Q3 2023 USANA Health Sciences Inc Earnings Call

Hello, and welcome to you sounded a health Sciences third quarter earnings call.

My name is valley area and I'll be your coordinator for today's event. Please note that for the duration of the call. Your line will be on listen only.

However, you will have the opportunity to ask question. This can be done by pressing star one on your telephone keypad to register your question, if you're a quiet assistance at any point, Please press star zero and you'll be connected to an operator.

Now I'll hand, you over to your host Mr. Andrew Masuda to begin today's conference. Thank you.

Thanks, Lori and good morning, everyone.

We appreciate you joining us to review our third quarter results. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at IR Dot you saw on the dot com shortly.

Shortly following the call a replay will be available on our website as a reminder, during the course of this conference call management will be making 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.

Such forward looking statements. Examples of these statements include those regarding our strategies and outlook for fiscal year 2023, 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 include.

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 hacking as well as other executives yesterday after the market close we announced our third quarter 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.

Thank you Andrew and good morning, everyone. We continued to face a challenging operating environment during the third quarter.

The economic environment is having an impact on consumer behavior in many of our markets are.

Our sales force is finding it more challenging to engage and attract new customers and associates the cadence of our promotional activity during the quarter was lower when compared to both the prior quarter and a third quarter of 2022. This decision was deliberate as part of our strategy to find the most appropriate balance of incentives promotions and in person events.

For the full year.

We continue to experience an unfavorable impact from the changes in foreign currency rates and the impact from these changes was greater than anticipated.

Collectively these factors ultimately contributed to a softer than expected third quarter results.

Notwithstanding these challenges we remain confident in the strength of our underlying business and our growth potential going forward, we generated $22 million of operating cash flow during the quarter and our balance sheet remains strong with over $300 million of cash and no debt.

Our key strategic initiatives include Reengagement of our associate leaders around the world.

Expansion of our business into India.

New incentive opportunities for our sales force pursuing additional acquisition opportunities and expanding our digital.

Commerce initiatives.

We fully explain upon our progress on a few of these initiatives.

During the quarter, we continued our efforts to reengage with our associate leaders around the world on a personal level, which was highlighted by our in person Americas and Europe Convention in Salt Lake City, where we offered recognition and training to leaders and also launched several new products.

We believe these live events are a key component to generate momentum and have several planned over the next year. These events will continue to be tailored to specific regions and markets to have a significant impact on those areas and ultimately drive sales and customer growth.

We continue to make progress towards officially commencing operations in India. We are targeting a launch date prior to year end. We remain excited about this market opportunity, notably this is an incredibly large and complicated market for our business our approach to opening operating in and growing India will continue to be into.

<unk> and will be centered on long term sustainable growth.

We anticipate that the initial sales contribution from India will be modest but grow over time, we have a high long term expectation for this meaningful market and the opportunity. It presents to further diversify our business geographical footprint and customer base, we look forward to providing future updates on this market once we officially launch operations.

Unknown Executive: Hello and welcome to USANA Health Sciences third-quarter earning call. My name is Valeria and I will be your coordinator for today's event. Please note that for the duration of the call your alarm will be on listen only. However, you will have the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you'll be connected to an operator.

<unk>.

Our team will continue to focus on the factors, we can control and execute on our strategies before opening the line for questions I'd like to announce some recent adjustments to the structure of our management team.

I took on the role of President and CEO I reorganized some responsibilities amongst our management team to ensure that they are unified in executing our top goal, which continues to be active customer growth and working as efficiently as possible on capitalizing on many strengths of our talented organization first Brenton idec has assumed the role of <unk>.

Unknown Executive: I will now hand you over to your host, Mr. Andrew Masuda, to begin today's conference. Thank you.

Chief commercial officer.

Andrew Masuda: Thanks Valeria and good morning everyone. We appreciate you joining us to review our third quarter 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, the replay will be available on our website. As a reminder during the course of this conference call, management will be making forward-looking statements regarding future events or the future financial performance of our company.

Brian has played a pivotal role in shaping and executing growth strategies as managing director of our largest market China.

With his experience and expertise in this area. He will now oversee sales and marketing teams globally with the responsibility of driving sales and customer growth.

Second we have expanded Walter notes role as Chief operating officer to include our research and development Department Walter oversees our operational excellence globally and focuses on <unk> efficiency profitability and quality across the business Walters operational experience will complement Dr. Rob Sinnott scientific vision and long term objectives.

Andrew Masuda: 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 2023, 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.

For health and wellness and will be a catalyst for future innovation and excellence here at <unk>.

I am confident in our entire management team and amazing employees and believe that these changes will better position the team to execute our key strategic initiatives and positioning <unk> to return to sustainable long term growth with that I'll now ask the operator to please open the lines for questions.

Ladies and gentlemen, as a reminder, if you'd like to ask a question I'll make a contribution on todays call. Please press star one.

Andrew Masuda: I'm joined by our president and CEO Jim Brown, our chief financial officer dug hiking as well as other executives. Yesterday after the market closed, we announced our third quarter results and posted our management commentary document on the company's website.

Our first question is from Anthony <unk> from Sidoti. Please go ahead.

Good morning again, thank you for taking the questions.

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

So first I guess.

Look at the results in Malaysia. For example, you said that sales were up sequentially due to a local promotion so with that in mind.

