Good day, welcome to today's USANA Health Sciences fourth quarter earnings conference call. This meeting is being recorded. At this time, I'd like to hand the call over to Andrew Masuda. Please go ahead, sir. Thank you, and good morning, everyone. We appreciate you joining us to review our fourth quarter and year-end 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. 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 2023, as well as uncertainty related to the impact of the COVID-19 pandemic to our business, 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 CEO and Chairman of the Board, Kevin Guest, our President, Jim Brown, our Chief Financial Officer, Doug Hekking, as well as other executives. Yesterday, after the market closed, we announced our fourth quarter and fiscal 2022 results and posted our management commentary document on the company's website. We'll now hear brief remarks from Kevin and Jim before opening the call for questions. Thank you, Andrew. Good morning, everyone. We appreciate you joining us. USANA reported fourth quarter and fiscal 2022 results that were largely in line with our preliminary results announced on January 5. Fiscal 2022 presented a challenging operating environment for USANA. As with many companies, global inflationary pressure continued to negatively impact our materials and supply chain costs, as well as our consumers' purchasing behavior across several key markets. In particular, the operating environment in mainland China continues to be difficult to navigate. During the final two weeks of fiscal 2022, we saw an increase in demand for certain of our products following the Chinese government's unexpected easing of its COVID-19 policy. While we are encouraged by this increase in demand, it is still too early to forecast long-term consumer demand in this critical market, particularly given the seasonality we experienced during the Chinese New Year holiday, which recently ended. That said, we anticipate that we will begin to see a more normalized operating environment in China during 2023, and remain confident in our long-term growth opportunity in this key market. Notwithstanding the challenges we've seen in China and many of our other markets, USANA's business has remained financially and operationally strong and is strategically positioned for future growth. Importantly, the company's focus on health and wellness has never been more relevant as consumers around the world are more focused on their wellbeing now more than ever. We made progress throughout the year on several strategic initiatives, including various digital commerce initiatives to support our business, new market expansion, the launch of our affiliate program in select markets, and the completion of two acquisitions. As we begin 2023, our top priority remains generating long-term sustainable growth in active customers. While our associates did well in adjusting to a virtual selling environment, it's become more and more evident that in-person meetings and events are an invaluable catalyst to building relationships and generating excitement and positive momentum in our business. One of our key priorities this year is to return to live sales meetings and events where possible. We have planned events in South Korea and Macau, China in the first half of the year, with attendance at each event expected to be very strong, particularly given the absence of these events over the last several years. Additional strategies for this year include offering new incentive opportunities for our sales force, increasing our readiness for new market expansion, growing the two companies we acquired in 2022, and evaluating additional acquisition opportunities. I'd like to now turn the call over to USANA's President, Jim Brown, for his comments on our key 2023 operational strategies. Thank you, Kevin, and good morning, everyone. Although generating customer engagement and growth is our top priority in 2023, we are also focused on cost and margin management. In particular, we will concentrate on strategically managing inventory, adjusting our sales promotion strategy to emphasize more local and regional offerings and fewer global offerings, implementing price adjustments to mitigate our increased cost structure and the current operating environment, and capturing other operational efficiencies throughout our worldwide business. As a reminder, we made a strategic decision two years ago to build inventory levels to mitigate supply chain and stock out risks. As the supply chain has become more stabilized, the risk in this regard is lower, and we have meaningfully reduced inventory. We will, however, continue to closely manage and monitor our inventory to ensure we're able to deliver the best possible customer experience in a cost-efficient manner. In closing, we're optimistic that the successful execution of all of our strategies will allow us to build sequentially on our fourth quarter results in 2023 and position USANA to return to year-over-year growth in 2024. With that, I'll now ask the operator to please open the lines for questions. Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star one. Please ensure the mute function on your phone is switched off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will pause for just a moment to assemble the queue. Our first question comes from Linda Bolton-Weiser from D.A. Davidson. Please go ahead. Yes. Hello. Good morning. I was wondering if, you know, so the, obviously the China sales in the fourth quarter performance was a lot better than we had projected originally. You talked about the pickup in the last couple weeks. Can you talk about what you're seeing more recently? Like, has the pickup continued? Specifically, can you say anything about, like, how January was in terms of the performance there in China? Yeah. Linda, this is Doug. obviously, you know, with what we saw at the end of the year was really kind of in response to the complete change in, really COVID policy in the market. We saw those two weeks pick up. We saw a little bit of that trickle. you know, we're just coming out of Chinese New Year, and it's kind of what we had in our remarks that we're waiting to go back and see how this normalizes and kind of what that level is. We're obviously optimistic with the market, and we think them shifting for the opening of the market is positive, it does create some transitionary, you know, adjustments that we'll have to make and our consumers will have to make in the market. We're still trying to evaluate what that looks like. Brent, you know, we have Brent in here who oversees our China market. Any other color or perspective there, Brent? Yeah. You said it great there, Doug. Just December was very strong with the change in the COVID policy, and we saw that demand go into January. As Doug mentioned, Chinese New Year hit at the end of January, and every year there's always a slowing that's associated with that. Similarly, we saw that same slowing. Time will tell as we come out of, you know, out of Chinese New Year and into February and March to see what demand is going to normalize at. Okay. I guess when I just look at the results, again, versus what I was expecting, I guess it's the Southeast Asian piece that was quite a bit worse there. Can you just kind of talk about, I mean, are there both COVID impacts still going on coupled with just macro ness, or is it just specific stuff with your business that's going on in Malaysia and Philippines, I guess, I'd be interested in? Thanks. Yeah. Let me start that off, and I'll have Jim and Kevin maybe come in on top, is, you know, within that area, obviously in Southeast Asia, COVID has hit us particularly hard. I think Philippines, Malaysia are kind of key examples of that. The other issue playing into the performance, both sequentially and year-over-year in the fourth quarter in that region, is that we didn't, we were not promotion heavy. It was an atypical quarter for us with the level of promotional activity, and it was a choice by us just relative to all the things that had been kind of pushed and encouraged and incented, and it was just a choice by us. What we think going forward and what we're hearing from the leadership in the market, maybe Jim talk about that, is pretty positive. Yeah. I mean, we started really traveling again in the third and fourth quarters of last year. You know, the leadership in the markets from the events that we went at are excited and planning on really starting off the new year, you know, growing, and that's why we're so positive on this year. Just like Doug said, usually in the fourth quarter it's a little slower, and we didn't have as many promotions planned by us. We were very promotional heavy the first part of the year because of COVID, and we kind of wanted to bring that down to a more normalized run rate. Okay. You talked about in the just the gross margin performance in the quarter. You mentioned an inventory valuation negative impact in the quarter. Is that kind of a one-time thing in nature, or do you think that will continue? Just can you give a little more color on that? Yeah. Well, and it was both the quarter and the year. I mean, I think the year, just from carrying more inventory, it creates some exposure, some risk, and just making those decisions. So we dealt with that, some of that risk as far as, you know, making adjustments to inventory where necessary. We think, you know, and you heard in Jim's prepared remarks that a lot of the instability of supply chain and how we're having to react has definitely stabilized, and it bodes well going forward. The operations team under Walter Noot's direction has really done a great job, really managing the inventory. So I think we're in a good spot now, and I think we'll see a little bit less, I guess, friction costs relative to that strategy. Let's see. I guess in my model I had, that actually you made good progress. I think the inventory was $67 million in the third quarter. What was the inventory at the end of the year? It was about flat. I would remind you that we made a small accounting change in the third quarter. We have a small piece, about $3 million, that we have in long term, you'd probably have to layer that up to have it be comparable to past years. I think with the change in strategy during the COVID period, we've looked at that a little bit different and kind of worked with our accounts to be on the same page there. There's about $3 million in long term. There, you're about flat. The number is about that 70%-71% range. you know, we're peaking out about pretty close to $100 million in inventory. We think this is meaningful progress and the group has done a great job adapting in a relatively short period of time. Okay. Thank you. You've talked about this affiliate. Well, before I go on to that, can I just ask, in terms of the outlook for 2023, I mean, do you have any projection as to, like, if the working capital line will be a positive or negative influence on cash flows? Just because of some of the spin up and some of the timing of the payments, you know, we definitely saw a bolstered operating cash flows in the fourth quarter, so you'll see that drag just as it kind of corresponds. A