Q4 2023 USANA Health Sciences Inc Earnings Call

Okay.

Melissa: Hello, and welcome to USANA Health Sciences' fourth quarter and fiscal year 2023 earnings call. My name is Melissa, and I will be your coordinator for today's event.

Hello, and welcome to Dishonour Health Sciences fourth quarter and fiscal year 2023 earnings call. My name is Melissa and I'll be your coordinator for today's event. Please note. This conference is being recorded and for the duration of the call. Your lines will be in a listen only mode. However, you will have the opportunity to ask questions at the end of the press.

Operator: Please note, this conference is being recorded, and for the duration of the call, your lines will be in a listen-only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star 1 on your telephone keypad to register your

Temptation that can be done by pressing star one on your telephone keypad to register your questions.

Operator: If you require assistance at any point, please press star zero, and you will be connected to an operator. I'll now turn the call over to Andrew Masuda. Please go ahead. Thank you, Melissa, and good morning, everyone. We appreciate you joining us to review our fourth quarter and fiscal year 2023 results. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at ir.usana.com. Shortly following the call, a replay will be available on our website.

If you require assistance at any point, please press star zero and you'll be connected to an operator I'll now turn the call over to Andrew Masuda. Please go ahead.

Andrew Masuda: Thank you Melissa and good morning, everyone. We appreciate you joining us to review our fourth quarter and fiscal year 2023 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 our dot com. Shortly following the call a replay will be available.

Andrew Masuda: <unk> on our website.

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

Andrew Masuda: As a reminder, during the course of this conference call management will make forward looking statements regarding future events or the future financial performance of our company.

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.

Andrew Masuda: Samples of these statements include those regarding our strategies and outlook for fiscal year 2024, 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.

Andrew Masuda: And financial data contained in our most recent filings with the SEC.

Andrew Masuda: 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 closed we announced our fourth quarter and fiscal year results and posted our management commentary document to the company's website. We'll now hear brief remarks from Jim before opening the call for questions.

Jim Brown: Thank you Andrew and good morning, everyone.

Jim Brown: You started delivered fourth quarter operating results that exceeded our expectations as our Salesforce responded positively to an incentive offering into several of our key markets, notably our greater China region delivered double digit sequential growth in active customers.

Jim Brown: USANA delivered fourth-quarter operating results that exceeded our expectations as our sales force responded positively to an incentive offering in several of our key markets. Notably, our Greater China Region delivered double-digit sequential growth in active customers. We are pleased with our year-end results and the adoption of this incentive, particularly because the operating environment in many of our markets in 2023 was challenging as inflation and other economic factors adversely impacted consumer behavior and our ability to generate top-line momentum. Despite this environment, we delivered fourth-quarter net sales and diluted EPS above expectations. We ended the year with $330 million in cash and essentially debt-free as we continue to generate strong free cash flow.

Jim Brown: We are pleased with our year end results and the adoption of this incentive, particularly because the operating environment in many of our markets in 2023 was challenging as inflation and other economic factors adversely impacted.

Jim Brown: Consumer behavior, and our ability to generate top line momentum.

Jim Brown: Despite this environment, we delivered fourth quarter net sales and diluted EPS above expectations. We ended the year with $330 million in cash and essentially debt free as we continued to generate strong free cash flow.

Jim Brown: We officially launched operations in India, the company's 25th global market, at the end of fiscal 2023, which is a significant milestone for USANA following years of preparation, and we continue to make meaningful progress on several strategic initiatives that are foundational for USANA's future growth. We begin fiscal 2024 with a renewed focus on executing our global growth strategy, which is generating consistent, active customer growth. The initiatives that drive this strategy include increasing engagement with our associate leaders to accelerate associate and customer growth; enhancing our incentive opportunities for our sales leaders that are actively generating customer and sales growth; building and expanding our operations in India; for Product Innovation and Development; and Pursuing Additional Acquisition Opportunities. I'll briefly provide additional details on our initiative to increase engagement with our associate leaders.

Jim Brown: We officially launch operations in India, the Companys, 25th global market at the end of fiscal 2023, which is a significant milestone for you saw on our following years of preparation and we continue to make meaningful progress on several strategic initiatives that are foundational for <unk> future growth.

Jim Brown: We began fiscal 2024 with renewed focus on executing our global growth strategy, which is generating consistent active customer growth. The initiatives that drive. This strategy include increasing engagement with our associate leaders to accelerate associate and customer growth.

Jim Brown: Enhancing our incentive opportunities for our sales leaders that are actively generating customer and sales growth.

Jim Brown: Building expanding our operations in India.

Jim Brown: Product innovation and development and pursuing additional acquisition opportunities.

Jim Brown: I'll briefly provide additional details on our initiative to increase engagement with our associate leaders. While 2023 was a year of re engaging with our associate leaders and our life setting in 2024 will be doubling down on engaging training and educating our associates with a focus on growing active associates globally.

Jim Brown: While 2023 was a year of re-engaging with our associate leaders in a live setting, in 2024, we'll be doubling down on engaging, training, and educating our associates with a focus on growing active associates globally. While overall customer growth is always our goal, we recognize that our business model relies upon our independent distributors to market and sell our products. For this reason, we are renewing our focus on associate growth in 2024. USANA offers best-in-class nutritional supplements, and this year, we'll be collaborating with our associates to help them effectively communicate this product differentiation message.

Jim Brown: While overall customer growth is always our goal we recognize that our business model relies upon our independent distributors to market and sell our products for this reason we are renewing our focus on associate growth in 2024.

