mtex-20230630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2023

OR
¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission File No. 000-24657
MANNATECH, INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Texas 75-2508900
(State or other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
1410 Lakeside Parkway, Suite 200,
Flower Mound,Texas 75028
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, including Area Code: (972) 471-7400
                Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareMTEXThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “accelerated filer”, “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 ¨
Accelerated filer
 ¨
Non-accelerated filerxSmaller reporting companyxEmerging Growth Company
 ¨

If an emerging growth company, indicated by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o No x 




As of July 31, 2023, the number of shares outstanding of the registrant’s sole class of common stock, par value $0.0001 per share, was 1,864,881.



MANNATECH, INCORPORATED
TABLE OF CONTENTS
Part I – FINANCIAL INFORMATION 
  
  
  
  
Part II – OTHER INFORMATION 
  
  
  
  
  
  
  


Table of Contents
Special Note Regarding Forward-Looking Statements

Certain disclosures and analyses in this Form 10-Q, including information incorporated by reference, may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995 that are subject to various risks and uncertainties. Opinions, forecasts, projections, guidance, or other statements other than statements of historical fact are considered forward-looking statements and reflect only current views about future events and financial performance. Some of these forward-looking statements include statements regarding:
management’s plans and objectives for future operations;
existing cash flows being adequate to fund future operational needs;
future plans related to budgets, future capital requirements, market share growth, and anticipated capital projects and obligations;
the realization of net deferred tax assets;
the ability to curtail operating expenditures;
global statutory tax rates remaining unchanged;
the impact of future market changes due to exposure to foreign currency translations;
the possibility of certain policies, procedures, and internal processes minimizing exposure to market risk;
the impact of new accounting pronouncements on financial condition, results of operations, or cash flows;
the outcome of new or existing litigation matters;
the outcome of new or existing regulatory inquiries or investigations; and
other assumptions described in this report underlying such forward-looking statements.

Although we believe that the expectations included in these forward-looking statements are reasonable, these forward-looking statements are subject to certain events, risks, assumptions, and uncertainties, including those discussed below, the “Risk Factors” section in Part I, Item 1A of our Form 10-K for the year ended December 31, 2022, and elsewhere in this Form 10-Q and the documents incorporated by reference herein. If one or more of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results and developments could materially differ from those expressed in or implied by such forward-looking statements. For example, any of the following factors could cause actual results to vary materially from our projections:
overall growth or lack of growth in the nutritional supplements industry;
plans for expected future product development;
changes in manufacturing costs;
shifts in the mix of packs and products;
the future impact of any changes to global associate career and compensation plans or incentives or the regulations governing such plans and incentives;
the ability to attract and retain independent associates and preferred customers;
new regulatory changes that may affect operations, products or compensation plans and incentives;
ability of our outside suppliers and manufacturers to supply products in sufficient quantities and comply with
our product safety and quality standards or applicable law;
the competitive nature of our business with respect to products and pricing;
publicity related to our products or network marketing; and
the political, social and economic climate of the countries in which we operate, including, the COVID-19
pandemic.

Forward-looking statements generally can be identified by use of phrases or terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “approximates,” “predicts,” “projects,” “hopes,” “potential,” and “continues” or other similar words or the negative of such terms and other comparable terminology. Similarly, descriptions of Mannatech’s objectives, strategies, plans, goals, or targets contained herein are also considered forward-looking statements. Readers are cautioned when considering these forward-looking statements to keep in mind these risks, assumptions, and uncertainties and any other cautionary statements in this report, as all of the forward-looking statements contained herein speak only as of the date of this report.

Unless stated otherwise, all financial information throughout this report and in the Consolidated Financial Statements and related Notes include Mannatech, Incorporated and all of its subsidiaries on a consolidated basis and may be referred to herein as “Mannatech,” “the Company,” “its,” “we,” “us,” “our,” or “their.”

Our products are not intended to diagnose, cure, treat, or prevent any disease, and any statements about our products contained in this report have not been evaluated by the Food and Drug Administration, also referred to herein as the “FDA”.
1

Table of Contents
 PART I – FINANCIAL INFORMATION

Item 1. Financial Statements
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETSJune 30, 2023 (unaudited)December 31, 2022
Cash and cash equivalents$9,374 $13,777 
Restricted cash938 944 
Accounts receivable, net of allowance of $1,109 and $973 in 2023 and 2022, respectively
645 218 
Income tax receivable422 423 
Inventories, net15,838 14,726 
Prepaid expenses and other current assets2,183 2,389 
Deferred commissions1,852 2,476 
Total current assets31,252 34,953 
Property and equipment, net4,689 3,759 
Long-term restricted cash460 476 
Other assets7,834 8,439 
Deferred tax assets, net1,164 1,501 
Total assets$45,399 $49,128 
LIABILITIES AND SHAREHOLDERS’ EQUITY  
Current portion of finance leases$274 $61 
Accounts payable5,825 4,361 
Accrued expenses6,930 7,510 
Commissions and incentives payable8,734 9,256 
Taxes payable1,738 3,281 
Current notes payable411 263 
Deferred revenue4,330 5,106 
Total current liabilities28,242 29,838 
Finance leases, excluding current portion1,115 88 
Other long-term liabilities4,400 5,026 
Total liabilities33,757 34,952 
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, 2,742,857 shares issued and 1,866,212 shares outstanding as of June 30, 2023 and 2,742,857 shares issued and 1,858,800 shares outstanding as of December 31, 2022
  
Additional paid-in capital33,294 33,377 
Retained earnings437 1,686 
Accumulated other comprehensive (loss) income(1,658)(208)
Treasury stock, at average cost, 876,645 shares as of June 30, 2023 and 884,057 shares as of December 31, 2022
(20,431)(20,679)
Total shareholders’ equity11,642 14,176 
Total liabilities and shareholders’ equity$45,399 $49,128 

See accompanying notes to unaudited consolidated financial statements.
2

Table of Contents
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS – (UNAUDITED)
(in thousands, except per share information)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Net sales$32,594 $34,976 $66,708 $67,360 
Cost of sales7,004 7,920 14,417 15,011 
Gross profit25,590 27,056 52,291 52,349 
Operating expenses:  
Commissions and incentives13,465 14,137 27,022 27,245 
Selling and administrative expenses7,257 6,914 13,673 13,823 
Depreciation and amortization expense387 301 774 633 
Other operating costs5,435 4,851 11,063 9,760 
Total operating expenses26,544 26,203 52,532 51,461 
(Loss) income from operations(954)853 (241)888 
Interest (expense) income, net(10)23 14 38 
Other income (expense), net150 (84)483 1 
(Loss) income before income taxes(814)792 256 927 
Income tax provision(291)(98)(757)(99)
Net (loss) income$(1,105)$694 $(501)$828 
(Loss) income per common share:  
Basic$(0.59)$0.36 $(0.27)$0.43 
Diluted$(0.59)$0.34 $(0.27)$0.40 
Weighted-average common shares outstanding:  
Basic1,870 1,942 1,871 1,944 
Diluted1,870 2,031 1,871 2,052 


MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS – (UNAUDITED)
(in thousands)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Net (loss) income$(1,105)$694 $(501)$828 
Foreign currency translations(651)(2,161)(1,450)(2,834)
Comprehensive loss$(1,756)$(1,467)$(1,951)$(2,006)
 
See accompanying notes to unaudited consolidated financial statements.
3

Table of Contents
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY – (UNAUDITED)
(in thousands)
 Common stock
Par value
Additional
paid-in
capital
Retained
earnings (accumulated deficit)
Accumulated
other
comprehensive
loss
Treasury
stock
Total
shareholders’
equity
Balance at January 1, 2023$ $33,377 $1,686 $(208)$(20,679)$14,176 
Net income— — 604 — — 604 
Payment of cash dividends— — (375)— — (375)
Charge related to stock-based compensation— 11 — — — 11 
Issuance of unrestricted shares— (76)— — 299 223 
Stock option exercises— (35)— 47 12 
Foreign currency translations— — — (799)— (799)
Balance at March 31, 2023$ $33,277 $1,915 $(1,007)$(20,333)$13,852 

Net loss— — (1,105)— — (1,105)
Payment of cash dividends— — (373)— — (373)
Charge related to stock-based compensation— 17 — — — 17 
Repurchase of common stock— — — — (98)(98)
Foreign currency translations— — — (651)— (651)
Balance at June 30, 2023$ $33,294 $437 $(1,658)$(20,431)$11,642 


Common stock
Par value
Additional
paid-in
capital
Retained earningsAccumulated
other
comprehensive
income (loss)
Treasury
stock
Total
shareholders’
equity
Balance at January 1, 2022$ $33,277 $7,708 $2,342 $(18,915)$24,412 
Net income— — 134 — — 134 
Payment of cash dividends— — (390)— — (390)
Charge related to stock-based compensation— 7 — — — 7 
Issuance of unrestricted shares— 97 — — 143 240 
Stock option exercises— (22)— — 22 — 
Foreign currency translations— — — (673)— (673)
Balance at March 31, 2022$ $33,359 $7,452 $1,669 $(18,750)$23,730 
Net income— — 694 — — 694 
Payment of cash dividends— — (390)— — (390)
Charge related to stock-based compensation— 48 — — — 48 
Repurchase of common stock— — — — (643)(643)
Foreign currency translations— — — (2161)— (2,161)
Balance at June 30, 2022$ $33,407 $7,756 $(492)$(19,393)$21,278 

See accompanying notes to unaudited consolidated financial statements.
4

Table of Contents
MANNATECH, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS – (UNAUDITED)
(in thousands)
 Six Months Ended
June 30,
 20232022
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net (loss) income(501)828 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:  
Depreciation and amortization774 633 
Non-cash operating lease expense823 1,051 
Provision for inventory losses275 225 
Provision for allowance for credit losses130 (29)
Charge related to stock-based compensation251 295 
Deferred income taxes337 32 
Changes in operating assets and liabilities:  
Accounts receivable(557)(92)
Income tax receivable1 (47)
Inventories(1,387)(2,089)
Prepaid expenses and other current assets695 671 
Deferred commissions624 (845)
Other assets122 230 
Accounts payable1,464 1,168 
Accrued expenses(920)(711)
Other long-term liabilities(626)239 
Taxes payable(1,543)(619)
Commissions and incentives payable(522)(592)
Deferred revenue(776)1,125 
Net cash (used in) provided by operating activities(1,336)1,473 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Acquisition of property and equipment(354)(536)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Proceeds from stock options exercised12  
Repurchase of common stock(98)(643)
Payment of cash dividends(748)(780)
Repayment of finance lease obligations and other long-term liabilities(446)(345)
Net cash used in financing activities(1,280)(1,768)
Effect of currency exchange rate changes on cash and cash equivalents(1,455)(2,815)
Net decrease in cash, cash equivalents, and restricted cash(4,425)(3,646)
Cash, cash equivalents, and restricted cash at the beginning of the period15,197 25,632 
Cash, cash equivalents, and restricted cash at the end of the period$10,772 $21,986 
    

See accompanying notes to unaudited consolidated financial statements.


5

Table of Contents
Six Months Ended
June 30,
20232022
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:  
Income taxes paid$2,390 $654 
Interest paid on finance leases and other financing arrangements27 14 
Assets acquired through other financing arrangements497 528 
Operating lease right-of-use assets acquired in exchange for new operating lease liabilities340 1,378 
Finance lease right-of-use assets acquired in exchange for new finance lease liabilities1,345 19 
Treasury shares exchanged for stock options exercised 22 

See accompanying notes to unaudited consolidated financial statements.



6

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



    
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    Mannatech, Incorporated (together with its subsidiaries, the “Company”), located in Flower Mound, Texas, was incorporated in the state of Texas on November 4, 1993 and is listed on the Nasdaq Global Select Market under the symbol “MTEX”. The Company develops, markets, and sells high-quality, proprietary nutritional supplements, topical and skin care and anti-aging products, and weight-management products. We currently sell our products into three regions: (i) the Americas (the United States, Canada and Mexico); (ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong, and China).
Active business building associates ("independent associates" or "associates" or "distributors") and preferred customers purchase the Company’s products at published wholesale prices. The Company cannot distinguish products sold for personal use from other sales when sold to associates, because it is not involved with the products after delivery, other than usual and customary product warranties and returns. Only associates are eligible to earn commissions and incentives. We also ship our products to customers in the following countries: Belgium, France, Greece, Italy, Luxembourg, and Poland. The Company operates a non-direct selling business in mainland China. Our subsidiary in China, Meitai Daily Necessity & Health Products Co., Ltd. (“Meitai”), is operating as a traditional retailer under a cross-border e-commerce model in China. Meitai cannot legally conduct a direct selling business in China unless it acquires a direct selling license in China.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with instructions for Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, the Company’s consolidated financial statements and footnotes contained herein do not include all of the information and footnotes required by GAAP to be considered “complete financial statements”. However, in the opinion of the Company’s management, the accompanying unaudited consolidated financial statements and footnotes contain all adjustments, including normal recurring adjustments, considered necessary for a fair presentation of the Company’s consolidated financial information as of, and for, the periods presented. The Company cautions that its consolidated results of operations for an interim period are not necessarily indicative of its consolidated results of operations to be expected for its fiscal year. The December 31, 2022 consolidated balance sheet was included in the audited consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2022 and filed with the United States Securities and Exchange Commission (the “SEC”) on March 17, 2023 (the “2022 Annual Report”), which includes all disclosures required by GAAP. Therefore, these unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the 2022 Annual Report.

Principles of Consolidation
The consolidated financial statements and footnotes include the accounts of Mannatech and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates
The preparation of the Company’s consolidated financial statements in accordance with GAAP requires the use of estimates that affect the reported value of assets, liabilities, revenues and expenses. These estimates are based on historical experience and various other factors. The Company continually evaluates the information used to make these estimates as the business and economic environment changes. Historically, actual results have not varied materially from the Company’s estimates and the Company does not currently anticipate a significant change in its assumptions related to these estimates. However, actual results may differ from these estimates under different assumptions or conditions.
The use of estimates is pervasive throughout the consolidated financial statements, but the accounting policies and estimates considered the most significant are described in this note to the consolidated financial statements, Organization and Summary of Significant Accounting Policies.

