USANA Health Sciences, Inc. Price & Performance (USNA)

Thanks, Diego, and good morning, everyone. We appreciate you joining us to review our fourth quarter and fiscal year 2024 results. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at ir.usana.com.

Shortly following the call, a replay will be available on our website. As a reminder, during the course of this conference call, management will make forward looking statements regarding future events, or the future financial performance of our company. Those statements involve risks and uncertainties that could cause actual actual results to differ perhaps materially from the results projected in such forward looking statements. Examples of these statements include those regarding our strategies and outlook for fiscal year twenty twenty five as well as uncertainty related to the economic operating environment around the world, our operations and financial results. We caution you that these statements should be considered in conjunction with disclosures including specific risk factors and financial data contained in our most recent filings with the SEC. I'm joined by our President and CEO, Jim Brown our Chief Financial Officer, Doug Hecking our Chief Operating Officer, Walter Note our Chief Commercial Officer, Brent Neidig as well as other executives. Yesterday, after the market closed, we announced our fourth quarter and fiscal year 2024 results and posted our management commentary document on the company's website. We'll now hear brief remarks from Jim before opening the call for questions. Thank you, Andrew, and good morning, everyone.

I'd like open today's call by saying that I'm excited about USANA's future.

Our direct sales business just reported a solid quarter of results at the tail end of what I consider an investment year for USANA. In 2024, it became apparent that we needed to pivot in a few key areas to position USANA to return to growth. Many of our 2024 initiatives are long term focus and meant to make USANA more attractive and relevant from a product [indiscernible] income opportunity standpoint, An example of this is the reorganization of both our R and D department and commercial team. During the year, we put entirely new product teams in place and they are now working faster and more efficiently. We also reorganized our sales, marketing and communications departments into one comprehensive commercial team. We are now better positioned to bring innovation and relevant products to market faster, with a focused brand message that differentiates our products in the marketplace. This new team structure also better positions us to execute our customer growth which is centered on USANA delivering three fundamental benefits to our sales force. Best in class products, a simple brand message that highlights the superiority, differentiation and benefit of our products, and an income opportunity that is simple, rewarding and more compelling for associates that are looking to make extra income sooner or build their own business.

With these foundational changes now firmly in place, I believe ESONA is positioned to deliver long term customer and sales growth. During the fourth quarter, we also acquired 78.8% ownership stake in Hyatt Health for $2.00 $5,000,000 Hyatt is a fast growing cash generating direct to consumer company that is focused on children's health and wellness. This acquisition positions USANA as a leader in the expanding children's health and wellness market and strengthens our ability to reach and positively impact more health conscious individuals and families. While simultaneously accelerating and magnifying our vision creating the healthiest family on earth. Hai has an experienced management team that continues to lead the company. A compelling brand, a subscription business model that is positioned to continue delivering strong and sustainable sales growth over the next several years. The Hyatt team is highly engaged and focused on expanding their leadership position in the children's health and wellness market. Notably, the acquisition of Hyatt came very late in the fourth quarter.

So the contribution to Usana's consolidated 2024 results was minimal. Accordingly, most of today's remarks were focused on our core business. Turning now to the fourth quarter. Usana finished the year with a solid fourth quarter results that exceeded our expectations. Net sales grew 7% sequentially and adjusted diluted EPS increased 14%. Positive response to promotional activity was a key driver of the results. Particularly in The United States where net sales grew 16% sequentially. We also saw notable strength in Australia and New Zealand, with combined net sales in these two markets growing 9% year over year. Turning now towards our initiatives for 2025. After much hard work, collaboration and focus through 2024, new structure of our commercial team is solidly in place. We're now full speed ahead with accelerating delivering and executing upon our growth strategy. First, we're planning a higher cadence of new product launches in 2025. We have over 20 product launches and product reformulations planned to roll out globally throughout the year to both existing and new markets. Recently appointed Doctor. Katherine Armstrong as our Chief Scientific Officer. And she will play a pivotal role in leading global research, development, and scientific ventures. We are also hosting our global convention in Salt Lake City this August and have an amazing event plan.