Jim Brown: Thank you, Andrew, and good morning, everyone. We continue to face the challenging, operating environment during the third quarter. The economic environment is having an impact on consumer behavior in many of our markets. Our sales force is finding it more challenging to engage and attract new customers and associates. The cadence of our promotional activity during the quarter was lower when compared to both the prior quarter and the third quarter of 2022. This decision was delivered as part of our strategy to find the most appropriate balance of incentives, promotions and in-person events for the full year.

How should we think about your outlook for promotional activity. I know you are looking to step that up for Cuba panel, maybe high level thoughts beyond <unk>.

Do you find that given the current environment.

That maybe you will need to do more promotions to get.

Customers to be able to buy your products.

We'd love to hear your thoughts on that first.

Jim Brown: We continue to experience an unfavorable impact from the changes in foreign currency rates and the impact from these changes was greater than anticipated. Collectively, these factors ultimately contributed to a softer than expected third quarter results. Notwithstanding these challenges, we remain confident in the strength of our underlying business and our growth potential going forward.

Yes, I would go back to talking a little bit about COVID-19 and when the things that we did from a professional side to.

To kind of combat situation at that point in time, we did a lot more promotions that were product and sales based.

And we wanted to get away from that we're looking more at promotions and incentives that grow the company and add to our active customers not promotion, specifically that make it easier to byproduct can actually get a bigger wallet share. We will continue to do those to make it exciting and the field expects those over time, we just felt over the last year or.

Jim Brown: We generated 22 million of operating cash flow during the quarter and our balance sheet remains strong with over 300 million of cash and no debt. Our key strategic initiatives include re-engagement of our associate leaders around the world, expansion of our business into India, new incentive opportunities for our sales force, pursuing additional acquisition opportunities, and expanding our digital commerce initiatives. I'll briefly explain upon our progress on a few of these initiatives. During the quarter, we continued our efforts to reengage with our associate leaders around the world on a personal level, which was highlighted by our in-person America's and your convention in Salt Lake City, where we offered recognition and training to leaders and also launched several new products.

So that we had gotten a little heavier promotions that we back away some but we still want to do things to motivate the field to grow and gaining more customers and consumers in the end is what we want to do to become again, the healthiest family honor and hit our 1 million customer and families that we're expecting to get over the next few years.

Got you okay. Thanks for that and then.

You talked about Reengagement of euro associated with more in person meetings.

So I guess in your conversations with the associate leaders.

The main takeaways that they have shared with you.

How are you thinking about the shape of your strategy for next year.

Yes, again, we have major events, we talk about those we have Asia Pacific Convention, and we have a China convention as well as many other China event because the market is so large and then we have in Americas and Europe event and part of that is to share our strategy a lot of times, we also introduced new products, but.

Jim Brown: We continued to make progress towards officially commencing operations in India. We are targeting a launch date prior to year end and we remain excited about this market opportunity. Notably, this is an incredibly large and complicated market for our business. Our approach to opening, operating in and growing India will continue to be intentional and will be centered on long term sustainable growth. We anticipate that the initial sales contribution from India will be modest but grow over time.

To get that motivation out we use those advances training opportunities.

Just like Youre, saying a lot of it is listening to the field and trying to get an understanding from our associates, our salesforce what their challenges may be and how we can combat those or make it a much better we hear the normal stuff about competition out there and what can we do to make sure that we're offering a great product line and competitive compensate.

Jim Brown: We have a high long term expectation for this meaningful market and the opportunity it presents to further diversify our business, geographical footprint and customer base. We look forward to providing future updates on this market once we officially launch operations. Our team will continue to focus on the factors we can control and execute on our strategies.

<unk> plan and we will continue to use that information to to make changes.

One of the things that we've concentrated on end of last year is what we call that you saw a difference and it's our story.

Jim Brown: Before opening line for questions, I'd like to announce some recent adjustments to the structure of our management team. If I took on the role of President and CEO, I reorganized some responsibilities amongst our management team to ensure that they are unifying and executing our top goal, which continues to be active customer growth and working as efficiently as possible on capitalizing on many strengths of our talented organization.

What makes you saw on or the company that you want to join both from products compensation philanthropy everything that goes on to make us.

The company that someone wants to come into and we felt over the years. It's one of the message that we had that that has been a little bit.

Harder to tell with Covid and the environment. So we really had a strategy over the last year and a half two to get the message out get training a to make sure that our associates affiliates and even our customers through loyalty programs and sharing programs and share the story and build a family.

Jim Brown: First, Brent Nighting has assumed the role of chief commercial officer. Brent has played a pivotal role in shaping and executing growth strategies as managed director of our largest market China. With his experience and expertise in this area, he will now oversee sales and marketing teams globally with the responsibility of driving sales and customer growth.

Yes, the other thing Andrew just annual I mean, Jim fill in many of the members of management. The sales executives. Brent included here that Jim just talked about have been traveling on a regular basis and they often get in these situations with smaller associate leader groups and it really gives them a great opportunity to build the relationship and really opened in the <unk>.

Jim Brown: Second, we have expanded Walter Note's role as chief operating officer to include our research and development department. Walter oversees our operational excellence globally and focuses on his son as efficiency, profitability and quality across the business. Walter's operational experience will complement Dr. Rob Sinett's scientific vision and long-term objectives for health and wellness and will be a catalyst for future innovation and excellent care at your son.

Lines of communication. So we can go back and be responsive and have them really fill an open environment to reach out let us know what they are saying, yes, we have literally an incentive trip that Brent and myself and some of the management team from China will be doing in Europe, starting this week and a big part of that is training as well as meetings with each of those leaders to make sure that we have.

