Q1 2024 USANA Health Sciences Inc Earnings Call
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Hello, I walk up and you saw the health Sciences first quarter earnings call. My name is George there'll be a coordinator for today's event.
Operator: ?? ?? ?? ??
George: Hello, and welcome to USANA Health Sciences' First Quarter Earnings Call. My name is George.
George: 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 the listen-only mode. However, you will have the opportunity to ask questions towards the end of the presentation. If you require assistance at any point, please press star zero, and you will be connected to an operator. And I'd like to hand the call over to your host today, Andrew Masuda. Please go ahead, sir.
George: Please note. This conference is being recorded after the duration of the call he likes to be the listen only mode. However, you will have the opportunity to ask questions towards the end of the presentation.
George: If you require assistance at any point. Please press star Zero, you will be connected to the operator.
Andrew Masuda: I'd now like to hand, the call over to your host today.
Andrew Masuda: Masuda. Please go ahead Sir.
Andrew Masuda: Thank you George and good morning, everyone. We appreciate you joining us to review our first quarter 2024 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 a dot com.
Andrew Masuda: Thank you, George. And good morning, everyone.
Andrew Masuda: We appreciate you joining us to review our first quarter 2024 results. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at ir.usana.com. Shortly following the call, a replay will be available on our website.
Andrew Masuda: Shortly following the call a replay will be available 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 our 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.
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 our actual results to differ perhaps materially from the results projected in such forward looking statements. Examples of these statements.
Andrew Masuda: <unk> 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.
Andrew Masuda: 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, our Chief Commercial Officer, Brent Neidig, as well as other executives. Yesterday, after the market closed, we announced our first 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.
Speaker Change: 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, our Chief commercial officer, Brent <unk> as well as other executives.
Andrew Masuda: Yesterday after market close we announced our first quarter results and posted our management commentary document on the company's website.
Jim Brown: We'll now hear brief remarks from Jim before opening the call for questions.
Jim Brown: Thank you, Andrew, and good morning, everyone. Solid first quarter results were driven by strength in our mainland China market. Consolidated net sales totaled $228 million, down 5% year-over-year in constant currency but up 2% sequentially in constant currency. We also delivered diluted EPS of $0.86 and generated $18 million of operating cash flow. Our performance in Mainland China was strong and benefited from a successful sales promotion designed to reward associates for growth in their business.
Jim Brown: Thank you Andrew and good morning, everyone solid first quarter results were driven by strength in our mainland China market consolidated net sales totaled $228 million down 5% year over year in constant currency, but up 2% sequentially in constant currency. We also delivered diluted EPS of <unk> 86 cents and generated $18 million of operating.
Jim Brown: Cash flow.
Jim Brown: Our performance in mainland China was strong and benefited from a successful sales promotion designed to reward associates for growth in their business.
Jim Brown: This incentive helped to generate 10% year-over-year growth in local currency and net sales and 15% growth in active customers. However, our regional sales performance outside of mainland China in the first quarter was softer than anticipated as we continue to battle a difficult operating environment highlighted by inflationary pressures.
Jim Brown: This incentive helped to generate 10% year over year growth in local currency net sales and 15% growth in active customers. Our regional sales performance outside of mainland China in the first quarter was softer than anticipated as we continue to battle a difficult operating environment highlighted by inflationary pressures to combat. This we put.
Jim Brown: To combat this, we plan to offer market-specific incentives throughout the remainder of the year to motivate our associate leaders and ultimately to help stimulate sales and customer growth. We will provide the opportunity to attend events and training as we continue to focus on supporting and actively engaging with our associates to ensure that they have the necessary products, training, resources, and digital tools to be successful in growing their business. We plan to deliver a more robust product strategy that is aligned with more support of our local market. We have already made measured progress on several of our key initiatives for 2024. I'll briefly expand on our progress on a few of these initiatives.
Jim Brown: To offer market specific incentives throughout the remainder of the year to motivate our associate leaders and ultimately to help stimulate sales and customer growth.
Jim Brown: We will provide the opportunity to attend events and trainees as we continue to focus on supporting and actively engaging with our associates to ensure that they have the necessary products training resources and digital tools to be successful in growing their business.
Jim Brown: We plan to deliver a more robust product strategy. This is aligned with a more supportive of our local markets.