With several product launches. We haven't held a global convention in The U. S. For several years, so we're excited to have a large group of our associates from around the world together to celebrate their success receive business training and to learn about the many new products we're excited to launch. Second, we will be rolling out a strategic enhancement to our associated incentive offering in the back half of the year. These enhancements are designed to modernize our sales incentives, and incent customer growth and improve pay for performance. Third, we will be enhancing our brand message story and value proposition to deliver a stronger, more cohesive brand presence support key product and incentives launches and magnify USANA's overall brand reputation superiority and differentiation. Fourth, we will continue to accelerate associated engagement activities our regions around the world.

With our upcoming product launches and modifications to our associate incentive offerings, it is more important than ever to engage with our associates. We plan to hold many trainings and recognition events across key markets throughout the year with a marquee event of the global convention in Salt Lake City in August. Before opening the call for questions, I'd like to provide some additional thoughts on our strategic acquisition of Hyatt. And we're very excited about highest growth plans for 2025 and beyond. Highest success since inception has been a culmination of new better for you products that have resonated with parents and children across the country. An attractive subscription model and an effective marketing strategy.

The financial discipline have resulted in fast growing profitable and highly cash generated business. In fiscal twenty twenty four, Hyatt generated $112,000,000 in revenue with an adjusted EBITDA margin over 20%. Top line growth in 2025 is projected to remain strong with the Hyatt team expecting to derive strong growth year over year. Key strategic priorities this year include capitalizing on recent product launches to drive further growth in its direct to consumer model expanding strategic partnerships and laying the groundwork for channel expansion. We are also working closely with the Hyatt team to identify both short and long term synergy opportunities. Overall, we remain confident that the founder led Hyatt team will deliver In closing, 2025 is proving to be an exciting year with much work ahead of us. I want to thank our employees, associates and partners across the globe for their unwavering commitment to filling these [indiscernible] of creating the healthiest family on earth. With that, I'll now ask the operator to please open the line for questions. Thank you. And at this time, we'll be conducting a question and answer session. Our first question comes from Anthony Lebiedzinski with Sidoti and Company. Please state your question.

Good morning and thank you for taking the questions. So certainly nice to see the year over year sales gains that you point out to in The U. S, Australia, New Zealand. So Maybe we could start there. What's driving that? Is that primarily the increased promotional activity or just maybe if you could give us some additional color as to [indiscernible] reason for the sales increases that you're seeing Yes. Maybe I'll let Brent chime in here. I can give Mike color as well. But I think maybe I'll start and then let Brent chime in. But I think in both cases, you had leaders of those respective markets really think outside the box and try something they haven't tried. And in Americas and Europe where we've seen stagnant to down, I think they really saw some traction and I think different and creative approach showed some ability to go back give us some insights to what to try going forward. And I think Australia and New Zealand even though the program was a little bit different, it was much the same story about thinking outside the box really listening to their field and catering some to that group.

Hey, good morning, Anthony.

This is Brent.

Good morning.

We continually reference this commercial team restructure and an enhancement to our associate engagement. And I think this was a combination of those things and others We're trying to better empower our regions and our local markets to really create tailored offerings for our distributors and our customers in those locations. So the launch of our Americas and Europe convention last August our regional leadership for that region, they came up with a very creative incentive and program offering. It was introduced at that event So it touched Canada, Mexico, The U. S, ANZ, and it was really well received by our customers. Tremendous progression of new associate acquisition and retention from August through the end of the year and we're hopeful that that continues to persist throughout the first part of 2025. But I think it was just a really great combination of leadership in that market, taking providing a very tailored offering for those markets.

That's great to hear. And is this something that guys think you can replicate in other markets? Or is it easier said than done?

Absolutely. That's the intention. We've talked a couple of times during this call about or in Jim's remarks about our need to pivot in terms of our product off to fruition fruition in the back half of the year. And part of the incentive structure that's going to be created or adjusted taking some of the framework that was introduced in August of last year at that Americas and Europe convention, with helping our associates when they come in the door quickly understand what are the key objectives and we help guide them through that journey in the early stages of their journey. So that's something that we should see and that will roll out globally in the back half of the year. So we're excited to see where that takes us.