Jim Brown: You saw it offers best in class nutritional supplements and this year will be collaborating with our associates to help them effectively communicate this product differentiation message. Additionally, we plan to rollout more updates to our existing digital two tools, which will help our associates with unnecessary Onboarding training communication.

Jim Brown: Additionally, we plan to roll out more updates to our existing digital tools, which will help our associates with the necessary onboarding, training, communication, and marketing resources essential for growing and managing their business. In closing, USANA remains well-positioned for long-term success in the global health and wellness market. I'm confident that our successful execution of our strategies will expand our business and drive sustainable long-term growth in net sales and earnings. With that, I'll now ask the operator to please open the lines for questions. Thank you. As a reminder, if you'd like to ask a question during today's call, you may press star 1 on your telephone keypad. To withdraw your question for any reason, you may press star 2. You will be advised when to ask.

Jim Brown: And marketing resources essential for growing and managing their business.

Jim Brown: In closing <unk> remains well positioned for long term success in the global health and wellness market I'm confident that our successful execution of our strategies, we will expand our business and drive sustainable long term growth in net sales and earnings with that I'll now ask the operator to please open the lines for questions.

Speaker Change: Thank you as a reminder, if you'd like to ask a question on today's call. You May Press Star one on your telephone keypad to withdraw you question for any reason you May press star two.

Speaker Change: It'll be advised when you ask your question.

And our first question is from Anthony <unk> with Sidoti and company. Please go ahead.

Douglas Matthai Lane: And our first question is from Anthony Lebedzinski with Sidoti and Company. Please go ahead. Good morning, and thank you for taking the questions. So, you know, certainly, you did a nice job with the fourth quarter results, and it's good to see, you know, China doing better. So, just curious, I guess, kind of the big picture, maybe first. So, as you start 2024 now, you're a little bit more than a month into the current fiscal year. Just wondering, you know, if you could just give us a sense as to, like, which countries you think, other than China, are doing better, and maybe conversely, where do you see the weakest pressure points? Yeah, Anthony. This is Doug.

Good morning again, thank you for taking the questions. So certainly a nice job with the fourth quarter results.

Anthony: Good to see China doing better so.

Anthony: Just curious I guess kind of a big picture, maybe first so as you start 2024, now youre, a little bit more than a month into the current fiscal year.

Anthony: Just wondering if you could just give us a sense as to like which countries do you think other than China are doing better and maybe Conversely, where do you see the weakest the pressure points.

Anthony: Yeah. Anthony This is Doug I think it's pretty early in the game I think the pattern that you see has been fairly consistent and I think we put a little color.

Douglas Matthai Lane: I think it's pretty early in the game. I think I think the pattern that you see has been fairly consistent. I think we put a little color in our management commentary document talking about the initial response we saw to a promotion offset, the Lunar New Year holiday, and say we're pretty encouraged by what we saw there, and we're reporting the first quarter, but outside of there, I think we're still kind of watching and evaluating the impact through the Lunar New Year. So it's a little bit early, but we'll definitely look to get some color on that after the first quarter.

Doug: And our management commentary document talking about kind of the initial.

Doug: Response, we saw it with promotion offset the lunar new year holiday and say were pretty encouraged by what we saw there and were reported in the first quarter, but outside of there I think we're still kind of watching.

Doug: In evaluating kind of the impact through the lunar new year. So it's a little bit early but we'll definitely look to give some color on that after the first quarter.

Douglas Matthai Lane: And then, you know, so as far as pricing, so last year, you guys had some customers buying ahead of price increases, which impacted your first quarter in 23. So what can we expect as far as pricing this year? And could we perhaps see a repeat of that, or just not looking to do anything like you did last year as far as pricing? Yeah, I would not expect that.

Speaker Change: Understood, Okay, and then so.

Speaker Change: As far as pricing.

So last year, you guys had some customers buying ahead of price increases, which impacted your first quarter in.

Speaker Change: <unk> 2003 so.

Speaker Change: What can we expect as far as pricing this year could.

Could we perhaps see a repeat of that or just not looking to do anything.

Speaker Change: Like you did last year as far as pricing.

Speaker Change: Yes, I would not expect there and that's why we've called out I think the adjustment we did last year on pricing and we've been pretty <unk>.

Speaker Change: Tepid in the several years before as far as how we've approached it we probably had on a on an average basis somewhere in that 4% to 5% on a global basis last year, you definitely won't see that this year and the response last year was was above and beyond what we typically see just because of that but having a little bit bigger adjustment and we definitely not moving as fast as we've seen others.

Douglas Matthai Lane: And that's why we've called it out. I think the adjustment we did last year on pricing and we've been pretty consistent, Kevin Guest, Douglas Lane, Ivan Feinseth, Susan Anderson, USANA Health Sciences Inc. and how we approach that, but you won't see the same magnitude, and I think that's why it's appropriate to call both that out and the response to the immunity boost that we saw at the end of the fourth quarter and the first quarter of 23. understood. Okay.

Speaker Change: And so we've been very conscientious and working with our sales leadership.

Speaker Change: And how we approach that but you won't you won't see the same magnitude and I think that's why it's appropriate to call. It both that out and the response to the immunity.

Speaker Change: Boost that we saw at the end of the fourth quarter and the first quarter.

Speaker Change: Sure.

Speaker Change: 23.

Speaker Change: Understood, Okay and then.

Douglas Matthai Lane: And then Also, can you just talk about, you know, the spending that you planned for India and one of your acquisitions, Rise Bar, as far as, you know, how should we think about as far as, you know, I don't know if you want to put a dollar amount on that or maybe just help us understand as far as what the return on that additional spending will be and kind of the expectation as far as the timing of that. Yeah, I'll start here, and I'll have Jim jump in, but, you know, we definitely plan this year to be an investment year. I think we wanted with RISEBAR to kind of get everything situated, kind of get the level set with integration, some of the things we're doing there, and we think there's some great opportunities there.

