Earnings call transcript Q2 2023

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Operator

Good day, everyone, and welcome to USANA Health Sciences Second Quarter Earnings Call. Today's call is being recorded.

And now at this time, I'd like to turn the call over to Andrew Masuda. Please go ahead.

Andrew Masuda

Thank you, and good morning, everyone. us our joining quarter you appreciate to second 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

the As perhaps a this management performance projected or make could results will and of events actual course materially our statements to future statements future cause conference uncertainties forward-looking involve regarding risks call, such forward-looking the statements. during reminder, the from of financial differ company. results in Those that

these Examples data with strategies environment of conjunction in related year contained filings well regarding caution the our financial these including statements to disclosures, statements factors include recent with and that financial the uncertainty around in and XXXX risk should those our and be as operating SEC. most fiscal outlook We operations for considered and our specific world, the economic results. as you

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

the brief We'll Jim now call remarks for before hear opening questions. from

Jim Brown

good expectations. appreciate second We're pleased quarter Thank morning, to everyone. you, our you Andrew, report better were operating and We joining than us. results that

in active continued counts, customer our stabilization stronger-than-anticipated in further strategic saw several on progress and we of Mainland sales quarter, China the our During initiatives. net long-term

for products the restrictions, $XX up related net announced to included our million mentioned ahead COVID approximately in quarter immunity and increases $XX we several million following China purchasing Mainland related first in to markets. sales of price approximately buy quarter first call, of lifting in As our

comparison second for Both a of sequential first created quarter. the quarter quarter tough events these

second in not also had global a XXXX. reoccur in year-over-year XXXX, the a comparison challenging did to of quarter promotion due large We which

of periods, the the comparable were business during pleased we quarter. performance with the the Given challenging

the the opening call I'd up quarter. like some a questions, we of to during progress for the spend reviewing Before made few minutes

If we each from incentives years. the the year, the you throughout quarters in the previous to recall global at the that X strategic beginning we move different decision of of offer away large made

these fatigue a during promotion at customers levels which that was strong in subsequent promotions ultimately these While quarter retain with it in resulted our of in activity we difficult the it leaders. many sales variability periods. offered, and to the creates And was realized desired

the sales smaller strategic XXXX entails throughout and -- generate to at times customer strategy Our growth. active sustainable various year offering market-specific incentives

few XXXX. year-over-year As minutes in approach I first commented a has ago, half the in of difficult this change comparisons created

and remain Although that are is we work that counts far a sales in more we and pleased net recognize operating active pressures, influenced customer the is generate by with there do to generally to environment being fluid inflationary growth.

small Moving Local our in on, job market exceeded market during specific quarter. by sequentially of the demand strong executing during sales China second currency XX% a an grew promotion key did and driven in market the in strategy quarter. expectations, the our from this excellent team the offered

our with pleased meetings particularly environment. market, reopen, largest to hold us to market. performance our are We reengage country more The in given continues the and macroeconomic allowing with single in this in-person a customers

inflationary an decisions. see however, pressures, spending purchasing customer are on to impact broader continuing are, We consumer affecting which from a

plan in this strategies launch and to India continue presents May, the see China team that into to we'll execute we late enormous improvements opportunity more market expand growth. market remains announced our to we'll in operate our freely operations officially for still that optimistic and In as continues Nevertheless, XXXX. in our

has diligent health market. several And and for expansion This work our market preparing business spent possible world-class the the believe wouldn't for compelling wellness and we our exciting is and our without opportunity. the suited team an are making is be this ideally and India that products launch. that in years market and new effort model

operations. confidence I this our utmost approach on the would to look be sustainable to onset local our updates have stress officially on I sales future modest and providing market we team, anticipate that intentional will forward market to and focus in like leadership to this We growing said, growth. on be and long-term the That once will and launch expanding contribution

strategies, remain In is We current us closing, remainder into to lines our growth. the the XXXX visibility for to With our ask position guidance long-term our and April, to I'll fiscal now that, believe which allowing USANA operator of the will we the open end of questions. please in our year-to-date year execute confident our raise range. abilities performance low deliver sustainable our

Operator

we'll from Davidson. And Instructions] first [Operator Bolton-Weiser of hear D.A. Linda

