Hello, and welcome to USANA Health Sciences' third quarter Earnings Call. My name is Valeria, and I'll be your coordinator for today's event. Please note that for the duration of the call, your line will be on listen-only. However, you will have the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you'll be connected to an operator. I will now hand you over to your host, Mr. Andrew Masuda, to begin today's conference. Thank you. Thanks, Valeria, and good morning, everyone. We appreciate you joining us to review our third quarter results. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at ir.usana.com. Shortly following the call, a replay will be available on our website. As a reminder, during the course of this conference call, management will be making forward-looking statements regarding future events or the future financial performance of our company. Those statements involve risks and uncertainties that could cause actual results to differ, perhaps materially, from the results projected in such forward-looking statements. Examples of these statements include those regarding our strategies and outlook for fiscal year 2023, as well as uncertainty related to the economic and operating environment around the world, our operations and financial results. We caution you that these statements should be considered in conjunction with disclosures, including specific risk factors and financial data contained in our most recent filings with the SEC. I'm joined by our President and CEO, Jim Brown, our Chief Financial Officer, Doug Hekking, as well as other executives. Yesterday, after the market closed, we announced our third quarter results and posted our management commentary document on the company's website. We'll now hear brief remarks from Jim before opening the call for questions. Thank you, Andrew, and good morning, everyone. We continued to face a challenging operating environment during the third quarter. The economic environment is having an impact on consumer behavior in many of our markets. Our sales force is finding it more challenging to engage and attract new customers and associates. The cadence of our promotional activity during the quarter was lower when compared to both the prior quarter and the third quarter of 2022. This decision was deliberate as part of our strategy to find the most appropriate balance of incentives, promotions, and in-person events for the full year. We continue to experience an unfavorable impact from the changes in foreign currency rates, and the impact from these changes was greater than anticipated. Collectively, these factors ultimately contributed to a softer than expected third quarter results. Notwithstanding these challenges, we remain confident in the strength of our underlying business and our growth potential going forward. We generated $22 million of operating cash flow during the quarter, and our balance sheet remains strong, with over $300 million of cash and no debt. Our key strategic initiatives include re-engagement of our associate leaders around the world, expansion of our business into India, new incentive opportunities for our sales force, pursuing additional acquisition opportunities, and expanding our digital commerce initiatives. I'll briefly explain upon our progress on a few of these initiatives. During the quarter, we continued our efforts to reengage with our associate leaders around the world on a personal level, which was highlighted by our in-person Americas and Europe Convention in Salt Lake City, where we offered recognition and training to leaders and also launched several new products. We believe these live events are a key component to generating momentum and have several planned over the next year. These events will continue to be tailored to specific regions and markets to have a significant impact on those areas and ultimately drive sales and customer growth. We continue to make progress towards officially commencing operations in India. We are targeting a launch date prior to year-end, and we remain excited about this market opportunity. Notably, this is an incredibly large and complicated market for our business. Our approach to opening, operating in, and growing India will continue to be intentional and will be centered on long-term, sustainable growth. We anticipate that the initial sales contribution from India will be modest but grow over time. We have a high long-term expectation for this meaningful market and the opportunity it presents to further diversify our business, geographical footprint, and customer base. We look forward to providing future updates on this market once we officially launch operations. Our team will continue to focus on the factors we can control and execute on our strategies. Before opening the line for questions, I'd like to announce some recent adjustments to the structure of our management team. As I took on the role of President and CEO, I reorganized some responsibilities among our management team to ensure that they are unified in executing our top goal, which continues to be active customer growth, and working as efficiently as possible on capitalizing on many strengths of our talented organization. First, Brent Neidig has assumed the role of Chief Commercial Officer. Brent has played a pivotal role in shaping and executing growth strategies as Managing Director of our largest market, China. With his experience and expertise in this area, he will now oversee sales and marketing teams globally, with the responsibility of driving sales and customer growth. Second, we have expanded Walter Noot's role as Chief Operating Officer to include our research and development department. Walter oversees our operational excellence globally and focuses on USANA's efficiency, profitability, and quality across the business. Walter's operational experience will complement Dr. Rob Sinnott's scientific vision and long-term objectives for health and wellness and will be a catalyst for future innovation and excellence here at USANA. I'm confident in our entire management team and amazing employees, and believe that these changes will better position the team to execute our