Earnings call transcript Q1 2023

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Operator

Good day and welcome to today’s USANA Health Sciences First Quarter Earnings Call. This meeting is being recorded. At this time, I’d like to hand the call over to Andrew Masuda. Please go ahead, sir.

Andrew Masuda

Thank you, and good morning, everyone. us our joining quarter you appreciate to first review results. We live call our and is conference via website being ir.usana.com. from Today’s directly broadcast webcast accessed can at be our a be the replay following call, available Shortly on website. will

our from As differ, a this management financial results events Examples be that the will risks performance future cause course perhaps of forward-looking results regarding Those the could conference and include such statements statements involve call, in making or forward-looking during these you reminder, with of the materially the XXXX, financial economic year those these most of future to our considered be actual regarding that strategies projected company. uncertainties statements. statements financial with world, as to environment our recent operating uncertainty filings and around statements the including and should SEC. related for factors and conjunction specific and risk outlook in data our caution well disclosures, in We fiscal contained the operations as results.

I’m Hekking, results Guest; Doug commentary our our closed, quarter joined Brown; announced the our Board, posted company’s other Officer, Jim Financial and Kevin CEO we our Chief document well Yesterday, by to after President, as first executives. market of management the website. and as Chairman our

We’ll call Jim and for brief now the hear remarks before questions. opening from Kevin

Kevin Guest

Thank you, us. Andrew, and good morning, everyone. joining We appreciate you

which job events, ahead of in launch modestly in-person markets. team excellent the our quarter our were included an market of executing affiliate We’re of results, pleased specific first program and report to The did initiatives, certain promotions, solid new various expectations. which

Accordingly, of per full net guidance sequential counts in stabilization the sales and lower see the quarter end to customer our continued we raised result, net for growth. sales have a and we year. share earnings As active

well proliferate, these positioned inflationary and remain continue growth our to our wellness products Despite pressures The strategy. remains continues environment meaningfully as purchasing the of our business to customers. and demand worldwide decisions for challenges, impact for ongoing to dynamic we execute global operating health

for in first the in and This net added products the saw China a sales previous the that mentioned comparable and demand this to to temporary during demand our health Note sales. call, policy. increase in $XX of in a following over carried approximately we million we in the COVID few quarter As our is government shift a meaningful first as net active counts our lift quarter well. weeks lift had customer fourth in

ahead the increases an of Toward end first by of annual and many our estimated the $XX announced of in million markets, increased increases. we these price customer purchasing quarter,

trend of our While anticipated. we events, quarter. from was historically have signs show these business of further stabilization than amount to increases, price in seen of first the a continue Separate increased ahead higher purchasing the

three to around As Meeting a start. associates held effort we nearly in years, is making return you are end the strategic of to off are several Macau. large scale we in in this possible our we the to events where in our with event first and and and in Sales host following live National China meetings the the a attendance. This first and great We XX,XXX region held in quarter, quarter, meetings we pleased are world February, discussed to

critical the generates momentum, and Gathering excellent. we meetings renews The it collaborating as excitement, our been feedback received and associate salesforce. engagement our have and to these has trust seen and with is events we from business that in-person

year. market optimistic and open each a we will our remain We on throughout that of growth. have continue we regions to make remainder events this the later planned progress for Notably, generate year, future new of these to the preparing

market at Korea South next week. in Asia to plan our this Convention We announce new Pacific

it will most culture are and we Although brings country, products later growth importantly, opportunities new opportunity until to a introduce demographic. open the optimistic world health the not present, to USANA’s this year, class and this will long-term market it about

of While with watch South a we Stay specifics can’t next the this to tuned making today, announcement Korea release this for this discuss week. announcement. press market we and forward live in look

the customers. and leadership, I over Before his effective CEO the and be to the for entire that as and active comment serve USANA role for turning the to of this been With USANA role. Jim USANA’s my ability curate my President, years speak has over to in plan say It the confidence part February, to Jim like transition great the company, early named privilege to In has XX last and call to myself Board for advancing plans of X of I’d part board position foremost Executive be X. XXXX. CEO succession July for our and Brown, announced to will the been when extremely a of on in and to transition, in health I wellness. Chairman play Jim USANA’s since It’s full Chairman of satisfying one CEO and years leaders as in we the