Andrew Masuda: I'm confident on our entire management team and amazing employees and believe that these changes will better position the team to execute our key strategic initiatives and position you sought to return to sustainable long-term growth. With that, I'll now ask the operator to please open the lines for questions. Ladies and gentlemen, as a reminder, if you'd like to ask a question or make a contribution on today's call, please press star one.

Understand what we could do better as a company to service them.

Understood, Okay and then.

You also talked a little bit about the new incentive opportunities I know you have a fairly new affiliate program can.

Can you share some observations so with that in our.

Anthony Lebiedzinski: Our first question is from Anthony Labizinski from Thierry. Please go ahead. Good morning and thank you for taking the questions. So first, I guess when I look at the results in Malaysia, for example, you said that sales were up sequentially due to a local promotion. So with that in mind, how should we think about your outlook for promotional activity? I know you're looking to step that up in 4Q but kind of maybe high-level thoughts beyond 4Q or do you find that given a current environment that maybe you will need to do more promotions to get customers to be able to buy your products? We love to hear your thoughts on that first.

Are you looking to perhaps.

Spanned that to other countries.

I think we're still in the learning mode in the markets, where we've launched it I think we're definitely open I think we've heard a little bit of requests from the different markets.

Some of our larger markets about exploring different opportunities. There. So it's something that we're going to continue to push on and really make sure that were aligning that that incentive to be a real reward.

And engaged at that associate base to go out and tell the story and introduce new customers New associates down the road. So it's something we're still monitoring and we think it definitely is something that can go back and add to our success going forward, but there's still some work to do.

Got it Okay and my last question before I pass it onto others. So.

Obviously, you have a strong balance sheet with plenty of cash.

Jim Brown: Yeah, I'd go back to talking a little bit about COVID and when the things that we did from a prognosional side to kind of combat the situation at point in time, we did a lot more promotions that were product and sales based and we wanted to get away from that. We're looking more at promotions and incentives that grow the company and add to our active customers, not promotions specifically that make it easier to buy product and actually get a bigger wallet share.

So how should we think about your outlook for acquisitions and I know you did buy back some shares as well in the quarter. So maybe if you could just talk about acquisitions, what youre looking at are you looking still looking at that and then whether we should assume additional share repurchases.

Yes, we continue to be really active in evaluating opportunities. It's just tough to go back and find a good alignment there. So that'll be really an ongoing part of our strategy is looking at some of these opportunities to kind of amp up that return to shareholders that we're producing on a regular basis as far as share buyback.

Jim Brown: We'll continue to do those to make it exciting and the field expects those over time. We just felt over the last year or so that we had gotten a little heavy with promotions and we've backed away some but we still want to do things to motivate the field to grow and gaining more customers and consumers in the end is what we want to do to become, again, the healthiest family on Earth and hit our 1 million customer and families that we're expecting to get over the next few years.

Typically we don't give a whole lot of forward commentary on that.

Thank the reality in the short term I think we'll be buying at a minimum shares to offset the dilutive impact of equity grants.

And outside of there I think we'll just go back and that's a discussion we'll have with the board on a regular basis.

Got it understood. Thank you very much and best of luck.

Jim Brown: Gotcha, thanks for that. You talked about re-engagement of your associated with more in-person meetings. In your conversations with the associate leaders, what are some of the main takeaways that they have shared with you are you thinking about shaping your strategy for next year? Again, we have major events, we talk about those, we have Asia-Pacific Convention, we have a China Convention as well as many other China events because the market is so large and then we have in America as the nearest event.

Thank you thanks Anthony.

Our next question is from Linda Bolton.

<unk> from D. A Davidson. Please go ahead.

Okay.

Hello.

So my first question was just a small little question on the financials. You have this other income expense line that has actually been positive I believe it's been other income I think.

And projecting out $7 million for 2023 can you just clarify what that line reflects and why it's been like a more positive number in 2023.

Jim Brown: Part of that is to share our strategy. A lot of times we also introduce new products but to get that motivation out, we use those events as training opportunities. But just like you're saying, a lot of it is listening to the field and trying to get an understanding from our associates, our Salesforce, what their challenges may be and how we can combat those or make it much better. We hear the normal stuff about competition out there and what can we do to make sure that we're offering a great product line and competitive compensation plan and we'll continue to use that information to make changes.

It's primarily interest income and just given kind of our position and the strength of our balance sheet and the cash we're holding.

A primary catalyst said theres a few other things in there, but that's the primary contributor there.

Okay. So as far as if you keep a fairly healthy cash balance and interest rates still be pretty high or higher than that would be continue to be a positive line item I would think because they have the right thinking there yes.

With that with that assumption of no unforeseen investment activity in the near future I think that's a fair assumption.

Okay Gotcha and then.

Jim Brown: One of the things that we've concentrated on in the last years, what we call the Usona Difference and it's our story, what makes Usona the company that you want to join, both from products, compensation, philanthropy, everything that goes on to make us, you know, the company that someone wants to come into. And what we felt over the years, it's one of the messages that we had that that has been a little bit harder to tell with COVID in the environment.

I guess with Malaysia.

I guess I was just a little bit wondering because you talked about the promotion there, but the local or the accounts of the local currency sales were down 2% year over year, but the customers active customers were up 4%. So I'm just wondering why the revenue was down but the customers were up is that they are buying less per cost.

Tomorrow or something like that.

Jim Brown: So we really had a strategy over the last year and a half to get the message out, give training aids, make sure that our associates, affiliates and even our customers through loyalty programs and sharing programs can share the story and build the family. The other thing I think you said, I mean, Jim and many of the members of management, the sales executives, Brent included here that Jim just talked about, have been traveling on a regular basis and they often get in these situations with smaller associate leader groups.