key strategic initiatives and position USANA to return to sustainable long-term growth. With that, I'll now ask the operator to please open the lines for questions. Ladies and gentlemen, as a reminder, if you'd like to ask a question or make a contribution on today's call, please press star one. Our first question is from Anthony Lebiedzinski from Sidoti. Please go ahead. Good morning, and thank you for taking the questions. First, I guess, you know, when I look at the results in Malaysia, for example, you said that sales were up sequentially due to a local promotion. With that in mind, how should we think about your outlook for promotional activity? I know you're looking to step that up in Q4, but kind of, you know, maybe high-level thoughts beyond Q4. Or do you find that given the current environment, that maybe you will need to do more promotions to get customers to be able to buy your products? It's just... We'd love to hear your thoughts on that first. Yeah, I'd go back to talking a little bit about COVID and the things that we did from a promotional side, to kind of combat the situation at that point in time. We did a lot more promotions that were product and sales-based, and we wanna get away from that. We're looking more at promotions and incentives that grow the company and add to our active customers, not promotions specifically that make it easier to buy product and actually get a bigger wallet share. We'll continue to do those to make it exciting, and the field expects those over time. We just felt, over the last year or so, that we had gotten a little heavy with promotions, and we backed away some. But we still wanna do things to motivate the field to grow, and gaining more customers and consumers, in the end, is what we wanna do to become, again, our... the healthiest family on Earth and hit our 1 million customers and families that we're expecting to get over the next few years. Gotcha. Okay, yeah, thanks for that. And then, yeah, you talked about reengagement of your associate with more in-person meetings. So I guess, you know, in your conversations with the associate leaders, I mean, what are some of the main takeaways that they have shared with you as to, you know, how you're thinking about shaping your strategy for next year? Yeah, again, we have major events. We talk about those. We have Asia Pacific Convention, we have a China Convention, as well as many other China events because the market's so large, and then we have an Americas and Europe event. And part of that is to share our strategy. A lot of times we also introduce new products, but it's to get that motivation out. We use those events as training opportunities. But just like you're saying, a lot of it is listening to the field and trying to get an understanding from our associates, our sales force, what their challenges may be and how we can combat those or make it much better. We hear, you know, the normal stuff about competition out there and what can we do to make sure that we're offering a great product line and competitive compensation plan, and we'll continue to use that information to make changes. One of the things that we've concentrated on in the last year is what we call the USANA Difference, and it's our story of what makes USANA the company that you wanna join, both from products, compensation, philanthropy, everything that goes on to make us, you know, the company that someone wants to come into. And what we felt over the years, that's one of the messages that we had, that that has been a little bit harder to tell with COVID and the environment. So we really had a strategy over the last year and a half to get the message out, give training aids, make sure that our associates, affiliates, and even our customers, through loyalty programs and sharing programs, can share the story and build the family. Yeah, the other thing, Anthony, just adding to what... I mean, Jim and many of the members of management, the sales executives, Brent included here, that Jim just talked about, have been traveling on a regular basis, and they often get in these situations with smaller associate leader groups, and it really gives them a great opportunity to build the relationship and really open the lines of communication so we can go back and be responsive and have them really feel an open environment to reaching out, letting us know what they're seeing. Yeah, we have literally an incentive trip that Brent and myself and some of the management team from China will be doing in Europe, starting this week. A big part of that is training, as well as meetings with each of those leaders to make sure that we understand what we could do better as a company to service them. Understood. Okay. And then, you also talked about, a little bit about the new incentive opportunities. I know you have a new, fairly new affiliate program. Can you share some observations with that, and, are you looking to perhaps, expand that to other countries? I think we're still in the learning mode in the markets where we've launched it. I think we're definitely open. I think we have heard a little bit of request from the different markets, and some of our larger markets about exploring different opportunities there. So it's something that we're gonna continue to push on and really make sure that we're aligning that incentive to be a real reward and engage that associate base to go out and tell the story and introduce new customers and new associates down the road. So it's something we're still monitoring, and we think it definitely is something that can go back and add to our success going forward, but there's still some work to do. Got it. Okay, and my last question before I pass it on to others: So, obviously, you have a strong balance sheet with plenty of cash. So, how should we think about your outlook for acquisitions? And I know you did buy back some shares as well, in the quarter. So maybe if you could just talk about acquisitions, what you're looking... Are you looking, still looking at that? And then, whether we should assume additional share repurchases. Yeah, we continue to be really active in evaluating opportunities. It's