In am team as and I just as I look retiring; forward this USANA’s as Jim USANA’s not involved deeply to extraordinary continually USANA’s want I’m to and for confidence in shifting roles. employees my strategic to associates. appreciation to role, management mission. also new express CEO, in want sincere I well and be strategy express that I

the time CEO. future turn over to With Jim, USANA’s I’ll that,

Jim Brown

forward and too, and Chairman I overall to am Executive alongside I, and new him USANA thank his as his of look Thank I in appreciative for Kevin. Kevin in for guidance his his mission. and our role you, to strategy to mentorship. working continued want involvement devotion

the plan and smaller held sales net the compared first over generating quarter, a years. last single, the second customers stabilization in the active scale to as start to and sequential growth priority off back focus both solid we’re top and to we customer in our XXXX, large during quarter. In more saw the is and on growth localized engagement promotions to and we several as quarter, promotion Turning

challenge. first be As XXXX in such, the year-over-year comparisons half a will of

more team to on forward live coupled return company believe, scheduled promotions, reengaging a to have events a the with smaller, with personal that our will looking focused of long-term. We events, and and level this growth throughout associates customers is generate these calendar The year. already full for the in however, management

continue costs the operations. These As the across remaining magnitude the implemented inflationary to end help will we X% and and elevated a supply across Kevin manage first higher we markets been quarter. modest the all implemented pressures adjustments chain be price Historically, we’ve of near facing. the impact most quarter price previously This price with the were however, are mentioned, USANA’s year, slightly fairly adjustment to to materials second markets in global are of implementing our annual adjustments to X%.

operating the to believe We $XX million, which and year-over-year. environment. $XX from is are structure adjustments down necessary point our Inventory these down our management focal USANA, and a remains million inventories ended quarter and the $X increased current fourth for million cost the at mitigate first quarter

risk optimize We continue to work with our key profile material mitigate and suppliers cost. overall to

manner. align will sales levels customer effective with delivering our we cost performance, possible in expected continue while inventory Additionally, and current experience the a to on the focusing best

and sustainable our In successful closing, pleased of execution will with long-term that confident deliver the we first strategies we quarter results, remain our growth. are

for open operator the With please lines that, now I to questions. ask the

Operator

Instructions] from [Operator D.A. question first you. The ahead. comes from Davidson. Linda go Weiser Thank Please

Linda Bolton Weiser

hello. Yes,

little cost about that bit. on curious was you just So talked side, a the I

did from transportation decline. mention that some You year-over-year benefit had cost margin gross

costs down So I will foresee then if on Or be little do other you to or curious ways a that. is year-over-year? you year-over-year? was also start of you. detail next the still down could costs a more quarter Thank give be will kind quite other that And that that in away two

Doug Hekking

of Yeah, shipping just stuff really absence The decline in be supply that Linda, chain. And of during of the service the that’s just in of air disruption high question. is This thanks primary pressure we your had thing. for costs primarily the creative some transportation were and the the primary Doug. to kind

We as pickup the as stuff much of in stabilize way cargo, ocean in plan had past. to primary stuff have preferred But basic and we seen the is ship is costs not of time. there ahead air shipping kind which the just

and and branching worse. that the of by it led X% up and we’re of U.S. suppliers that out costs, team to manage operations as team, We’ve seen continue have definitely And our out there, plant of to The procurement costs. sourcing job help, not X probably materials get mitigating kind Walter, to as material our other and there. additional to the relates really done great raw stabilize X% raw kind a risk indicated, the Jim

And so seen long-term what as commitment just some historically. now, prices some players see we’re we hope these we’ve not progress. and from getting of Right Jim? to