Speaker Change: Also can you just talk about the spending plans for India.

Speaker Change:

Speaker Change: One of your acquisition of <unk> as far as how should we think about as far as you know.

Speaker Change: I don't know if you want to put a dollar amount on that or maybe just help us understand as far as what the return on that additional spending will be in kind of the expectation as far as the timing of that.

Speaker Change: Yeah, I'll start here and I'll have Jim jump in but we definitely plan this year will be an investment year.

Jim Brown: We wanted with ride VR to kind of get everything situated kind of get kind of level set with integration from things. We're doing there and we think there's some great opportunity there.

Douglas Matthai Lane: We've, the group has compiled commercial plans, and so this, this upcoming year will be a year of investment where we won't be profitable in the N&A, but we do expect some pretty good traction in sales, and India's much the same. I think we opened India really towards the very end of the year, and I think we were anticipating doing that earlier, and some of those costs with, with, you know, opening events and celebrations and some of this other stuff have really been pushed to 24, but we understand the significance of this market long term, and we want to make sure that we get off to a good start and engage those leaders and, and really kind of put our best foot forward there, and so I, I think you'll probably see collectively between those, between four and five million of, you know, net negative operating margin between the sales in those two categories, but we think that's money well invested, and will, will generate future long term benefits. Jim, any additional color?

The group is compiled commercial plans and so this upcoming year will be a year of investment where we won't be.

Jim Brown: Would be profitable and then any but we do expect some pretty good traction in sales in India is much. The same I think we opened India really towards the very end of the year and I think we are anticipating doing that earlier and some of those cost with with opening events and celebrations and some other stuff have really been pushed to 'twenty four but we understand.

Jim Brown: The significance of this market long term and we want to make sure that we get off to a good start and engage those leaders and really kind of put our best foot forward, there and so I think youll, probably see collectively between those between $4 5 million.

Jim Brown: Net negative operating margin between the sales in those two categories, but we think thats money, well invested and will generate future long term benefits Jim any additional color. Yes. It does call me out, but quite honestly I don't know exactly what else to put out there I mean this is an investment time for both businesses and we expect it to basic.

Jim Brown: Yeah, it does call me out, but quite honestly, I don't know exactly what else to put out there. I mean, this is an investment time for both businesses, and we expect it to be, you know, basically flat or down from a profit standpoint this year, and we're looking forward to what they do in the future, but again, we just want to get the momentum moving in 2024. That's very helpful, Color.

Jim Brown: Basically be flat or down from a profit standpoint, this year and we're looking forward to what they do in the future, but again, we just want to get the momentum moving in 2024.

Speaker Change: That's very helpful color and then lastly, before I pass it onto others. So your balance sheet, obviously continues to be strong. It looks like you have more cash than you need to run the business. So how should we think about the capital allocation priorities for you guys.

Douglas Matthai Lane: And then lastly, before I pass it on to others, your balance sheet obviously continues to be strong. Looks like you have more cash than you need to run the business. So how should we think about the capital allocation priorities for you guys? Well, I think it remains very similar to what we've done in the past. I think we always look to go back and invest really organically into our direct selling business and really lean into that. After that, I think we've been talking for several quarters now about activity in M&A, and we always have several opportunities in kind of the hopper that we've evaluated moving down the path. And then in the past, you know, we've been pretty heavily invested in a share repurchase program, but those things are balanced.

Speaker Change: Well I think it remains very similar to what we've done in the past I think we always look to go back and invest in really organically into our direct selling business and really lean into that after that I think we've been talking for several quarters now about activity in M&A and we always have several opportunities in the hopper that we are evaluating.

Speaker Change: To move down the path and then in the past we've been pretty.

Speaker Change: Heavily invested in share repurchase program, but those things are balanced it's a quarterly discussion with the board of directors.

Douglas Matthai Lane: It's a quarterly discussion with the board of directors, and it's a very open discussion. So trying to go back and evaluate the opportunities at the stage that they're at and then invest accordingly. And I would say, just for context, at our current level of business, I would say to operate in an environment without debt. And I'm not even saying that's the goal.

Speaker Change: And it's a very open discussion so trying to go back and evaluate the opportunities the stage that they are at and then and invest accordingly, and I would say just just for context at our current level of business.

Speaker Change: I would say to operate in an environment.

Speaker Change: Without that and I'm, not even saying that's the goal, we probably need roughly $100 million gives them the liquidity dynamics and.

Anthony Lebedzinski: We probably need roughly $100 million given some of the liquidity dynamics and where the cash is held ballpark. And then you can kind of gauge from there. And that's, you know, it always becomes a little bit of a waiting game with repatriating cash back from China. And it's just a process that you go through in that market that's unique to China. Understand? All right. Well, thank you very much and best of luck. Thank you, Anthony.

Speaker Change: And where the cash is held.

Speaker Change: Ballpark and then you can kind of gauge from there and thats.

Speaker Change: It always becomes a little bit of a waiting game with repatriating cash back from China, and it's just a process you go through in that market that's unique to China.

Speaker Change: Understood all right well, thank you very much and best of luck.

Speaker Change: Thank you Anthony.

Speaker Change: Thank you. Our next question is from Linda Bolton Weiser with D. A.

Operator: Thank you. Our next question is from Linda Bolton Weiser with CAS Davidson. Please go ahead.

