Greetings, and welcome to the USANA Health Sciences Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow a formal presentation. 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 fourth quarter and fiscal year 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 2025 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 Operating Officer, Walter Noot, our Chief Commercial Officer, Brent Neidig, as well as other executives. Yesterday, after the market closed, we announced our fourth quarter and fiscal year 2024 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. I will open today's call by saying that I'm excited about USANA's future. Our direct sales business just reported a solid quarter of results at the tail end of what I consider an investment year for USANA. In 2024, it became apparent that we needed to pivot in a few key areas to position USANA to return to growth we've had historically. Many of our 2024 initiatives are long-term focused and meant to make USANA more attractive and relevant from a product and income opportunity standpoint. An example of this is the reorganization of both the R&D department and commercial team. During the year, we put entirely new product teams in place, and they are now working faster and more efficiently. We also reorganized our sales, marketing, and communications departments into one comprehensive commercial team. We are now better positioned to bring innovation and relevant products to market faster with a focused brand message that differentiates our products in the marketplace. This new team structure also better positions us to execute our customer growth strategy in 2025, which is centered on USANA delivering three fundamental benefits to our sales force: best-in-class products, a simple brand message that highlights the superiority, differentiation, and benefits of our products, and an income opportunity that is simple, rewarding, and more compelling for associates that are looking to make extra income sooner or build their own business. With these foundational changes now firmly in place, I believe USANA is positioned to deliver long-term customer and sales growth. During the fourth quarter, we also acquired a 78.8% ownership stake in Hyatt for $405 million. Hyatt is a fast-growing, cash-generating direct-to-consumer company that is focused on children's health and wellness. This acquisition positions USANA as a leader in the expanding children's health and wellness market and strengthens our ability to reach and positively impact more health-conscious individual families while simultaneously accelerating and magnifying our vision of creating the healthiest family on earth. Hyatt has an experienced management team that continues to lead the company, a compelling brand, a subscription business model that is positioned to continue delivering strong sustainable sales growth over the next several years. The Hyatt team is highly engaged and focused on expanding their leadership position in the children's health and wellness market. Notably, the acquisition of Hyatt came very late in the fourth quarter, so the contribution to USANA's consolidated 2024 results was minimal. Accordingly, most of today's remarks will focus on our core business. Turning now to the fourth quarter, USANA finished the year with solid fourth-quarter results that exceeded our expectations. Net sales grew 7% sequentially, and adjusted diluted EPS increased 14%. Positive response to promotional activity was a key driver of the results, particularly in the United States where net sales grew 16% sequentially. We also saw notable strength in Australia and New Zealand, with combined net sales in these two markets growing 9% year over year. Turning now towards our initiatives for 2025. After much hard work, collaboration, and focus through 2024, the new structure of our commercial team is solidly in place. We're now full speed ahead with accelerating delivery and execution upon our customer growth strategy. First, we're planning a higher cadence of new product launches in 2025. We have over 20 product launches and product reformulations planned to roll out globally throughout the year in existing and new markets. We recently appointed Dr. Katherine Armstrong as our Chief Scientific Officer, and she will play a pivotal role in leading global research, development, and scientific ventures. We are also hosting our global convention in Salt Lake City this August and have an amazing event planned with several product launches. We haven't held a global convention in the U.S. for several years, so we're excited to have a large group of our associates from around the world come together to celebrate their success, receive business training, and learn about the many new products we're excited to launch. Second, we will be rolling out a strategic enhancement to our associate incentive offering in the back half of the year. These enhancements are designed to modernize our sales incentives, incent customer growth, and improve pay for performance. Third, we will be enhancing our brand message, story, and value proposition to deliver a stronger, more cohesive brand presence, support key product and incentive launches, and magnify USANA's overall brand reputation, superiority, and differentiation. Fourth, we will continue to accelerate associate engagement activities in our regions around the world. With our upcoming product launches and modifications to our associate incentive offerings, it is more important than ever to engage with our associates. We plan to hold many trainings and recognition events across key markets throughout the year with the marquee event being the global convention in Salt Lake City in August. Before opening the call for questions, I'd like to provide some additional thoughts on our strategic acquisition of Hyatt. It's been just over two months since closing the deal, and we're very excited about Hyatt's growth plan for 2025 and beyond. Hyatt's success since inception has been a culmination of new better-for-you products that have resonated with parents and children across the country, an attractive subscription model, and an effective marketing strategy. These factors combined with financial discipline have resulted in a fast-growing, profitable, and highly cash-generating business. In fiscal 2024, Hyatt generated $112 million in revenue with an adjusted EBITDA margin over 20%. Top-line growth in 2025 is projected to remain strong, with the Hyatt team expecting to derive strong growth year over year. Key strategic priorities this year include capitalizing on recent product launches to drive further growth in its direct-to-consumer model, expanding strategic partnerships, and laying the groundwork for channel expansion. We are also working closely with the Hyatt team to identify both short- and long-term synergy opportunities. Overall, we remain confident that the founder-led Hyatt team will deliver strong results this year. In closing, 2025 is proving to be an exciting year with much work ahead of us. I want to thank our employees, associates, and partners across the globe for their unwavering commitment to fulfilling USANA's vision of creating the healthiest family on earth. With that, I'll now ask the operator to please open the line for questions.