just tough to go back and find a good alignment there. So that'll be really an ongoing part of our strategy, is looking at some of these opportunities... to kind of amp up that return to shareholders that we're producing on a regular basis. As far as share buyback, you know, typically, we don't give a whole lot of forward commentary on that. I think the reality in the short term, I think we'll be buying, at a minimum, shares to offset the dilutive impact of equity grants. And outside of there, I think we'll just go back, and it's a discussion we'll have with the board on a regular basis. Got it, understood. Well, thank you very much, and best of luck. Thank you. Thanks, Anthony. Our next question is from Linda Bolton Weiser, from D.A. Davidson. Please go ahead. Hello. So, my first question was just a small little question on the financials. You have this other income expense line that it has actually been positive. I believe it's been other income. I think I'm projecting now $7 million for 2023. Can you just clarify what that line reflects and why it's been like a more positive number in 2023? It's primarily interest income and just given kind of our position and the strength of our balance sheet and the cash we're holding, that's the primary catalyst there. There's a few other things in there, but that's the primary contributor there. Okay, so as far as if you keep a fairly healthy cash balance and interest rates still be pretty high or higher, then that would continue to be a positive line item, I would think. Is that the right thinking there? Yeah, with that, with that assumption and no unforeseen investment activity in the near future, I think that's a fair assumption. Okay, gotcha. And then, I guess with Malaysia, I guess I was just a little bit wondering, 'cause you talked about the promotion there, but the local currency sales were down 2% year-over-year, but the customers, active customers were up 4%. So I'm just wondering why the revenue was down, but the customers were up. Is that they're buying less per customer or something like that? Yeah, we're seeing a couple things. I think, you know, one, currency, but as you look at constant currency, I think it's also the promotional activity, and sometimes that stimulates smaller basket size. And as Jim kind of indicated in his introductory comments, you know, we are seeing a little bit of impact in consumer spending relative to the economic environment that we're really seeing globally right now with kind of the pressure on inflation. But, you know, the teams are working hard, and we're seeing heavy engagement. We got a great leadership team in that market. Okay. I think the thing that, you know, the reason maybe why your stock is down so much today, just my speculation, is that the tone seems... I mean, things seem really different, 'cause last quarter, I remember actually raising my estimates, and then this quarter, you know, I'm really becoming more conservative with my outlook, trying to just get my numbers down. It just seems like a real change. Like, is there something you can pinpoint about, like, things actually getting worse for the consumer environment, or is it a particular region? It seems like there was weakness. I mean, all the regions were down except for greater China. So can you just give a little more color on what you think the consumer, what's going on there? Well, I think many of the consumers are feeling the pinch with, you know, other areas of spend, kind of putting a little bit more pressure on there. And I think we've seen some pretty good continuity there, in all honesty, but it is something that we hear verbally coming back from the group. I think you always have to look at the comparable promotion periods that we've had in prior years and sequentially. Malaysia, you know, like I said, sequentially had a small promotion there, and it definitely looked sequentially as positive as a result of that. But some of the things that we did relative to promotional cadence, and Jim said, we're trying to go back and find the right balance there. I think we're committed to that type of activity, but trying to go back and do it so it's additive to sustainable customer growth. And so, you know, we had some anticipation of some of the things that we'd run a little bit earlier in the year to go back and maybe, you know, have a little bit more of a lifting factor. And, you know, we definitely saw a lift in the short term, but maybe not the legs that we'd hoped on it. And those are things that we're gonna keep trying and testing, and I don't think it always, you know, plays out according to plan. But I think as far as a base run rate, I think we're hanging in there. I think we'd just like to go back and see that just organic level of sales lift, as we do some of these things and kind of propel us forward. And so we're still going down there. And, you know, with Brent kind of taking the new appointment to oversee sales and marketing globally, I think we'll see some different things. I know he's talking with his leadership team now, and we'll see some different forward-leaning activities coming out of that as well. Yeah, I mean, this is Jim. I'm optimistic on the future and definitely for 2024. I just mentioned it a minute ago about some realignment with the organization, which is gonna have a big impact. It's gonna have sales and marketing more aligned as well as when we talk about Walter and his excellence in operation efficiency. We have, you know, a top 10 priority list that we're gonna be working on getting projects done throughout the year, next year, and I know we'll be more efficient and more aligned to get those done. You know, India is coming open, and we know we're talking about it being modest in a year, but it's an exciting market, and there's opportunities in other regional or other markets around the world from just the India opening to grow those India markets as well. So, you know, I think we're set up to see a good 2024 and growth in 2024. And I think the team's excited. Okay. I mean, so that sounds encouraging that you have an optimistic outlook. You know, would it be something where, like