Welcome to the USANA presentation. USANA is a leading health and wellness company that develops and manufactures high-quality, science-based nutritional supplements, functional foods, and personal care products, which it sells directly through a global network of hundreds of thousands of associates and preferred customers. Presenting, you know, with me today from the company is Doug Hekking, the CEO or CFO. Well, maybe you want to be. I got promoted. Yeah, that's right. He's got the rest of the team here as well, but with that, let's just kind of kick it off. So let's do this. Doug, why don't you start by kind of giving us kind of a brief overview of, you know, how USANA is positioned, kind of the business, and kind of your perspectives on kind of your key points of differentiation, you know, versus other peers and other, you know, related companies. Yeah, we've really been foundationally pretty consistent for the duration of the company's 30-plus year history. It is really oriented as a nutritional supplement company, positioned as a premium brand. And so we've been pretty thoughtful relative to formulation that are supported by clinical studies, either those have been done outside or inside, and that kind of really foundationally is a lot how we approach it. The nutritional supplements is about 87% of what we sell, and we also have some food products and some skin and personal care that we sell as well. Okay. And, you know, let's maybe talk more about the product side. So again, it is, it's predominantly nutritional products or nutraceuticals, that kind of thing. What within there, if you can kind of dissect that, kind of where, how are you positioned? What have been growth areas for you? Just kind of delineate that a little bit for us. Yes, it's, you know, we've been fairly consistent. It used to be that our top-selling product, and it still is our top-selling product, but not to the same magnitude, was a broad-spectrum multivitamin, multimineral product. And really, what we've seen over the last five, six years is a lot more personalization or targeted nutrition people are after. We think foundationally that everybody should be taking our broad-spectrum multivitamin, multimineral. It's a great foundation to build from, but you see a lot of people coming in and taking products for joint health, for cardiovascular health. And so that, that's definitely been a change in kind of the sales mix. We continue to go back and market and advocate for kind of that broad spectrum as a baseline to build from on that personalized nutrition, though. Gotcha. And then what about in terms of the, again, the 13% that's not sort of there? What about on the, on the personal care side, that sort of thing? What are the areas you've been sort of targeting for growth that look interesting? Yeah. So we've been working on a few, you know, processes internal to go back and broaden out both with what we do on the food side. We put about $20 million dollar plant that's just adjacent to our primary facility in Salt Lake City to support the foods. And we've kind of elevated some Agile teams to go back and really be kind of forefront on these things to improve innovation and to go back and lean on these other categories of products that we offer. So I think you'll see some more coming out of there, and we've definitely made some investments to help push that forward as well. Good. So, COVID, you know, I mean—you know, if you think of the broader health and wellness space, you know, in the wake of COVID, I mean, everybody's much more concerned about their health. And I think it was really good for a lot of businesses like yours, but it also created some interesting new dynamics. So maybe let's, you know, in your industry in particular, you know, in-person activity is so important. So maybe talk about kind of what you've seen over those past few years, but how you've adjusted and adapted your model to what is maybe the new normal today. Yeah, I think COVID probably was a learning experience for everybody. There's not much of a mystery there. And, you know, I think as we've gone through that, we definitely saw some pretty heavy influence on kind of a small subset of our products, products that were designed to support immune function. Mm. And we saw some ebbs and flows and maybe stocked in their pantry with some of those things as some of those events happened, you know, whether it be in China or just kind of in the broader markets. And so, you know, that's become important. And I think, like you said, I think people are more aware of their health than they've ever been. Yep. And so I think that's gonna continue on moving down there. And so it becomes, you know, critically important that we as we see probably more entrants in the space, really do a good job at differentiating ourselves from the competition and our approach to it. And so we're very, very intentional with how we approach the formulation of our products, the type of materials we do, and we're trying to go back and formulate to give people what the clinics would say is a real beneficial, you know, contribution to their health. Mm-hmm. And so that has to be at a certain level and a certain type of ingredients that's, that's bioavailable. And so, you know, I, I think a lot of what we're gonna do would be the same approach scientifically, but do a better job telling the story to differentiate our products. Got it. And you talked about, again, it kind of elevated that sort of that baseline immunity-focused product. Have you seen that hold then subsequently? Is that kind of- is it at a new baseline, is what would you say? Yeah. When we first went into COVID, we saw the numbers on some of those products go up multiples, not percent. Mm-hmm. That wasn't sustainable. Right. So we've definitely seen those be a little bit higher percentage of our portfolio on a sustainable basis, but definitely not what it did at kind of the outset. Okay. So, what about in terms of your model relative to the, you know, direct selling? Again, in-person activity is sort of challenged