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MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company includes in its cash and cash equivalents credit card receivables due from its credit card processor, as the cash proceeds from credit card receivables are received within 24 to 72 hours. As of June 30, 2023 and December 31, 2022, credit card receivables were $1.3 million and $1.9 million, respectively. As of June 30, 2023 and December 31, 2022, cash and cash equivalents held in bank accounts in foreign countries totaled $7.8 million and $11.3 million, respectively. The Company invests cash in liquid instruments, such as money market funds and interest-bearing deposits. The Company holds cash in high quality financial institutions and does not believe it has an excessive exposure to credit concentration risk.
A significant portion of our cash and cash equivalent balances were concentrated within the Republic of Korea, with total net assets within this foreign location totaling $25.2 million and $21.3 million at June 30, 2023 and December 31, 2022, respectively. In addition, for the three and six months ended June 30, 2023 and 2022, a concentrated portion of our operating cash flows were earned from operations within the Republic of Korea. An adverse change in economic conditions within the Republic of Korea could negatively affect the Company’s results of operations. 
The Company is required to restrict cash for: (i) direct selling insurance premiums and credit card sales in the Republic of Korea; (ii) reserve on credit card sales in the United States and Canada; and (iii) the Australia building lease collateral. At each of June 30, 2023 and December 31, 2022, our total restricted cash was $1.4 million.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Company's consolidated balance sheets to the total amount presented in the consolidated statement of cash flows (in thousands):
June 30, 2023December 31, 2022
Cash and cash equivalents at beginning of period$13,777 $24,185 
Current restricted cash at beginning of period944 944 
Long-term restricted cash at beginning of period476 503 
Cash, cash equivalents, and restricted cash at beginning of period$15,197 $25,632 
Cash and cash equivalents at end of period$9,374 $13,777 
Current restricted cash at end of period938 944 
Long-term restricted cash at end of period460 476 
Cash, cash equivalents, and restricted cash at end of period$10,772 $15,197 

Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. Receivables are created upon shipment of an order if the credit card payment is rejected or does not match the order total. As of June 30, 2023 and December 31, 2022, receivables consisted primarily of amounts due from preferred customers and associates. At June 30, 2023 and December 31, 2022, the Company's accounts receivable balances (net of allowance) were $0.6 million and $0.2 million, respectively. Upon adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), the Company assesses collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis when the Company identifies specific customers with known disputes or collectability issues. Expected loss estimates are determined utilizing an aging schedule. In determining the amount of the allowance for credit losses, the Company considers historical collectability based on past due status and makes judgments about the creditworthiness of customers based on ongoing credit evaluations. The Company also considers customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. At June 30, 2023 and December 31, 2022, the Company held an allowance for credit losses of $1.1 million and $1.0 million, respectively.
December 31, 2022Charged to ExpensesDeductionsJune 30, 2023
Allowance for credit losses ( 000's)$973 $(9)$145 $1,109 


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MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Inventories

Inventories consist of raw materials, finished goods, and promotional materials that are stated at the lower of cost (using standard costs that approximate average costs) or net realizable value. The Company periodically reviews inventories for obsolescence and any inventories identified as obsolete are reserved or written off.

Other Assets

As of June 30, 2023 and December 31, 2022, other assets were $7.8 million and $8.4 million, respectively. These amounts primarily consisted of right-of-use assets related to operating leases for office space and equipment, net of lease incentives, of $4.2 million and $4.6 million as of June 30, 2023 and December 31, 2022, respectively. See Note 8, Leases, for more information on these assets. Also included in Other Assets were deposits for building leases in various locations of $1.3 million for each of June 30, 2023 and December 31, 2022. Additionally, included in the June 30, 2023 and December 31, 2022 balances was $2.2 million and $2.3 million, respectively, representing a deposit with Mutual Aid Cooperative and Consumer in the Republic of Korea, an organization established by the Republic of Korea’s Fair Trade Commission to protect consumers who participate in network marketing activities. Finally, each of the June 30, 2023 and December 31, 2022 balances included $0.2 million of indefinite lived intangible assets relating to the Manapol® powder trademark.

Accrued Expenses

As of June 30, 2023 and December 31, 2022, accrued expenses were $6.9 million and $7.5 million, respectively. These amounts primarily consisted of $1.8 million and $1.4 million representing employee benefits, which included accrued wages, bonus and severance at June 30, 2023 and December 31, 2022, respectively. Also included in the June 30, 2023 and December 31, 2022 balances were non-inventory accrued liabilities of $1.9 million and $2.8 million, respectively. Additionally, included in the June 30, 2023 and December 31, 2022 balances was $1.8 million and $1.6 million for the current portion of operating lease liabilities, respectively. At June 30, 2023 and December 31, 2022, also included in the balances were $0.7 million and $1.0 million for accrued auditing and accounting fees, respectively. At each of June 30, 2023 and December 31, 2022, other accrued expenses were $0.7 million.

Notes Payable

Notes payable were $0.4 million and $0.3 million at June 30, 2023 and December 31, 2022, respectively, as a result of short-term financing arrangements for insurance policies. At June 30, 2023 and December 31, 2022, the current portion was $0.4 million and $0.3 million, respectively. There was no long-term portion at either period.

Other Long-Term Liabilities

Other long-term liabilities were $4.4 million and $5.0 million as of June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023 and December 31, 2022, the balance is primarily composed of long-term operating lease obligations of $3.5 million and $4.2 million, respectively. See Note 8, Leases, for more information. Certain operating leases for the Company’s regional office facilities contain a restoration clause that requires the Company to restore the premises to its original condition. At each of June 30, 2023 and December 31, 2022, accrued restoration costs related to these leases amounted to $0.3 million. At each of June 30, 2023 and December 31, 2022, the Company also recorded a long-term liability for estimated defined benefit obligation related to a non-U.S. defined benefit plan for its Japan operations of $0.2 million (see Note 9, Employee Benefit Plans, of the Company’s 2022 Annual Report).

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MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

The Company’s revenue is derived from sales of individual products and associate fees or, in certain geographic markets, starter packs. Substantially all of the Company’s product sales are made at published wholesale prices to associates and preferred customers. The Company records revenue net of any sales taxes and records a reserve for expected sales returns based on its historical experience. The Company recognizes revenue from shipped products when control of the product transfers to the customer, thus the performance obligation is satisfied. Corporate-sponsored event revenue is recognized when the event is held.
Revenues from associate fees relate to providing associates with the right to earn commissions, benefits and incentives for an annual period. Revenue from software tools included in the first contractual year is recognized over three months and revenue from associate fees is recognized over twelve months (see Contracts with Multiple Performance Obligations for recognition guidelines). Almost all orders are paid via credit card. See Note 10, Segment Information, for disaggregation of revenues by geographic segment and type.

The Company collected associate fees 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.

    Contracts with Multiple Performance Obligations

Orders placed by associates or preferred customers constitute our contracts. Product sales placed in the form of an automatic order contain two performance obligations: (a) the sale of the product and (b) the loyalty program. For these contracts, the Company accounts for each of these obligations separately as they are each distinct. The transaction price is allocated between the product sale and the loyalty program on a relative standalone selling price basis. Sales placed through a one-time order contain only the first performance obligation noted above, the sale of the product.