Jim Brown: We have already made measured progress on several of our key initiatives for 2024 I'll briefly expand upon our progress on a few of these initiatives.
Jim Brown: As part of our continued efforts to actively engage with our associates, we hosted both our China National Sales Meeting in Xiamen, China, and our Asia-Pacific Convention in Kuala Lumpur, Malaysia, early in the second quarter. Both events served as a platform to celebrate our associates' success, engage with our associate leaders from around the world, and provide additional training to managers. Attendance at both events was robust.
Jim Brown: As part of our continued efforts to actively engage with our associates, we hosted both our China National sales meeting in Shanghai in China, and our Asia Pacific Convention in Kuala Lumpur, Malaysia early in the second quarter.
Jim Brown: For instance, we had approximately 17,000 attendees at our China event, a 70% increase compared to last year, and approximately 80% of the people that were in Malaysia were first-time attendees, which is an encouraging indication that there is excitement in the region. Additionally, the demographic of attendees was diverse and included an increased mix of Gen Z and Millennials, a positive sign that USANA's brand is resonating with customers across many agencies. We also utilize both events to launch several new products.
Jim Brown: Both events served as a platform to celebrate our associated success engage with our associate leaders from around the world and to provide additional training to leaders attendants at both events was robust for instance, we had approximately 17000 attendees at our China event.
Jim Brown: 70% increase compared to last year and approximately 80% of the people that are have been in Malaysia, or first time attendees, which is an encouraging indications that there is excitement in the region.
Jim Brown: Additionally, the demographic of attendees was diverse and included an increased mix of Gen Z and millennials a positive sign that you saw that you saw in his brand is resonating with customers across many agents. We also youll utilize both events to launch several new products for instance, at our China National sales meeting, we introduced health back into the market.
Jim Brown: For instance, at our China National Sales Meeting, we introduced HealthPak into the market. This product, which contains our patented intelligence technology, is the ultimate solution for health and convenience and contains our premium core supplements and convenient daily AM and PM packets to support optimal health.
Jim Brown: This product, which contains our patented <unk> technology is the ultimate solution for health and convenience and contains our premium core supplements and convenient daily a M and P. M packets to support optimal health, we're extremely excited to introduce this product into our mainland China market.
Jim Brown: We're extremely excited to introduce this product into our Mainland China market. Overall, both attendees and our executive team came away from each event energized and motivated. Separately, we continue to build our India operations, and we have made progress on introducing the USANA brand throughout the country to help generate customer acquisition. For instance, we have attracted several strong distributor leaders to join us, and we are optimistic that they can help us accelerate sales momentum in the existing market.
Jim Brown: Overall, both the attendees and our executive team came away from each event energized and motivated.
Jim Brown: Separately, we continue to build our India operations and we made progress on introducing that you saw in our brand throughout the country to help generate customer acquisition.
Jim Brown: For instance, we have attracted several strong distributor leaders to join <unk> and we are optimistic that they can help us accelerate sales momentum in the existing market.
Jim Brown: We are also committed to delivering a great customer experience and high satisfaction levels in this promising new market. Thus far our team has done a fantastic job on these deliverables firstly I'm planning to visit India. In early July I am excited to spend time with our associate leaders and the management team.
Jim Brown: We are also committed to delivering a great customer experience and high satisfaction levels in this promising new market. Thus far, our team has done a fantastic job on these deliveries. Personally, I'm planning to visit India in early July. I'm excited to spend time with our associate leaders and the management. I'll close by saying that I'm confident in the future of USANA. Our team is focused on executing our strategic growth initiatives throughout the remainder of the year and believes that the successful execution of these strategies will expand our business, drive sustainable growth and net sales and earnings, and create value for our stakeholders. With that, I'll now ask the operator to please open the lines for questions.
Jim Brown: Close by saying that I'm confident in the future of you saw our team is focused on executing our strategic growth initiatives throughout the remainder of the year and believe that the successful execution of these strategies, we will expand our business drive sustainable growth in net sales and earnings and create value for our stakeholders with that I'll now ask the operator to please open the lines.
Jim Brown: For questions.
Speaker Change: Thank you very much Sir ladies and gentlemen, as a reminder, if you wish to ask an audio question. Please press star one on your total keypad and also just make sure. Your mute function is not activated in order to let's say go vitro equivalents.
