Hello, and welcome to the USANA Health Sciences second quarter earnings call. My name is Jess, and I'll be your coordinator for today's event. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen-only. However, there will be the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero, and you'll be connected to an operator. I will now hand over to your host, Andrew Masuda, to begin today's call. Thank you. Thank you, Jess, and good morning, everyone. We appreciate you joining us to review our second quarter 2024 results. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at ir.usana.com. Shortly following the call, a replay will be available on our website. 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, our Chief Commercial Officer, Brent Neidig, as well as other executives. Yesterday, after the market closed, we announced our second 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. During the second quarter, we saw continued macroeconomic pressure in several of our key markets, which continued to impact our associates' productivity and consumer spending. We continue to take action to strategically address these challenges, including making USANA's overall value proposition more attractive. Our strategy includes restructuring our commercial team to better drive our initiatives, heightening our focus on product innovation, increasing our efforts to engage our sales leaders with an associate-first approach, expanding into India, and continuing to pursue M&A activities. These strategic initiatives are a meaningful undertaking and are focused on driving long-term performance. This effort will be a multi-year endeavor and will take time to fully realize the rewards of these efforts. Before providing a few highlights from the quarter, I'd like to provide an overview on the restructuring of our commercial team. Over the past several months, we have reorganized our sales, marketing, and communications departments into one commercial team to better position us to execute our customer growth strategy. A significant part of this strategy is centered on our ability to deliver three fundamental things to our salesforce: best-in-class products, a simple message that highlights the benefits of these products, and an income opportunity that is simple, rewarding, and worthy of our associates' time and effort. Accordingly, our new commercial team is comprised of three core global teams: product, opportunity, and brand, as well as our regional and local business units. Our global teams are designed to do the following: The product team is responsible for ensuring that we bring innovative, best-in-class nutritional products to the market. Accordingly, this team is focused on increasing our market share and driving customer growth, with science remaining at the core of our business. The opportunity team is focused on delivering a rewarding compensation plan with an Associate-first approach, offering for both part-time and full-time entrepreneurs. The brand team will deliver USANA's story and brand framework, which will align all company messaging, both internally and externally, improving messaging's effectiveness and bolstering our global reputation. I believe the collective output of the new commercial team will better position USANA to make these fundamental deliveries to our salesforce and position USANA to achieve long-term customer growth. Now, on to some strategic highlights for the quarter. I recently returned from India after spending a week in our offices in Gurgaon with our local leadership team and salesforce. While I was there, I saw the energy and excitement for USANA's brand and products with our salesforce and customers.. Our local leadership team, led by Regional Vice President and Managing Director, Puneet Madan, continues to attract high-quality leaders, and we remain very excited about the long-term potential that this important market presents. As we have consistently communicated, sales contributions from this important opportunity is currently small. However, we plan to consistently and systematically build this market over the next several years. We also strengthened our leadership team across the company during the second quarter. Dr. Kathryn Armstrong joined USANA as our new Executive Vice President of R&D. Dr. Armstrong received her PhD in biochemistry from Notre Dame and is a seasoned scientific leader with 17 years of experience in consumer products, direct selling, and consulting. She brings a wealth of knowledge, technical prowess, and extensive expertise in product development and innovation. Dr. Armstrong will be instrumental in helping lead USANA's product development and innovative initiatives. Peter Wang has been promoted to Global Vice President and General Manager of China. Peter joined USANA BabyCare in January 2022. Since then, he has been instrumental in driving a transformation with our China sales business. He worked closely with the team to successfully launch China's Healthy Family strategy, which is focused on ensuring China's continued growth over the next several years. He has played a pivotal role in driving sales, building close relationships with sales leaders, optimizing our business model, creating innovative growth strategies, and developing our organization. I'm truly excited about Peter's future contributions as well as his dedication, enthusiasm, and leadership in this important market. I'll close by saying that we operate our business with a focus on building