The Company provides associates with access to a complimentary three-month package for the Success TrackerTM and Mannatech+ online business tools with the first payment of an associate fee. The first payment of an associate fee contains three performance obligations: (a) the associate fee, whereby the Company provides an associate with the right to earn commissions, bonuses and incentives for a year; (b) three months of complimentary access to utilize the Success Tracker™ online tool; and (c) three months of complimentary access to utilize the Mannatech+ online business tool. The transaction price is allocated between the three performance obligations on a relative standalone selling price basis. Associates do not have complimentary access to online business tools after the first contractual period.

    Deferred Commissions

The Company defers commissions on (i) the sales of products shipped but not received by customers by the end of the respective period and (ii) the loyalty program. Deferred commissions are incremental costs and are amortized to expense consistent with how the related revenue is recognized. Deferred commissions were $2.5 million for the year ended December 31, 2022. Of this balance, $1.5 million was amortized to commissions expense for the six months ended June 30, 2023. At June 30, 2023, deferred commissions were $1.9 million.

    Deferred Revenue

    The Company defers certain components of its revenue. Deferred revenue consisted of: (i) sales of products shipped but not received by customers by the end of the respective period; (ii) revenue from the loyalty program; (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored event; and (iv) prepaid annual associate fees. At December 31, 2022, the Company’s deferred revenue was $5.1 million. Of this balance, $3.5 million was recognized as revenue for the six months ended June 30, 2023. At June 30, 2023, the Company’s deferred revenue was $4.3 million.

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MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company’s customer loyalty program conveys a material right to the customer as it provides the promise to redeem loyalty points for the purchase of products, which is based on earning points through placing consecutive qualified orders. The Company factors in breakage rates, which is the percentage of the loyalty points that are expected to be forfeited or expire, for purposes of revenue recognition. Breakage rates are estimated based on historical data and can be reasonably and objectively determined.
During the preparation of our consolidated financial statements for the three-months ended June 30, 2023, an immaterial error was identified in the calculation of breakage relating to our loyalty program. To correct the error, we recognized an out of period adjustment resulting in an increase in revenues of $1.2 million and $1.4 million for the three and six months ended June 30, 2023, respectively. The out of period adjustment also resulted in an increase in commission expense of $0.5 million for each of the three and six months ended June 30, 2023.
The deferred revenue associated with the loyalty program at each of June 30, 2023 and December 31, 2022 was $2.6 million and $4.2 million, respectively.

Loyalty program(in thousands)
Loyalty deferred revenue as of January 1, 2022$4,292 
Loyalty points forfeited or expired(3,387)
Loyalty points used(10,543)
Loyalty points vested12,773 
Loyalty points unvested1,032 
Loyalty deferred revenue as of December 31, 2022$4,167 

Loyalty deferred revenue as of January 1, 2023$4,167 
Loyalty points forfeited or expired(2,736)
Loyalty points used(4,672)
Loyalty points vested5,010 
Loyalty points unvested828 
Loyalty deferred revenue as of June 30, 2023$2,597 

    Sales Refunds and Allowances

The Company utilizes the expected value method, as set forth by Accounting Standard Codification ("ASC") Topic 606 Revenue from Contracts with Customers ("ASC 606"), to estimate the sales returns and allowance liability by taking the weighted average of the sales return rates over a rolling six-month period. The Company allocates the total amount recorded within the sales return and allowance liability as a reduction of the overall transaction price for the Company’s product sales. The Company deems the sales refund and allowance liability to be a variable consideration.

Historically, sales returns have not materially changed through the years, as the majority of our customers who return their merchandise do so within the first 90 days after the original sale. Sales returns have historically averaged 1.5% or less of our gross sales. As of each of the periods set forth below, our sales return reserve consisted of the following (in thousands):

11

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Sales reserve as of January 1, 2022$55 
Provision related to sales made in current period783 
Adjustment related to sales made in prior periods(4)
Actual returns or credits related to current period(730)
Actual returns or credits related to prior periods(45)
Sales reserve as of December 31, 2022$59 
Sales reserve as of January 1, 2023$59 
Provision related to sales made in current period427 
Adjustment related to sales made in prior periods414 
Actual returns or credits related to current period(363)
Actual returns or credits related to prior periods(467)
Sales reserve as of June 30, 2023$70 
    

Shipping and Handling Costs

The Company records inbound freight as a component of inventory and cost of sales. The Company records freight and shipping fees collected from its customers as fulfillment costs. In accordance with ASC 606-10-25-18a, freight and shipping fees are not deemed to be separate performance obligations as these activities occur before the customer receives the product.

Commissions and Incentives

Associates earn commissions and incentives based on their direct and indirect commissionable net sales over each month of the fiscal year. The Company accrues commissions and incentives when earned by associates and pays commissions on product and pack sales on a monthly cycle.

Comprehensive Income and Accumulated Other Comprehensive Income

Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company’s comprehensive income consists of the Company’s net income, foreign currency translation adjustments from its Japan, Republic of Korea, Taiwan, Denmark, Norway, Sweden, Mexico and China operations, remeasurement of intercompany balances classified as equity in its Korea, and Mexico operations, and changes in the pension obligation for its Japanese employees.
    Recently Adopted Accounting Pronouncements

The Company adopted ASU 2016-13 as of January 1, 2023. This new standard adds to U.S. GAAP an impairment model (known as the current expected credit loss ("CECL") model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which is intended to result in the more timely recognition of losses. Under the CECL model, entities estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications) from the date of initial recognition of the financial instrument. Measurement of expected credit losses are based on relevant forecasts that affect collectability. The scope of financial assets within the CECL methodology is broad and includes trade receivables from certain revenue transactions and certain off-balance sheet credit exposures. ASU 2016-13 only applies to our receivables from revenue transactions. Under ASC 606, revenue is recognized when, among other criteria, it is probable that the entity will collect the consideration to which it is entitled for goods or services transferred to a customer. At the point that trade receivables are recorded, they become subject to the CECL model and estimates of expected credit losses on trade receivables over their contractual life are required to be recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. The Company adopted the accounting standard using the prospective transition approach as of January 1, 2023. The cumulative effect upon adoption did not have a material impact on our consolidated financial statements or existing internal controls.
    

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MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2: INVENTORIES

Inventories consist of raw materials, finished goods, and promotional materials. The Company provides an allowance for any slow-moving or obsolete inventories. Inventories as of June 30, 2023 and December 31, 2022, consisted of the following (in thousands):
 June 30, 2023December 31, 2022
Raw materials$3,996 $3,302 
Finished goods12,362 11,841 
Inventory reserves for obsolescence(520)(417)
Total$15,838 $14,726 


NOTE 3: INCOME TAXES

For the three and six months ended June 30, 2023, the Company’s effective tax rate was (20.8)% and (228.0)%, respectively. For the three and six months ended June 30, 2022, the Company's effective tax rate was 12.4% and 10.7%, respectively. For the three and six months ended June 30, 2023 and 2022, the Company's effective tax rate was determined based on the estimated annual effective income tax rate.

