USANA (USNA) Q2 2025 Earnings Call Transcript

Image source: The Motley Fool. DATEWednesday, July 23, 2025 at 11 a.m. ETCALL PARTICIPANTSChief Executive Officer — Jim BrownChief Financial Officer — Doug HekkingChief Operating Officer — Walter NootChief Sales and Marketing Officer — Brent NeidigExecutive Director, Investor Relations — Andrew MasudaNeed a quote from one of our analysts? Email [email protected]RISKSManagement anticipates near-term margin pressure from "meaningful" investment in the global convention, new product introductions, and the compensation plan rollout, all of which are expected to create "short-term pressure on our operating margin during the third quarter."There was a "decrease in acquisition, especially in the latter half of Q2 FY2025," partly due to advance communication about incentive program changes, which resulted in a lower active customer count.Economic uncertainty was noted in China, with management closely monitoring for potential adverse impact.TAKEAWAYSConsolidated Net Sales Growth: Net sales grew 11% year over year in the second quarter.Adjusted Earnings Per Share (EPS): Earnings per share increased 36% from the prior year in the second quarter.Net Debt Position: Repaid all outstanding line of credit and ended the period debt-free with $151 million in cash.Active Customer Count: Active customer count declined during Q2 FY2025, with management attributing much of the drop to communication regarding upcoming compensation program changes.China Market: Sales in China outperformed internal expectations despite a decline in active customers, with management noting increased buy-up due to tariff uncertainty.Compensation Plan Overhaul: New plan shifts incentives to accelerate early income for new brand partners, with a full rollout scheduled by October.Technological Enhancements: New business tools—including data-driven recommendations and mobile functionalities—deployed to improve brand partner operations.HYA Acquisition Performance: HYA posted strong year-over-year top-line growth and improved profitability, highlighted by the launch of Disney-branded products.HYA Integration: Achieved additional milestones including operational and logistics integration with further synergies expected to materialize over upcoming quarters.RiseVAR Segment Growth: Delivered "strong double-digit" top-line growth, attributed to solid order activity with key retail partners.Capital Return: The company accelerated share buybacks this year and described its future buyback approach as "opportunistic."SUMMARYManagement emphasized strategic modernization in direct selling, including a transition from "associates" to "brand partners" to highlight a more collaborative, entrepreneur-focused relationship. USANA is rolling out new products, incentive offerings, and an updated brand story at a major global convention expected to draw approximately 3,500 top-performing brand partners. Management reported optimism regarding the HYA and RiseVAR acquisitions, with both segments contributing incremental growth and providing diversification within health and wellness channels. Plans for selective future acquisitions remain active, though additional transactions will be dependent on cash accumulation and strategic fit.CFO Doug Hekking said, "The impact thus far has been fairly minimal." attributing this outcome to proactive inventory management and purchasing strategies.The updated compensation plan features adjustments that reward both early activity by new brand partners and ongoing contributions by incumbents, seeking to accelerate onboarding and retention.The company is piloting AI-driven tools for business insight and supporting social media engagement, which may expand if initial trials are successful.INDUSTRY GLOSSARYBrand Partner: USANA's term for independent direct-selling entrepreneurs involved in marketing company products; previously referred to as "associates."Direct-to-Consumer (DTC): A sales channel in which products are sold directly to customers, bypassing traditional retailers or intermediaries.RiseVAR: USANA's acquired business segment specializing in packaged foods and wellness products distributed primarily through retail partnerships.HYA: Acquired company focused on children's health and wellness products, known for clean-label, natural multivitamins and direct-to-consumer subscription delivery.Full Conference Call TranscriptJim Brown: 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 HYA 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 use 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, becoming faster and more agile in developing and releasing new products, better understanding specific brand partner and customer needs in each of our markets, delivering a more tailored experience, providing increased opportunities for brand partner engagement including events, meetings, and reward trips, and improving 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 competitive landscape for entrepreneurs. At a high level, our new opportunity entails an enhanced compensation plan, improved business building tools, and an updated brand story.Our updated compensation plan is a meaningful step forward in modernizing and simplifying our direct sales model to attract and reward new generations of entrepreneurs, as well as existing brand partners. Some of these enhancements and incentives have already been deployed, and more incentives will roll out throughout the third quarter and be fully launched 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 the 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 in our key regions and plan to host more in-person events that are upscale 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 and 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 products. We're excited, optimistic, and confident