Linda Bolton-Weiser

Korea of there's know region, worse, again, So Asia then performance sequentially. North But me the I looked a had to I just guess, because some of about I that pull the the feel things better question Korea, sort forward maybe like that of in got noise worse it your in or you first doing? quarter. talk of just getting how market you -- sort opinion? and about can is Do the that Is it

Doug Hekking

it. Jim of and on Yes. comments jump this is I'll top and Linda, add Doug. in comment, let I'll any

due an incredibly last that. for have kind or was So we the for hard. But market team out and related a you number with the saw is that flattening a been sequential some strong price buying the little primarily the bit. of The us Korea progress seen has Korea of years, working of to headwind increase advance I think to run-up to sequential that and

as that on bit to as relative flattening on seen engagement, what far to we've They're growth. have working really out but engaged. Jim, seen market a top we anything year-over-year that? customer little of They're add

Jim Brown

Yes.

was just we we group where Doug Asia commitment and we our quarter. group the talked from during biggest was little people. had flattening seen, Korea thousands Just have convention, the had Pacific Korean had though it to group We the a Even add, and And excitement was that in out that like field. the of in excitement and see associates. you about, of

Linda Bolton-Weiser

the It kind margin it quarter and do actually both was showed expectation beat I'm in gross And Okay. of good I year-over-year, you some sequentially envision that improvement both forward? carrying good. level if very was -- our remembering, and it think the

And is we going it the does pricing that level in kind quarter, second that much. saw how out help so kind forward? that of the that pan But

Doug Hekking

of remarks unique we mean what One the make nuances Jim In we I the the provided quarter. some had first kind of sure is as of are the expecting that mentioned, China. we promotion in upwards Yes. we and generated probably million, were $XX material, generate opening million have second as from about in during we in China from year in to a that our context. million talked $XX the some in sales we period, to talked publicly half $XX we promotion first quarter, put things of incremental about, in just in maybe his

growth Brent on market of a market. of outperformed little expectations incredible the and oversees of our strategies efforts the see because going to China, bit. some has things internal bit you It's from a it lifting sustainable those a in in who And little lot on really the Neidig, long-term calendar. build and been But

half don't year. the cadence or of have the the same we of activity promotional one-off But back events in

and provided. on little so gives a a that's bit we what of context little of And bit color just

Linda Bolton-Weiser

So by revenue? is you're revenue gross that incremental saying that and high margin margin the that was helped gross that

Doug Hekking

No.

modestly They and of I of think we typically see kind revenue when from in coming a statement. a a the greater switch China the than of the in items of little proportion structure markets. what bit little bit little we line we see a better income have margins their mix other strong, a margin, have China higher bit rate. incentive but gross a are in it's a different of Overall,

Linda Bolton-Weiser

So I'm I'm not sure understanding.

and China the the expected was high margin promotion in business. quarter than So that gross occurred better that second

that margin. trying that Is to So the gross say? what helps you're

Doug Hekking

Yes, that's saying. I'm what

Linda Bolton-Weiser

Okay.

So expectation then for a little should gross forward, maybe a going lower margin. maybe our we in little be

Doug Hekking

Yes. Yes.

better you year. think And market mix little in of primary something is the I probably the think just half the is a what we'd there. saw I back expect catalyst bit the than by

Linda Bolton-Weiser

I in cash that cash flow like Okay. to operating there's culprit examining you. think, year-over-year, be cash is line something it And flow. statement called item? And down affecting the was the negative cash bit. I of I flow little Or should your line such why element That then something there be a in mean, was concerned we that. And I the flow your such just other a statement? or that cash flow, What got seems your is about? liabilities is

Doug Hekking

of in stuff other stuff that and 'XX of the year the stuff, that 'XX. when see I had a you settled lot in of up mean, accrued typically, kind been half the gets doing X-month throughout you're looking that at front

that For of those employee it. example, in things flushed different bonuses, some of the other on how you be get some kind depends of when look liabilities, you out. would influence payments year-on-year, typically that some those things just it And of tax types that

to little softer I than we're what But obviously, pressure, bit continue the bit because seen just historically but has line committed margin little of operating been think top a of we've investing. a

as solid some And is comparison cash well. of time still reasonable But to over so we're cash somewhat period flow flow. margins and mirror operating generating robust think going I our

Linda Bolton-Weiser

cash flow. question Okay. And then more just the X on

you've of kind cash a take need balance some paused had repay cash why share You sheet your you of before inaccessible stranded share Is kind access I'm can't reason? you on and to repurchase. And feel just balance wondering for of you your to that sheet, repurchase. do like it overseas? cash that lot do you Is on it?