Speaker Change: Please go ahead.

Susan Kay Anderson: Yes, hello. Um, so I was wondering, um, firstly, on the cost side, you had mentioned that freight costs were down year over year in the quarter. Is that a sustainable comparison now going forward for the next few quarters? Can we expect that freight cost to continue to be down year over year? Yeah, I'd say it's sustainable, and it will be down year over year.

Speaker Change: Yes Hello.

Speaker Change: So I was wondering.

Speaker Change: Just on the cost side first I guess, you had mentioned that freight costs were down year over year in the quarter.

Speaker Change: Is that a sustainable comparison now going forward for the next few quarters can we expect for that freight cost continued to be down year over year.

Speaker Change: Yes, I'd say, it's sustainable and it will be down year over year.

Douglas Matthai Lane: It's, you know, we haven't really gone out and got better freight costs or anything like that, but it's just the stabilization of everything after COVID. And we can depend on the rates as well as the lead times and transit times. And we're not expediting shipments like we had to do to make sure that we didn't go on back order through the ups and downs of COVID and right after that. Yeah, I would also say one of the things that will help out is the operations team has done a really good job locating the inventory and market to help us have a little bit more of a shock absorber with any change in demand, doing this other stuff so we And so I think the strategic efforts, the procurement and supply chain teams, I think, along with really just the stability of the supply chain in general, I think both contribute pretty positively there. And it really is, like Jim said, the absence of air freight, which is the big delta there.

Speaker Change: We haven't really gone out and got better freight cost or any of that but it's just the stabilization of everything after COVID-19 and we can depend on the rates as well as the lead times in transit times and we're not we're not expediting shipments like we had to do to make sure that we didn't go on back order through the ups and downs of Covid and right after that.

Speaker Change: I would also say one of the things that will help out as is the ops team has done a really good job locating inventory and market to.

Speaker Change: Help us have a little bit more of a shock absorber with any change in demand due in this other stuff. So we can respond in a more timely manner and so I think I think the strategic efforts the procurement and supply chain teams I think along with really just the stability of the supply chain in general I think both contribute pretty positively there and it really is like Jim said is that the absence.

Speaker Change: Of air freight, which is the big Delta there and you can see it to Linda.

Douglas Matthai Lane: And you can see it too, Linda, in our level of inventory right now, that 65-ish million amount where, a few years ago, we were at 100 million just because we couldn't depend on stuff and we had to stock up. So I think that will remain around that same amount. And that just, again, is hats off to our operational teams managing the business better and having the dependability of the logistics companies now. Okay, great. And then, um... You know, I was just curious about, um, Malaysia and the Philippines, because you mentioned that the promotional initiative helped Malaysia, and Malaysia was up 7% in local currency, that's good, but then the Philippines was still so weak. Did you try the same promotion in the Philippines, and it just didn't work?

Speaker Change: Our level of inventory right now that 65 ish million amount were back a few years ago, we were at $100 million, just because we couldnt depend on stuff and we had to stock up. So I think that will remain around that same amount and that just again is hats off to our operational teams managing the business better and having the dependability of.

Speaker Change: The logistics companies now.

Speaker Change: Okay, Great and then.

Speaker Change: I was just curious about.

Speaker Change: In the Philippines, because you mentioned that the.

Speaker Change: Promotional.

Speaker Change: Initiative helps Malaysia, and Malaysia was up 7% in local currency. That's good but then Philippines was still so weak did you try to think promotion in the Philippines and it just didn't work or what is the difference here between the Malaysia and the Philippines performance.

Brent Knight: Or what is the difference here between Malaysia and the Philippines' performance? Yeah, the markets are very unique. Brent Knight is here, and I'll let him chime in.

Speaker Change: Yes, the markets are very unique Brent Brent <unk> inherent I'll, let him chime in I think you can go back and give a pretty articulate response, but the Philippines is a great market, where people were very entrepreneur minded I think the COVID-19 environment has hit that market, particularly hard and the re out.

Brent Knight: I think he can go back and give a pretty articulate response. But the Philippines is a great market with people who are very entrepreneurial-minded. I think the COVID environment has hit that market particularly hard. And the operating environment is what it is at this point. We're obviously optimistic there, but there's still work to be done, Brent. Hi Linda.

Speaker Change: Operating environment is what it is at this point, we're obviously optimistic there, but there is still work to be done Brent.

Brent: Yeah, Hi, Linda Doug mentioned it the parameters that promotion were quite similar across markets, but each market responded differently and I think that depends on several factors. One is the socio economic environment I think the Philippines has been hit harder than Malaysia has which is one of the primary indicators of why they they didn't respond as effectively as malaise.

Brent Knight: Doug mentioned it. The parameters of the promotion were quite similar across markets, but each market responded differently, and I think that depends on several factors. One is the socioeconomic environment. I think the Philippines has been hit harder than Malaysia has, which is one of the primary indicators of why they didn't respond as effectively as Malaysia. Okay, and then, um..., in mainland China.

Got it.

Linda Weiser: Okay and then.

Linda Weiser: In mainland China.

Douglas Matthai Lane: So that was, you know, better performance there. But I guess I'm curious about the active customers being up 5% year over year, but local currency sales were still down slightly. Is that just kind of like an average ticket per customer being sort of lower, or how should I interpret that information?

Linda Weiser: So that was a better performance there, but I guess I'm curious about the active customers being up 5% year over year, but local currency sales were still down slightly is that just like kind of like an average ticket per customer is sort of lower or how do I, how do I interpret that that that information.