We're seeing a couple of things I think.

One currency, but as you look at constant currency I think it's also the promotional activity and sometimes that stimulates smaller basket size and as Jim kind of indicated in his introductory comments, we are seeing a little bit of impact on consumer spending relative to the economic environment. We're really seen globally right now with kind of the pressure on inflation, but.

The teams are working hard and we're seeing heavy engagement, we've got a great leadership team in that market.

Okay.

Jim Brown: And it really gives them a great opportunity to build the relationship and really open the lines of communication so we can go back and be responsive and have them really feel an open environment to reach out, let us know what they're seeing. Yeah, we have literally an incentive trip that Brent and myself and some of the management team from China will be doing in Europe starting this week. And a big part of that is training as well as meetings with each of those leaders to make sure that we understand what we could do better as a company to service.

No.

Hi.

That you know the reason maybe why your stock is down so much today and just my speculation is that the tone I mean.

Really different because last quarter I remember actually raising my estimates and then this quarter.

I am really becoming more conservative with my outlook trying to just get my numbers down it just seems like a real change like.

Jim Brown: Bill. Understood, okay. And then you also talked a little bit about the new incentive opportunities. I know you have a fairly new affiliate program. Can you share some observations with that? Are you looking to perhaps expand that to other countries? I think we're still in the learning mode in the markets where we've launched it. I think we're definitely open. I think we've heard a little bit of request from the different markets.

Is there something you can pinpoint about like things actually getting worse for the consumer environment or is it a particular region is it seems like there was a weakness I mean, all the reasons were down except for greater China. So can you just give a little more color on what you think the consumer what's going on there.

Well I think many of the consumers are feeling the pinch with.

Other areas of spin kind of putting a little bit more pressure on there and I think we've seen some pretty good continuity there in all honesty, but it is something that we hear verbally.

Jim Brown: In some of our larger markets about exploring different opportunities there. So it's something that we're going to continue to push on and really make sure that we're aligning that incentive to be a real reward and engage that that associate base to go out and tell the story and introduce new customers and new associates down the road. So it's something we're still monitoring. And we think it definitely is something that can go back and add to our success going forward, but there's still some work to do.

Coming back from the group.

I think you always have to look at the comparable promotion periods that we've had in prior years and sequentially.

Malaysia like I said sequentially had a small promotion there and it definitely looks sequentially as positive as a result of that but some of the things that we did relative to promotional cadence and Jim said, we're trying to go back and find the right balance there I think we're committed to that type of activity, but trying to go back and do it so it's additive to sustainable customer growth.

Jim Brown: Got it. Okay. And my last question before I pass it on to others. So obviously you have a strong balance with plenty of cash. So how should we think about your outlook for acquisitions? And I know you did buy back some shares as well in the quarter. So maybe if you could just talk about acquisitions, what you're looking, are you looking still looking at that? And then whether we should assume additional share repurchases.

And so we have some anticipation of some of the things that we would run a little bit earlier in the year.

Go back and maybe have a little bit more of a lifting factor and we definitely saw a lift in the short term, but maybe not the legs that we'd hoped on it and those are things that we're going to keep trying and testing and I don't think it always.

Plays out according to plan, but I think as far as the base run rate I think we're hanging in there I think we'd just like to go back and see that just organic level of sales lift.

Jim Brown: Yeah, we continue to be really active in evaluating opportunities. It's just tough to go back and find a good alignment there. So that'll be really an ongoing part of our strategies looking at some of these opportunities to kind of amp up that return to shareholders that were produced on a regular basis. As far as share buyback, you know, you know, typically we don't give a whole lot of forward commentary on that.

As we do some of these things are kind of propel us forward and so we're still going down there.

With Brent kind of taken the new appointment to oversee sales and marketing globally. I think we will see some different things I know he's talking with his leadership team now and we'll see some some different forward leaning activities coming out of that as well, yes. I mean this is Jim I'm I'm optimistic on the future and definitely for 2024, I'm just mentioned it a minute ago about some realignment with the organization, which is going to have.

Jim Brown: I think the reality in the short term, I think we'll be buying at a minimum shares to offset the dilutive impact of equity grants. And outside of there, I think we'll just go back and it's a discussion about with the board on a regular basis. Got it understood. Well, thank you very much in the best of luck. Thank you. Thanks Anthony.

A big impact, it's going to have sales and marketing more more aligned as well is when we talk about.

Walter and his excellence and operational efficiency, we have.

Linda Bolton: Our next question is from Linda Bolton, we either from DA Davidson, please go ahead. Well, so my first question was just a small little question on the financial that you have this other income expense line that has actually been positive. I believe it's been other income. I think I'm projecting now $7 million for 2023. Can you just clarify what that line reflects and why it's been like a more positive number in 2023?

The top 10 priority list that we're going to be working on getting projects done throughout the year next year and I know, we'll be more efficient and more aligned to get those done.

India is coming open and we were talking about it being modest in the year, but it's an exciting market and theres opportunities.

Other regional or other markets around the world.

From just the India opening to grow those India markets as well so.

I think we're set up to see a good 2024 and growth in 2024.

Linda Bolton: It's primarily interest income and just given kind of our position and the strength of our balance sheet and the cash we're holding. That's a primary catalyst. There's a few other things in there, but that's the primary contributor there. Okay, so as far as if you keep a fairly healthy cash balance and interest rates will be pretty high or higher, then that would be it continue to be a positive line item, I would think because that's the right thinking there. Yeah, with that with that assumption and no unforeseen investment activity in the near future, I think that's the fair assumption.