Thank you. And at this time, we will be conducting a question-and-answer session. Our first question comes from Anthony Lebiedzinski with Sidoti and Company. Please state your question.

Good morning and thank you for taking the questions. So certainly nice to see the year-over-year sales gains that you point out in the U.S., Australia, and New Zealand. Maybe we could start there. What's driving that? Is that primarily the increased promotional activity or could you give us some additional color as to the reason for the sales increases that you're seeing?

Maybe I'll let Brent chime in here. I can give some color as well. In both cases, leaders of those respective markets really thought outside the box and tried something they hadn't tried. In the Americas and Europe, where we've seen stagnant to down performance, they saw some traction, and the different and creative approaches gave us insights into what to try going forward. In Australia and New Zealand, even though the program was a little different, it was much the same story about thinking outside the box, really listening to their field, and catering to that group.

Good morning, Anthony. We continually reference this commercial team restructure and an enhancement to our associate engagement. This was a combination of those things and others. We're trying to better empower our regions and our local markets to create tailored offerings for our distributors and customers. The launch of our Americas and Europe convention last August allowed regional leadership to develop very creative incentive and program offerings. It was introduced at that event, so it touched Canada, Mexico, U.S., ANZ, and it was very well received by our customers in that region. We saw a strong progression of new associate acquisition and retention from August through the end of the year, and we're hopeful that continues into the first part of 2025. It was a great combination of leadership in that market taking control and providing a very tailored offering.

That's great to hear. Is this something you think you can replicate in other markets, or is it easier said than done?

Absolutely. That's the intention. We've talked about the need to pivot in terms of our product offering as well as our incentive structure, and that will come to fruition in the back half of the year. Part of the incentive structure being created or adjusted takes some of the framework introduced in August of last year and helps our associates quickly understand the key objectives when they come in the door. We guide them through that early-stage journey. That rollout will be global in the back half of the year, and we're excited to see where it takes us.

Gotcha. And then as we think about your revenue guidance for the core business, how should we think about expected sales performance by region this year? Can you give us some additional color as to how you're thinking about how the different regions will perform as we progress through 2025?

I think the recent trends should largely move forward. Some areas that were more challenged last year we expect to see progress. China is a big part of the equation; we've got a strong team there. The environment is a little tougher, but they've done a fantastic job running the market, and we expect them to hold serve and maybe make up a little ground. The tailored offerings Brent mentioned should help drive momentum and enthusiasm in other markets as well, so we're looking forward to it.

Gotcha. And then, regarding Hyatt, when you announced the deal in December you initially talked about roughly 30% growth for that business. This year your guidance is higher than that. Can you talk about what's changed since then? Does the guidance include any sales channel expansion, or would that be additional revenue if you're successful with that?

As we evaluated the acquisition and the models, when we announced we wanted to be thoughtful in our communication. Looking at Hyatt's forecast and models, we're comfortable with the range we communicated: $145 million to $160 million, which represents growth from 29% to 42% over the $112 million they achieved in 2024. We're encouraged by the team as they continue to lean into growth. They'll likely push harder on customer acquisition in individual months, which can cause temporary disruption to profitability due to acquisition costs in pockets throughout the year; that's part of the plan for the company. Regarding channel expansion, there's very little in this year's guidance related to channel expansion; any channel initiatives would be de minimis relative to the whole.

Gotcha. My final question before I pass it on: can you give us a quick update on how India is doing?

India is doing really well in my view. It's only been open thirteen months and we started from a base of zero. We've seen good growth, but it won't be materially impactful until it has a few years of runway and starts compounding each year. We're happy with the results and the leadership team there. I went there last year and was impressed by how the country is being managed and the strategic plans to grow the business, but the base is still very small.

Thank you. Your next question comes from Christina Schuette with DA Davidson. Please state your question.

Hi, good morning. Congrats on the quarter. Just a follow-up to the previous question: do you expect U.S. and Canada to maintain the level of promotional activity that you saw in the fourth quarter?

Hi, Christina. We do anticipate that throughout many of our markets this year we will continue a somewhat aggressive promotional cadence. The incentive structure implemented in that region last year has continued into the early part of this year, and we've made a couple of adjustments for 2025. We expect it to continue and anticipate additional promotions leading up to the implementation of the new incentive offering in the back half of the year. Other markets will likely adopt similar programs as well.

With the new incentive program, is that going to drive associate incentives year over year for each quarter of 2025?

You're pricing a bit on a dollar basis. I absolutely agree that these changes impact multiple line items. We consider two primary categories: one directly affects the incentive line; the other is more of a value-proposition offering. Markets use both, and both impact how those line items shape out. The impact is layered in and similar to scenarios we see every year. Depending on magnitude, if something is notable or material, we'll call that out so you have proper perspective and insight.