lot of that's because a lot of the inventory came and sales really pretty robust at the end of the year. You had some time where we generated revenue but hadn't actually paid commissions. There's a little bit of a delay between when we generate the sale and pay the commission, so we have accrued liabilities there. But I think it'll be a little bit of a drag, but that really is kind of the isolated event that would cause that. Okay. Just, in terms of the outlook for 2023, I mean, you're still kind of figuring in some inflationary cost pressures. Is there any way of quantifying, like, those pressures, like, in millions of dollars that you're figuring in for 2023? I mean, I think we've just seen overall, you know, as we've gone back and had positions that have left come on board, they're coming in at a much higher rate. You know, we've had to go back and address, you know, many of the key areas, I think particularly in the production environment and select positions outside of there. Materials, you know, probably the biggest from just the overall, you know, framework of our P&L. You know, and, you know, Mark, China obviously has a little bit different 'cause they're doing all their sourcing locally and their production locally. You know, the rest of the world, we've probably seen in that 5%-8%, you know, pressure on change in material costs. Like I said, as we get a little bit more stabilization, we think there's some opportunity to negotiate and look for alternative sourcing as well. We'll definitely be proactive there. I think stability and kinda executing and having the stuff to run our business is first priority, though. Okay. Just along those lines, can you remind us Excuse me. What your pricing strategy has been and what you took in 2022, and then maybe what you might plan for 2023 on the pricing front? Yeah. We're still rolling out 2023, I'd probably hold off now. I think what we've done the last several years is we've probably definitely operated below where the inflationary pressures were, just having some unknown out there on when it would come back. You were definitely looking for price adjustments that would reflect some of the current cost pressures that we're seeing and trying to do. Obviously, you know, we wanna do as little as possible, just in the environment. This direction from Kevin and Jim is just really being thoughtful, and we're working with the local sales leadership in each of the markets to arrive at that. It'll be probably a clip above. We've been in that 2% range the last couple years, and it'll probably be a little bit above there. Okay. Thank you. Finally, on the... You have talked about this affiliate program. Can you just talk about kind of how you're approaching that rollout and what the pace is, and is it just a matter of going country by country and rolling it out or region by region? Like, kind of what's the general plan with that? Yeah, sure. We actually rolled out the affiliate program for the Americas in November. It was considered a soft launch, then we had a full launch just a few weeks ago in January. We're gonna look at that over the next few months to make a determination of where we're gonna roll it out. We have plans to do it. It's mostly gonna be country by country, not regions. It's gonna be the countries that we see affiliate programs and we know we're getting feedback from the field that they want a simpler way to earn with a faster way to earn, and that's how we'll approach it. We will, you know, it'll go through 2023, some in the second half and then into 2024. We're ready for it. Again, we want to see how it's working and then see if we need to make any adjustments to the program itself before we roll it out completely. Okay. Thank you. That makes sense. I guess I'll leave it there and then take the rest offline. Thank you. Thanks, Linda. I'll now take our next question from Susan Anderson from Canaccord Genuity. Please go ahead. Hi. Thanks for taking my question. Just a couple questions here, I guess. On the Americas and Europe, I'm curious just your thoughts on the active customer count, where you see that going this year and any drivers you have to kind of re-reverse the declines there. Also just wanted to get your thoughts on how you're expecting the promotional activity to play out this year. I know it was lower last quarter. Are you expecting that to continue into this year? Hi, this is Kevin. Thank you, Susan. Just to talk about the Americas and Europe, one of the key strategies behind our affiliate launch is to attract a different demographic, meaning a younger demographic, who's navigating themselves very openly to a direct sales model, but maybe not so much a traditional model. As we become more relevant in that space, we expect to support and expect to see our active customer counts increase in these markets. One of the key strategies behind the affiliate program and launching it here in the U.S. especially is precisely that the attraction of a different demographic that may be more open to receiving, as Jim said, pay quicker in a simple and easy way to receive a commission in a new marketplace. We're optimistic as it relates to the United States. We have a very, very strong base in the U.S., and we have a very strong customer base that has many of whom have been with us for many, many years. We're going to build upon that base, but also really focus on some new customers and approaching them in a new way. As it relates to our promotional activities, we're definitely, as compared to Q4 especially, going to increase that. We have later in the year, an event that is specifically