I think the team is excited.

Okay.

So that sounds encouraging that you have an optimistic outlook.

What would it be something where like in 2024, we might see a sequential improvement in the year as it goes out like maybe it starts a week or like it is now and then it kind of strengthened as the year goes on is that what you're picturing maybe.

Yes, I mean, yes, you have to build from the base that you are at now and Thats definitely expectations. Obviously in the first quarter, we have Chinese new year, which has really grown to be an impactful holiday for us, but I think in general essence, that's the expectation that we would have in <unk>.

Unknown Executive: Okay, gotcha and then I guess with Malaysia, I guess I was just a little bit wondering because you talked about the promotion there, but the local currency sales were down 2% year of year, but the customers active customers were up 4%. So I'm just wondering why the revenue was down, but the customers were up. Is that they're buying less per customer or something like that? Yeah, we're seeing a couple things. I think, you know, one currency, but as you look at constant currency, I think it's also the promotional activity and sometimes that stimulates smaller basket size.

Look for some maybe some future comments for us on 2024 in February as we come out with our initial outlook for the year.

Yeah.

Okay, and then just finally.

Well.

Actually I would like to ask a little bit more about India because.

You know I do follow Herbalife, and India is really their strongest growing market right now, they're doing really really well there. So it does seem like it's a vibrant market for direct selling.

Traditional business models companies have often found hard to penetrate that market. Although more companies are going in there it seems but but can you talk is there something about India that makes it easier for direct sellers.

Unknown Executive: And as Jim kind of indicated in his introductory comments, you know, we are seeing a little bit of impact and consumer spending relative to the economic environment that we're really seeing globally right now with kind of the pressure on inflation, but, you know, the teams are working hard and we're seeing heavy engagement. We've got a great leadership team in that market.

Obligates me.

Environment, there that makes it attractive for you more so than other businesses or kind of kind of why is that a good market to go after next year.

Unknown Executive: Okay, I think the thing that, you know, the reason maybe why your stock is down so much today, just my speculation, is that the tone seems, I mean, things seem really different because last quarter, I remember actually raising my estimates. And then this quarter, you know, I'm, I'm really becoming more conservative with my outlook, trying to just get my numbers down. It just seems like a real change. Like, is there something you can pinpoint about like things actually getting worse for the consumer environment, or is it a particular region?

Yes, I don't I don't think direct selling the business model is any easier than any other companies out there Andy is a complex large market and.

We've been working on India more than a year to get prepared there's all types of things that have to go from registration.

And different types of business.

Registration is that has to be done.

We're excited about it a lot of it because of the success of some of the other markets are companies out there that are doing it. It's a large market we're set up to do it we actually have.

Great amount of interest from.

Unknown Executive: It seems like there was weakness. I mean, all the reasons we're down, except for greater China. So, can you just give a little more color on what you think the consumer what's going on there? Well, I think many of the consumers are feeling the pinch with, you know, other areas of spin kind of putting a little bit more pressure on there. And I think we've seen some pretty good continuity there. You know, honesty, but it is something that we hear verbally coming back from the group.

Direct sellers that are in the market now and we think that's going to help start that.

This off but we didn't go into India, because we thought it was going to be easy it's definitely a complicated market when it comes to logistics and operations and everything that goes on but it's the size we have in India population and some of our markets and they had asked US when are we going in and that's always a catalyst for US is when we have interest in.

Unknown Executive: I think you always have to look at the comparable promotion periods that we've had in prior years and sequentially. Malaysia, you know, like I said, sequentially had a small promotion there and it definitely looked sequentially as positive as a result of that. But some of the things that we did relative to promotional cadence and Jim said we're trying to go back and find the right balance there. I think we're committed to that type of activity, but trying to go back and do it so it's additive to sustainable customer growth.

And it's more of a.

Pool than a push it makes sense to go into a market.

I would say that we also have a really strong management team there that we have a great deal of confidence in and so it's been a learning experience just as we went into China China's.

Heavy heavy effort market, Andy is going to be a heavy effort market, which we hope the rewards will be there to support that as well.

And do you think that you would look at another new market opening maybe in 2025 or what would be your timing for that.

Unknown Executive: And so, you know, we had some anticipation of some of the things that we'd run a little bit earlier in the year to go back and maybe, you know, have a little bit more of a lifting factor. And, you know, we definitely saw a lift in the short term, but maybe not the legs that we'd hoped on it. And those are things that we're going to keep trying and testing and I don't think it always, you know, plays out according to plan.

Expansion here or there.

Historically, when we go back.

Used to open a market about every year and a half it's more like two to two and a half years now and it is a reflection too of the efforts from that department in the company right with India being complex and literally states in India can be bigger than some of our other markets. If we do them well.

Unknown Executive: But I think as far as the base run rate, I think we're hanging in there. I think we just like to go back and see that just organic level of sales lift as we do some of these things and kind of propel us forward.

I doubt it would be that quick, but we do have an active team that's looking and evaluating market after market.

Jim Brown: And so we're still going down there and, you know, with Brent kind of taking the new appointment to oversee sales and marketing globally, I think we'll see some different things. I know he's talking with his leadership team now and we'll see some some different forward leaning activities coming out of that as well.

And we will go into other markets in the future, where this will be our 25th market and we've gone into markets that.