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

The effective tax rate for the three and six months ended June 30, 2022 was different from the federal statutory rate due to the effect of changes in valuation allowances recorded in certain jurisdictions and the foreign derived intangible deduction in the US.


NOTE 4: EARNINGS PER SHARE

    The Company calculates basic Earnings per Share ("EPS") by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS also reflects the potential dilution that could occur if common stock were issued for awards outstanding under the Mannatech, Incorporated 2017 Stock Incentive Plan (described below).

    For the three and six months ended June 30, 2023, shares of the Company's common stock subject to options were excluded from the diluted EPS calculation as their effect would have been antidilutive. The Company reported a net loss for the three and six months ended June 30, 2023.

In determining the potential dilutive effect of outstanding stock options for the three and six months ended June 30, 2022, the Company used the quarterly and six-month average common stock close price of $26.94 and $31.42 per share, respectively.

For each of the three and six months ended June 30, 2022, there were 1.94 million weighted-average common shares outstanding used for the basic EPS calculation. For the three and six months ended June 30, 2022, approximately 0.09 million and 0.11 million shares, respectively, subject to options were included in the calculation resulting in 2.03 million and 2.05 million dilutive shares, respectively, used to calculate diluted EPS. For each of the three and six months ended June 30, 2022, less than 0.1 million shares were excluded from the diluted EPS calculation.
13

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5: STOCK-BASED COMPENSATION

The Company currently has one active stock-based compensation plan, the Mannatech, Incorporated 2017 Stock Incentive Plan, which was adopted by the Company’s Board of Directors (the "Board") on April 17, 2017 and was approved by its shareholders on June 8, 2017, and subsequently amended by the Board at its February 2019 special meeting, which amendment was approved by the Company's shareholders on June 11, 2019 (as amended, the "2017 Plan"). The 2017 Plan supersedes the Mannatech, Incorporated 2008 Stock Incentive Plan (as amended, the "2008 Plan"), which was set to expire on February 20, 2018. The Board has reserved a maximum of 370,000 shares of our common stock that may be issued under the 2017 Plan (subject to adjustments for stock splits, stock dividends or other changes in corporate capitalization). As of June 30, 2023, the Company had a total of 113,468 shares available for grant under the 2017 Plan, which expires on April 16, 2027.

The 2017 Plan provides for grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock and performance stock units to our employees, board members, and consultants. However, only employees of the Company and its corporate subsidiaries are eligible to receive incentive stock options. The exercise price per share for all stock options will be no less than the market value of a share of common stock on the date of grant. Any incentive stock option granted to an employee owning more than 10% of our common stock will have an exercise price of no less than 110% of our common stock’s market value on the grant date.

The majority of stock options vest over two or three years, and generally are granted with a term of ten years, or five years in the case of an incentive option granted to an employee who owns more than 10% of our common stock.

The Company records stock-based compensation expense related to granting stock options in selling and administrative expenses. During the six months ended June 30, 2023 and 2022, the Company granted 5,000 and 11,807 stock options, respectively. The fair value of stock options granted during the six months ended June 30, 2023 and 2022 was approximately $4.32 and $7.21 per share, respectively. The Company recognized compensation expense as follows for the three and six months ended June 30 (in thousands):

 Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Total gross compensation expense$17 $48 $28 $56 
Total tax benefit associated with compensation expense4 11 7 13 
Total net compensation expense$13 $37 $21 $43 
 

As of June 30, 2023, the Company expects to record compensation expense in the future as follows (in thousands):
Six months
ending
December 31,
2023
Years ending December 31,
 20242025
Total gross unrecognized compensation expense$15 $17 $3 
Tax benefit associated with unrecognized compensation expense3 4 1 
Total net unrecognized compensation expense$12 $13 $2 

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MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6: SHAREHOLDERS’ EQUITY

Treasury Stock

During the three months ended June 30, 2023 and 2022, the Company repurchased 7,396 and 31,411 shares of its outstanding common stock, respectively.

As of June 30, 2023, the Company had 1,866,212 shares of common stock outstanding. As of June 30, 2022, the Company had 1,921,262 shares of common stock outstanding.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss, reflected in the Consolidated Statement of Shareholders’ Equity, represents net income plus the results of certain shareholders’ equity changes not reflected in the Consolidated Statements of Operations, such as foreign currency translation and certain pension and post-retirement benefit obligations. The after-tax components of accumulated other comprehensive loss are as follows (in thousands):
 Foreign
Currency
Translation
Pension
Postretirement
Benefit
Obligation
Accumulated
Other
Comprehensive
Income (Loss), Net
Balance as of December 31, 2022$(608)$400 $(208)
Current-period change (1)
(1,450) (1,450)
Balance as of June 30, 2023$(2,058)$400 $(1,658)

(1) No material amounts reclassified from accumulated other comprehensive loss.

Dividends

On March 5, 2023, the Board declared a dividend of $0.20 per share that was paid on March 30, 2023 to shareholders of record on March 16, 2023, for an aggregate amount of $0.4 million.

On May 25, 2023, the Board declared a dividend of $0.20 per share that was paid on June 29, 2023 to shareholders of record on June 15, 2023, for an aggregate amount of $0.4 million.




NOTE 7: LITIGATION

Litigation in General

The Company has incurred several claims in the normal course of business. The Company believes such claims can be resolved without any material adverse effect on its consolidated financial position, results of operations, or cash flows.

The Company maintains certain liability insurance; however, certain costs of defending lawsuits are not covered by or only partially covered by its insurance policies, including claims that are below insurance deductibles. Additionally, insurance carriers could refuse to cover certain claims, in whole or in part. The Company accrues costs to defend itself from litigation as they are incurred.

The outcome of litigation is uncertain, and despite management’s views of the merits of any litigation, or the reasonableness of the Company’s estimates and reserves, the Company’s financial statements could nonetheless be materially affected by an adverse judgment. The Company believes it has adequately reserved for the contingencies arising from current legal matters where an outcome was deemed to be probable, and the loss amount could be reasonably estimated. No legal reserve was deemed necessary at June 30, 2023.

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MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8: LEASES

The Company has entered into contractual lease arrangements to rent office space and equipment from third-party lessors. See Note 5 to the consolidated financial statements in our 2022 Annual Report. On March 10, 2023, the Company entered into a five-year agreement to sublease 10,000 rentable square feet of the Company's leased office space in Flower Mound, Texas to a subtenant. There was no modification or impairment by entering into the sublease agreement because the Company was not released from its obligations under the head lease. As of June 30, 2023, the Company had earned less than $0.1 million income from the sublease, which is presented as a component of net sales on the Company's Consolidated Statements of Operations.

    As of June 30, 2023, the Company had net operating lease right-of-use assets of $4.2 million and net finance lease right-of-use assets of $1.5 million. At June 30, 2023, our operating lease liabilities were $5.2 million and our finance lease liabilities were $1.4 million.

The weighted-average remaining lease term and discount rate related to the Company’s operating lease liabilities as of June 30, 2023 were 3.63 years and 4.6%, respectively. The weighted-average remaining lease term and discount rate related to the Company’s finance lease liabilities as of June 30, 2023 were 4.81 years and 6.5%, respectively. The Company uses the discount rates implicit in each lease, or an estimate of the Company's incremental borrowing rate if the rate implicit in a lease cannot be readily determined.

