USANA Health Sciences, Inc. (NYSE:USNA) Q3 2023 Earnings Call Transcript

USANA Health Sciences, Inc. (NYSE:USNA) Q3 2023 Earnings Call Transcript October 25, 2023

Operator: 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. [Operator Instructions] I will now hand you over to your host, Mr. Andrew Masuda to begin today's conference. Thank you.

Andrew Masuda: 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.

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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.

Jim Brown: Thank you, Andrew, and good morning everyone. We continue 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 re-engage with our associate leaders around the world on a personal level, which was highlighted by our in-person Americas in 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 amongst 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.

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