in that environment. What have you been doing to kind of mitigate that? Or what things have you tried, and what things are you trying, areas focused on to drive growth or customer growth when the model has changed? Yeah, I think it was an important time for everybody to really focus on the digital enablement, and we were even though we'd done work years before then to enable it, we really had to focus on that during COVID because you just couldn't get out and interact in person. So that foundation became a very important thing. But we definitely observed and what we heard from our sales leadership around the world is the lack of in-person engagement was pretty disruptive to some of their activities. Yep. It didn't really change the stickiness of our customer, but it did change the acquisition of bringing new customers on. Mm-hmm. I think we've seen that really across the space. But, you know, we think it really is kind of leveraging both aspects. Mm-hmm. So this year we've been pretty consistent in communicating that our sales leadership said it's important that we get out there, it's important that we get face-to-face, it's important that we interact- Mm-hmm A nd dialogue. So this year, not from a transactional standpoint, but from an effort and a spend standpoint in 2023, there's been a lot of activity in traveling to go back and really kind of build those relationships and talk to that going forward. And we've had such a big focus last 3-5 years on customers, and you'll see a lot more towards our distributor enablement and tools and efforts to support them to help go out and tell the company story. So, question that I'm thinking of is, so relative to pre-COVID, are you spending more on a relative basis to kind of drive that engagement, or are you spending just in different ways? Yeah. Proportionally, I'm thinking. Yeah, I would say during COVID, we had a lull in the spend in some of those areas. Yeah. Our travel budget went down, the event budget went down meaningfully. So I think for the most part, we're returning to what the pre-levels were. So back to normal? Yeah. Yeah. Okay. Now, travel costs are a little bit more expensive now than they were before. Everything is, yeah. Let's also talk about how you're, you know, you've got sort of, kind of two groups of customers, if you will, or at least talk about associates, preferred customers. Give us a sense of that element and what that's like today versus what it might have, you thought about that a couple of years ago, how that's part of the way you're changing your business. Yeah, I think the simple thing is trying to broaden out. The way we grow our business is by the number of individuals and families consuming the products on a regular basis. And there's far more people interested in consuming than doing this as a business opportunity. So I think the focus on Preferred Customers for several years was the right thing to do. I think we just need to have a renewed and emphasized focus on our independent distributor base. So, you know, we're probably just below 50% of our revenue being generated from Preferred Customers, and pretty close to that being about 60% of our customer base. Oh, okay. You continue to see that shift kind of going forward, you think? Yeah, I think we'll see some re-engagement with the associates, but I think really for them to be able to go back and broaden out and grow and increase their addressable market, I think customers have to be a big part of the equation. That's, that's good. Okay, what about another thing, you know, with your business model, I mean, you guys have been in business for over 30 years. You're very geographically diverse. China's a big business, the U.S. is a big business. You've got some expansions going on, but maybe give us a sense of kind of what you're seeing in those different markets, and but kind of where you're focused really for growth. And I think maybe weave in there, you know, India's a new market for you. Let's talk about that because that's probably of interest to a lot of folks. Yeah. Maybe we start with the India thing first. So we've done a very soft opening, meaning that we're not opening India like we have other markets in the past. It's just being done different. Mm-hmm. And so it was really towards the very tail end of the year. So India is going to be a market that has a lot of complexity, has a lot of opportunity, it has probably some heavier investments than what we have in some of the other markets, but we think the potential is there. And so you'll continue to go back and see us invest and spend with probably not a great deal of top-line inflection early on, and see that gain traction, you know, in a pretty healthy, you know, kind of linear way moving forward. But it's something that we've been pretty open and transparent with what our expectations are, but it's definitely a big market, people who like the types of products that we market and sell. Yep. People who have a very entrepreneurial mindset as well. So we think India is fantastic. China's, as you mentioned, Mainland China is about 45% of our business. And, you know, it's been a lot of work to run the market in China. We have a lot of great management team over there. And we entered China through an acquisition that we did in August 2010, which is a bit unique- Mm-hmm F or people playing in the space there, but it's worked out very well for us. Okay. You know, it continues to be some heavy lift. You know, even though we've seen some softening, you know, there's an event with some local companies in China the year before COVID hit, then following on with COVID, so it's created a little bit of softness. But I think we fared better than many of our peer groups over there, and we're excited about the opportunity we see going forward in that market as well. Okay. And other markets? Yeah, Southeast Asia is a market probably was most impacted by COVID and probably the slowest to respond coming out of there, where you have some densely populated areas with maybe not the same infrastructure to support it. Probably