Jim Brown

Yeah, this is Jim.

that is that time. shipping pretty down year’s stabilization talked in shipping about, lot of inventory, can last point about of talked just this a was that’s Another quarter. count area we what on we the lanes substantially the And from Doug and at

we’re able in over So that because work it’s the of our improvement shipping in really the next lanes. few reduce months. to process And

Doug Hekking

have he on. as a comments Noot We Walter here well, few in has maybe

Walter Noot

Yeah.

products, to COGS to far bit that’s so because going a think drive pretty own as always think be continue drive going little we it thing as point. other driven I we’ve at that’s our still low to The I inventories then issue. and up, And this manufacture an up is we’ll costs, inventories, labor

up. start We’re going driving it to

where by the going at. and year, inventories end it’s million sure, see you’ll So million up I’m from $X between $X of

Doug Hekking

part customer don’t go with of Jim related about inventory and policy that’s part really disrupt it to talked experience. of customer And to experience. Yeah. the want the our market, new emphasize the holding and to and what back is We

Walter Noot

do that, on and products still to tried more like packaging, for based land that. raw transition that there’s making a we’re things We sourcing, are materials but for

Linda Bolton Weiser

that to you price it of those price there regard With of seems quite the you. bit increases. like Thank pre-buying, ahead a increases anticipated was Okay. mentioned,

come quarter the was to which second second like just quarter Or that well as all first In to pre-buying? quarter case, from in still So more I’m increases. the a benefit price pre-buying will surprised hear that phenomenon? there’s on

Doug Hekking

Korea with saw that China have the touched. think Yeah, main happen Malaysia. vast the we the markets in influence We majorities and and

that other the of Some so and little are level see roll the same anticipate there. on We typically see nature, a behavior, it’s and quarter atypical the bit markets wouldn’t this second of to in not smaller it. in we of will pickup

bit little and a a result little additive I anticipated of was to larger we think than that. as a quarter the definitely it

Linda Bolton Weiser

to And did just you about say you but Okay. wanted just increases said – price the of this quantification pricing, sorry the then, the back if so well, ask this, I on year?

Doug Hekking

Yeah, globally. but under average on X% a just didn’t, basis weighted we

Linda Bolton Weiser

buying in I type I right? explaining, products, was the those pre-buying expectation, that stocking up our And about curious of didn’t the guess then on that what I surprised was people even because meet with you’re I that’s boost phenomenon, Okay. China, products. immunity despite guess it

of kind progressing it’s I’m still just reopening? China So is market that Or color some coming maybe how you around. could feel on you give not is thinking that more that now

Doug Hekking

Yeah.

me what metrics, he the give better who already. there been market and you level in have and for kind job we times articulating, kind of Brent some oversees a he’ll of this Let the high do far he’s few over year a here, sees markets, Neidig,

each to the when year And as You quarter we year-over-year bit well. two little comparable comp to started that of of that immunity fourth the products large make the in a you’re done promotions had weeks a XXXX. last it from sure also and so those got boost and [compared the had basis [ph] XXXX, running on period] XXXX difficult made these we

two so things in. those And factored

Brent we’re of what is think the what you’re Maybe seeing market. very in kind positive. I hearing

Brent Neidig

Hi, Doug. Thanks, Linda. Sure.

lot I signs just touched China. in for that my and think in But for our market. impact, biggest there the to that as from on, was back was well in Doug positive April over are the And a coming there comparable opinion, issue, the there. been what I’ve first convention. I quarter the February of

together lot We haven’t in do in-person able was back are to years, at there. finally reengaged. event been and we Macau. for and a very optimism of excited that back people able to be There our meet to People with were three XX,XXX nearly

optimistic what momentum think this holds. the this for year. So we’ll for should bode create back that I for the us of I’m half event well the very And future out of

Linda Bolton Weiser

the the you, quarter comparisons fourth honest mentioned second to on in the growth, and revenue currency third you with lot and look the at you the look a when quarter. easier not since XXXX, Well, growth in Okay. top-line than comparisons the do be comparisons in constant first