Got you. Okay. And then as we think about your revenue guidance for the core business, how should we think about expected sales performance by region this year? Can you give us some additional color as to how you're thinking about the different regions will perform as we progress through 2025?

Yes. I think kind of the recent trend that you've seen, I think, kind of move forward a little bit. I think some of the areas where we see a little bit more challenge in this last year we're expecting to see some progress from some of those regions, but outside of there, China is such a big part of the equation. We got a fantastic team there.

That the environment is a little bit tougher. They've done a fantastic job in running the market. And I think we'd expect some kind of more performance there and see them hold serve and maybe make up a little bit of ground moving forward. And I think just I think same thing that you're seeing recently in the other markets Brent. Articulated, I think some of these more tailored offerings, I think, I think provide a lens to get some more momentum enthusiasm in the markets. And so we're looking forward to Got you. Okay. And then in terms of Hyah, so When you guys announced the deal in December, you initially talked about roughly 30% growth for that business. This year. Your guidance is higher than that. So can you just talk about what's changed since then? And does the guidance also include any sales channel expansion or would that be additional revenue if you're successful with that?

Yes. So as we are going through the acquisition and going through the models and evaluating that, I think at the stage we're at when we announced the acquisition, I think we wanted to go back and be pretty thoughtful with what we communicated out. As we look at their forecast and their models, I think we're comfortable that we'll be within the range we communicated, which is $145,000,000 to 160,000,000 which represents growth from 29% to 42% over the $112,000,000 they did ending up 2024. And so we're pretty encouraged with that team and I think they keep leaning into it. I think we'll see some different narratives and some different experiences with this as they have individual months where they go heavier on customer acquisition. We'll probably see some temporary disruption profitability due to the of acquiring those customers and they'll do that in a few pockets throughout the year. And so we think that's good. It's part of the overall equation for this exciting company with great leadership and so we look forward to Anthony, remind me the second part of your questions.

Channel. Channel, yes, there's very little in there for channel. There is a little bit, but it's de minimis relative to the whole. Got you. Okay. And my last question pass it on to this, can you just us a quick update on how India is doing? Sure, Anthony. This is Jim.

My opinion, India is doing really well. You got to remember that it's only been open, man, how long has it been open? Thirteen months. Yes, thirteen months.

Yes.

And we started from a base of zero. So we've seen good growth in the market, but again, it's just not going to be that impactful until we have few years of runway and it starts building on itself compounding each year. So happy with the results, happy we have a great leadership team there. Having events. I went there last year and was impressed by the country itself is being managed and run and their their plan and strategic plans to grow the business. But the base is just very small.

Got you. All right. Well, thanks and best of luck. Thank you.

Your next question comes from Christina Choe with D. A. Davidson. Please state your question.

Hi, good morning. Congrats on the quarter. Just Just a follow-up to the previous question, like do you expect U. S. And Canada to maintain the same level of promotional activity that you see in the fourth quarter?

Hi, Christina, it's Brent. Yes, we do and [indiscernible] throughout all of our markets this year, We will continue with a somewhat aggressive promotional cadence. The promotions or the incentive structure that was implemented in that region last year, that has continued into the first part of this year. We have made a couple of adjustments to that program. For the twenty twenty five year. But that will continue and we do anticipate other promotions coming forward leading up to the implementation of the new incentive off So we anticipate it continuing there as well as other markets adopting those programs too.

So with the new incentive program, is that going to drive the associates incentives year over year for each of the quarter for '25 Yes, you're pricing a little bit On a dollar basis.

Yes, absolutely. Anytime we do this stuff, I mean, we really have two primary categories. One, definitely affects the incentive line and what we do. Others are more value proposition type offerings. The markets use both of those to go back and approach and they both impact a little bit and how you see those line items shape out. But yes, I think they they have an impact that's layered in. It's not I mean, it's it's the case and scenario that we see every year. Just depend on the magnitude, if we think there's something notable when material, we'll call that out. So you make sure you have a proper perspective and insight to what's happening.

