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. 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 one on your telephone keypad to register your question. 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. 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 Hekking, 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. 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. 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 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, 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. While 2023 was a year of reengaging 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. 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 on today's call, you may press star one on your telephone keypad. To withdraw your question for any reason, you may press star two. You will be advised when to ask your question. Our first question is from Anthony Lebiedzinski with Sidoti & Company. Please go ahead. Good morning, and thank you for taking the questions. You know, certainly, nice job with the fourth quarter results. You know, good to see, you know, China doing better. Just curious to get, I guess, kind of big picture maybe first. 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. 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- ... in our management commentary document, talking about kind of 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 report in the first quarter. But outside of there, I think we're still kind of watching and 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. Understood. Okay. And then, you know, so, as far as pricing, so, so last year, you guys had some customers buying ahead of price increases, which impacted your first quarter, in 2023. 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, and that's why we've called it out. I think the adjustment we did last year on pricing, and we've been pretty 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%-5% on a global basis last year. You definitely won't see that this year. And the response last year was above and beyond what we typically see, just because of the having a little bit bigger adjustment. And we're definitely not moving as fast as we've seen others having. So we've been very conscientious in working with our sales leadership and how we approach that, but you won't see the same magnitude. 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 2023. Understood. Okay. And then, also, can you just talk about the, you know, the spending that you've 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 will be an investment year. I think we wanted with Rise Bar to kind of get everything situated, kind of get, kind of level set with integration, some things we're doing there. And we think there's some great opportunity there. The group has compiled commercial plans, and so this upcoming year will be a year of investment, where we won't be profitable in that entity, but we do expect some pretty good traction in sales. And India is much the same. I think we opened India really towards the very end of the year, and I think we're anticipating doing that earlier. Some of those costs with, you know, opening events and celebrations and some of this other stuff, have really been pushed to 2024. 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 really kind of put our best foot forward there. And so I think you'll probably see collectively between those, between $4 million and $5 million of net negative operating margin between the sales in those two categories. But we think that's money well invested and will generate future long-term benefits. Jim, any additional color? Yeah, Doug called 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 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. That's very helpful color. And then- 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've always had several opportunities in kind of the hopper that we've evaluated and moving down the path. And then in the past, you know, we've been pretty, you know, heavily invested in share repurchase program, but those things are balanced. 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, 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. 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. Understood. All right, well, thank you very much, and best of luck. Thank you. Thanks. Thank you. Our next question is from Linda Bolton Weiser with D.A. Davidson. Please go ahead. Yes, hello. I was wondering, just on the cost side first, I guess. Is that a sustainable comparison now going forward for the next few quarters? Can we expect for that freight cost to, to continue to be down year-over-year? Yeah, I'd say it's sustainable, and it will be down year-over-year. It's, you know, we haven't really gone out and got better freight costs or any of that, but it's just the stabilization of everything after COVID, and we can depend on, you know, the rates as well as the lead times and 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 backorder 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 ops team has done a really good job locating the inventory in market to help us have a little bit more of a shock absorber with any change in demand, doing this other stuff, so we can respond in a more timely manner. 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, it's the absence of airfreight, which is the big- Yeah. -delta there. You can see it too, Linda, in our level of inventory right now, that $65-ish million amount, where back 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, you know, I was just curious about Malaysia and the Philippines, because you mentioned that the promotional initiative helped Malaysia, and Malaysia was up 7% local currency. That's good, but then Philippines was still so weak. Did you try the same promotion in the Philippines, and it just didn't work? Or what is the difference here between the Malaysia and the Philippines performance? Yeah, the markets are very unique. Brent Neidig is in here, and I'll let him chime in. I think he can go back and give a pretty articulate response. But the Philippines is a great market, with people who are very entrepreneur-minded. I think the COVID environment has hit that market particularly hard, and the real—the operating environment is what it is at this point. We're obviously optimistic there, but there's still work to be done. Brent? Yeah. Hi, Linda. Doug mentioned it. The parameters of 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 did. Okay. And then, in Mainland China, 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 like, kind of like an average ticket per customer is sort of lower? Or how do I interpret that information? 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-over-year when you look at the full year. 