more in business, transactional work in that market for us, and so it, it makes sense, it would be a little bit more disruptive. Yep. And so we still got some work to do there, getting some traction in the markets, but still some work to do. Our North Asia region is highlighted really by Korea as the primary market there. And Korea has been a really good market for us. They've flattened out a little bit, and so I think we still got some work to do there. But I think a good team and I'm expecting great things. In the Americas and Europe has been a market that's been flat to modestly down, and I once again, I think we're expecting some, you know, hopefully some progress there. But it's, you know, I think, you know, as you said, I think the sail and the wind is there with people who are interested in improving their health. Yep. We see some things going on around us, where I think we can play a niche role in supporting the health and wellness of consumers of our products as well. Then just to back to India, one final one is, how are you, what's a little different about the way you might be entering that market or the go-to-market approach versus what you might have done, you know, in a larger market like that, say, five, 10 years ago? Yes, you know, it really is the incentive system is really contained within the market. In the past that, you know, you could go back and have a sales organization that spanned over multiple markets, and there's still a way to do that here. It's just not as easy and as portable as the other markets were. But it makes sense for that market and kind of what's required in that market as well. Okay. Shifting gears a little bit. So, you know, GLP-1s are a big hot topic for anybody in the nutrition, food, you know, anything related space, health space. So what are you seeing or hearing from customers, associates, and I guess, you know, where do you see potential opportunities for your business? Yeah, just because it's such a small part of our product portfolio- Yeah On that side, we really haven't heard a great deal of feedback from the customers. Okay. I think we recognize, and just reading the research out there, some of this other stuff, that kind of the nutritional deficit that maybe some people who are pursuing this. Mm-hmm. I think it's proven to be effective. I think we can play a role in helping that out. I think we've also seen quite a few, you know, reports that kind of the intake of protein's down quite a bit, too. So I think there's some plays there that we can use to help support people going through that health journey. Okay. And so are you, you're thinking you'll come to market with something that's specifically targeted, or you just have a product that can, just needs to be positioned or needs to be pushed? Yeah in that direction? I think we can use much of our existing products, and I think there's- Yeah A few, you know, kind of novel things that we could do, and so that's still being kind of undertaken and reviewed by the internal team. Okay, good. When we look at your growth priorities, it's, you know, you want to grow customers. Yeah. We talked about some of the initiatives you're doing there. Talked about international, you're entering India. You also do, you know, some strategic things or collaborations, that kind of thing, and you obviously have a great balance sheet, which we'll talk about in a minute. But what... You know, how about that third leg? How do you think about the potential for a strategic action, or whether it's a, it's a product or it's a business? What are you kind of looking at for there? Yeah. We're looking purely in the health and wellness space. Mm-hmm. Something that we can go back and use, you know, in addition to adding to what we do and building our core competencies that help diversify the revenue stream- Mm-hmm A nd some novel approaches. But I think it's a great opportunity. We've been more active at evaluating opportunities in that space collectively in the last little bit than we really have in the history of the company. Okay. Trying to go back and find the right... It's not a matter of doing a quick thing, it's doing the right thing and finding something that resonates. Mm-hmm. But you would—whatever it is, at the end of the day, your number one go-to-market approach is using your hundreds of thousands of people directly there. You're not looking to build out a different channel. Well, with the M&A side, we would be using that. Okay. You know, like, we did a couple small acquisitions in 2022. Yep. One of them was a company by the name of Rise Bar. They sell on Amazon, through Costco and Sam's Club, that type of thing, and really, they're building out that footprint. But it's not... You know, just because of the way the company is, where they focus, it's not a competitive disruption to our field. Okay, so then let's shift to your kind of balance sheet, but really the model to it. I I mean, this has always been a real high free cash generation business. You know, you've got a great balance sheet, you've got a lot of capital, you know, availability of capital. So I mean, let's just talk about, you know, the ebbs and flows of the business. How do you think about that, the ability to deploy that and drive your growth, that sort of thing? Yeah, I think the organic investment in the organic business is probably number one on the priority, and then we look at kind of, you know, M&A type opportunities. And then we go back and go to what we've typically done in the past, which has been share repurchase. Mm-hmm. And, we always have something under consideration that we're evaluating, so that does affect how much we hold from time to time. There's a little nuance with our China operation, where there's this wonderful buy-sell relationship- Mm-hmm with all our subs around the world, with the exception of China, where you, you own the IP, you convert the product, you sell the product across the market up, and so you have this wonderful dynamic of how you bring cash back through invoicing your company. China's different, right? And