Greetings, and welcome to the USANA Health Sciences Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Andrew Masuda, Director of Investor Relations. Thank you. You may begin.

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 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 2025 as well as uncertainty related to the economic and 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 Hekking, our Chief Operating Officer, Walter Noot, 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 will 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. We've had historically. Many of our 2024 initiatives are long-term focused and meant to make USANA more attractive and relevant from a product and income opportunity standpoint. An example of this is the reorganization of both the R&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 strategy in 2025, 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 benefits 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 USANA is positioned to deliver long-term customer and sales growth. During the fourth quarter, we also acquired a 78.8% ownership stake in Hyatt for $405 million. 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 individual families while simultaneously accelerating and magnifying our vision of creating the healthiest family on earth. Hyatt 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 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 will focus on our core business. Turning now to the fourth quarter, USANA finished the year with 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, the new structure of our commercial team is solidly in place. We're now full speed ahead with accelerating delivering and executing upon our customer 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 in existing and new markets. We recently appointed Dr. 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 planned with several product launches. We haven't held a global convention in the US for several years, so we're excited to have a large group of our associates from around the world come together to celebrate their success, receive business training, and 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 in 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 for…

Thank you. And at this time, we will 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 in the US, Australia, and New Zealand. So maybe we could start there. You know, what's driving that? Is that primarily the increased promotional activity or just maybe if you could give us some additional color as to what the reason for the sales increases that you're seeing?

Yeah. Maybe I'll let Brent chime in here. I can give my 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 the different and creative approach showed some ability to go back and give us some insights into 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 and 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 in Europe convention last August, our regional leadership for that region, they came up with very creative incentive and program offerings. It was introduced at that event, so it touched Canada, Mexico, US, ANZ, and it was really well received by our customers in that region. And we really saw a 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 control, and providing a very tailored offering for those markets.

Mhmm. That's great to hear. And is this something that you 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 offering as well as our incentive structure. And that's something that's really going to come to fruition in the back half of the year. And part of the incentive structure that's going to be created or adjusted is taking some of the framework that was introduced in August of last year at that Americas in 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. That's something that you we should see, and that'll roll out globally in the back half of the year. So we're excited to see where that takes us.

Gotcha. Okay. Alright. 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?

Yeah. 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, expecting to see some progress from some of those regions. But outside of there, you know, China's such a big part of the equation. We've got a fantastic team there. That, you know, the environment's a little bit tougher. They've done a fantastic job in running the market. And I think we'd expect some, you know, 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 the same thing that you're seeing in the other markets as Brent articulated. I think some of these more tailored offerings, I think, provide a lens to get some more momentum and enthusiasm in the market. And so we're looking forward to it.

Gotcha. Okay. And then, you know, in terms of Hyatt, so when you guys announced the deal in December, you initially talked about roughly 30% growth for that business. And this year, your guidance is higher than that. So you know, can you just talk about, you know, 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?

Yeah. So as we were going through the acquisition look 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, their models, I think we're comfortable that we'll be within the range we communicated, which is $145 million to $160 million. Which represents growth from 29% to 42% over the $112 million 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. Probably see some temporary disruption and profitability due to the cost 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 it. Anthony, remind me the second part of your questions, you know, Channel. Yeah. There's very little in there for channel. There is a little bit, but it's de minimis relative to the whole.

Gotcha. Okay. And my last question before I pass it on to this thing, can you just give us a quick update on how India is doing?

Sure, Anthony. This is Jim. In my opinion, India is doing really well. You gotta remember that it's only been open man, how long has it been open?

In thirteen months. Yeah. Thirteen months. Yep.

And we started from a base of zero. So we've seen good growth in the market, but, again, it's just not gonna be that impactful until we have a 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 plan and strategic plans to grow the business. But the base is just, you know, very small.

Gotcha. Alright. Well, thanks, and best of luck.

Thank you. Your next question comes from Christina Schuette with DA Davidson. Please state your question.

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

Hi, Christina. It's Brent. Yet we do anticipate that throughout all of our markets this year, we will continue with a somewhat aggressive promotional cadence. The promotions or the incentives 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 2025 year. But that will continue, and we do anticipate other promotions coming forward leading up to the implementation of the new incentive offering at the back half year. So we anticipate it continuing there as well as other markets adopting those programs too.