Douglas Matthai Lane: Yeah, I would say, you know, I think currencies played a little bit of a role year over year, and that's been a pretty hefty impact year on year when you look at the full year. But remember, our customer count is primarily a quarterly metric. And so as you look at the full year, you have to just take that into consideration. But you know, I think we've been pretty pleased with the resilience of China. And I know Brent, with the team that we have there, is optimistic.

Speaker Change: Yeah, I would say I think currencies played a little bit of a roll year over year, and that's been a pretty hefty impact year on year. When you look at the full year remember our customer count is primarily a quarterly metric.

Speaker Change: So as you look at the full year you have to just take that into consideration, but I think we've been pretty pleased with the resilience of China and I know Brent with the team that we have there is as optimistic and we've done things quite a few things different that we see is pretty encouraging opportunities for us to look at in our other businesses as well I'd say, it's also a function of the promotions that we've run in the different <unk>.

Brent Knight: And we've done things, quite a few different things that we see as pretty encouraging opportunities for us to look at in our other businesses as well. Yeah, I'd say it's also a function of the promotions that we run, the different incentives that we've had, that perhaps the spend per customer has slightly been down. We are okay with that.

Speaker Change: Tenants that we've had that perhaps the spend per customer has slightly been down. We are okay. With that we are our ultimate goal is to attract and retain consumers and customers and so as we see that active customer number increased to us. That's a good long term indicator that we want to continue to build on that momentum.

Brent Knight: Our ultimate goal is to attract and retain consumers and customers. And so as we see that the number of active customers has increased, and to us, that's a good long-term indicator that we want to continue to build on that. Okay, um, that's all.

Speaker Change: Okay.

Speaker Change: That's all.

Susan Kay Anderson: Well, let me just ask one more thing. In terms of the cadence of promotions in 2024, so I guess you've mentioned doing something here in the first quarter. But beyond that, what would the plan be?

Speaker Change: Let me just ask one more thing.

Speaker Change: In terms of the cadence of promotion in 2024.

Speaker Change: So I guess you've mentioned.

Speaker Change: Somebody here in first quarter, but beyond that what what.

Speaker Change: Would be the plan are you going to kind of pull back on these big promotional events are still do them periodically well, what's the plan there.

Douglas Matthai Lane: Are you going to kind of pull back on these big promotional events or still do them periodically? What's the plan there? At a real high level, I think 2023 we're a little bit lighter than we have been historically, but we are coming off really three years of a heavy promotional cadence during the COVID years, and it depended on where the individual markets were at. So I think you'll see us tick up from where we were in 23.

Speaker Change: Yes, real high level, I think 2023 were a little bit lighter than we had been historically, but we're coming off really three years.

Speaker Change: Of a heavy promotional cadence during the COVID-19 years in it and it depends on where the individual markets. We're at so I think I think youll see a tick up from where we were in 23. This is we're in a sales culture youre always going to have incentives and promotions and to <unk> point really looking to go back and do those things that will go back and get us traction and sustainable.

Douglas Matthai Lane: We're in a sales culture. You're always going to have incentives and promotions. And to Brent's point, really looking to go back and do those things that'll give us traction and sustainable growth going forward.

Growth going forward Brent the direction, we're moving for 2020 for us to really look market by market and ensure that we have the right incentive structure and package for each individualized market in the past some of these larger promotions have been global in nature and they have been effective to a degree.

Brent Knight: The direction we're moving for 2024 is to really look market by market and ensure that we have the right incentive structure and package for each individualized market. In the past, some of these larger promotions have been global in nature, and they've been effective to a degree, but sometimes they don't resonate as well in certain markets. So the intention going forward is to really identify what's going to motivate and incentivize our local sales leaders and ensure that we're supporting them the best way that we can. Okay, that's it for me. Thank you very much.

Speaker Change: But sometimes they don't resonate as well in certain markets. So the intention going forward is to really identify what's going to motivate and incentivize our local sales leaders and ensure that we're supporting them. The best way that we can.

Speaker Change: Okay. That's it for me thank you very much.

Susan Kay Anderson: Thanks, Linda. Thank you. Our next question is from Susan Anderson with Canaccord Genuity. Please go ahead. Hi, good morning.

Speaker Change: Thanks Linda.

Linda Weiser: Thank you. Our next question is from Susan Anderson with Canaccord Genuity. Please go ahead.

Hi, good morning, Thanks for taking my questions.

Susan Kay Anderson: Thanks for taking my questions. Just really quick, it sounds like on the transportation costs, you don't really expect any increases. I'm just curious about the Suez Canal and how you're navigating things there. We've heard maybe some slight increases transportation providers are trying to pass through. This is Walter.

Susan Kay Anderson: Just really quick it sounds like on the transportation costs, you don't really expect any increases I'm just curious about the Suez Canal.

Susan Kay Anderson: How you're navigating things there we've heard maybe some slight increases.

Speaker Change: Transportation providers are trying to pass through.

Speaker Change: Yes. This is this is walter.

Walter: If you look at our transportation costs, the biggest extensive cost in the past has been air freight. And so because of those challenges, we've had. I think those costs have gone up a slight amount, but most of our routes are not around the Suez Canal, so we really haven't had those issues.

Speaker Change: We if you look at our transportation costs the biggest extensive cost in the past has been airfreight.

Walter: And so because of those challenges we've had I think those costs have gone up a slight amount, but most of our routes are not around the Suez Canal. So we really haven't had those issues.

Walter: But to your point, that is something that we've watched. We've seen port strikes in the past, and some of these things definitely have an effect, so it is something that we're monitoring, and we'll update it as we start seeing it have an impact on our business. Okay, great. And then I guess, so back to Linda's question on China, it sounds like it's just more fluctuations in currency. I guess, are you seeing that consumers there feel a little bit more pressured from a macro perspective and are pulling back on your products at all? Hi, it's Brent.