So, understand, benefit perspective, trying I a comparison second from guess, I’m such not to I’m is in why still a understanding the that. half? that

Doug Hekking

three promotion of It end that years. the with was that of and large quarter. a it portion last first we the to good second Yeah, ran really in the each was do the tail quarter

it’s it what And think, I the And in past. you’re a still easier. little talked bit so, to right, adjusting. does about we’re get we’ve similar really And

the the it, metric We’re that the And we’re about. we’re base and and the primary that’s reverse that’s from And building sequential we’re progress in the how confident we’ve fourth you building is back how of at and building really sales now. team clock. go from they’re in spoken can’t quarter, functioning, kind

from So we’re that forward. really building in going level QX

Linda Bolton Weiser

half So would second a will XXXX? more than Is activity you XXXX, the promotional that that of say fair of second half in the be statement? in

Doug Hekking

the tail bulk was the XXXX the because second No, quarter. quarter end of really of the one in first and

from and plans regional how pivot of is some to year they’re the and some And go how the of this now to the stuff and back more half that still happening local that’s at of we’re be effort and going repurposing doing formulating the right level. back goes seeing this year. we’re what in think I

still activity. some you’ll So have

We’re that and still leaders, accounts But want our things as a we do growth think We customer anything revenue field blips. active do we sales our sustainable short go to we’ll be a in organization. both just back still there. and associates to want to not and term as and support

Linda Bolton Weiser

the the curious I’m and you those to then, Or plans them months sort about going to acquisitions? salesforce? kind into of acquisitions just of are? you introduce they products for did broader are those. And are plans that what you the Or going let ago offerings Okay. the and the several Are for those way run

Walter Noot

and a for good for companies we so where which synergies, acquired the acquisition have we Our that strategy we’ve We companies far, their company, together. them is separate, well. really to – acquire When run operating with keep management, got let look we we’ve work we businesses. they’re do both

helping of an it those gives in instead they’ve here quickly. example a it been through that’s Bar, running can business, we’re savings with ramp themselves. As their as very selling and there Lake, we’ve example, an USANA Rise more bars but things feel like manufacture and fulfill out and big they’re them doing ability We we we here them. all them our cost Because great that orders, had up still them, at now a of us to Salt of Costco, facilities for and lot advising

helping Oola is a It’s that for management. company by the those Oola. developing really people, same them. great thing trust has with We them and we’re products really

actually manufacture keep expertise, we’ve with USANA, products, doing develop both helping strategy we’ll at their companies to we’re So management, that M&A products, is But have acquire companies. and our so formulated have have products, them that. between synergies

Kevin Guest

a is Just on this comment that. – Kevin

gain to or place competencies we diversify core our expertise part level here, huge some manufacturing long-term strategy in a competency to small is a diversification also, are though our leveraging of to us have Just are as and here comparison these company. and of a acquisitions our even that great There while for USANA acquisitions these company. as and

looking their sight some active in have could we business. and/or really some where sort Walter grow USANA to also USANA counts. really, areas But trying on they these, additionally customer the not growing core of for learnings and but we would world, And can we’re looking said. on which sales positive of some in also, their growing we’re what of these we’re customer our areas USANA core here into to to losing accomplish are companies growth We’re counts at own run active as competencies for integrate where the help like continue the and

Linda Bolton Weiser

then that market good. pretty of sounds launch to terms related you’ll later announcing, new there in in soon in be your up May. Are That that maybe year? the show in guess will And particular launch I that SG&A Okay. expenses

Doug Hekking

opening, which maybe that obviously help closer else there? been it. Yeah, we be Jim, But, It’ll to little you’ll bit. investing year now. get for as that expense we’ve see important then some market, to is of start to buffer some success the I for mean, incurring market up anything a sales those of yeah, very it’ll ramping time a and

