85,182     92,293
                                ---------  ---------  ---------  ---------

Income from operations             12,784     11,471     30,266     32,881
   Interest income                    469        599      1,254      1,763
   Other income (expense), net       (288)       670     (1,188)       805
                                ---------  ---------  ---------  ---------
Income before income taxes         12,965     12,740     30,332     35,449

      Provision for income taxes   (4,232)    (3,052)   (11,120)   (11,241)
                                ---------  ---------  ---------  ---------

Net income                      $   8,733  $   9,688  $  19,212  $  24,208
                                =========  =========  =========  =========

Earnings per share:
   Basic                        $    0.32  $    0.37  $    0.71  $    0.91
                                =========  =========  =========  =========
   Diluted                      $    0.32  $    0.36  $    0.69  $    0.89
                                =========  =========  =========  =========

Weighted-average common shares
 outstanding:
   Basic                           27,015     26,446     27,065     26,663
                                =========  =========  =========  =========
   Diluted                         27,738     27,044     27,899     27,280
                                =========  =========  =========  =========

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