    As of June 30, 2023 and December 31, 2022 our right-of-use assets and lease liabilities consisted of the following (in thousands):
LeasesClassificationJune 30, 2023December 31, 2022
Right-of-use assets
    Operating leasesOther assets$4,153 $4,649 
    Finance leasesProperty and equipment, net1,483 182 
Total right-of-use assets$5,636 $4,831 
Current portion of lease liabilities
    Operating leasesAccrued expenses$1,793 $1,600 
    Finance leasesCurrent portion of finance leases274 61 
Long-term portion of lease liabilities
    Operating leasesOther long-term liabilities3,450 4,153 
    Finance leasesFinance leases, excluding current portion1,115 88 
Total lease liabilities$6,632 $5,902 

As of June 30, 2023, the Company's future sublease income and minimum future lease payments on operating and finance leases were as follows (in thousands):
June 30, 2023
Future Maturities of LeasesOperating LeasesFinance LeasesSublease Income
Remaining 20231,084 179 (66)
20241,835 337 (132)
20251,143 327 (132)
2026730 327 (132)
Thereafter918 441 (187)
Total minimum lease payments$5,710 $1,611 $(649)
Imputed interest(467)(222)— 
Present value of minimum lease payments$5,243 $1,389 $(649)
    
16

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9: FAIR VALUE

The Company utilizes fair value measurements to record fair value adjustments to certain financial assets and to determine fair value disclosures.

Fair Value Measurements and Disclosure (Topic 820) of the FASB establishes a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:

Level 1 – Quoted unadjusted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets.
Level 3 – Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by the Company.

The primary objective of the Company’s investment activities is to preserve principal while maximizing yields without significantly increasing risk. The investment instruments held by the Company are money market funds and interest-bearing deposits for which quoted market prices are readily available. The Company considers these highly liquid investments to be cash equivalents. These investments are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company does not have any material financial liabilities that were required to be measured at fair value on a recurring basis at June 30, 2023.

The table below presents the recorded amount of financial assets measured at fair value (in thousands) on a recurring basis as of June 30, 2023 and December 31, 2022.
June 30, 2023Level 1Level 2Level 3Total
Assets    
Interest bearing deposits – various banks$1,826   $1,826 
Total assets$1,826 $ $ $1,826 
Amounts included in:    
Cash and cash equivalents$995 $ $ $995 
Restricted cash674   674 
Long-term restricted cash157   157 
Total$1,826 $ $ $1,826 

December 31, 2022Level 1Level 2Level 3Total
Assets    
Interest bearing deposits – various banks$3,855   $3,855 
Total assets$3,855 $ $ $3,855 
Amounts included in:    
Cash and cash equivalents$3,014 $ $ $3,014 
Restricted cash680   680 
Long-term restricted cash161   161 
Total$3,855 $ $ $3,855 

17

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10: SEGMENT INFORMATION

The Company's sole reporting segment is one where we sell proprietary nutritional supplements, skin care and anti-aging products, and weight-management and fitness products through network marketing distribution channels operating in twenty-four countries. Each of the business units receives associate fees or sells similar packs (in the case of Mexico and South Korea, where packs have not been replaced with associate fees, see Note 1, Organization and Summary of Significant Accounting Policies) and possesses similar economic characteristics, such as selling prices and gross margins. In each country, the Company markets its products and pays commissions and incentives in similar market environments. The Company’s management reviews its financial information by country and focuses its internal reporting and analysis of revenues by pack sales, associate fees and product sales. The Company sells its products through its independent associates who occupy positions in our network and distribute products through similar distribution channels in each country. No single independent associate has ever accounted for more than 10% of the Company’s consolidated net sales. The Company also operates a non-direct selling business in mainland China. Our subsidiary in China, Meitai, is operating as a traditional retailer under a cross-border e-commerce model. Meitai cannot legally conduct a direct selling business in China unless it acquires a direct selling license in China.

The Company has operations in twelve countries and sells product in twenty-five countries around the world. These operations are located in the United States, Canada, Australia, the Netherlands, the United Kingdom, Japan, the Republic of Korea (South Korea), Taiwan, South Africa, Mexico, Hong Kong and China. We currently sell our products in three regions: (i) the Americas (the United States, Canada and Mexico); (ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong and China). We also ship our products to customers in the following countries: Belgium, France, Greece, Italy, Luxembourg, and Poland.

Consolidated net sales shipped to customers in these regions, along with pack or associate fee and product information for the three and six months ended June 30, were as follows (in millions, except percentages):
 Three Months Ended
June 30,
Six Months Ended
June 30,
Region2023202220232022
Americas$10.6 32.5 %$9.2 26.3 %$21.1 31.6 %$19.5 28.9 %
Asia/Pacific19.3 59.2 %22.7 64.9 %40.4 60.6 %41.8 62.0 %
EMEA2.7 8.3 %3.1 8.8 %5.2 7.8 %6.1 9.1 %
Totals$32.6 100.0 %$35.0 100.0 %$66.7 100.0 %$67.4 100.0 %

 Three Months Ended
June 30,
Six Months Ended
June 30,
 2023202220232022
Consolidated product sales$31.0 $33.0 $62.9 $63.8 
Consolidated pack sales and associate fees1.4 1.8 3.5 3.1 
Consolidated other0.2 0.2 0.3 0.5 
Consolidated total net sales$32.6 $35.0 $66.7 $67.4 

18

MANNATECH, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Long-lived assets, which include property and equipment and construction in process for the Company and its subsidiaries, as of June 30, 2023 and December 31, 2022, reside in the following regions, as follows (in millions):
RegionJune 30, 2023December 31, 2022
Americas$4.3 $3.2 
Asia/Pacific0.4 0.6 
EMEA  
Total$4.7 $3.8 

Inventory balances, which consist of raw materials, finished goods, and promotional materials, as offset by the allowance for slow moving or obsolete inventories, reside in the following regions (in millions):
RegionJune 30, 2023December 31, 2022
Americas$8.4 $7.5 
Asia/Pacific5.4 5.4 
EMEA2.0 1.8 
Total$15.8 $14.7 


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Table of Contents
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is intended to assist in the understanding of our consolidated financial position and results of operations for the three and six months ended June 30, 2023 as compared to the same period in 2022, and should be read in conjunction with Item 1 “Financial Statements” in Part I of this quarterly report on Form 10-Q and Item 1A “Risk Factors” in Part I of our 2022 Annual Report. Unless stated otherwise, all financial information presented below, throughout this report, and in the consolidated financial statements and related notes includes Mannatech and all of our subsidiaries on a consolidated basis. To supplement our financial results presented in accordance with GAAP, we disclose certain adjusted financial measures which we refer to as Constant dollar (“Constant dollar”) measures, which are non-GAAP financial measures. Refer to the Non-GAAP Financial Measures section herein for a description of how such Constant dollar measures are determined.