Doug Hekking

available at could of because facilities back here, wanted we and we international on our credit some point time it's to. readily running business, draw not there's obviously we're all that go but in always No,

So the of term. really short kind in put that isn't

considering allocation, with every different and priorities the we quarter, what the and about I we're at of some think kind purposes talk where we we're of of of capital business. the and the are just visit kind board

that. -- kind of greater about, history. the at outside at And company's probably a factor business primary the in looked had that's than we've in talked We've we level as more opportunities ever we've

the as those we think have in way in As addition we no, we look get things I into But it it's company. at other some that discussions -- a going, are mind managed. have do as no, to much we haven't bit issue too share going of repurchase. There's to But clarity timing we and a that with of the we're exactly us, some the doesn't what a hander on little given really markets. priorities

Linda Bolton-Weiser

mean Okay. specific but guidance, back comments or I'm flat you China And pretty year-over-year. or up the to I up and you you, don't in I China. sequential get like correctly? pointed that the thinking improvement sounded maybe then could of thinking that? into local out know your there am I quarter to flat be kind third switching positive, Am revenue way off currency Is -- on in for I want

Doug Hekking

been We've because about my quarter, about we're sequentially obviously the how back promotion quarter. we've Year-on-year, talked had a it. comp mind favorable third and Linda. not more talked we I'm just something we're thinking in not trying bit, a in sequentially the in little process on going to manner in We not similar Yes. second the running go in to or

hear me conversations Year-on-year, the short-term these of of lot you as a leadership look, additive are as China and I are and -- front some some in that the team structural very that these I have of we confident, more we the getting of and I'll and they've But think is some effect, go to to I'm they're traction, now. oriented but promotion. not had with right don't back I'd to be going have and in would going have things things, long-term of very think a just Brent

Linda Bolton-Weiser

COVID find because China Do health oriented the and are wellness the toward aftermath? and you immunity that customers of

Doug Hekking

I Yes. in probably -- here. let I'll room Brent Maybe the the definitely China is consumer more inside he's do. him than

Brent Neidig

we more saw very quarter products. the fourth year of started lifted. sales our that, to of immune of And policy tapering first and when those We a strong from quarter this in the see the of zero-COVID buy products in up a after

absolutely, So of I term, back immune to long focus. kind very Chinese level expect is the think conscious, see. consumer what of we health a it's focus returning would and normal health to But

to products So future. strong sellers I us think continue those into will that the for be

Linda Bolton-Weiser

going that expense. me It let of just please bit question little guess third Or about? And Okay. is higher in I I the is a the had? $XX the And something that SG&A it forward, little maybe on of other I'm could -- to think quarter and down on conventions and quarter. it X you ask a a going I if in was the because expected we million the just fourth or should tick just kind that meetings basis? if like remembering, the amount quarterly was so, like is than

Doug Hekking

Yes.

that's You're because had haven't correct, those we of COVID, priority just definitely deal sales Linda. I the of surrounding in-person the engagements. something mean It's a environment whole a structure. great from

of driver SG&A having a year-on-year. that of change So in increases expense was chunk good and in the we had modest SG&A

And right have same in Europe, our we that have the quarter, you in now, even and third magnitude dollars plans example, of seen though some the would it's there. Americas not for

would progress kind see quick the absolute the having I see probably after it look sequential with the promotion. taking that at one. with kind be I China. back we some year-over-year, That change would then out not So same of you even And the around should rate. not at year-on-year real expectation, circling think of

Operator

Lebiedzinski Sidoti. we hear Next, from Anthony of

Anthony Lebiedzinski

nice a was So know in driven improvement see China. sales to I because sequential promotion market there. a that local of partly

you as as far could how as your anything far if with July? can you wondering been have share far so comment in us as trends Just

Doug Hekking

it's think come same I as you mean, off I thing the Yes. promotions.

that's a with kind unintended I we're of sales what area that still right surrounding something set had think to in event trying kind or we've it. is the of having level not an of or kind activity see

cadence. we're think on it good I absent clicking So the seeing promotion, a

I think it. we're pleased with

we're do inflection building And going pushing more start obviously that we base. to do start seen I stabilized as But forward. of think something I to we've and point customer better, that talked what and his it's comments, Jim towards. want that in about and think we a to getting traction momentum need get really

pleased, strategies things basis do have And we to of But long-term short-term augment as well. and our on I think generally as but the we that's well. said, understand obviously I we like of intent some a the we're work