sustainable, long-term success in the form of customer growth. I'm confident that successful execution of these strategies will position USANA to return to growth. With that, I'll now ask the operator to please open the lines for questions. If you would like to ask a question, please press star one on your telephone keypad. Please ensure your line is unmuted locally, as you will be advised when to ask your question. Once again, that's star one if you would like to ask a question. Our first question, it comes from the line of Anthony Lebiedzinski from Sidoti & Co. Please go ahead. Good morning, and thank you for taking the questions. So, I mean, overall, I think you guys did a pretty good job of explaining your 2Q results in the press release and the management commentary. So I'll focus most of my questions on forward-looking topics. But first, I just wanted to follow up, Jim, on one of the things that you said at the beginning of the call. You know, one of the things that you're looking to do is to make the value proposition more attractive. Can you expand on that? What that means in terms of pricing or, you know, just how should we think about that? And then I have a couple of other questions. Yeah. When I talk about the value proposition, you can get into specific products and how those are priced and how the opportunity rewards for the consumption of those products. But we always look at it as our team, our associates in the field, need to be value-adding in general. We want to supply more than just products and a great opportunity. We want to have other ads there that their customers and associates can then depend on to want to stay as a community, as a family with USANA. But of course, it comes down, you know, to nuts and bolts as well, and how we price our products. But we will continue, as I stated in the opening comments, to be a science-based company and have premium products, and that's where, you know, we've had for the last 30 years, and we'll continue down that path. Yeah, Anthony, this is Doug. Maybe chime in here. A lot of the value propositions w e look at it, is conveying the differentiation of the products, also the innovation that we have on the horizon that Jim mentioned. So there, there's a host of things that go in there, and so you probably should not perceive this as just pushing down a path of price adjustments. It's value add and making sure the consumer understands the true differentiation of our products, in addition to, you know, a great deal of product innovation on the horizon. Gotcha. Okay. Yeah, thanks for that. And then so, so, just to follow up on the product innovation side, so just wanted to get a better understanding of that. So as you're looking to focus more on, on new products. So I guess, you know, when you look at your product innovation now process, you know, what's, what's on average, the typical timeframe, you know, when you guys think of an idea to, to, to, you know, bring out to the market? You know, so what, what is that now, and what's the expectation going forward with the changes that you're making? You know, it might be... I know it's a simple question, maybe not a simple answer for you, but just wanted to get a better understanding of that. Yeah, it's not really a simple answer. I talked about it with the new restructuring, and we've gone as far as restructuring internally and have three product teams over our product lines of nutritionals, skincare, and foods. It takes about a year and a half to two years from the initial decision to go down a path on a product, the science, the testing and everything else, and we're just not happy with that. We think we should be able to do it within a year's time, and those teams will be the catalyst to get that done. They have ownership. They're looking at the entire product life cycle, and of course, innovation and new ingredients or systems will help with that as well. It's longer, and that's one of the reasons that we made the decision to do some restructuring and get more of a team focus with cross-functional teams together, to be able to get stuff done quicker. Mm-hmm. Got you. So, this restructuring was completed, I believe, soon after, Jim, you became CEO. So, you know, so, as far as, like, what would... What's a reasonable timeframe to, to for you guys to see tangible benefits from this? I know it's gonna take some time, but could we see something by, by next year, or do you think it will take longer for, for that to play out? Hey, Anthony, it's Brent here. I'll take that question. Sure. As Jim mentioned, historically, it takes upwards of three years in some instances to develop a product, and that's just not satisfactory for us. So with this restructure, we've been able to accelerate the time it takes from ideation to commercialization. As Jim's repeatedly mentioned, we're science, scientific based, and science takes time. So we expect, especially on our most premium, differentiated products, that scientific research aspect is still gonna be time intensive. But once that science has come to a point where we wanna take the product through the commercialization process, we believe that through our transformation that's taken place internally, we could see 50%, 75% improvements or reductions in the time it takes to bring a product to market. More recently, we've seen, you know, from ideation to commercialization, as quick as six months, which is a dramatic improvement for us internally. We're gonna continue to push