USANA Health Sciences, Inc.

Good morning and welcome to the USADA Health Sciences second quarter earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Andrew Masuda, Director of Investor Relations. Thank you. You may begin.

Thanks, Diego, and good morning, everyone. We appreciate you joining us to review our second quarter results. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at ir.isana.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 2025, uncertainty related to the economic and operating environment around the world, and 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 Hecking, our Chief Commercial Officer, Brent Neidig, our Chief Operating Officer, Walter Note, 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. USANA delivered positive second quarter results consistent with our internal expectations. Consolidated net sales grew 11% year over year, and adjusted earnings per share increased 36% from the prior year. Notably, we repaid our line of credit, which had carried a balance since our acquisition of HIA this past December, and ended the quarter debt-free with $151 million in cash on the balance sheet. From an execution standpoint, this was a pivotal quarter for USANA, as several strategic initiatives are in the process of being implemented. These initiatives are designed to strengthen our partnership with our brand partners, whom we used to refer to as associates, accelerate product innovation, elevate the business opportunity, and evolve our brand messaging. As I mentioned, we made a deliberate and intentional decision to change the terminology we used when referencing our sales leaders from associates to brand partners. The term brand partners reflects a more strategic, collaborative relationship and better represents the crucial role these individuals play in the sustainable long-term growth of our business. If you recall, last year we reorganized our sales, marketing, and communications departments in our direct selling business into one cohesive commercial team. This team is focused on delivering three fundamental benefits to our brand partners, best-in-class products, an income opportunity that is simple and motivates the entrepreneur with a rewarding compensation plan, and messaging that conveys product benefits and an income opportunity in a simple and compelling manner. This structure also positions us to improve the value proposition of USANA to our brand partners and customers by enhancing our already best-in-class products, become faster and more agile in developing and releasing new products, better understand specific brand partner and customer needs in each of our markets to deliver a more tailored experience, provide increased opportunities for brand partner engagement, including events, meetings, and reward trips, and improve USANA's compensation offering for both part-time and full-time entrepreneurs. By making these changes, USANA will be at the forefront of today's evolving and competitive landscape for entrepreneurs. At a high level, Our new opportunity entails an enhanced compensation plan, improved business building tools, and updated brand story. Our updated compensation plan is a meaningful step forward in modernizing and simplifying our direct sales model to attract, reward, and reward new generations of entrepreneurs, as well as existing brand partners. Some of these enhancement incentives have already been deployed, and more incentives will roll out throughout the third quarter and fully launch by October, providing USANA brand partners with an improved opportunity and supporting resources to drive customer acquisition and retention. The compensation enhancements also simplify the opportunity for brand partners to attract new generations of entrepreneurs by providing a better opportunity for new brand partners to earn compensation early in the USANA journey while simultaneously rewarding existing brand partners for activity that contributes to growth. Along with these enhancements, we've also launched new tools in our back office and mobile environment to make operating a USANA business easier than ever. For example, new functionalities will provide brand partners with data-driven recommendations on how to grow their business and maximize their earnings. We have refined our brand by using clear language that highlights USANA's key differentiators and presents them in a compelling and easily repeatable format. Additionally, we continue to enhance our in-person meeting strategy and our key regions plan to host more in-person events that are upscaled and modern to attract new and younger generations. In conjunction with our new opportunity, we plan to announce several additional product launches along with various sales incentive offerings at our upcoming global convention next month in Salt Lake City. We expect approximately 3,500 of our best and most active brand partners from around the world to attend our global convention. and we plan to focus on recognizing their efforts and on actionable training to help them grow their businesses and to share more product. We're excited, optimistic, and confident that these changes we are making to our direct sales model will be additive to customer growth, increase engagement, and deliver long-term sustainable growth. Moving on to our acquired businesses, we are encouraged by the recent performance of these entities. which provide USANA the ability to reach a broader demographic of health and wellness market while providing diversification and strengthening USANA's financial profile. I'll start by sharing an update on our direct to consumer business, HIA. HIA had another strong quarter as year-over-year top line growth remained strong with improved profitability. Overall business activity levels remain encouraging as the HIA team recently launched a new partnership with Disney, and rolled out special edition Disney Lion King and Disney Princesses branded multivitamin packs. We completed additional integration milestones during the quarter, and as we move into the next phase of integration in the back half of the year, we will look to execute upon identified synergy and operational efficiency opportunities across logistics and manufacturing. We remain confident in Hyatt's growth outlook as the Hyatt team continues to execute its strategies to increase its market share in the children's health and wellness market by further growing and expanding its product offering, entering new distribution channels, and expanding its geographic footprint into international markets. Rise Bar, which was acquired in 2022, delivered strong double-digit top-line growth in the second quarter, driven by solid order activity with key retail partners. While still relatively small, we are encouraged by the recent momentum and the Rise Bar team remains confident and focused on expanding its product offerings, growing further with existing retail partners, and landing new retail partners. Please note that we are investing meaningfully in the third quarter as we hold our global convention, introduce new and updated products, and roll out exciting changes to our brand partner compensation plan. These investments, which have been included in our annual guidance, are anticipated to create short-term pressure on our operating margin during the third quarter. In closing, this is an exciting time for USANA as we take meaningful steps to modernize and evolve our direct sales business. Our acquired businesses are performing well and will further allow us to expand our reach in the health and wellness market. We remain confident in our fiscal 2025 outlook and believe that the successful execution of our strategies will deliver sustainable long-term growth. With that, I'll now ask the operator to open the line for questions.