Okay. And then the last question on I noticed SG and A as a percentage of sales came in kind of higher than expected this quarter. I know it's like due to the impact of the commercial team reorganization. So looking ahead to next year, do you kind of expect this ratio to continue to trend higher Or are there like opportunities for leverage and efficiency improvements?

Yes, I think there's obviously opportunity for some leverage benefit there. I think a few of the things you have to note as you look at what you saw in our press release is there is some numbers in there for Hyatt. There's roughly $1,200,000 in there in SG and A for Hyatt even in that little stub period. Their SG and A looks different than ours. They have a different spin pattern. They don't have incentives. So a lot of their sales activity is layered into that line. And so you'll see just because of the mix between the two, between the USANA business and the Hyatt business, You'll see some dynamic there. And then the other area where we're being touched up a little bit is the impact of these negative exchange rates. We still have a pretty meaningful centralization of our overhead here in The U. S. And so as we see some just some translation impact from currencies moving against us, you'll see that impact how that gets reported as well. From relative to net sales.

Yes.

I mean for Hyah, that's part of the SG and A was included in the quarter, but then for 2025, Hya is going to be in there as well. So or are you saying that's kind of like a one time expense that's recognized in the quarter? Well, I think we have to look at as Hyatt was in there for six days, where we'll be in there for 100% of the next year. And so those that mix and that dynamic change is quite a bit.

And so you'll see you'll definitely see more of an influence from high on the overall results more so in '25. Okay. Thank you. All right.

Thanks, Christina.

And your next question comes from Ivan Feinseth with Tigress Financial Partners. Please state your question.

Hi. Thanks for taking my questions and congratulations on ramping up a great year. So far, how has the Hyatt acquisition been going? Compared to your expectations? And do you think that over time you can integrate their manufacturing onto your platform and there could be some margin expansion there?

Yes.

I mean, this is Walter.

Yes, it's going really well.

We love the Hyattine. They've got great management and they've they've run their business really well. [indiscernible] the advantage is operational advantage and IT advantage. So there's some things that we know how to do really well that we're helping them with far as supply chain Last Mile manufacturing, those are all things that we're considering with them right now. We're working on those things.

So we're taking them one piece at a time rather than trying to overload them because they've got great business that we don't want to mess up. But it's but yes, those are all things that will help us with margin down the road.

Just to add a little bit on that. And Walter said that, but we have to be extremely careful on what we put on the team. We don't want to overwhelm them and have it push them off their strategic plans for 2025.

So we see a lot of opportunities, but it's going to be rolled out at a slower pace to make sure that we don't disrupt their business plan. Yes. And Ivan, I'll chime in there a little bit just for some optics. We'll have some short term primarily captured in 2025, some integration transition costs, that will be reflected in there. And then we also have just a byproduct of the acquisition process, a step up in inventory you'll see written off really over the first six months of the year. So all those things will affect their P and L in the upcoming year.

Sounds good. Also, what kind of new product categories or areas could we expect to roll out in 2025? And then also what products do you see have been strong? And also surprisingly strong?

Hi, Vin. This is Jim.

We've had these conversations in the past. Part of our model is creating excitement for our associates and distributors around the world. So we usually don't really talk about stuff that's coming out unless it's at an event or convention to get that excited and move forward. So I won't really touch on any specifics, but we did talk about upgrades and that's going to happen throughout throughout the year and that's very important. Just the new commercial team, working with R and D has become much more [indiscernible] and able to adjust and formulate products a lot quicker. So we're excited about that. But getting specifics, I just don't want to let the cat out of the bag. Yes, I would say one of the things that we've talked about, Ivan, a little bit is I think on the skincare side, you see that group maybe being a few steps ahead of kind of the other key product teams as far as getting a jump start on this. And so I think you'll see a little bit more in that area and you you see a real attention kind of our flagship products, nutritional supplements and so that will be a heavy focus [indiscernible] Very good.