hard on that process to make it as quick as possible, because the market's always changing, and we need to ensure that we're meeting the market where it's at, not trying to play catch up all the time. So we'll see improvements. We have some additional products that are gonna come to market here soon, this year, which we're happy about. We're planning many more upgrades and new products that are gonna be launched in 2025. So we're already starting to see the fruits of the restructure, and it's only gonna get quicker over time. Yeah, and Anthony, I would chime in. Both Brent Neidig and Walter Noot had, you know, as Jim assumed the mantle of CEO, took on additional responsibility. And so a good part of the back half of last year is Brent was meeting with everybody, trying to go back and assess where it's at. And the bulk of the changes in the actual structure, the right people in the right places, have been something that's really been more recent than that. And so I think you've got the structure in place. I think it's the right alignment, but just - I just want you to have a kind of a correct understanding of kind of, you know, timing of that. Yeah, it was really this, this past quarter when we really made significant changes to the, to the team size, to the structure. So within just a quarter, we've made dramatic improvements, and it's only gonna accelerate over time. That's great to hear. And then just switching gears, I know in the release and the commentary, you guys talked a little bit more about your acquisitions strategy there. And as far as the pipeline that you have, can you speak to that, you know, as far as what could be, as far as potential acquisitions and then share buybacks? How are you guys thinking about that in light of the current stock price? This is Walter. Now, so for acquisitions, we've got a full pipeline. We've been talking to companies. I mean, we've been very, very busy, and our biggest issue, you know, is that we wanna make sure that we acquire companies that have a really good cash return. That's what we spend a lot of time with our banks and vetting companies. I think things are opening up a little bit right now. If you look at just generally in the market, there seems to be more opportunities and more companies that are becoming available. And like I said, there's a huge list right now, so we're very excited. Yeah, and one other thing, too, when we're looking at business opportunities, we want a very strong management team that will stay on and run those businesses. We're looking at it from a long-term opportunity and not just something where you're just going in and trying to manage something and, and then go down a path of selling it. Ours is a long-term strategy to bring great businesses on to be part of the USANA structure. Yeah, Anthony, this is Doug. I'll follow on really on kind of the broader capital allocation narrative. It's a very similar discussion that we've had in the past. This is, you know, Jim. Jim leads a lot of these conversations with the board about capital allocation and where we're at. And so at any given time, we're evaluating a number of different opportunities and evaluating this stuff. Share repurchase is definitely in our arsenal, but, you know, we're evaluating that in context of many of the other things that we're currently evaluating as well. So it is a discussion every quarter with the board, and we spend some amount of time on it. And so we'll get you updated. We really don't have any comments at this point as far as, you know, future plans and immediate near term. Understood. Well, thank you very much, and best of luck. Thanks, Anthony. Thank you. The next question comes from the line of Linda Bolton Weiser from D.A. Davidson. Please go ahead. Yes, hi. So I was curious, like, what happened sort of in mainland China region in the quarter? I guess I was rather encouraged by the performance last quarter, with some growth there, and then it seems like the growth kind of went away, even against, I think it was an easier prior year comparison. Is it just the promotions, that you ran promotions in the first quarter, but none in the second quarter? Maybe a little more color on China. Thanks. Yeah. Linda, this is Doug. I'm gonna give you kind of a brief response to kind of what we've said historically here, and then I'm gonna let Brent respond, who has far more market insight to that key market for us. We had said at the end of our first quarter stuff, that we would expect a softer Q2 just because of the promotional cadence. China had both prior year and the sequential quarter, had a more prominent promotion calendar during those periods, and that's something that we had called out a little bit. But I need to give you that context, and I'll let Brent go back and kind of respond. Hi, Linda. There certainly was a softness in the results, and I think that was really primarily two-pronged. First and foremost, was the cadence of the promotional calendar that we have. Now, we try to space those things out according to market need, not necessarily to hit a revenue target, but really, what are the needs on the ground in the market? And if you pile them on too quickly, too fast, then it can have more damaging effects long term than the positive upside. So I think the promotional calendar, and then the second is, you certainly heard in the news that there is certainly an economic softness, headwinds that we're seeing, within the market right now, and I think that was