Jim Brown

for be Yeah, have of Doug team. up quarter. for said, individuals finding the we’ve market the great start done build And a job to that ready like launch fourth in early to good you really or just management and to third

and Officer Mulham you’ve So I’m too overseeing going we have can’t out, actually is great say excited Sales David launch. our about working but here, to new Chief it. It’s been people much, with launch. market we be And working our in a that’s and who hard. Obviously,

on the up. it comment a since Just brought you market new

David Mulham

Linda. comment, of we the response, being expect morning, established, I launch with that our grouping, is world. on been of from [ph]. to we’ve Good all a [careful months got recent team course, the kind Jim’s Yeah, got the around go – week, pieces I what think just are Yeah. group, The good over next in of ready leadership positive leadership place. best following developing the not but we’ve we distributors existing said] when our very of we from And product office

Linda Bolton Weiser

And that of of that the new it? growth is a XXXX? something Is scale couple percentage points market add could in this to

Doug Hekking

the that radar be market I to we’re of boost that registers something the hopeful Yeah, think help can definitely on growth. kind

whole of and kind give this and down we kind probably market. kind the color build year and lot You’ll as base see not that open as we year get proceed after we acclimated of of a we from more the

Linda Bolton Weiser

do of kind increases And. seeing the Okay. U.S. recalling, the adapt to guess market in I How are you it finally, think that market? a I’m then price decline the the U.S.? still what you in will And year-over-year. was if

Doug Hekking

we they the making their the and these just they’re are of of team gauging They’re responsibility teams kind working any sales customers. to there sales call. the making call. There’s on price have take, still some but increases, the ultimate with Well, commercial appetite the are

of We’re I I’ll bit done. as his it’s affiliate we think of we’ve that. as strategy his kind cost several working on we’ve being on and it. pretty markets, what that. initiatives include done kind in hit think so I We’ve trailed David we’ve still increases the overall would the thoughtful result of of a margin which into comment taken our something with and step And team operating some have of that’s little intentionally. been right definitely let David launch a

David Mulham

the has for want with channel Canada Yeah, weeks a Linda, just XX seeing response way we’re simpler It’s some of And sometime acquire it we’ve other affiliate towards for to so in opportunity and a it’s The at to soft the we new to so year, it’s us U.S. sell. been early of indications terms it U.S. really we’re since lot running it. on way that launch, particularly to the positive simpler a in in really right, next and Mexico. us but get looking days. got markets traction

very so, response to it’s been positive yeah, date. And a

Linda Bolton Weiser

that? surprised engaging Then I’m have Okay. it a you just do cash though on you balance finally, make even comment of your And sheet. free repurchase, positive I’m cash share to still that you be you’re flow, your would Can on like not XXXX. in will acquisitions. projecting lot in

Doug Hekking

kind our board of up I we on Yeah. take each And I’ll is priorities restate you of meetings at use kind of something What every and tell the quarter. cash. can

continued in foremost and growth business. is First organic investing direct our selling for

opportunities competencies through company’s go down primarily at and we been different bring and can core and these have the we development, that see the about opportunities, what more M&A in where looking synergies road. Second, history back potential than and through far really we’ve business

there’s that are of And done to share and what done cash, go excess address back that through, program. those things we’ve excess is we’ll primarily when look and repurchase some historically

every it mind of it’s And about outstanding, top point We is allocation a efforts. have the quarter. million board, XX on capital and our discussion

Linda Bolton Weiser

for That’s all me. you. Thank Okay.

Doug Hekking

Thank you, Linda.

Operator

like for you. to [Operator Thank any Over to questions in back no additional the or further over With remarks. hand currently this, the are Andrew. to call closing you, Andrew I’d And Instructions] there queue.

Andrew Masuda

for your call. you conference participation and Thank on questions today’s

have you Investor contact free questions, at If XXX-XXX-XXXX. any remaining Relations to please feel

Operator

call. your concludes for This participation. Thank you you. today’s conference Thank

You may now disconnect.

USANA Health Sciences (USNA) 26 Apr 232023 Q1 Earnings call transcript