COMPANY OVERVIEW

The Company is a global wellness solution provider, which was incorporated and began operations in November 1993. We develop and sell innovative, high quality, proprietary nutritional supplements, topical and skin care and anti-aging products, and weight-management products that target optimal health and wellness. We currently sell our products in three regions: (i) the Americas (the United States, Canada and Mexico); (ii) Europe/the Middle East/Africa (“EMEA”) (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong, and China). We also ship our products to customers in the following countries: Belgium, France, Greece, Italy, Luxembourg, and Poland.

We conduct our business as a single operating segment and primarily sell our products through a network of approximately 142,000 active associates and preferred customer positions held by individuals that purchased our products and/or packs or paid associate fees during the last twelve months, who we refer to as current associates and preferred customers. New pack sales and the receipt of new associate fees in connection with new positions in our network are leading indicators for the long-term success of our business. New associate or preferred customer positions are created in our network when our associate fees are paid or packs and products are purchased for the first time under a new account. We operate as a seller of nutritional supplements, topical and skin care and anti-aging products, and weight-management products through our network marketing distribution channels operating in twenty-four countries and direct e-commerce retail in China. We review and analyze net sales by geographical location and by packs and products on a consolidated basis. Each of our subsidiaries sells similar products and exhibits similar economic characteristics, such as selling prices and gross margins.

Because we sell our products through network marketing distribution channels, the opportunities and challenges that affect us most are: recruitment of new and retention of current associates and preferred customers that occupy sales or purchasing positions in our network; entry into new markets and growth of existing markets; niche market development; new product introduction; and investment in our infrastructure. Our subsidiary in China, Meitai, is currently operating as a traditional retailer under a cross-border e-commerce model. Meitai cannot legally conduct a direct selling business in China unless it acquires a direct selling license in China.

The Company maintains a corporate website at www.mannatech.com.

Current Economic Conditions and Recent Developments

Overall net sales decreased $2.4 million, or 6.8%, to $32.6 million, during the three months ended June 30, 2023, as compared to the same period in 2022. Net sales for the six months ended June 30, 2023 decreased by $0.7 million, or 1.0% to $66.7 million, as compared to the same period in 2022. For the three months ended June 30, 2023, our net sales decreased 4.0% on a Constant dollar basis (see Non-GAAP Measures, below). For the six months ended June 30, 2023, our net sales increased 2.8% on a Constant dollar basis; foreign exchange during the three and six months ended June 30, 2023 decreased GAAP net sales by $1.0 million and $2.6 million, respectively, as compared to the same period in 2022. For the three and six months ended June 30, 2023, our operations outside of the Americas accounted for approximately 67.5% and 68.4%, respectively, of our consolidated net sales.


20

Table of Contents

RESULTS OF OPERATIONS

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the three months ended June 30, 2023 and 2022 (in thousands, except percentages):
 20232022Change from
2022 to 2023
 Total
dollars
% of
net sales
Total
dollars
% of
net sales
DollarPercentage
Net sales$32,594 100.0 %$34,976 100.0 %$(2,382)(6.8)%
Cost of sales7,004 21.5 %7,920 22.6 %(916)(11.6)%
Gross profit25,590 78.5 %27,056 77.4 %(1,466)(5.4)%
Operating expenses:
Commissions and incentives13,465 41.3 %14,137 40.4 %(672)(4.8)%
Selling and administrative expenses7,257 22.3 %6,914 19.8 %343 5.0 %
Depreciation and amortization expense387 1.2 %301 0.9 %86 28.6 %
Other operating costs5,435 16.7 %4,851 13.9 %584 12.0 %
Total operating expenses26,544 81.4 %26,203 74.9 %341 1.3 %
(Loss) income from operations(954)(2.9)%853 2.4 %(1,807)(211.8)%
Interest (expense) income(10)— %23 0.1 %(33)(143.5)%
Other income (expense), net150 0.5 %(84)(0.2)%234 (278.6)%
(Loss) income before income taxes(814)(2.5)%792 2.3 %(1,606)(202.8)%
        Income tax provision(291)(0.9)%(98)(0.3)%(193)196.9 %
Net (loss) income$(1,105)(3.4)%$694 2.0 %$(1,799)(259.2)%

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

The table below summarizes our consolidated operating results in dollars and as a percentage of net sales for the six months ended June 30, 2023 and 2022 (in thousands, except percentages):
20232022Change from
2022 to 2023
Total
dollars
% of
net sales
Total
dollars
% of
net sales
DollarPercentage
Net sales$66,708 100.0 %$67,360 100.0 %$(652)(1.0)%
Cost of sales14,417 21.6 %15,011 22.3 %(594)(4.0)%
Gross profit52,291 78.4 %52,349 77.7 %(58)(0.1)%
Operating expenses:  
Commissions and incentives27,022 40.5 %27,245 40.4 %(223)(0.8)%
Selling and administrative expenses13,673 20.5 %13,823 20.5 %(150)(1.1)%
Depreciation and amortization expense774 1.2 %633 0.9 %141 22.3 %
Other operating costs11,063 16.6 %9,760 14.5 %1,303 13.4 %
Total operating expenses52,532 78.7 %51,461 76.4 %1,071 2.1 %
(Loss) income from operations(241)(0.4)%888 1.3 %(1,129)(127.1)%
Interest income 14 — %38 0.1 %(24)(63.2)%
Other income, net483 0.7 %— %482 48,200.0 %
(Loss) income before income taxes256 0.4 %927 1.4 %(671)(72.4)%
Income tax provision(757)(1.1)%(99)(0.1)%(658)664.6 %
Net (loss) income$(501)(0.8)%$828 1.2 %$(1,329)(160.5)%
21

Table of Contents
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. To exclude the impact of changes due to the translation of foreign currencies into U.S. dollars, we calculate current year results and prior year results at a constant exchange rate, which is the prior year’s rate. Currency impact is determined as the difference between actual growth rates and constant currency growth rates.
Three-month period ended June 30, 2023June 30, 2022Constant $ Change
(in millions, except percentages)
GAAP
Measure:
Total $
Non-GAAP
Measure:
Constant $
GAAP
Measure:
Total $
DollarPercent
Net sales$32.6 $33.6 $35.0 $(1.4)(4.0)%
Product31.0 32.0 33.0 (1.0)(3.0)%
Pack sales and associate fees1.4 1.4 1.8 (0.4)(22.2)%
Other0.2 0.2 0.2 — — %
Gross profit25.6 26.4 27.1 (0.7)(2.6)%
(Loss) income from operations(1.0)(0.8)0.9 (1.7)(188.9)%
Six-month period endedJune 30, 2023June 30, 2022Constant $ Change
(in millions, except percentages)
GAAP
Measure:
Total $
Non-GAAP
Measure:
Constant $
GAAP
Measure:
Total $
DollarPercent
Net sales$66.7 $69.3 $67.4 $1.9 2.8 %
Product62.9 65.3 63.8 1.5 2.4 %
Pack sales and associate fees3.5 3.7 3.1 0.6 19.4 %
Other0.3 0.3 0.5 (0.2)(40.0)%
Gross profit52.3 54.3 52.3 2.0 3.8 %
(Loss) income from operations(0.2)0.3 0.9 (0.6)(66.7)%

Net Sales
Consolidated net sales for the three months ended June 30, 2023 decreased by $2.4 million, or 6.8%, to $32.6 million, as compared to $35.0 million for the same period in 2022. Consolidated net sales for the six months ended June 30, 2023, decreased by $0.7 million, or 1.0%, to $66.7 million as compared to $67.4 million for the same period in 2022.