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, and we've done things, quite a few things different 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. Our ultimate goal is to attract and retain consumers and customers. And so as we see that Active Customer number increase, to us, that's a good long-term indicator that we want to continue to build on that momentum. Okay, that's all. Oh, 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 first quarter, but beyond that, what, what would be the plan? Are you gonna kind of pull back on these big promotional events or still do them periodically? What, what's the plan there? Yeah, real high level, I think 2023, we're a little bit lighter than we had 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 2023. This is... You know, we're in a sales culture. You're always gonna have incentives and promotions. And to Brent's point, really looking to go back and do those things that'll go back and get us traction and sustainable growth going forward. Brent? 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. Thanks, Linda. Thank you. Our next question is from Susan Anderson with Canaccord Genuity. Please go ahead. Hi, good morning. 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. Yeah, this is 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. 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 as we, if 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 consumer there, you know, feel a little bit more pressured from a macro perspective and pulling back on your products at all? Yeah. Hi, it's Brent. The Chinese consumer, 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 has been 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. Okay, great. And 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? Yeah. So I think what you hear 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 in 2023. The adjustments that we'd have planned this year are gonna be meaningfully less than what we did in 2023. And so I don't think you'll see much 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 2023. 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 holes in the portfolio that you would like to fill? Yeah, this is Jim. We're gonna always do M&A, looking at the wellness industry, excuse me. 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, you know, 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. Great. Okay, thanks so much for all the details. Good luck this year. Thanks, Susan. Thank you. Our next question is from Ivan Feinseth with Tigress Financial Partners. Please go ahead. All right, thanks for taking my question, and congratulations on the strong year-end finish. I have two questions, is 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 not worked well? 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. And, you know, and you have a market like China, who is a very entrepreneurial spirit, really has a strong belief in the health and wellness space. And so, you know, when we do some of the stuff in line with this, China's a 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 seeing necessarily an inflection in customer counts. And so it's really 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? You can- That's great. All right, I think we're good. All right. Second, you know, in discussions and, you know, what's going on in the world with the GLP drugs and primarily driving reduced food consumption is gonna lead to the need for, you know, nutritional supplements and additional protein supplements. How have you been progressing in your thoughts about addressing those market opportunities? You know, Ivan, we think the same way, quite honestly. We see this as an opportunity for people to need nutritionals to balance out as they're eating less, and we have a great product offering. We'll look at, you know, 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, 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. Do you feel that confident you'll continue to develop these products in-house, or this will be part of your M&A thought process? Or both. 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. 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 wanna make sure is just from kind of competing with ourselves, that we broaden our reach when we do M&A. And if we can do it ourselves, I think would. ... 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 what USANA is. Yeah, and I would say our current product offering goes to specifically addressing people who need better nutrition. So I don't think we need to, you know, even though I think we're opportunistic with our 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 wanna 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. Thank you. Thank you. 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 register your question. Our next question is from Doug Lane with Water Tower Research. Please go ahead. 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 I would—shouldn't we view the active customer count as really a leading indicator, you know, going forward? I think you always should. We, 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, in bringing on new customers during a quarter, you're not gonna 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. And so I, I think it just provides context, and we've, we've tried to be very transparent, you know, you know, throughout kind of, you know, our history and how we communicate that. No, it's very helpful. I always sort of base my models off the customer count, 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? BabyCare? Yeah, that's accurate, Doug. 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. 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. I just wondered if you could put some color on the overall regulatory environment in China and how that's impacting your business. Yeah. So this is Brent. 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 matter what they oversaw, they really were repositioned to help fight COVID. So a lot of the historical meetings, 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 to what it was like before COVID. There's a good working relationship. There's understanding between both sides. I think, you know, as long as you're, you know, complying within the regulatory framework that's been outlined, I think we have no reason to be nothing but optimistic about the future, that we can continue to grow and develop our business there. You're back to, you know, holding meetings at the same pace pre-COVID or 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. 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 we'll continue to hold events at a very regular cadence throughout the year. Great. That's very helpful. Thank you. Thanks, Doug. Thank you. As we have no further questions, I would like to turn it back over to Andrew Masuda for any closing remarks. 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. Thank you very much. That concludes today's conference. You may now disconnect. Hosts, you may stay on the line.