So with the new incentive program, is that gonna drive the associate incentives year over year for each of the quarter for twenty five.

Yeah. You're pricing a little bit at dollar basis. Mhmm. Yeah. I 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 on how you see those line items shape out. But, yeah, I think they have an impact that's layered in. It's not I mean, you know, it's the case and scenario that we see every year. Just depending on the magnitude, if we think there's something notable in material, we'll call that out. So we 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 kinda 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 kinda expect this ratio to, like, continue to trend higher or are there, like, opportunities for leverage and efficiency improvements?

Yeah. 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 are there there is some numbers in there for Hyatt. There's roughly $1.2 million 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 the mix between the two, between the USANA business and the Hyatt business, you'll see some dynamic there. And then the other area 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 US. 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.

Yeah. I mean, for Hyatt, that's part of the SG and A was included in the quarter, but then for twenty five, Hyatt is gonna be in there as well. So or are you saying that's kinda like a onetime expense that's recognized in the quarter?

Well, I think we have to look at as high as it was in there for six days, where it'll be in there for a hundred percent of the next year. And so those that mix and that dynamic changes quite a bit. So you'll see you'll definitely see more of an influence from high on the overall results. More so in twenty five.

Okay. Thank you.

Alright. 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 So far, how has the Hyatt acquisition been going? You know, 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.

Yeah. Ivan, this is Walter. Yes. It's going really well. We love the Hyatt team. They've got great management, and they've run their business really well. Definitely, 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, as 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 wanna mess up. But it's yeah, those are all things that'll help us with margin down the road.

I was just saying, Jim, just to add a little bit on it. And Walter said that, but we have to be extremely, careful on what we put on the team. We don't wanna overwhelm them and have it push them off their strategic plans for 2025. So we see a lot of opportunities, but it's gonna be rolled out at a slower pace to make sure that we don't disrupt their business plan.

Yeah. And, Ivan, I'll chime in there a little bit just for some optics. We'll have some short term primarily captured in twenty five, 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. And 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 twenty twenty five? And then also what what products do you see have been strong or and also

Hi, Vin. This is Jim. We've had these conversations in the past. You know, part of our model is creating excitement for our associates distributors around the world. So we usually don't really talk about stuff that's coming out unless it's at an event or a 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 gonna happen throughout the throughout the year and that's very important. Just the new commercial team, working with R&D has become much more efficient. And able to adjust and formulate products a lot quicker. So we're excited about that. But getting specifics, I just don't wanna let the cat out of the bag.

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 see a real attention kind of our flagship products, nutritional supplements, so that'll be a heavy focus as well.

Very good. Wishing you a big twenty twenty five.

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 know, disrupted your balance sheet a little bit, no stock buybacks, and 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 what's the outlook for twenty twenty five? Where do you think we'll see the balance sheet by the end of the year?

Yeah. I you know, listen, we're still sitting in a really solid position. About $182 million in cash at the end of the year. We'll probably add fifty to sixty to that line ballpark. And so I think we're moving 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, you know, obviously, kinda 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 million in debt. Plans are right now we'll probably have that retired midyear. Would be would be the kind of plan and estimate at this point.

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

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

No. That makes sense. And then, cap needs for Hyatt, anything unusual there?

No. I like I said, there's some short term as we go back and integrate. We still have several moving pieces going on. But I think they've proven the fact they're a competent They have a lot of great things in place. We wanna 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 move 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 have much capital intensity to what they do. So it's a pretty intuitive relationship between the business and what it generates. And I don't see

I 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?

Yeah. One one and a half percent in that range.

Yeah. That makes sense. Thank you. And just shipping, you're doing a lot with the you know, you've got product associate incentives, brand messaging, Is there any bigger picture changes going on with your model? Like, 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 affiliated here, but is this sort of what you're doing trying to get that you know, 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 twenty twenty five.

Yeah. Definitely, tweaks to the model is a good way to describe it, and we're committed to the direct selling channel. Where, you know, 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. You know, 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 that's 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 and a half years.

Yeah. And I would say, you know, at Jim's direction with Brent Spleer 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 I think, the fairly intentional process and how we've approached it as well.

Okay. That's good color. Thank you.

Thanks, Deb. Thanks, Deb.

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. If 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. Have a good day.