Net Sales in Dollars and as a Percentage of Consolidated Net Sales
Consolidated net sales by region for the three months ended June 30, 2023 and 2022 were as follows (in millions, except percentages):
RegionThree Months Ended
June 30, 2023
Three Months Ended
June 30, 2022
Americas$10.6 32.5 %$9.2 26.3 %
Asia/Pacific19.3 59.2 %22.7 64.9 %
EMEA2.7 8.3 %3.1 8.8 %
Total$32.6 100.0 %$35.0 100.0 %

Consolidated net sales by region for the six months ended June 30, 2023 and 2022 were as follows (in millions, except percentages):

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RegionSix Months Ended
June 30, 2023
Six Months Ended
June 30, 2022
Americas$21.1 31.6 %$19.5 28.9 %
Asia/Pacific40.4 60.6 %41.8 62.0 %
EMEA5.2 7.8 %6.1 9.1 %
Total$66.7 100.0 %$67.4 100.0 %


For the three months ended June 30, 2023, net sales in the Americas increased by $1.4 million, or 15.2%, to $10.6 million, as compared to $9.2 million for the same period in 2022. Our revenue per active independent associate and preferred customer increased by 24.5%, which was partially offset by a 7.4% decline in the number of active independent associates and preferred customers. Foreign currency had the effect of increasing revenue by $0.2 million for the three months ended June 30, 2023, as compared to the same period in 2022. The currency impact is due to the strengthening of the Mexican Peso.

For the six months ended June 30, 2023, net sales in the Americas increased by $1.6 million, or 8.2%, to $21.1 million, as compared to $19.5 million for the same period in 2022. Our revenue per active independent associate and preferred customer increased 16.9%, which was partially offset by a 10.9% decline in the number of active independent associates and preferred customers. Foreign currency had the effect of increasing revenue by $0.3 million for the six months ended June 30, 2023, as compared to the same period in 2022. The currency impact is due to the strengthening of the Mexican Peso.

For the three months ended June 30, 2023, our operations outside of the Americas accounted for approximately 67.5% of our consolidated net sales, whereas in the same period in 2022, our operations outside of the Americas accounted for approximately 73.7% of our consolidated net sales.

For the six months ended June 30, 2023, our operations outside of the Americas accounted for approximately 68.4% of our consolidated net sales, whereas in the same period in 2022, our operations outside of the Americas accounted for approximately 71.1% of our consolidated net sales.

For the three months ended June 30, 2023, Asia/Pacific net sales decreased by $3.4 million, or 15.0%, to $19.3 million, as compared to $22.7 million for the same period in 2022. Revenue per active independent associate and preferred customer decreased 12.8%. Our number of active independent associates and preferred customers declined 2.5%. Foreign currency exchange had the effect of decreasing revenue by $0.8 million for the three months ended June 30, 2023, as compared to the same period in 2022. The currency impact is primarily due to the weakening of the Korean Won, Japanese Yen, and Australian Dollar.

For the six months ended June 30, 2023, Asia/Pacific net sales decreased by $1.4 million, or 3.3%, to $40.4 million, as compared to $41.8 million for the same period in 2022. Revenue per active independent associate and preferred customer decreased 0.9% and the number of active independent associates and preferred customers declined 2.8%. Foreign currency exchange had the effect of decreasing revenue by $2.1 million for the six months ended June 30, 2023, as compared to the same period in 2022. The currency impact is primarily due to the weakening of the Korean Won, Japanese Yen, and Australian Dollar.

For the three months ended June 30, 2023, EMEA net sales decreased by $0.4 million, or 12.9%, to $2.7 million, as compared to $3.1 million for the same period in 2022. The decrease was primarily due to a 15.9% decrease in the number of active independent associates and preferred customers, which was partially offset by a 3.6% 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 June 30, 2023 as compared to the same period in 2022. The currency impact is primarily due to the weakening of the South African Rand.

For the six months ended June 30, 2023, EMEA net sales decreased by $0.9 million, or 14.8%, to $5.2 million, as compared to $6.1 million for the same period in 2022. The decrease was primarily due to an 18.2% decrease in the number of active independent associates and preferred customers, which was partially offset by a 1.4% increase in revenue per active independent associate and preferred customer. We believe the war in Ukraine and inflation are impacting our business. Foreign currency exchange had the effect of decreasing revenue by $0.8 million for the three months ended June 30, 2023 as compared to the same period in 2022. The currency impact is primarily due to the weakening of the South African Rand, and the Euro.

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Table of Contents

Our total sales and sales mix could be influenced by any of the following:
the impact of the COVID-19 pandemic, the availability and effectiveness of vaccines on a widespread basis and the impact of any mutations of the virus;
the current conflict between Russia and Ukraine, which could adversely affect our business in certain regions;
the impact of inflation;
disruptions in the supply chain;
changes in our sales prices;
changes in shipping fees;
changes in consumer demand;
changes in the number of independent associates and preferred customers;
changes in competitors’ products;
changes in economic conditions;
changes in regulations;
announcements of new scientific studies and breakthroughs;
introduction of new products;
discontinuation of existing products;
adverse publicity;
changes in our commissions and incentives programs;
direct competition; and
fluctuations in foreign currency exchange rates.

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

 Three Months Ended
June 30,
Change
 20232022DollarPercentage
Consolidated product sales$31.0 $33.0 $(2.0)(6.1)%
Consolidated pack sales and associate fees1.4 1.8 (0.4)(22.2)%
Consolidated other0.2 0.2 — — %
Total consolidated net sales$32.6 $35.0 $(2.4)(6.9)%

Six Months Ended
June 30,
Change
20232022DollarPercentage
Consolidated product sales$62.9 $63.8 $(0.9)(1.4)%
Consolidated pack sales and associate fees3.5 3.1 0.4 12.9 %
Consolidated other0.3 0.5 (0.2)(40.0)%
Total consolidated net sales$66.7 $67.4 $(0.7)(1.0)%



24

Table of Contents

Product Sales
Our product sales are made to our independent associates and preferred customers at published wholesale prices.

Product sales for the three months ended June 30, 2023 decreased by $2.0 million, or 6.1%, as compared to the same period in 2022. The average order value for the three months ended June 30, 2023 was $173, as compared to $176 for the same period in 2022. The number of orders processed during the three months ended June 30, 2023 decreased by 7.8%, to 179,437, as compared to 194,555 for the same period in 2022.

Product sales for the six months ended June 30, 2023 decreased by $0.9 million, or 1.4%, as compared to the same period in 2022. Product sales decreased primarily due to the decrease in the number of orders processed. The number of orders processed during the six months ended June 30, 2023 decreased by 5.8%, to 362,118, as compared to 384,255 for the same period in 2022. The average order value for the six months ended June 30, 2023 was $179, as compared to $177 for the same period in 2022.

Pack Sales and Associate Fees

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 dollar amount of pack sales and associate fees associated with new and continuing independent associate positions held by individuals in our network was as follows for the three and six months ended June 30 (in millions, except percentages):

 Three Months Ended
June 30,