Walter: And to your point.

That is something that we've wash, we seen port strikes in the past in some of these things definitely have an effect. So it is something that we're monitoring and we'll update as we if we start seeing that have an impact on our business.

Speaker Change: Okay, Great and then I guess, so back to <unk> question on China. It sounds like it's just more fluctuations in currency I guess are you seeing that consumer there.

Speaker Change: Still a little bit more pressure from a macro perspective and pulling back on your products at all.

Brent: Yeah, Hi, it's Brent.

Brent: The Chinese consumer and when you look at the larger macroeconomic data and you'll get a housing and other.

Brent Knight: The Chinese consumer, and when you look at the larger macroeconomic data, when you look at housing and other factors that are weighing into that, the consumer definitely is suppressed, and in many categories, they have drawn back. I think the wellness space is quite resilient. The Chinese consumer is still very focused on wellness, and so, speaking specifically for USANA. We haven't really seen much fluctuation in that regard, which is very optimistic. Who knows what the future will hold, but we still are quite optimistic in the wellness space, regardless of what happens from a socioeconomic factor. We think it's still pretty resilient.

Brent: Factors that are weighing into that.

Brent: The consumer definitely is suppressed and in many categories. They have drawn back I think the wellness space is quite resilient. The Chinese consumer is still very focused on wellness and so speaking specifically for you saw on our.

Brent: We haven't really seen much fluctuation in that regard which has been optimistic.

Brent: Who knows what the future will hold but we still are quite optimistic in the wellness space and regardless of what happens from associate economic.

Brent: Factor.

Brent: We think it's still pretty resilient.

Speaker Change: Okay great.

Brent Knight: Okay, great. And then I guess just really quick on pricing for 2024. It looks like there was a slight benefit this quarter.

Speaker Change: Then I guess, just really quick on pricing for 2024, it looks like there was a slight benefit this quarter should we expect that to continue in 2024.

Douglas Matthai Lane: Should we expect that to continue in 2024? Yeah, so I think what you're here for in the fourth quarter is just the year-over-year comp from the adjustments that we made towards the end of the first quarter and beginning of the second quarter in 23. The adjustments that we'd have planned this year are going to be meaningfully less than what we did in 23.

Speaker Change: Yes, so I think what youre hearing narrated in the fourth quarter is just the year over year comp from the adjustments that we made towards the end of the first quarter beginning of second quarter and 23. The adjustments that we would have planned this year are going to be meaningfully less than what we did in 2003.

Jim Brown: And so, I don't think you'll see much of an inflection point relative to our P&L from adjustments in prices. I think we'll be pretty targeted in looking at specific products that have certain attributes that we have to address, but as a whole, definitely, we won't be making the same lean into it that we did in 23. Okay, great. And then last question, just on M&A, I guess, is there any color you can give on kind of, you know, either products or categories that you're thinking about or holds in the portfolio that you would like to fill? Yeah, this is Jim.

Speaker Change: And so I don't think youll see much inflection point relative to our P&L from from adjustments in prices I think will be pretty targeted and looking at specific products that have certain attributes. So we have to address but as a whole are definitely we won't be making the same lean into it that we did in 'twenty three.

Speaker Change: Okay, Great and then last question just on M&A I guess is there any color you can give on kind of either products or categories that you are thinking about or holes in the portfolio that you would like to sell.

Speaker Change: Yes. This is Jim we're going to always do M&A looking at the wellness injury industry excuse me.

Jim Brown: We're going to always do M&A looking at the wellness industry. And that's kind of our focus, that we get product lines and everything that match within that. I was just talking this morning to Walter, and they have a queue of six or seven companies that are interesting. Again, they're all in the wellness area. We always look for companies that are healthy, and we want to help them continue to grow. M&A is an interesting thing where, no matter how eager you are to get in, you've got to find the right deals and the deals that resonate with the company and make a smart decision. And it just takes time to evaluate those. Okay, thanks so much for all the details.

Jim Brown: That's kind of our focus that we get.

Product lines and everything that match within that.

Jim Brown: I was just talking this morning to Walter and they have a queue of six or seven companies that are interesting again, they're all in the wellness area.

Jim Brown: Please look for companies that are healthy and we want to help them continue to grow.

Jim Brown: M&A is an interesting thing where no matter how eager you are to get in you got to find the right deals and the deals that resonate with the company and make a smart decision and it just takes time to evaluate those.

Speaker Change: Great. Okay. Thanks, so much for all the details good luck this year.

Susan Kay Anderson: Good luck this year. Thanks, Susan. Thank you. Our next question is from Ivan Feinseth with Tigris Financial Partners. Please go ahead.

Speaker Change: Thanks, Susan.

Speaker Change: Thank you. Our next question is from Ivan <unk>.

Ivan: With Tigress financial partners. Please go ahead.

Ivan Feinseth: All right, thanks for correcting my question and congratulations on the strong year-end finish. I have two questions: one on the sales incentives that you got some great results on. Can you give some details on that and like what do you find works best and what have you experienced that has? Yeah, I think Brent captured it well. I think what we're seeing when we do something that's more far-reaching, and the one in the fourth quarter was, for the most part, available in most markets, that same type of approach doesn't work in every market. The particular one we ran in the fourth quarter was really rewarding growth in sales to new customers.

Ivan: Alright, Thanks for taking my question and congratulations on the strong year end finish.