Operator: Thank you very much, sir. Ladies and gentlemen, as a reminder, if you wish to ask an audio question, please press star 1 on your top keypad and also just make sure your mute function is not activated in order to let your signal reach your equipment.
Operator: Our very first question is going to be from Anthony Lebiedzinski of Sidoti and Company. Please go ahead. Your line is open, sir.
Sidoti: Our first question is will be coming from I'd say <unk> of Sidoti and company. Please go ahead. Your line is open Sir.
Anthony Chester Lebiedzinski: Good morning, and thank you for taking the questions. So nice to see the better than expected results, especially in China. So.
Anthony Chester Lebiedzinski: Good morning, and thank you for taking the questions. It's nice to see better than expected results, especially in China. Obviously, the sales incentive worked well in China; you had a 15% year over year active customer increase. So as you look forward, do you think you need to keep going with these incentive programs? Or do you think you can drive better results in China with fewer incentive programs?
Anthony Chester Lebiedzinski: So obviously the sales incentive work well in China, you had a 15% year over year active customer increase.
Anthony Chester Lebiedzinski: So as you look forward do you think you need to keep going with these incentive programs or do you think you can drive that.
Anthony Chester Lebiedzinski: Results from China with less incentive.
Anthony Chester Lebiedzinski: Incentive programs.
Brent L. Neidig: Hey Anthony, it's Brent. The promotion that we ran in the first quarter in China was very successful. Now, I want to just give a little background in order to answer that question. As we look at the way that we try to incentivize our leaders, there are several ways that we can do that. We can do a product-based incentive. We can also do a business-based incentive. The ones that we did in the first quarter were business-based, and there are multiple ways that you can consider a business-based incentive. This particular incentive really focused on personal development and professional development for these leaders, focused on education and professional accreditation, which was very successful.
Brent: Hey, Anthony it's Brent.
Brent L. Neidig: The promotion that we ran in the first quarter in China was was very successful now I want to just give a little background in order to answer that question.
Brent L. Neidig: As we look at the way that we try to Incent. Our leaders there are several ways that we can do that we can do a product based incentive we can also do a business base incentive the ones that we did in the first quarter, where business base and theirs.
Brent L. Neidig: Multiple ways that you can consider our business base incentive.
Brent L. Neidig: This particular incentive really focused on personal development and professional development for these leaders.
Brent L. Neidig: Focused on education, and professional accreditation, which was very successful as the first time that we ran a similar promotion in the market.
Brent L. Neidig: It was the first time that we'd run a similar promotion in the market. So as we look forward for the rest of the year, these are things that are very low cost for the company to run. But the more frequently you run them, then the impact starts to lessen over time.
Brent L. Neidig: So as we look forward for the rest of the year. These are things that are very low cost for the company to run but the more frequently you run them then the impact starts to lessen over time, and so we will pick and choose or the right opportunities in order to run those.
Brent L. Neidig: And so we will pick and choose the right opportunities in order to run those. There's certainly more runway where we can leverage those throughout the year. And we'll also look at leveraging similar types of promotions in other regions around the globe. We're not going to always rely on that, but that's one way where we feel it's a pretty successful lever that we can pull.
Brent L. Neidig: There is certainly more runway, where we can leverage those throughout the year and we'll also look at leveraging those similar type of promotions and in other regions around the globe.
Brent L. Neidig: We're not going to always rely on that but that's one way we feel it's a pretty successful lever that we can pull.
Speaker Change: Got it yeah. Thanks for that color, that's definitely very helpful in understanding the performance.
Anthony Chester Lebiedzinski: Got it. Yeah, thanks for that color.
Anthony Chester Lebiedzinski: That's definitely very helpful in understanding the performance. So I guess, you know, in markets outside of China where you admittedly said that you underperformed? What are the main things that you're looking to do to improve demand? I know you talked about some market-specific incentives. Maybe you can give us some color as far as timing when you expect those to happen.
Anthony Chester Lebiedzinski: So I guess in markets outside of China, where you admittedly you said that you were you underperformed.
Anthony Chester Lebiedzinski: So what are the main things that youre looking to do to improve demand I know you talked about some market specific incentives maybe you can give us some color as far as timing when you expect those to happen.