Wishing you a big 2025. Thanks, Ivan. Thanks, Ivan.

And your next question comes from Doug Lane with Water Tower Research. Please state your question.

Hi, yes. Good morning, everybody. Doug, you just made a large acquisition and disrupted your balance sheet a little bit, no stock buybacks, you have a little bit of debt coming out of the year, maybe your cash balances are lower than they normally would be. So what's the outlook for 2025? And where do you think we'll see the balance sheet by the end of the year?

Yes, listen, we're still sitting in a really solid position. About $182,000,000 in cash at the end of the year. We'll probably add $50,000,000 to $60,000,000 to that line ballpark. And so I think we're moving in a in a great direction. We'll continue to invest heavily in the business as we move forward. And so I think it looks good. You'll see obviously kind of with the year end balance sheet, you'll see some changes in inventory with how high it's carrying their inventory as well. So the competition will change a little bit. I think it's pretty easy to talk to.

We carried over as part of the transaction $23,000,000 in debt. Plans are right now, we'll probably have that retired midyear. Would be the kind of plan and estimate at this point.

And Should we put some share repurchase in the models for this year?

Yes. I think generally what we've communicated as a standard is that we'd go in and be active in the market at a level to at least take out the effect of of the equity comp program and manage dilution there. Outside of there, it's an ongoing conversation with the Board far as capital allocation where that's best spent. So as we have more visibility there, we'll make sure we kind of give a heads up on that.

No, that makes sense. And then capital needs for high anything unusual there?

No. Like I said, there's some short term as we go back and integrate. We still have a several moving pieces going on. But I think they've proven the fact they're a competent team and have a lot of great things in place. So we want to be very intentional to go back and do things that are additive and things that make sense collectively for the long term. And so we're still in the process of prioritizing that. Some things as Walter indicated, we've already got a jump start on and moving forward on and other things we're in the process of evaluating. So there's not a whole lot If you look at their model, they're pretty cash generative and they don't much capital intensity to what they do. So it's it's a pretty intuitive relationship between the business and what it generates.

And I don't see an outlook for capital spending specifically for this year, but should we assume it will be in line with levels in the past at least as a percent of sales?

Yes, 1%, 1.5% in that range.

Okay, that makes sense. Thank you.

And just shifting, you're doing a lot with the you've got product associate incentives, brand messaging, is there any bigger picture changes going on with your model? You read all the time about the affiliate model. Is a lot of people in direct seller are going to be affiliate model. I don't see the word affiliate in here, but is this sort of what you're doing trying to get that the social media seller that wants the media payout maybe lower priced products. Just what's the thinking behind all these modifications that you're making to your model, not major modifications, but just tweaks to the model going into 2025?

Yes. Definitely, tweaks to the model is a good way to describe it. And we're committed to the direct selling channel.

Where there have been some large companies that have been in the news that have moved away from that. That's not our intent at all. We're just trying to make our model more appealing to people coming into the business.

We talk a lot about the gig economy and there's easy ways to earn money. Out there and we want to be more attractive to that group. And I think just the long term our direct sales model and our incentive program has been very long term over the years. So we want to some enhancements and bonuses upfront to just drive more people into the business and stay longer with the business. But just to reiterate, we're not looking at going away from the model that's kept us in business for thirty two point five years.

Yes.

And I would say, at Jim's direction and with Brent's leadership on the sales side, these are things that we've been testing in various degrees in the different markets for several years now. And so think we've used that to get informed and understand kind of what we'd expect from kind of behavior and influence in the business as a whole. And so it's think the fairly intentional process and how we've approached it as well.

Okay. That's good color. Thank you. Thanks, Tim. Thanks, Tim.

Thank you. And there are no further questions at this time. I'll hand the floor back to management for closing remarks.

Thanks for your questions and participation on today's conference call.

You have any remaining questions, please feel free to contact Investor Relations at (801) 954-7210.

Thank you. And with that, we conclude today's call. All parties may disconnect.