Ivan: I have two questions one on the sales incentives that you got some great results on can you give some details on that and like what are you find works best and what have you experienced it has not worked well.

Speaker Change: Yes, I think Brent Brent captured it well I think what we're seeing when we do something that's more far reaching and then the one in the fourth quarter was for the most part available in most markets.

Speaker Change: That same type of approach doesn't work in every market, but particularly when we ran in the fourth quarter was really rewarding growth in sales to new customers and.

Douglas Matthai Lane: And, you know, and you have a market like China, which is very entrepreneurial in spirit, really has a strong belief in the health and wellness space. And so, when we do some of the stuff in line with this, China's market, those resonate pretty well. I think we've looked at value proposition promotions here or there, and those get received well, but typically, when you do those, those are marketing to your existing customer base, and you're not necessarily seeing an inflection in customer accounts.

You have a market like China, who is a very entrepreneur spirit.

Speaker Change: <unk> really have a strong belief in the health and wellness space and so when we do some of the stuff in.

Speaker Change: In line with this China's market those are resonating pretty well I think we've looked at value proposition promotions here or there and those those get received well, but typically when you do those those are marketing to your existing customer base and youre not seeing necessarily an inflection in customer counts and so it really is a balanced act and to <unk> point, we hear.

Douglas Matthai Lane: And so it really is a balanced act. And to Brent's point, we hear different feedback from different of our sales leaders, and we try to work with them to get aligned. Anything else, Brent?

Speaker Change: Different feedback from different of our sales leaders and we try to work with them to get aligned anything else Brent even alright.

Jim Brown: All right, I think we're, I'd second, you know, in discussions and what's going on in the world with the GLP drug, primarily driving reduced food consumption is going to lead to the need for nutritional supplements and additional proteins. How have you been progressing in your thoughts about addressing those? You know, Ivan, we think the same way, quite honestly.

Brent Brent: Alright. Thanks.

Brent Brent: Second.

Brent Brent: Discussions and what's going on in the world with the DLP drugs, and primarily driving reduced food consumption is going to lead to the need for.

Brent Brent: Nutritional supplements and additional protein supplements.

Brent Brent: Have you been progressing and your thoughts about it.

Brent Brent: Dressing those market opportunities.

Speaker Change: We think the same way quite honestly, we see this as an opportunity for people to need nutritionals to balance out as they are eating less.

Jim Brown: We see this as an opportunity for people to need nutritional supplements to balance out as they're eating less. And we have a great product offering. We'll look at products that would marry up well with that new market that's being created. I mean, it's huge right now, the people who are taking that and having success with it.

Speaker Change: And we have a great product offering we will look at products that would marry up well with that new market. That's being created I mean, it is it's huge right now the people who are taking that and having success with it but we see that as an opportunity and our R&D teams will look at products to basically balance out that.

Jim Brown: But we see that as an opportunity, and our R&D teams will look at products to basically balance out that. And you feel confident you'll continue to develop these products in-house, or will this be part of your M&A? Yeah, I would say both, but initially, in-house. We're working on that now, and it takes time to develop, get the right products tested, and everything else.

Speaker Change: And do you feel that confident you will continue to develop these products in house or this will be part of your M&A thought process.

Speaker Change: Oh.

Speaker Change: Yeah, I would say both but initially in house, we're working on that now and it takes time to develop.

Speaker Change: The right products tested and everything else, but again from an M&A standpoint, if we find someone in that space are or whatever we will definitely look at them one of the areas that we want to make sure is just from.

Jim Brown: But again, from an M&A standpoint, if we find someone in that space or whatever, we'll definitely look at them. You know, one of the areas that we want to make sure is that, by kind of competing with ourselves, we broaden our reach when we do M&A. And if we can do it ourselves, I think with the operations that we have, and we're just premium products, and we do a great job of it, we can do it better. That's who USANA is.

Speaker Change: Kind of competing with ourselves that we broadened our reach when we do M&A and if we can do it ourselves I think with.

Speaker Change: The operations that we have in us and we're just premium products and we do a great job of it we could we can do it better that's what you saw in Es.

Douglas Matthai Lane: Yeah, and I would say our current product offering goes specifically to addressing people who need better nutrition. So I don't think we need to, you know, even though I think we're opportunistic and we're M&A, so I think we're well suited to go back and do this. The discussion's gone on, there's been some development, and we want to be responsible with how we approach it and continue to be additive to someone's health and wellness journey. All right, well, good luck for a big 2024.

Speaker Change: I would say our current product offering goes to specifically addressing people who need better nutrition. So I don't think we need to even though I think we are opportunistic and whether M&A. So I think I.

Speaker Change: I think we're well suited to go back and do this the discussion has gone on there's been some development and we want to be responsible with how we approach it and continue to be additive to someone's health and wellness journey.

Good luck for a big 2024.

Ivan Feinseth: As a reminder, if you'd like to ask a question on today's call, you may press star 1 on your telephone keypad to register. And our next question is from Doug Lane with Water Tower Research. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Thank you as a reminder, if you'd like to ask a question on today's call you May Press Star one on your telephone Keypad Tonight you State your question.

And our next question is from Doug Lane with Watertown Research. Please go ahead.

Douglas Matthai Lane: Yes, hi, good morning, everybody. I just have a couple quick questions on China, following up on the discussion here. You run a direct selling model in China, so shouldn't we view the active customer count as really a leading indicator, you know, going forward? I think you always should.

Douglas Matthai Lane: Yes, hi, good morning, everybody I just have a couple of quick questions on China following up on that discussion here.

Douglas Matthai Lane: We've got a direct selling model in China should we view the active customer count is really a leading indicator.