in 2024, we might see a sequential improvement in the year as it goes out? Like, maybe it starts out weaker like it is now, and then it kind of strengthens as the year goes on. Is that what you're picturing, maybe? Yeah, I mean, you, you have to build from the base that you're at now, and that's, that's definitely an expectation. Obviously, in the first quarter, we have Chinese New Year, which is really going to be an impactful holiday for us. But I think in general essence, that's, that's the expectation that we would have. And, you know, you'll, you'll look for some, maybe some future comments for us on 2024 in February as we come out with our initial outlook for the year. Okay. And then just finally, well, actually, I would like to ask a little bit more about India, because, you know, I do follow Herbalife, and, you know, India is really their strongest growing market right now. They're doing really, really well there. So it does seem like it's a vibrant market for direct selling. And yet traditional business models, companies have often found it hard to penetrate that market, although more companies are going in there, it seems. But can you talk... Is there something about India that makes it easier for direct sellers to navigate the environment there, that makes it attractive for you, more so than other businesses? Or kind of why is that a good market to go after next? Yeah, I don't think direct selling, the business model is any easier than any other companies out there. India is a complex, large market, and, you know, we've been working on India more than a year to get prepared. You know, there's all types of things that have to go from registration, and different types of business, registrations that have to be done. You know, we're excited about it. A lot of it, because of the success of some of the other markets or companies out there that are doing it. It's a large market. We're set up, to do it. We actually have, a great amount of interest from direct sellers that are in the market now, and we think that's going to help start that, business off. But we didn't go into India because we thought it was going to be easy. It's definitely a complicated market, when it comes to logistics and operations and everything that goes on. But it's the size. We have an India population in some of our markets, and they had asked us, you know, when are we going in? And that's always a catalyst for us, is when we have interest and it's more of a pull than a push, it makes sense to go into a market. I would say that we also have a really strong management team there that we have a great deal of confidence in. And so it's been a learning experience, just, you know, as we went into China, China's a heavy, heavy effort market. India is going to be a heavy effort market, which we hope the rewards will be there to support that as well. Do you think that you would look at another new market opening, maybe in 2025, or what would be your timing for that expansion further? You know, historically, when we go back, we used to open a market about every year and a half. It's more like two to two and a half years now, and it is a reflection, too, of the efforts from that department and the company, right? With India being complex and literally, states in India can be bigger than some of our other markets if we do them well. I doubt it would be that quick, but we do have an active team that's looking and evaluating market after market. We will go into other markets in the future. You know, we're this will be our 25th market, and, you know, we've gone into markets that welcome direct selling and, or have a large population, and we have a pull to get into it. It starts getting a little bit tougher after 25 to find those markets, but we have a list, we have a top five, and we'll evaluate and go into something in the future. My guess is it wouldn't be in 2025, only because of the complexity and our efforts to, you know, push all the resources we can to have India start up strong and then continue to be a strong business. Okay, well, thank you very much, and good luck with everything. Thank you. Thanks, Linda. Our next question is from Doug Lane, from Water Tower Research. Please go ahead. Yes. Hi, good morning, everybody. Staying on India here. India's been terrifically successful for Herbalife, as Linda mentioned, and in fact, India is more than twice as big as China is these days. How long do you think it will take internally, from where you stand, for India to be even as big as China for USANA? I think the way we're entering the market is quite a bit different, and we expect to go back and see progress, but I think it's going to be a different start point. But I think we're very optimistic about the market. We're just opening in a different fashion just because some of the structure and regulatory framework there, and very, very confident with the way we're pursuing it. But it's definitely going to be more of a methodical, systematic build, and we hope it really builds some momentum. Jim? Yeah, just, just some more information. It just as a-- to remember that we opened China in 2010 through an acquisition, a company called BabyCare, that continues to operate there. That's our arm in USANA. And what that did was it actually had a base to start with, to grow off of, that was, you know, modest, but it was still there and increased, you know, the speed of growing of China. We don't have that in India, even though we have a lot of interest. It's all about how quickly it starts and how, how quickly those teams can grow their organizations and customers. Fair enough. That makes sense. And we're talking about China. China continues to be under pressure. I think the WFDSA just came out with their numbers, and China was down again in 2022. It's down 8%. It's been down more than 40% since 2018, which is the recent peak. You might be doing a little bit better than that, but you're still probably down 30% or more since 2018. You know, you read about the geopolitical tensions there. Can you just update us on where you sit today on your outlook for China versus maybe five years ago, when it seemed like