Anthony Chester Lebiedzinski: Yes every region and market is unique and and when you look at how each region responded to the COVID-19 environment and the current socio economic environment.
Brent L. Neidig: Yeah, every region and market is unique. And when you look at how each region responded to the COVID environment and the current socio-economic environment, particularly in North Asia and Asia Pacific, they were hit harder. And I think the effects of those issues have lasted longer.
Brent L. Neidig: Particularly in North Asia, and Asia Pacific They were hit harder and I think the effects of those issues have lasted longer.
Brent L. Neidig: So as we consider the future, how do we address those issues? We have to really make sure that we have a strong value proposition. I think in the fourth quarter of last year, there was a new transition with a new commercial team, which I now lead. Part of that effort is to combine our internal sales and marketing resources to realign those to better serve and create a stronger value proposition for our sellers, especially in those regions.
Brent L. Neidig: So as we consider the future of how do we address those issues, we have to really make sure that we have a strong value proposition.
Brent L. Neidig: I think in the fourth quarter of last year, there was a new transition with a new commercial team, which I now lead part of that effort is to combine our internal sales and marketing resources to realign those to better serve and create a stronger value proposition for our sellers, especially in those.
Brent L. Neidig: Regions, one way that we're going to try to address that is by rethinking our product value proposition. We've made several internal changes to accelerate our product development and to really localize our offering to meet the needs of the consumers in each of those regions.
Brent L. Neidig: One way that we're going to try to address that is by rethinking our product value proposition. We've made several internal changes to accelerate our product development and really localize our offering to meet the needs of the consumers in each of those regions. That's going to take time, but we expect over time, throughout the rest of 2024 and into 2025, as we start to really ramp up our product development process and bring new offerings to those markets, they will start to resonate more strongly than they currently are.
Brent L. Neidig: That's going to take time, but we expect over over time throughout the rest of 2024 and into 2025 as we start to really ramp up our product development process and bring new offerings to those markets.
Brent L. Neidig: It will start to resonate more strongly than they currently are we should start to see an uplift in like I said with regards to the China issue as we bring some of those business based incentive offerings to each of these other regions, where we've really.
Brent L. Neidig: We should start to see an uplift. And like I said with regard to the China issue, as we bring some of those business-based incentive offerings to each of these other regions where we've really, you know, first introduced those in China, we bring those to other regions, we expect to see an uplift as well. Yeah, and this is
Brent L. Neidig: First introduced those in China as we bring those to the other regions, we expect to see an uplift as well. Yes. This is Jim I'll talk a little bit in the opening remarks about our Asia Pacific Convention, we had over 8000 attendees there and one of the things that it's hard to know exactly the impact but.
Jim Brown: Yeah, this is Jim. I mean, I talked a little bit in the opening remarks about our Asia-Pacific Convention. You know, we had over 8,000 attendees there. And one of the things that it's hard to know exactly the impact, but we, from some of our top leaders in specific markets, have got commitments to growth and bringing people into the USANA family. So, just another positive point that we think is going to help drive 2024.
Jim Brown: From some of our top leaders in specific markets, we've got commitments on growth and bringing people into the you saw in our family. So just another positive.
Jim Brown: Point.
Jim Brown: We think it can help drive 2024.
Speaker Change: Got you okay. Thanks for that and then.
Anthony Chester Lebiedzinski: Gotcha. Okay, thanks for that. And then, in terms of India, can you share any, perhaps any more details on how that performed? And just curious, actually, how did that perform relative to your own internal expectations?
Anthony Chester Lebiedzinski: In terms of India can you share any perhaps any more details.
Anthony Chester Lebiedzinski: Not performed.
Anthony Chester Lebiedzinski: So just curious I actually how did that perform relative to your own internal expectations.
Brent L. Neidig: India is, we believe, will be a very strong long-term play for USANA. It could become a very compelling market for us in the future. Right now, we're very optimistic about what we're seeing. I think operationally we're very sound, and we've become very stable there. Those customers that we have brought in the door so far have been very pleased with the offering that we've provided at the service level. In terms of our internal expectations, I think the attraction of new people has been strong and has met our expectations.
Anthony Chester Lebiedzinski: India is a we believe it will be a very strong long term play for you saw on our.