Jim Brown: Yeah, I mean, this is Jim. I'm optimistic on the future and definitely for 2024. I'm just mentioned a minute ago about some realignment with the organization, which is going to have a big impact. It's going to have sales and marketing more more aligned as well as when we talk about Walter and his excellence and operation efficiently. We have, you know, the top 10 priority list that we're going to be working on getting projects done throughout the year next year.

Welcome direct selling and are have a large population and we have a pool to get into it. It gets starts getting a little bit tougher after 'twenty five to find those markets, but we have a list. We are a top five and we will evaluate and go into something in the future. My guess is it wouldn't be in 2025, only because of the complexity in our efforts to.

Pushed all the resources, we can to have India start up strong and then continue to be a strong business.

Jim Brown: And I know we'll be more efficient and more aligned to get those done. You know, India is coming open and we know we're talking about it being modest in the year, but it's an exciting market. And there's opportunities in other regional or other markets around the world from just the India opening to grow those India markets as well. So, you know, I think we're set up to see a good 2024 growth in 2024. And I think the team's excited.

Okay, well, thank you very much and good luck with everything.

Thanks Linda.

Our next question is from Doug Lane from water Tower Research. Please go ahead.

Yes, hi, good morning, everybody.

Staying on India here.

India has been terrific, we successful herbalife as Linda mentioned in fact, India is more than twice as big as China is these days.

Jim Brown: Okay. I mean, so that sounds encouraging that you have an optimistic outlook. You know, would it be something where like in 2024, we might see a sequential improvement in the years that goes out like maybe it starts out weaker like it is now, and then it kind of strengthens as the year goes on. Is that what you're picturing maybe? Yeah, I mean, you have to build from the base that you're at now, and that's definitely expectations.

A long do you think it would take internally from from where you stand for India to be even as big as China for Usama.

I think the way we are entering the market is quite a bit different and we expect to go back and see progress, but I think it's going to be a different start point, but I think we're very optimistic about the market. We're just we're opening in a different fashion just because some of the structured regulatory framework, there and very very confident with the way we're pursuing it but it's definitely going to be more of a.

Jim Brown: Obviously in the first quarter, we have Chinese New Year, which is really growing to be an impactful holiday for us, but I think in general essence, that's the expectation that we would have, and you know, you'll look for some maybe some future comments for us on 2024 and February as we come out with our initial outlook for the year.

Methodical systematic build and we hope to really build some momentum Jim yes, just some more information I would just add to.

Remember that we opened in China in 2010 through an acquisition a company called Baby care that continued to operate there thats our arm and you saw and what that did was it actually had a base to start with to grow off of that.

Unknown Executive: Okay.

Unknown Executive: And then just finally, well, actually, I would like to ask a little bit more about India, because, you know, I do follow herbal life and, you know, India is really their strongest growing market right now. They're doing really, really well there. So it does seem like it's a vibrant market for direct selling.

That was modest but it was still there and increased the speed of growing of China. We don't have that in India, even though we have a lot of interest.

All about how quickly it starts and how quickly those teams can grow their organizations and customers.

Jim Brown: And yet traditional business models, companies have often found it hard to penetrate that market, although more companies are going in there, it seems, but can you talk, is there something about India that makes it easier for direct sellers to navigate the environment there that makes it attractive for you more so than other businesses or kind of why is that a good market to go after next? Yeah, I don't think direct selling the business model is any easier than any other companies out there.

Fair enough that makes sense.

Talking about China, China continues to be under pressure I think the wf PSA just came out with.

There are numbers in China was down again in 2020 twos down 8%.

It's been down more than 40% since 2018, which was the recent peak.

You might be doing a little bit, but youre still probably down 30% or more since 2018, you read about the geopolitical tensions there can you just update us on where.

Jim Brown: India's a complex large market. And, you know, we've been working on India more than a year to get prepared. You know, there's all types of things that have to go from registration. And, and different types of business registrations that have to be done. You know, we're excited about it. A lot of it because of the success of some of the other markets are companies out there that are doing it. It's a large market.

You sit today on your outlook for China versus maybe five years ago, when it seemed like an entirely different picture.

Jim Brown: We're set up to do it. We actually have a great amount of interest from direct sellers that are in the market now. And we think that's going to help start that business off. But we didn't go into India because we thought it was going to be easy. It's definitely a complicated market when it comes to logistics and operations and everything that goes on. But it's the size we have in India population and some of our markets and they had asked us, you know, when are we going in?

Yeah, Doug we got someone just use incredibly qualified to answer that.

Answer that question in person Brent Brent can handle that he's been so close to the market and manage the leadership team. There. So we'll let brand kind of give his color on it.

Hey, Doug.

Great question I agree with you that China's had.

It's been a difficult operating environment, especially during the three years of Covid.

But as we've taken a step back and looked at the market, we're still incredibly confident in its long term growth potential.

We believe that the strategy we have in place is the right strategy and it will offer us a growth opportunity.

Next year and in the coming years ahead.

Yes, the environment is tricky, it's very challenging just like India will be.

Jim Brown: And that's always a catalyst for us is when we have interest. And it's more of a pool than a push. It makes sense to go into a market. I would say that we also have a really strong management team there that we have a great deal of confidence in. And so it's been a learning experience just, you know, as we went into China, China's heavy, heavy effort market. India's going to be a heavy, heavy effort market, which we hope the rewards will be there to support that as well.

But I believe where we've shown through our history, we've been able to overcome those types of challenges and we still believe that there is a long term growth opportunity. There. If you look at there are some of our peers, who are still growing within the direct selling space.