for the U.S., Canada, Mexico, and Europe event, that we'll hold targeted specifically at these groups, where we will again, launch some new opportunities and again, communicate with them face-to-face versus being virtual. There was one last part of the question, Doug. Susan, there was one other part of the question I can't remember. No, I think it was just on the active customers and the promotional activity, which was very helpful. Okay. Also I wanted to ask about just capital allocation. Curious what your thoughts are for this year in terms of the puts and takes between share repurchases, and then I think you mentioned your remarks, M&A, you know, potential acquisitions that you guys still potentially are looking to seek out there. Well, along those lines, you know, how are you thinking about something that would be complementary to the business? Thanks. Let me go reverse just a little bit and just kind of put a little bit more color on your prior question that Kevin responded to. You know, one of the things we did during this last year, I think particularly in the markets that have launched now with affiliate, is we ran a test program during the year. The way we ran that program kind of created a pretty heavy lift in our PCs for the short period of time. As that program expired and stuff, you've definitely seen that reflect on our customer counts. We're really looking to build sequentially from the base that we report in the fourth quarter in that region as we run these programs. Just to kind of put a little bit of context and color there. Then as far as capital allocation, you know, it's, it's very similar to what we've done in the past, but there is definitely a heightened focus on business development and looking at some inorganic opportunities. We'll continue to do that. I think with the, with the two acquisitions we made last year, we're pleased we're making progress. We have some very high hopes and, you know, expectations of these companies. And, and it's a good time right now to deploy some of our capital in this area and be pretty assertive there when things make sense. You know, some of your question is what type of structure? I mean, we'd look at verticals. We definitely look at complementary. We're definitely looking to go back and learn in some areas that we're not actively participating in, you know, from our business. We think there's a variety of options out there that we think will be very additive to the organization, as we move forward there. Great. Share repurchase, we have $83 million outstanding, and so we haven't really commented on specifics there. you know, just as a note, that's what's currently authorized with the board. Great. Are you guys seeing valuations become more attractive in things that you've been looking at? The conversations and the gap between buyer and seller have definitely been more palatable than they were a year ago or two years ago. It's still always an argument, making sure that we see value in how we see the future of that organization. It's always a bit of a struggle. It's definitely more palatable than it has been in the last couple years. Great. Thanks so much for all the details. Good luck this year. All right. Thanks for being on the call. Our next question comes from Ivan Feinseth from Tigress Financial Partners. Please go ahead. Hi, thank you for taking my questions. Can you give me a little bit of color on some of the products that are really selling well? Where do you see opportunity? Like, for example, you know, during the winter, are you doing exceptionally well, let's say, in immune boost products? Also what, going forward, new key growth areas are you targeting? I mean, when you've mentioned it, right? The last couple of weeks of China, we said it before, were a little bit higher in volume and demand than expected, and that goes back to the COVID environment where they opened up. Products that are immunity or overall health, we saw a pickup on that, and we saw multiple times the normal amount. You know, that's backed off a little bit when we look at, you know, Chinese New Year, and we're gonna decide and look and see where it's going after that. We're excited about it, but, you know, kind of hesitant to see what it's gonna do throughout the year. On new products, and we've talked before, you know, one of the big things that we do is we launch new products and usually around one of our big events, and we talked about them. We have two in Asia-Pacific, or one in Asia-Pacific and 1 in China beginning of this year, then we have another event in August for the Americas. That's where we'd roll out more new products at that point in time. You know, for us, we're looking at innovation. We're looking at delivery methods, you know, and the science that's out there to make us or help us make those decisions. Ivan, real quick, you had asked about some of these other areas, hopefully you picked up in our release that we're a little bit more forward on the talking of international markets. Jim, just high-level comment. I know we can't talk about the market, but rough timing and some of this other stuff. Yeah. For the new market, again, we have a plan on when we'll announce that, and it would be at one of our major events. We're looking at probably the fourth quarter for a launch of the new market. We've been doing work literally the last year and a half to get prepared. You know, when we do this, you have to go in and register, find the right people to run the market, and we've been very successful, excited about the talent that we brought on for that market. You know, we'll see it. It won't