part of the issue. And that's one of the reasons why we continue to look at strengthening our value proposition. So that even though there is economic softness, people are still willing to pay for premium solutions that are going to solve a need that they have in their life. So the better we can cut through that noise within the marketplace, people will continue to choose USANA, and that's what we're striving towards. Yeah, and Linda, I would also say, and Brent's kind of brought this to the forefront. We're really excited about the management team over there and the elevation of Peter Wang. I think, really solid team that allows Brent to operate in a broader sense. So we're quite excited about the team structure there as well. Okay. And then I guess on the opposite side of it, the Americas and Europe kind of region did quite a bit better actually than our projection. Can you call out something there that made the performance there sort of different and better? Yeah, I think it's just that really the continued effort at addressing the current environment. The team's done a nice job. I would call out, I think Canada's done, you know, a really good job, and we've been pleased with some of the progress in Canada, I think particularly in a sequential sense. And so I think we're getting some traction leaning into it, Brent, more from a kind of. Yeah. We're really pleased with our leadership that we have here in market, and they've been aggressively going after our associate first strategy and reengaging local leaders, both in Canada and the Americas. That strategy is really, I think, starting to take hold, and we're starting to develop some positive momentum that we're excited about. That's gonna really parlay into our Americas Europe convention that's taking place here this next month in Las Vegas. We're really excited about that and many key initiatives that we're gonna be launching in the second half of the year. We're optimistic in the long-term trajectory of the market. Okay. And then, with regard to your gross margin actually came in pretty much what I had projected. I'm just curious, and it's really stable, seemingly. What is it that is making the gross margin stable despite the sales declines on the top line? Like, how are you managing to maintain that gross margin? Yeah, I mean, we've had a host of things, and there's a lot of things that go into the equation. You know, one, currency rates are operating against us. The non-variable costs, we're seeing some pressure relative to a little bit softer top line. So all those things go into what you said. If you look dynamically at China, you know, China has a robust gross margins. They make up a little bit bigger share of the overall. We see some improvements there, but we've also seen the operations team, procurement team, do a good job in kind of managing the environment. So it really is a combination of a variety of things. There's a few risk factors there with currency, a little bit of softness on the top line. We do have a little bit of a mixed dynamic, relative to what we've seen as China's picked up a little bit. We see some improved gross margins just from there. And then I think just internal efforts to keep working on securing good prices and favorable outcomes, factors in there as well. Okay. And then, you know, I guess just in a bigger, one thing with the direct selling companies that I've been, you know, seeing over the years is, a lot of times what the distributors want is, like, more training. More training and programs that can help them as well as their downlines know better how to sell the product and how to actually go about their business on a day-to-day basis. I don't really hear you talking much about training initiatives. Is there anything there that you think you need to focus on more, or is it just not something that's relevant to your business? Linda, it's Brent here, and you're speaking music to our ears. I think you really hit it on the head there, that part of that value proposition that we provide for our associate first strategy is not only providing a rewarding compensation opportunity, and one of the things we're really working on is reducing the time to success, which is how long it takes for an associate or one of our sellers to find, quote, unquote, "success." A big part of that is training. It's a massive part, and it really plays into their effectiveness and ability to go out and portray the message to the prospects that they have. I would say that training takes up much of our commercial team's resources to figure out how we can deliver in a very compelling, short, concise package all the information that a new person would need in order to be successful right out of the gate. That's one of the primary objectives of our brand team that Jim mentioned, is their sole focus is trying to figure out how to create a short, concise, compelling message in training material for our new sellers. As you go along the whole associate journey, once a person's been in for a certain period of time, their training needs change over time. We continue to provide education, certification, resources on our products, on the opportunity, really so that they can become their best self and their best customer, so that they can present themselves in a very compelling way to all their prospects. Okay. Thank you. That's all for me. Thanks, Linda. The next question comes from the line of Doug Lane from Water Tower Research. Please go ahead. Yeah, hi. Good