Douglas Matthai Lane: Going forward.

Douglas Matthai Lane: I think you all we should we always tried to give some color to the activity that was in the quarter. So you can use that in perspective typically when you have.

Douglas Matthai Lane: We always try to give some color to the activity that was in the quarter so you can use that in perspective. Typically, when you have a higher level of activity in bringing on new customers during a quarter, you're not going to have that same level stick, and that's why we give some of that context. It's not disproportionate to what the average numbers are, but there is kind of that elevated customer acquisition. I think it just provides context, and we've tried to be very transparent throughout our history and how we communicate that. No, it's very helpful.

Douglas Matthai Lane: A higher level of activity and bringing on new customers during the quarter youre not going to have that same level stack and that's why we give some of that context, it's not disproportionate to where the average numbers are but there is kind of the elevated customer acquisition and so I think it just provide context and we've tried to be very transparent.

Douglas Matthai Lane: Throughout.

Douglas Matthai Lane: Our history and how we communicate that.

Speaker Change: No. That's very helpful. I always sort of base my models customer count figure unit, that's really directionally, where the business is going but I just wanted to double check I thought that you did run the direct selling business in China Baby care.

Douglas Matthai Lane: I always sort of base my models off the customer account, figuring that that's really directionally where the business is going. But I just wanted to double check. I thought that you did run a direct selling business in China, right? Baby Care?

Douglas Matthai Lane: Yeah, that's accurate, Doug. Yeah, a lot of people don't. A lot of companies in this space operate different models in China because of the complexity of the regulations there. And that's the other thing I wanted to talk about is that a year ago in the fourth quarter, we were still in zero COVID, I think, in China, and that came off at the end of the year. So I just wondered if you could give some color on the overall regulatory environment in China and how that's impacting your business. Yeah, so this is Brent.

Speaker Change: Yes, that's accurate.

Speaker Change: Yeah, a lot of people don't.

A lot of the companies in this space operate different models in China because of the complexity of the regulations, there and Thats. The other thing I wanted to talk about is that a year ago in the fourth quarter. We were still in zero Covid I think in China and that came off at the end of the year. So I just wanted if you could put some color on the overall regulatory environment in China, and how that's impacting your business.

Speaker Change: Yes. So this is Brent.

Brent Knight: During COVID, it was an interesting environment for those three years where the country was pretty much locked down, you know, no one from USANA was able to travel into the country. What happened many of the regulators didn't didn't matter what they oversaw; they really were repositioned to help fight COVID. So, a lot of the historical meetings and interactions that we would have had with the government agencies really went quite quiet during COVID because they were so focused on fighting COVID. Well, now that COVID's passed and things are back to normal, more or less, we've started to reengage with the government agencies. And I would say it's very typical of what it was like before COVID. There is a good working relationship. There's an understanding between both sides.

Brent Brent: During COVID-19. It was it was an interesting environment for those three years, where the country was pretty much locked down no. One from you sign was able to travel into the more into the country.

Brent Brent: That what happened many of the regulators didn't didn't matter what they oversaw they really were repositioned to help fight COVID-19.

Brent Brent: So a lot of the historical meetings interactions that we would've had with the government agencies are.

Brent Brent: Really went quite quiet during COVID-19 because they were so focused on fighting Covid will know that Covid has passed and things are back to normal more or less.

Brent Brent: We've started to reengage with the government agencies and I would say, it's very typical to what it was like before Covid. There's a good working relationship there's understanding between both sides and I think as long as you're complying within the regulatory framework that's been outlaid.

Brent Knight: And I think, you know, as long as you're complying within the regulatory framework that's been laid down, I think we have no reason to be anything but optimistic about the future, that we can continue to grow and develop our business there. And you're back to, you know, holding meetings at the same pace pre-COVID or at the same magnitude pre-COVID in China. Yeah, we have returned to our meeting cadence and size that was severely restricted during the COVID era. But now, you know, in April, we have our China convention that's coming up. And that is actually going to be held in mainland China.

Brent Brent: I think we have no reason to be nothing but optimistic about the future that.

Brent Brent: We can continue to grow and develop our business there.

Brent Brent: And your bags.

Brent Brent: Holding meetings at the same pace pre COVID-19 or the same magnitude <unk> in China.

Brent Brent: Yes, we have returned to our meeting cadence and size.

Brent Brent: That was severely restricted during the Covid era.

Brent Brent: But now in April we have our China convention, that's coming up and that is actually going to be held in mainland China and we haven't done that in several years. We've had a very large response to that so we're very optimistic about that event and.

Brent Knight: We haven't done that in several years, and we had a very large response to it, so we're very optimistic about that event. And we'll continue to hold events at a very regular cadence throughout the year.

Brent Brent: We will continue to hold events at a very regular cadence throughout the year.

Douglas Matthai Lane: Great. That's very helpful. Thank you. Thanks, Doug.

Speaker Change: Great. That's very helpful. Thank you.

Speaker Change: Thanks, Doug.

Speaker Change: Thank you as we have no further questions I would like to turn it back over to Andrew Masuda for any closing remarks.

Andrew Masuda: Thank you. As we have no further questions, I would like to turn it back over to Andrew Masuda for any, Thank you for your questions and for your participation in today's conference call. If you have any remaining questions, please feel free to contact Investor Relations at 801-954-7215. Thank you very much. That concludes today's conference. You may now disconnect, www.USANA.gov

Andrew Masuda: Thank you 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, 950 471 zero.

Andrew Masuda: Thank you very much that concludes today's conference you may now disconnect.

Andrew Masuda: Online.

Andrew Masuda: Yeah.