have a huge impact on this year, and we'll look at a bigger impact in 2024. That creates excitement through the field. They like that opportunity throughout the company to move forward. you know, we're excited about the announcement. We're just not ready to announce it right now. What products, are your, you know, associate sellers saying they're seeing the strongest demand for? What are they, like, feedback from their customers are they getting that things they are looking for? Yeah, I think it's, you know, at least with us, Ivan, it's a fairly common theme. I think obviously in the height in COVID period, as Jim commented on, we've seen really a high demand for products that are designed to support immune function. We saw that as we first entered COVID and saw that spike in volume. We think and you've commented several times in conversations we've had that people are more engaged and interested in their health. In general, overall health and wellbeing, they're exercising more, they're taking a more holistic approach to their health, and supplementation is a big part of that. You know, we've seen stuff that's been fairly consistent. We're always getting different feedback on new product offerings, and we're trying to, you know, continue to go back and formulate that and really respond. We're definitely got our ear to the pavement and listen to what the consumers are telling us. Yeah. Another area of focus for us is the affiliate program. We talked about that. That's a new way to earn as well as to introduce products. We're looking at products that fit that model really well, where, you know, a influencer or an affiliate could talk about them and show them and they're priced in that realm to be effective with that program. You'll see some products this year come out that are specifically designed for that affiliate program. One last question. I mean, sadly, if we weren't in the pandemic of COVID, we'd be focusing on the pandemic of diabetes, which is just gonna continue to get worse unless people come to address many of the dietary issues. What type of opportunity do you see there? Are you working on that? Then also the other area of sleep seems to be, you know, sleep supplements. In that area, there seems to be a lot of demand, and that all comes together with sleep and wellness as well as, you know, being managed by diet. The same thing, diabetes can also, you know, diet is a key part of managing that. Can you give some thought or comment on that? Yeah, Ivan, this is Kevin. I couldn't agree with you more on the epidemic from a diabetes perspective and other health challenges, which underscores the relevance of our company and what we're talking about and offering. We've spoken for many years about the glycemic index and about how maintaining a more consistent glycemic score, meaning not spiking or allowing large dips to happen in your blood sugar levels, will help in many ways with symptoms and/or onset diabetes and other things related to that. As you look at many of our products and our foods-related products, we do take into account and look at the glycemic index and try and maintain through our nutritional drinks as well as our foods, a healthy glucose level throughout the day. Our Nutrimeal drink is especially good for that. On top of all the nutrients that it's supplying, very consistent in helping us maintain a low index on the glycemic index. We do have some other, foods type products that are in development that I think will further help in that category. Again, holistic health is really a focus of ours, and diabetes is one of those that is at the top of the list. I can't emphasize... You're aware of this as well, but a couple things that are most important as it relates to diabetes are exercise outside of what we're putting in our mouth, exercise, and then you bring up sleep. Sleep is so critical to the health of our bodies. We have a great sleep product that we actually just a couple days ago talked about how we can enhance and reformulate and be involved in sleep. We also have a calming product to help people calm down in the evening so that they are in a state of rest and sleep. Again, we're encouraging the mental side of things for people to do those things, which will help. One of the things I encourage every time I speak is the notion of meditation and the notion of mentally being calm so that our bodies will be willing to accept the rest and the sleep we have at night. That's a fairly long answer to your question, but I think your question is so critical to the health of our country and the world, that it can't be understated. Ivan, a little bit more color, that we've seen this in the Healthy China 2030 initiative, and the government's really thinking companies should be far more proactive here. What Jim has really pushed us towards is we've made some pretty meaningful investments in our foods facility, and we're really have a good base that we can go back and build off as we introduce some of these new products and really build out that line. I appreciate the time for my questions and wishing you and your associates a big 2023. Thanks, Ivan. Take care. Thank you. As a final reminder to ask a question, please signal by pressing star one. We'll pause for just a moment to allow you to signal. As there are no further questions in the phone queue, that concludes today's Q&A session. Now I'd like to hand the call back over to Andrew Masuda for any additional or closing remarks. Over to you, sir. Thank you 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 801-954-7210. Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.