that these changes we are making to our direct sales model will be additive to customer growth, increased 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 the 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, HYA. HYA had another strong quarter as year-over-year top-line growth remains strong with improved profitability. Overall business activity levels remain encouraging, as the HYA 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 HYA's growth outlook as the HYA 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. RiseVAR, 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 RiseVAR 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 have been included in our annual guidance and 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.Operator: Thank you. And at this time, we will conduct our question and answer session. Our first question comes from Anthony Lebiedzinski with Sidoti and Company. Please state your question.Anthony Lebiedzinski: Hi, good morning, everyone, and thanks for taking the questions. So first, starting off with China. Your sales in your largest market outperformed our expectation, even with a drop in active customers. So can you just provide more insight as to what's going on in China? What are you seeing there? What in the quarter? And how should we think about the balance of the year, especially with the upcoming incentive program changes?Brent Neidig: You bet. Anthony, it's Brent here. Thanks for the question. We were pleased with the performance of China throughout the quarter. Now if you recall, there were a lot of tariff activities that took place this year, obviously, and especially with our Chinese business. We have a little bit of exposure from cross-border goods that are coming from the United States into China. And because of the tariff uncertainty, we did experience some increased buy-up from our consumers in the market, which did attribute to some of the increase in performance throughout the quarter. But that tariff exposure, outside of that, we were pleased with the performance from our brand partners.There still is a lot of optimism in the marketplace. We have a great management team there, and there's a lot of cohesion amongst our brand partners. So things are still performing well. There is economic uncertainty, which we're still paying close attention to. But, outside of that, yeah, I think we're very optimistic about the long-term potential of that Chinese market.Anthony Lebiedzinski: Got it. Yeah. Thanks, Brent, for that. And then, you know, just looking at your overall active customer count, so as far as the overall decline that we saw in the second quarter, how much do you think was macro-driven versus some of it was because of the upcoming changes in the compensation programs, do you think?Brent Neidig: I think there's a good portion that's attributable to the latter. Word did get out that we were going to be making adjustments to the incentive program, and our sales teams around the world have been working for the last month in extensive communication with our brand partners to help them understand what the changes are. And naturally, through that process, there's always going to be some reservation about learning what that new program is, how that affects them. And so we did see a decrease in acquisition, especially in the latter half of the quarter. And that really impacts that active customer count. So that's something that we knew would happen.And we're optimistic that trend will turn around here in the third quarter as these new incentives continue to roll out.Anthony Lebiedzinski: Got it. Okay. So perhaps, I mean, you could just give us an example of, you know, maybe just walk us through an example of how a new brand partner would be compensated under the new incentive program compared to the legacy incentive program. Is this something you could just provide us kind of more details with?Brent Neidig: Yeah. Sure. So we found through our research and through our data that especially with the current trends in the marketplace, it's becoming harder and harder for people to find success early on in their journey with USANA. And so that's something we specifically wanted to address with these enhancements. The vast majority of our incentive program has remained unchanged. But there are some smaller elements of the plan that specifically relate to bonuses for behavior that we've made adjustments to. And we've brought some money forward in the beginning part of the journey of a new brand partner.So before, you know, you might be able to a new brand partner would join, would buy product for themselves, and they would try to start selling product to other people. And oftentimes, it would take them too long for them to earn their first commission check. And so with these enhancements, we've, as I said, we brought some money forward in that journey to where you can immediately start earning income off every single sale that you make to a new customer or to a new brand partner. So that's a big adjustment that's been made. We've made some other tweaks to some of the other bonuses within the program.But as a whole, our main goal is to drive acquisition. Through these enhancements to make it easier for people to join, make it easier for them to earn. And as they earn more quickly, they'll feel and know that USANA is successful, that this journey was the right choice for them, they'll want to stick with it longer.Anthony Lebiedzinski: That's very helpful. And just circling back to the impact of tariffs, I know you touched on it a little bit here, just overall thinking about the business as a whole, not just China, but just can you just speak to the impact of tariffs that you think you had on your business in the quarter? And how are you thinking about that for the balance of the year?Doug Hekking: Yeah. Anthony, this is Doug. The impact thus far has been fairly minimal. The operations and procurement team has done a really good job getting ahead of this with their sourcing strategy and really buying ahead of some of the potential exposure on the tariffs. We really haven't seen that much get put into place. And this is on kind of primarily the importing of raws from market to market, which is not a real big part, regardless. We still, you know, we see a lot of position from negotiating power and not quite sure where that'll land. And so I think we'll just keep evaluating and definitely put in a lot of effort.You can see that in our inventory builds during the quarter. And we'll update as we get more visibility to see what type of, you know, tariffs or trade policy type impact we see going forward.Anthony Lebiedzinski: Gotcha. Yeah. Thanks, Doug. And then, switching gears to HYA, so as far as their second quarter sales results, we could see what you guys did here. Can you give us a sort of a frame of reference as to how that compares to the year ago, as far as the growth level there? Can you speak to that? Be curious to get your thoughts on that.Walter Noot: Hi. Hi, Zed. This is Walter, by the way. Anthony. I just had good morning. I mean, obviously, good growth. They, at the beginning of the year, that's when they started building up customers. Usually during the summer months, there's a little bit of a slowdown, which they've had, and that was predicted. That's what we had in our models. And then as the year picks up, sales start picking up. So we've had really good growth this year over last year. Significant growth if you see the numbers, but you know, we expect, August, especially with Princess coming out and the Disney products coming out, we think that's gonna be a big deal for those guys.Anthony Lebiedzinski: Gotcha. Okay. And then, you know, just in terms of thinking about the integration, it sounds like you guys are pleased with how that's performed so far. Can you speak to the expected synergies and operational efficiencies that you may get from improved manufacturing and logistics? And I guess the second part would be also how are you guys thinking about the expanding distribution of HYA products beyond the core subscription business?Doug Hekking: Yeah. And maybe I'll take those in reverse. I'll let Walter chime in here if he needs some clarification. I think right now, we're going to just focus on the HYA products within HYA. We definitely see some down the road there, we'll evaluate that in a reasonable period of time. The group has been actively working on a host of operational initiatives and integration initiatives relative to getting HYA really prepped. They got a great team and getting them ready to be part of a public company. And we're making good progress on stuff. Probably a little bit early to be calling our shots as far as the savings and the uplift from there.But, you know, as we start seeing those get realized, we'll report those and create some visibility.Walter Noot: Yeah. And I would say, you know, without really giving numbers yet, I would say that the benefit that we're giving them is it's our expertise in operations because we have big operations teams and you know, they're really great at doing their DTC. They're amazing at that. And you know, we think they've been outsourcing their manufacturing of vitamins, powders, their 3PL that they've used, all those different things that you know, things that we do throughout the world. We've been helping them with, and I think you'll see in the next few quarters, you'll start seeing progress with those things. It'll be really good.Jim Brown: Yeah. This is Jim. This and we mentioned it. I mentioned in my comment at the beginning, but we are also helping them when it comes to potential international businesses and markets that they may go in. Nothing that would be immediate, but that'd be something you'd see in 2026 or later. But again, our teams are helping them because we have really good people who have done this to get us in our 25 markets around the world.Anthony Lebiedzinski: Got it. Okay. Yeah. Thanks for that. And, you know, nice to see you guys accelerating the share buyback so far this year. Just curious as to what your appetite is for additional share buybacks kind of going forward here.Doug Hekking: Yeah. We're gonna be somewhat opportunistic. You know, we really haven't commented and don't comment on prospective buybacks, but this is a conversation we have every board meeting and we discuss it and kind of discuss the efficient kind of deployment and allocation of capital. And so that'll be kind of top of mind in trying to maximize kind of the resources the company has. And I think we feel very good about the strength of our balance sheet moving forward as well.Anthony Lebiedzinski: Gotcha. Okay. And then lastly, I mean, so, obviously, you're still busy integrating HYA, but, you know, longer term, what's your outlook about potential additional acquisition opportunities?Doug Hekking: Yeah. Just like Doug mentioned, you know, we're looking at cash flow and cash management, and we need to have some time to build, but we do have an active M&A department who are looking at opportunities. We'd love to find something out there again high end number two or something that fits into our direction from health products. But, again, it's probably gonna take a little bit of time to build up enough cash to find something that's appealing to us. But we do have that team out there looking. You never know. Something may come across their desk today, and we'd have to react to it.Anthony Lebiedzinski: Understood. Well, thank you very much, guys, and best of luck.Doug Hekking: Thanks, Anthony.Operator: Thank you. And a reminder, your next question comes from Ivan Feinseth with Tigress Financial