Anthony Lebiedzinski

in for commentary, And force. new opportunities management your Understood. talked you incentive about sales your

referring your that, just in Maybe you that could please? else? North affiliate something expand So to Or on program are is America? you

Doug Hekking

but would to that I at be customer looking be be really this going level. Yes. to Jim it relevant markets. a in for That's primarily the strategic doing and to reference, But on several we things think good to what from additive And comment base are standpoint. we're higher the a maybe think we're engage

Jim Brown

mean few the -- at meetings, meetings big a did I ago, -- look was and at when to of couple as travel a Yes. right? that and first things there of in the comments, well you smaller each reconnect out the X minutes We SG&A talked just a have as the we of higher mentioned countries second rate and go the much to quarter conventions in-person with field. was but within

the America, look are in And and at those markets like open see, North in to to to you're that interested way money we a going XXXX going we're talked we're expand the to it. affiliate opportunities then the that to new in And it year. program tweaks the make as then talked our about And to small We're planned year, making local the did throughout like going our well. of second but market business market. -- to promotions have we half we lot as to do promotions by a model specific have we not large about last

Anthony Lebiedzinski

Understood.

expanded Okay. you digital also commerce And about then talked capabilities.

most what just have benefit from So do? opportunity us if that planning think some with initiative? you also do examples you could which And markets to maybe maybe share you're to of the

Jim Brown

mainly associates, we and is affiliates trying easier There hotspots. products. and what when wants about just are consume who make products do to order to footprint, our business we're Yes. our for anyone mean our some I talk digital

We are lot working a in China.

You that is how WeChat China. basically got is commerce platform the done in

make affiliate that And to sure make in the a stay with of pushing to to digital out do it working program that market we're stuff at enough look the in it have market. we be to to market. So the then assets from we that Americas, are relevant that lot successful. sure We're

something impact. some will mobile-first company, But are our throughout where XX all IT for kind and markets platform wanting have as back bigger our always which we're and of is that see of systems we a digital Some ones sit to, markets. an or new, at make

Doug Hekking

engage forward. we've yes, about we've would more really some work to also, talked as here main at enhanced done shareable more you more level that of catalyst an really to a Anthony, and the there's back our which of I going users And content been got on to the for get the say interact And and easier and and sales it of and kind be technology, feedback lot force positive, has board stuff go across finding ways get definitely the is to I makes customers. kind horizon. relevant that traction more the more think to had of do of

Anthony Lebiedzinski

it. Got

Okay. obviously, timing when this of upfront about you're there. drag much you entering talked have you this And be given guys of costs year, on year? so this so do EPS later a you India think then -- the some how will Have

Doug Hekking

And we everything It the expense back that, worthwhile that a just an there. way. investment. get there's period of can done really is in or kind doesn't to an standpoint, operating far happening. From million just kind net of nonopening from expecting that expense range as probably a kind and in $X.X to aspect we're we was get what And of as best is in of million margin there's timing go trying think talent to the Yes. and opening factor that appropriate you're and what's $X a really

Jim Brown

management But really year, in this We of -- last did. we second the half started the year. Yes. almost hiring time team the

of revenue again, see won't some to the costs around So in we those later that in the -- coming we're year just in later going have until, XXXX.

Anthony Lebiedzinski

Got it.

usages of about can be up And helpful. you looking allocation strong sheet as acquisitions? that could kind that details to just Obviously any you guys as Linda's your on priorities If far I the what as just over do go your you far very you're for lastly, also between And about cash. have. touch position. to Maybe opportunities. as question would talked that acquisition share balance rank the cash you on capital just a strategy, know Okay. for could could your you very if of you if follow about different Maybe if

Doug Hekking

give I'll that who about some we the high-level things talk investing aspects. priority business. is of organic the development stimulate of But the the and you in And the are is a bit Yes. little and Walter, things back kind up in that to way him approach. going grow go maybe business I'll let our heads really room, first

go term are we get we have think back investment traction long As and areas short that think we build or and going things of we're term, have. we either to that those some

looking And immediate value the a of we are in really And picture, bit. historically then kind Walter a type also, second to of seek aren't We're some that, levels evaluating return of our on environment, confined touch little following business, will through would And that the really inorganic when share repurchase these some then opportunities and things back don't that at big what program. that to is we've have. done have debt-free. be we use go those