so China, there's always a bit of a staging there, and so that's another consideration we have there. But yeah, our business right now is low capital intensity, right? And so we can, we can go back and leverage that growth pretty effectively and efficiently. And so, like you said, it's, it's, it's an opportunity. It's where do we see that we could put some of those resources to use that's going to help catalyze and grow the top line of the business, you know, prospectively? And so historically, we haven't carried a bunch of debt just because of the cash flow dynamics we've had. We're definitely not opposed to putting a turn or two of EBITDA on there if that's what made sense in the opportunities we're looking at, but that just hasn't been the case thus far with the opportunities we've evaluated. In terms of share repurchase, again, you've been steadily doing that. Is there any thought to elevating that as a priority, or is that just maintained pretty consistent? Just given kind of where your position and where the you know the business is, that sort of thing. Yeah, it's definitely part of the toolkit that we have. The last update we had, we just have over $70 million outstanding on our authorized repurchase and really haven't given much comment or update from that point. But it is a quarterly conversation with our board of directors on the capital allocation side. Let's talk about a couple more items. So you produce probably two-thirds of your products. Yeah. So you're vertically integrated. Give us a sense of how, you know, kind of the capital that's there, the capacity, if you will, for to support the growth of your business and areas you might need to be invested in the near future? Yeah. I think we have a great deal of capacity. I think some of the things that can be arranged is just run an additional shift. Mm-hmm. And the equipment relative to the sales that can be generated from some of the capital equipment is a pretty high turnover. You may have some initial investments, but still the dollar amounts are relatively low on what you would do. I think the manufacturing inside has been primarily a play on quality. Yep A nd controlling that cycle. And when you have a few pockets of products that you produce that maybe aren't real high level, trying to go back and get someone on the outside to do it in a timeliness and have that good customer experience. You know, we've, you know, using some of these outside sources at times have struggled with that. And so I think we definitely have a preference to bring that manufacturing, that quality side in-house. Mm-hmm. We've seen benefits there. You know, when COVID first hit, we made a conscious choice, just because there was some disruption in supply chain and the visibility there, is to build up inventory, relocate some of the inventory to the international markets, and really minimize the disruption to the customer experience... And so we pushed our inventory up to, you know, it'd been running in the 60, mid-60s range, up to about $100 million for a period of time. There's always some friction costs with doing that. We're okay with that. And then, after supply chains got a little bit more stable, a little bit more transparent, predictable, our inventory is now in the mid-60s again. So we were able to go back and manage that pretty effectively, but those are some of the trade-offs we'll make in the short term as we think about the business strategically. Okay. Again, given back to you—you know, you've got this great lens, geographic lens, across the globe. You're directly connected to customers, consumers. So maybe, you know, as we kind of wind things down here, what are you seeing at the macro level? And, you know, we've had some crazy... You know, we had supply shocks, we had inflation, but what are you seeing as you look across your markets? Maybe some highlights for folks. Yeah, you know, one of the things that we've noticed is we were pretty slow to go back and really move at passing too much along as far as pricing with some of the costs. We've seen pretty steady cost increases really since 2020. Mm-hmm. And so this last year, we took a little bit bigger price adjustment, you know, in that 4%-5% range- In 2023? In 2023. And so we just, you know, we hadn't done a lot of that. And so we're seeing, I think, what the consumers are going through is just a lot of demand- Yep ... on where they're putting their resources, doing this other stuff. And so we definitely, it's something that we stay tuned in. Mm-hmm. I think those inflationary pressures, just the cost of getting by doing this other stuff, especially being positioned as a premium product, something that we're very aware of and stay in touch with our sales leadership in those markets. Mm-hmm. And by, you know, and you see similar, you know, kind of by market, your major markets, kind of a similar theme across there, or are you seeing any, any distinction? No, it's been pretty uniform. China's been a little bit different. We haven't seen some of the same level of cost pressure in China that we've seen in the other markets. Okay. Good. Well, I think anything else you'd like to share with the audience? I think we're kind of coming to the end of our time here. Yeah. I think it's a great space to be in. A company committed to providing high-quality, premium products. And, you know, one of the dynamics that's a little bit interesting with our business is because we have more than 90% of our business that's done outside the U.S.- Mm ... and we manufacture for every market around the world, except for Mainland China, from the U.S. As we see exchange rates, a strong dollar has typically not been good for us from a margin or from a revenue reporting standpoint. Mm-hmm. So there's that dynamic, and that's a very fluid thing with how the different, you know, monetary systems are governed around the world. And so it's something that we always kind of have high on our radar as far as paying attention to. It's a good call-out. Great! Well, thank you for your time. Thank you. Thank you.