And we believe that that is is very very likely and possible for our future.

Do you think.

You mentioned growth in 2024, I think you had a fairly decent local currency quarter here in third quarter of 2023.

Jim Brown: And do you think that you would look at another new market opening maybe in 2025 or what would be your timing for that expansion further? You know, historically, when we go back, we used to open a market about every year and a half. It's more like two to two and a half years now. And it is a reflection too of the efforts from that department and the company, right, with India being complex.

Do you sense that we're near the bottom there.

Yeah, it's always difficult to know.

Hindsight is always the best indicator there, but as we look at the current excitement and I mean I was just there in August and earlier in the year as well.

Jim Brown: And literally states in India can be bigger than some of our other markets if we do them well. I doubt it would be that quick, but we do have an active team that's looking and evaluating market after market, and we will go into other markets in the future. This would be our 25th market and we've gone into markets that welcome direct selling and have a large population and we have a pool to get into it.

And we have a very.

<unk> sales force, who is very optimistic on our future.

And I'm incredibly pleased with our leadership team that we have currently it's really the strongest leadership team that we've ever had.

And the way that they're leading and guiding our teams currently in our sales leaders.

Is the right way and we I believe that it's really going to propel us into the future.

So like I said, we won't know for sure in terms of the bottom, but as I see our sequential growth.

Jim Brown: It starts getting a little bit tougher after 25 to find those markets, but we have a list, we have a top five and we'll evaluate and go into something in the future. My guess is it wouldn't be in 2025 only because of the complexity and our efforts to push all the resources we can to have India start strong and then continue to be a strong business.

Our year over year growth.

I believe that we're at a good point to start building from the space.

Okay. Thanks, that's very helpful. Thank you.

Thanks, Doug.

Our last question is from Ivan <unk> from Tigress Financial partners. Please go ahead.

Unknown Executive: Okay, well, thank you very much and good luck with everything. Thank you. Thanks, Linda.

Hi, Good morning, Thank you for taking my questions. So with the expected adoption of the GOP drugs, and reducing people's appetite theres going to be a significant need to supplement it with nutrition and.

Douglas Lane: Our next question is from Douglas Lane from Water Tower Research. Please go ahead. Yes, hi. Good morning, everybody. Staying on India here. India has been terrifically successful, verbalized as Linda mentioned and in fact India is more than twice as big as China these days.

Protein intake what are your thoughts and how youre going to potentially target that.

With specific products, maybe for that market.

Yes.

I think especially kind of given the latest round of news in that area I think thats it.

Jim Brown: How long do you think it would take internally from where you stand for India to be even as big as China for USANA? I think the way we're entering the market is quite a bit different and we expect to go back and see progress, but I think it's going to be a different start point, but I think we're very optimistic about the market. We're just we're opening a different fashion just because some of the structure regulatory framework there and very, very confident with way we're pursuing it, but it's definitely going to be more of a methodical systematic build and we hope to really build some momentum.

Good observation Ivan.

I think it's the same message that we've had but I think I think many who are pursuing that avenue to go back and lose weight I think nutrition still remains of Paramount concern and how they take care of themselves and it really kind of building a foundation of help going forward and I think that's an important mindset and I think it really becomes as Jim said is that story.

And the differentiation of reminding people, how important nutrition as a part of the overall health, yes, given the size of our foods line, it's not it's not significant to our overall balance of products, but youre right. Its an opportunity and we need to take that and move forward with it.

Jim Brown: Yeah, just just some more information. It just as is to remember that we opened China in 2010 through an acquisition a company called Baby Care that continues to operate there. That's our arm in USANA and what that did was it actually had a base to start with to grow off of that was, you know modest, but it was still there and increased, you know, the speed of growing of China. We don't have that in India, even though we have a lot of interest. It's all about how quickly it starts and how quickly those teams can grow their organizations and customers.

We just literally had that discussion last couple of days with our board who's in here.

They were interested in are taken I think its the same thing hopefully those people will understand eating less.

And potentially the effects of it is a good reason to get better at high quality.

Vitamins and nutrients into their system.

Well is there an opportunity for your associates to partner with companies or even doctors who are.

Douglas Lane: That makes sense. We're talking about China China continues to be under pressure. I think the WFDSA just came out with their numbers and China was down again in 2022 is down 8%. It's been down more than 40% since 2018, which is the recent peak. You might be doing a little bit better than that but you're still probably down 30% or more since 2018. You know, you read about the geopolitical tensions there.

Use recommending this to their patients and therefore monitoring their patients they are going to as long as they take this.

They're going to need to supplement nutrition, because if you dramatically cut back your food intake sadly.

A lot of key nutrients.

Suppose its side effects is muscle loss.

Obviously protein increased protein intake to count to help counter that so there is the patients that undergo using this are going to be under a doctor's care, but theyre going to need some level of nutritional advisory too.

Brent Neidig: Can you just update us on where you sit today on your outlook for China versus maybe five years ago when it seemed like an entirely different picture.

Brent Neidig: Yeah, Doug, we got someone just he's incredibly qualified answer that answer that question in person Brent Brent can handle that he's been so close to the market and manage the leadership team there. So we'll let Brent kind of give his color on it.

I think very important component of it nutritional advisory as part of the overall process of this.

Brent Neidig: Hey, Doug. Great question. I agree with you that China's had been a difficult operating environment, especially during the three years of COVID. But as we've taken a step back and looked at the market, we're still incredibly confident in its long term growth potential. We believe that the strategy we have in place is the right strategy and it will offer us a growth opportunity next year and in the coming years ahead. So yes, the environment is tricky.

