USANA HEALTH SCIENCES INC Q3 FY2024 earnings call

• Prioritized engaging with associate sales leaders, hosting a successful American-Europe Convention in Las Vegas with focus on training, development, and recognition, where feedback was positive and leaders are adopting new initiatives.
• Launched first products under new commercial team structure: Celavive Resurfacing Serum and Whey Protein Isolate in the US and Canada, with more products planned for other markets in the next couple of quarters. There's an exciting pipeline of additional products in development for next year.
• Focused on product innovation strategy with increased cadence of new and premium products, and increased agility in bringing products to market.

In the China market, active customer counts increased by 7% year-over-year in the third quarter, but net sales declined by 4% due to a decrease in average spend. No other explicit product segment financial performance with revenue contribution % was mentioned.

• Third quarter net sales fell modestly short of internal expectations due to challenging operating environments in key markets, especially China. Anticipate continued challenging environment through remainder of 2024.
• Updated fiscal 2024 guidance incorporates increased promotional activity in Q4 to support business momentum.
• Confident in strategic initiatives laying foundation for future growth and long-term customer/revenue growth.

• Challenging operating environment in many key markets, with China experiencing a more challenging third quarter than first six months of the year.
• Uncertainty related to economic and operating environment around the world affecting actual results potentially differing from forward-looking statements.

Q: Please share more details on feedback from the Las Vegas Convention and how quickly inputs can be put in and tangible benefits seen?

A: Brent Neidig said momentum derives from trust between company and sales leaders; positive feedback shows sales leaders feel company is on right direction, tools/systems presented were in line with their hopes, and momentum expected to grow over Q4 and into Q1 next year.

Q: Main reason for faster new product development process and need for more people?

A: Brent Neidig said restructured product development process with cross-functional teams for quicker problem-solving, tighter collaboration between R&D and product teams, increased communication and feedback from markets; Doug Hekking added they're resourced now but willing to invest for return if needed.

Q: Details on new product pipeline timing, SKUs, and market rollout?

A: Brent Neidig said majority effort initially on upgrading existing products, significant upgrades to start in Q1, pick up speed in Q2/Q3; products launched first in US due to regulatory environment, intention to roll out globally over time, China has its own process.

Q: Impact of reduced advertising on 3Q sales and advertising for 4Q and beyond?

A: Jim Brown said reduced advertising was moving away from activities not showing much return, constantly looking to repurpose for promotions, incentives, ad spend, and will continue evaluating.

Q: Impact of increased promotional activity on associate incentive expense line and gross margin?

A: Jim Brown said promotions incentives have both short-term value initiatives and rewarding on sales, in short term more on engaging field and supporting new sales to new customers, expecting some increase in payout.

Q: Particular things impacting margins in 4Q?

A: Jim Brown said higher spend on incentive line expected as stepping into supporting field and creating engagement, third quarter EPS was higher than anticipated due to things not in motion, but margin profile expected to be affected by increased incentive spend.

Q: Whey protein product design for GLP-1 drug users?

A: Brent Neidig said main intention not specifically for GLP-1 users, but it's a premium whey protein isolate with large market among existing distributor base.

Q: Capital allocation thoughts, trigger for share repurchase?

A: Douglas Hekking said Board and Jim are reviewing totality of things, orders of priority are investing in organic business, then business development, and when no potential, look at excess cash for share repurchase.

Q: China market stimulus impact and planning?

A: Brent Neidig said optimistic about government stimulus, current stimulus not directly affecting consumers' short-term spending, but positive response to government doing things, and Chinese consumer behavior different; Jim Brown added consumers respond a bit, and Chinese government has intent to support economy, but initial measures not directly triggering business catalyst.