morning, everybody. Looking at your revised guidance and trying to sort of back into some second half trends we can expect. I think those, the two things I'd just like to drill down on is, in my math, the sales is looking to be in the second half, somewhere close to flat to down, maybe mid-single digits, which is obviously an improvement from the first half trend. So what drives you to believe that the trends will improve in the second half versus the first half? Yeah, Doug, this is the alternative Doug, your alter ego here. I think a great deal of kind of what Jim talked about with the commercial team and kind of what Brent's executing there, and some of the things we see in the product pipeline, the innovation, really is kind of what we outlined in those key strategic initiatives. One of the things that Brent has done and given direct to the team is this associate first, and the effort and engagement to go back and get out and talk with them and just take any opportunity we have to go back and engage with them is really a critical part about our business. I think we really heard this in kind of loud tones coming out of COVID. And so to me, I think that's the number one thing. I think the timing and cadence of different promotional activity, we, you know, as Brent said, we wanna be smart. We wanna do things that are value add to them and not overwhelm them. But we see some of the things that we have kind of planned and baked in are additive, but it is, it's just one part of a kind of a broader approach and strategy. Jim, anything else or big picture? Yeah, I mean, it's a cadence on promotions, and we're gonna address that some in the third and fourth quarter. But it's really the strategy and getting the alignment there. And like Doug talked about, our associate distributor first strategy, and getting them the tools to be successful. Linda just talked about training. We didn't spend a lot of time on that, but that's probably one of the biggest jobs that our GMs across the world do, is train and continue to support that distributor to find more consumers of our products. Okay. Thank you. Thank you. That's helpful, Jim. And I guess in the second thing I wanna focus on is the operating margin, where you have, you know, you revised your range, but not very much, despite the sales shortfall. And again, according to my numbers, the first half operating margin was, what? 9.5%, 9.6%. And so you back into a second half, that's gonna be below 9%. And I just wondered why, despite the improving trends, although still possibly down sales, or the operating margin is gonna be lower in the second half versus in the first half. Yeah, I think it really is just the dynamic of seeing a softer top line, the loss of leverage and some of the infrastructure costs. We've definitely been selective in paring back some infrastructure costs that we don't deem as adding value, you know, going forward and doing this other stuff. At the same time, we've been investing in the strategic initiatives that Jim outlined in his opening remarks, and we'll continue to go back and invest in the future. And I would just say that, you know, the strength in our balance sheet allows us to have that mentality and lean into things, efforts that we think will help grow the company. Okay. Well, I mean, that makes sense. If you up your investment, then hopefully your sales trends will improve. Just last thing on the tax rate, I know you talked about in your commentary, and I get it, but I just, the tax rate has just shot up here these last couple of years and now into the 40% range, after forever being in the upper 20s, low 30s. Just what is different about USANA today that's driving that higher tax rate? I think just the dynamics from a tax book standpoint of where that income sits. That's the primary thing. I think we've had several years of currency adjustments, some of this other stuff, and with our concentration in the U.S. and our concentration of overhead here in the U.S., you know, you know, just the currency alone creates some operating leverage dynamics. And I think the softness in sales and where we're at and where many of the investments are happening on these strategic initiatives is still domestic here. I think there's some opportunity here, but there's nothing gonna be kind of a real quick fix to that. And I think we're looking at things longer term to make sure we're making good decisions for the health of the company long term. Well, I mean, I know you're not giving guidance for next year and the out years, but just directionally, are we here to stay in the 40s, or is there something you can do to get back into the 30s, you know, near term, in the next year or two? Well, you know, as we go back and roll these, you know, these strategic initiatives and execute, you know, much of what Brent and Walter and Jim's leadership is directing us to, I think that top line momentum will really help out. And, you know, we'll just see as we look to allocate some of the capital to different opportunities, that may have an impact on how some of that stuff looks as well. Okay. Thanks, Doug. We currently have no questions in the queue. So as another reminder, please press star one if you would like to ask a question. We have no further questions in the queue, so I will turn the call back over to your hosts for any closing remarks. Thank you, Jess, and thank you, everyone, for your questions and 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 your lines.