Yes.

Would agree with you and I would say that we do have people in our sales force who.

Have contacts with doctors and or our doctors and this would be a great Avenue to again.

People understand exactly what youre talking about the effects that it has on your health and that you should be looking at supplementation to counter those effects.

Honestly, we haven't put together a huge strategy in trying to move to go into that area, but it's something we need to look at but again. The other thing that will happen is more education will get out there through magazines and other avenues and people will hopefully see that need and seek out better high quality.

Brent Neidig: It's very challenging, just like India will. We, but I believe where we've shown through our history we've been able to overcome those types of challenges and we still believe that there is a long-term growth opportunity there. You look at there are some of our peers who are still growing within the direct selling space and we believe that that is is very, very likely and possible for for our future. Do you think that, I mean, you mentioned growth in 2024.

Premium products that we sell it you saw that.

And do you think that.

Part of your thought process is creating a targeted group of your products to address.

People using these drugs specifically.

Yes, we can and we have the ability like we sell specific kits for different ages and the population itself, we could develop something specifically for that and have it out there to combat that so again this great idea and we had that we have that capability. So we should look at that.

Brent Neidig: I think you had a fairly decent local currency quarter here in the other quarter of 2023. Do you sense that we're near the bottom there? Yeah, that's always difficult to know. Hindsight's always the best indicator there, but as we look at the current excitement and I mean, I was just there in August and earlier in the year as well and we have a very dedicated sales force who is very optimistic on our future.

Okay. Thanks, good luck.

Thank you thanks Simon.

There are no further questions. So I'll hand, you back to your host to conclude today's conference.

Thank you Valerie and thanks, everyone for your questions and for your participation on today's conference call. If you have any remaining questions. Please feel free to contact Investor Relations at 801, $9 four seven to one zero.

Brent Neidig: And I'm incredibly pleased with our leadership team that we have currently. It's really the strongest leadership team that we've ever had and the way that they're leading and guiding our teams currently in our sales leaders is the right way and I believe that it's really going to propel us into the future. So like I said, we won't know for sure in terms of the bottom, but as I see our sequential growth or a year over your growth. I believe that we're at a good point to start building from this space.

Thank you for joining today's call you may now disconnect.

Hum.

Uh huh.

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Unknown Executive: Okay, thanks. That's very helpful. Thank you. Thanks, Doug.

Hum.

Ivan Feinseth: Our last question is from Ivan Fengset from Tigris Financial Post. Please go ahead. Hi, good morning. Thank you for taking my questions. So with the expected adoption of the GLP drugs and reducing people's appetite, there's going to be a significant need to supplement nutrition. And protein intake.

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Jim Brown: What are your thoughts and how are you going to potentially target that with specific products maybe for that market? Yeah, I think especially kind of given the latest round of news in that area, I think that's a good observation. I think it's the same message that we've had, but I think I think many who are pursuing that avenue to go back and lose weight. I think nutrition still remains a paramount concern and how they take care of themselves and it really is kind of building a foundation of health going forward.

Okay.

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Jim Brown: And I think that's an important mindset. And I think it really becomes, as Jim said, is that story of the differentiation of reminding people how important nutrition is a part of the overall health. Yeah, and given the size of our food line, it's not significant to our overall balance of products, but you're right, it's an opportunity and we need to take that and move forward with it. We just literally had that discussion the last couple of days with our board who's in here.

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Jim Brown: They were interested in our take and I think it's the same thing. Hopefully those people will understand eating less and potentially the effects of it is a good reason to get better high quality vitamins and nutrients into their system.

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Yeah.

Jim Brown: Well, is there an opportunity for your associates to partner with the companies or even doctors who are, you know, recommending this to their patients and therefore monitoring their patients? and they're going to, as long as they take this, they're going to need to supplement nutrition because if you dramatically cut back your food intake, sadly you cut out a lot of key nutrients. One of the supposed side effects is muscle loss, obviously protein increased protein intake to help counter that.

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Jim Brown: So there is, you know, the patients that undergo using this are going to be, you know, under doctors care, but they're going to need some level of nutritional advisory to, I think, a very important component of it, the nutritional advisory as part of the overall process of this. Yeah, no, I would agree with you and I would say that we do have people in our self force who have contacts with doctors and or our doctors, and this would be a great avenue to, again, help people understand exactly what you're talking about, the effects that has on your health and that you should be looking at supplementation to counter those effects.

Mhm.

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Jim Brown: Honestly, we haven't put together a huge strategy and trying to move to go into that area, but it's something we need to look at. But again, you know, the other thing that will happen is more education will get out there through, you know, magazines and other avenues and people will hopefully see that need and seek out, you know, better high quality premium products that we sell at USANA.

Hum.

Okay.

Jim Brown: And do you think that there is part of your thought process is creating a targeted group of your products to address people using these drugs specifically? Yes, we can and we have the ability like we sell specific kits for different ages and in the population itself, we could develop something specifically for that and have it out there to combat that. So again, this great idea and we have that we have that capability so we should look at that.

Okay.

Jim Brown: Thanks, good luck. Thank you. Thanks, Adam. There are no further questions, so I will hand you back to your host to conclude today's conference. Thank you, Valeria. Thanks, everyone, for your questions and for your participation on today's conference call. If you have any remaining questions, please feel free to contact investor relations at 801-95472-10. Thank you for joining today's call. You may now disconnect. [inaudible] . .

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