Brent L. Neidig: It could become a very compelling market for us in the future right now we're very optimistic about what we're seeing I think operationally were very sound and we have become very stable there.
Brent L. Neidig: Those customers that we have brought in the door. So far have been very pleased with the offering that we've provided and the service level.
Brent L. Neidig: In terms of our internal expectations I think the attraction of new people has been strong and has met our expectations. We're still trying to engage those new individuals.
Brent L. Neidig: We're still trying to engage those new individuals with our product. So we have several new opportunities in order to increase that engagement level to get people purchasing more frequently. But we have several plans and works for that. So as it stands now, we're pleased with the progress and expect it to continue to grow. Gotcha.
Brent L. Neidig: With our product. So we have several new opportunities in order to increase that engagement level to get people purchasing more frequently.
Brent L. Neidig: But we have several plans in the works for that so as it stands as it stands now we are pleased with the progress.
Brent L. Neidig: And expect it to continue to grow.
Anthony Chester Lebiedzinski: Gotcha, okay, and then a last question before I pass it on to others. Can you give us an update on your affiliate program?
Brent L. Neidig: Got you, Okay and then.
Speaker Change: Last question before I pass it onto others. So can you give us an update on your affiliate program.
Anthony Chester Lebiedzinski: Yes.
Jim Brown: Yeah, you know, we introduced the Affiliate Program a couple of years ago, and right now, it's mainly in North America. And again, it was in addition to our compensation model, where one of the things that we feel we need to do is get compensation in the hands of our associates around the world sooner in the process. And having the ability to earn, you know, commissions off of sales immediately in a retail market is kind of what the Affiliate Program was meant to do.
Speaker Change: Introduced the affiliate program a couple of years ago and right now it's mainly in North America.
Jim Brown: And again it was an addition to our compensation model, where one of the things that we feel we need to do is get.
Jim Brown: Compensation in the hands of our associates around the world sooner in the process and having ability to earn commissions off of sales immediately in our retail.
Jim Brown: Market is kind of what the affiliate program was meant to do it's successful we're looking at bringing it into other markets around the world.
Jim Brown: It's successful. We're looking at bringing it into other markets around the world. The pace that they need to bring it in, probably Australia and New Zealand will be the next market to start the affiliate program. Again, our plan was never to have the affiliate program be the future of USANA, but it is a part. When we were looking at the gig economy, we really didn't have a program to get gig individuals into USANA, and that's what the program was built on.
Jim Brown: At that.
Jim Brown: The pace that they need to bring it in probably Australia, and New Zealand will be the next market to start to affiliate program.
Jim Brown: Again, our plans we've never had the affiliate program be the future of <unk>, but it is a part and when we were looking at the gig economy. We really didn't have a program to get gig individuals' into you saw and that's what the program was built to do.
Speaker Change: Got it well, thank you very much and best of luck.
Anthony Chester Lebiedzinski: Got it. Well, thank you very much and best of luck.
Speaker Change: Thanks, Anthony Thank you.
Operator: Thanks Anthony. Thank you, Richard. Ladies and gentlemen, once again, thank you for joining us today. Thank you. Thank you.
Speaker Change: Thank you Sir.
Speaker Change: Ladies and gentlemen, once again, if you have any questions. Please do press star one at this time.
Operator: Ladies and gentlemen, once again, if you have any questions, please do press star 1 at this time. As a final reminder, if you have any questions, please press star 1. As we do not appear to have any further questions at this time, let me turn the call back over to Andrew Masuda for any additional closing remarks. Thank you.
Operator: As a final reminder, if have any questions. Please press star one.
Operator: As we do not appear to have any further questions. At this time to turn the call back over to Andrew Masuda for any additional or closing remarks. Thank you.
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, 954, seven to one zero.
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 801-954-7210.
Speaker Change: Thank you very much ladies and gentlemen that works through today's presentation. We thank you for your attendance you may all disconnect have a good day and goodbye.
Operator: Thank you very much. Ladies and gentlemen, that will conclude today's presentation. We thank the participants. You may now disconnect. Have a good day and goodbye.
Operator: Thank you very much. Ladies and gentlemen, that's it through this presentation. We thank you for your attendance. You may now disconnect. Have a good day, and goodbye.
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