Walter little bit But isn't and allocation. on give of of on capital maybe the I'll a the really repayment color debt areas. So biz then level. dev high have that's some focal the And

Walter Noot

a make Rise we sorry, And synergies we look let -- last I We have a as we Bar products. I'm called example. company. invested Bar, independently. because if small -- in can is them -- We good we run mean, their year, really you Rise company Yes. invested Built at an

independent. channels. reduces run So we're but which products making sales their we're And looking brands their we're COGS, at letting have them different that

opportunities us. So if sell they Those they are retail. sell DTC, Amazon, great for

the And out market looking in for looking the a are have companies that on And now. the got I businesses, out so there. for lot right return. opportunities a table good are we we We've think think

Doug Hekking

focus spot a of currently us. some think great and the company versa. we a competencies pretty go I is And can really kind that service size smaller we And maybe where typically building little in for core aren't bit a spot sweet seems to is big our a sweet or think area be provide back vice of

Operator

Genuity. comes Our Canaccord Anderson next question Susan of from

Susan Anderson

I guess just really quick.

specifically mentioned that guess, feel in little globally? consumer to or U.S. you that a saw were I you think because bit starting talking inflation. I of pinched spending was the you

Doug Hekking

Yes.

think little the a year, dramatic marketplace. took the forward a see of We though impact a wasn't than in bit adjustment board, we it I to what We've bit in been and these what -- relative the different definitely across couple price handed step with kind little this out consumers little more took we we've definitely soft of very them. on of higher last there seen. pressures on years that being mindful even

And I with don't know out arms. adjust there of prices open a received are that that company

starting We've in navigating we're that. markets So bit. many pinch feel to think to very I are little But been a open communication. the consumers

Susan Anderson

could then how And markets, putting you if India. gone to early to those quickly into ramp plans relative I maybe guess markets? there's about expect there. still it other other don't you're [indiscernible] how But sales together of Great. wanted up any know Okay. I know kind perform or just I to ask and it's I

Jim Brown

We at company, convention as this field. people in saw XXXX. the talk from AP and to is meetings big quarter. XXXX, mean I We've about our comments, Yes. excitement and it showed it's what in have have a revenue a We second excited going will hundreds have we're up. for India happen the we impact not our had seen to of not -- on expectation going we announced a about more in our to

and China to but help we minimal going. within love modestly year. as the will a just an 'XX to to opportunity, it leadership get expect So it market, the we expectations. start well It's opportunity next be come like start would contribute as from as it my in impact again, to market some huge But leaders outside 'XX in

Susan Anderson

lastly I then, guess, potential acquisitions. And Great. Okay. just on

at different talked lately curious, if curious also particular You out there brands. on kind down? anything number you’ve just such come I’m wellness about channels I type of that focused and been you’re seeing segment looking what beauty? as there And valuations of of distribution a is a over I’m more you’re then guess

Walter Noot

So yes, we’ve would times, somewhat say products like companies beauty. some I in over mostly, much. wellness, lot products nutrition, definitely A wellness seen been in, sports overlap interested of we’ve that us Beauty, hydration, that. it’s but the of that don’t really

probably So segment are the they’re a little different in they built. way in bit

you mean, anywhere they’re When we’re look down, looking going valuations, that. at I if know you

and So performance it’s the EBITDA, us to been company. favorable for depending on of company from X the on size the of anywhere XXx the

then in on they’re still But have still doing. And or they’re maybe to they what appetite kind really they’ve and just that people And I year. based even and think they’re sometimes talking ‘XX. expectations where – people what – them minimize never at stop happened of know seen expectations kind last because those how are high of have you to ‘XX of just had we’ve in either

Operator

there [Operator call back this I'll closing or presenters over Instructions] additional turn to any further our questions for are And comments. no the time. at it appears

Andrew Masuda

today's participation call. thank conference questions everyone, Thanks, and for you, April, your on and for your

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

Operator

conclude does call. today's for Thank your That all you participation.

disconnect. may now You

USANA Health Sciences (USNA) 26 Jul 232023 Q2 Earnings call transcript