Partners. Please state your question.Ivan Feinseth: Thank you for taking my question and congratulations on the results and ongoing progress.Doug Hekking: Appreciate it, Ivan.Ivan Feinseth: Alright. So, in light of RFK's Make America Healthy initiative, especially targeting ingredients in products and especially for children, what kind of opportunities do you see gives you a competitive advantage in where you are and what do you see as opportunities to follow this trend or get in on this trend going forward?Doug Hekking: Yes. Ivan, this is Doug. I think really foundationally the way the company is run, we've been very deliberate, very intentional with how we develop and introduce products and what we feel really good about. It's really in our DNA. I think moving forward, you'll see more of that. And I think sometimes the environment fits there, and I think it'll weed out some of the, you know, products that pop up day in and day out and kind of roll off. And so I think that definitely provides some for us. Brent, I don't know if anything else from kind of our product strategy approach.Brent Neidig: Clearly, we're always taking a look at the external environment and trying to evaluate what we're doing internally to make sure that there's a good match there. I think the one thing that I'd say on this point, Ivan, is that we feel very confident in the internal team that we've developed both on the commercial side and within the R&D function. With the leadership of those two groups and with the teams that they have created, that we can be more agile and more responsive to key trends that we see in the marketplace. We've always been strong at that, but I think with the adjustments that we've made over the last year that we've become even more responsive.That's been a big part of the commercial team's restructure is that we want to make sure that we have a very robust product engine that is quick, that it's responsive, and that it's really responding to what's happening in the marketplace and giving our brand partners the right products that they need to succeed out in the marketplace. So we're confident in our team's ability moving forward, and we'll continue to pay attention to those trends.Walter Noot: And Ivan, this is Walter. You know, you talked about kids' health. I mean, that's what HYA does, and they're really poised for this. This is one of the reasons we were very excited about them when we saw them because they were beating all the trends in kids' vitamins because they have really clean natural products and we really believe in what they sell. So they're gonna do great.Ivan Feinseth: I think healthy habits begin early, so that is a good place to start with young people who can deviate down sometimes bad eating habits, but so I really like that. Your acquisition of HYA and the progress that they're making with them. Second, on the new brand partner concept, what kind of, you know, tools or infrastructure are you focusing on or building that help them as far as, let's say, on the technology side with CRM systems as an example, and on the social media side to provide brand partners with support in growing their business. You know, on using platforms like that.And, you know, it's really creating an infrastructure that brings the brand partners that are choosing to make this a career to really have the business development tools to, you know, make it a successful career.Brent Neidig: That's a great question. You know, in addition to providing them with the right product to sell, the right incentive offering for them to be successful in the sale of that product, we think one of the third legs to that stool is making sure that they have the right tools so that they can be successful. Part of this compensation enhancement that we've rolled out this last the end of last quarter and into the third quarter includes exactly what you're referencing, which is an enhancement to the IT infrastructure or the tools that we're providing to our sellers.We're now trying to be more predictive and providing them with data-driven predictions about who it is they should be working with within their network, who is opportunistic to make it to the next level. So we have provided a couple of new tools as part of this launch, and there's some more tools that are gonna be provided as the launch continues throughout the quarter. We are evaluating some additional tools from a social media standpoint. How to ensure our brand partners are effective in delivering the message on social media. So we have one tool that's currently being trialed with a small group of brand partners.Assuming that goes well, we may try to expand that to other parts of the country and the world. But we're always open in that area, we'll evaluate tools and provide our brand partners with the things that they need to be successful.Jim Brown: Yeah. I mean, this is Jim. Another area just to add on to what Brent's talking about is we're, like a lot of companies, getting more and more involved with AI, and we see that as an opportunity to advance our tools for the future. We have a few tools right now that are being evaluated. Gotta make sure we feel comfortable with how the AI functions with our data points, but I think it's gonna be a big improvement over the next few quarters and years when it comes down to, you know, how we can help our brand partners make decisions on where to put their efforts.Ivan Feinseth: Thank you. Congratulations again and good luck going forward.Doug Hekking: Thank you. Appreciate it, Ivan.Operator: Thank you. And there are no further questions at this time. So I'll hand the floor back to Andrew Masuda for closing remarks.Andrew Masuda: Thanks 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.Operator: Thank you. This concludes today's call. All parties may disconnect. Have a good day.