an entirely different picture? Yeah, yeah, Doug, we got someone just who's incredibly qualified to answer that question in person. Brent can handle that. He's been so close to the market and managed the leadership team there, so we'll let Brent kinda give his color on it. Hey, Doug. Great question. Hi. I agree with you that China's had. It's been a difficult operating environment, especially during the three years of COVID. But as we've taken a step back and looked at the market, we're still incredibly confident in its long-term growth potential. We believe that the strategy we have in place is the right strategy, and it will offer us a growth opportunity next year and in the coming years ahead. So yes, the environment's tricky. It's very challenging, just like India will be, but I believe we're, we've shown through our history, we've been able to overcome those types of challenges, and we still believe that there is a long-term growth potential there. If you look at, there are some of our peers who are still growing within the direct selling space, and we believe that that is very, very likely and possible for our future. Do you think that... But, yeah, I mean, you mentioned growth in 2024. I think you had a fairly decent local currency quarter here in the third quarter of 2023. Do you sense that we're near the bottom there? Yeah, that's always difficult to know. It's hindsight's always the best indicator there. But as we look at the current excitement and I mean, I was just there in August and earlier in the year as well, and we have a very dedicated sales force who is very optimistic on our future. And I'm incredibly pleased with our leadership team that we have currently. It's really the strongest leadership team that we've ever had, and the way that they're leading and guiding our teams currently and our sales leaders is the right way, and I believe that it's really going to propel us into the future. So like I said, we won't know for sure in terms of the bottom, but as I see our sequential growth, our year-over-year growth, I believe that we're at a good point to start building from this base. Okay, thanks. That's very helpful. Thank you. Thanks, Doug. Our last question is from Ivan Feinseth from Tigress Financial Partners. Please go ahead. Hi, good morning. Thank you for taking my questions. So with the expected adoption of the GLP drugs and reducing people's appetite, there's gonna be a significant need to supplement nutrition and protein intake. What are your thoughts and how are you gonna potentially target that with specific products maybe for that market? Yeah, I think especially kinda given the latest round of news in that area, I think that's a good observation, Ivan. I think it's the same message that we've had, but I think many who are pursuing that avenue to go back and lose weight, I think nutrition still remains a paramount concern in how they take care of themselves, and it really is kind of building a foundation of health going forward. And I think that's an important mindset, and I think it really becomes, as Jim said, it's that story of the differentiation of reminding people how important nutrition is a part of their overall health. Yeah, and given the size of our foods line, it's not, it's not significant to, you know, our overall balance of products. But you're right, it's an opportunity, and we need to take that and, and move forward with it. We just literally had that discussion the last couple of days with our board, who's in here. They were interested in our take, and I think it's the same thing. Hopefully, those people will understand eating less, and potentially the effects of it is a good reason to get better, high quality vitamins and nutrients into their system. Well, is there an opportunity for your associates to partner with the companies or even doctors who are, you know, recommending this to their patients and therefore monitoring their patients, and they're going to, as long as they take this, they're gonna need to supplement nutrition? Because if you dramatically cut back your food intake, sadly, you cut out a lot of key nutrients. One of the supposed side effects is muscle loss. You know, obviously, protein, increased protein intake to count, help counter that. So there is, you know, the patients that undergo using this are gonna be, you know, under doctor's care, but they're gonna need some level of nutritional advisory to... And I think a very important component of it, the nutritional advisory, as part of the overall process of this. Yeah, no, I would agree with you, and I would say that we do have people in our sales force who have contacts with doctors and/or are doctors, and this would be a great avenue to again help people understand exactly what you're talking about, the effects that it has on your health, and that you should be looking at supplementation to counter those effects. Honestly, we haven't put together a huge strategy and trying to move to go into that area, but it's something we need to look at. But again, you know, the other thing that will happen is more education will get out there through you know magazines and other avenues, and people will hopefully see that need and seek out you know better high quality premium products that we sell at USANA. Do you think that there, part of your thought process is creating a targeted group of your products to address people using these drugs specifically? Yes, we can, and we have the ability. Like, we sell specific kits for different ages and the population itself. We could develop something specifically for that and have it out there to combat that. So again, it's a great idea, and we have that, we have that capability, so we should look at that. Great. Thanks. Good luck. Thank you. Thanks, Ivan. There are no further questions, so I'll hand you back to your host to conclude today's conference. Thank you, Valeria, and thanks, everyone, for your questions and for your participation on today's conference call. If you have any remaining questions, please feel free to contact investor relations at 801-954-7210. Thank you for joining today's call. You may now disconnect.