I noticed SG&A as a percentage of sales was higher than expected this quarter. I know that's due in part to the commercial team reorganization. Looking ahead to next year, do you expect this ratio to continue trending higher, or are there opportunities for leverage and efficiency improvements?

There are opportunities for leverage. Note that our press release includes Hyatt numbers; there was roughly $1.2 million in SG&A for Hyatt in that short stub period. Hyatt's SG&A mix looks different than ours — they have a different spend pattern and don't have incentives, so much of their sales activity is layered into SG&A. Because of the mix between the USANA business and Hyatt, you'll see dynamics in the reported percentages. Another factor is the impact of negative exchange rates. We still have meaningful centralized overhead in the U.S., so translation effects from currencies moving against us will influence how SG&A appears relative to net sales. Overall, there is room for leverage, but these mix and translation factors will affect the ratio.

To clarify: Hyatt's SG&A was included in the quarter, and then in 2025 Hyatt will be included for the full year. Is that correct, or was that $1.2 million a one-time expense recognized in the quarter?

Hyatt's SG&A was included for six days in the quarter; next year it will be included for 100% of the year. That mix and dynamic changes considerably, so you'll see more influence from Hyatt on the overall results in 2025.

Alright. Thanks, Christina. And your next question comes from Ivan Feinseth with Tigress Financial Partners. Please state your question.

Hi. Thanks for taking my questions and congratulations on the quarter. How has the Hyatt acquisition been going so far compared to your expectations, and do you think over time you can integrate their manufacturing onto your platform and potentially expand margins?

Ivan, it's going really well. We like the Hyatt team; they have great management and have run their business well. Operationally and IT-wise there are advantages we can share: supply chain, last mile, manufacturing — those are areas we're considering and working on with them. We're taking it one piece at a time rather than trying to overload the team because they have a great business we don't want to disrupt. Those initiatives can help margins down the road.

To add, we must be careful about what we integrate and the pace. We don't want to overwhelm Hyatt and disrupt their strategic plans for 2025. We see many opportunities, but we'll roll them out slowly to avoid disrupting their business plan.

For clarity, we'll have some short-term integration and transition costs primarily captured in 2025 that will be reflected in results. Also, byproducts of the acquisition include a step-up in inventory that you should expect to see written off over the first six months of the year. Those items will affect Hyatt's P&L in the upcoming year.

What new product categories or areas could we expect to roll out in 2025? Also, what products have been strong?

We've had these conversations in the past. Part of our model is creating excitement for our associates around the world, so we generally don't talk about product specifics until events or conventions to build excitement and momentum. I won't discuss specifics now, but we will have upgrades and new product launches throughout the year. The new commercial team working with R&D has become much more efficient and able to formulate and adjust products faster, so we're excited about that.

One area we've discussed a bit is skincare — that group may be a few steps ahead of other product teams in getting a jump start. You'll likely see more activity in skincare, and we also expect continued attention on our flagship nutritional supplements.

Very good. Wishing you a big 2025.

And your next question comes from Doug Lane with Water Tower Research. Please state your question.

Good morning, everyone. Doug, you just made a large acquisition that disrupted your balance sheet a bit. No stock buybacks, a little debt coming out of the year, and lower cash balances than normal. What is the outlook for 2025 and where do you think the balance sheet will be by the end of the year?

We're still in a solid position. We had about $182 million in cash at year end and expect to add roughly $50 million to $60 million to that line in the near term, so overall we're moving in a good direction. We'll continue to invest heavily in the business. You'll see inventory changes since Hyatt carries inventory differently. As part of the transaction we carried over $23 million in debt and plan to retire that midyear, which is the current plan and estimate.

Should we put some share repurchase in the models for this year?

Generally, we remain active in the market at a level to at least offset the effect of equity compensation and manage dilution. Beyond that, capital allocation decisions are ongoing with the board about where capital is best deployed. As we have more visibility, we'll provide guidance.

Any cap needs for Hyatt that are unusual?

There's some short-term work as we integrate, and several moving pieces are still in process. Hyatt's model is pretty cash generative and not very capital intensive. We'll prioritize additive initiatives that make sense long term. There isn't a lot of unusual capital need based on their model.

Should we assume capital spending will be in line with historical levels as a percent of sales?

Yes. Assume roughly 1 to 1.5% of sales for capital expenditures.

You're doing a lot with product launches, associate incentives, and brand messaging. Are there bigger-picture changes underway with your model? You read about direct sellers moving to an affiliate model. Is USANA making tweaks to capture social sellers or affiliate-type channels, or are these more modest modifications for 2025?

These are tweaks to the model, and we're committed to the direct-selling channel. Some companies have moved away from it, but that's not our intent. We're making the model more appealing to people entering the business — considering the gig economy and easy ways to earn money, we want to be more attractive to that group. We're adding some enhancements and upfront bonuses to drive more people into the business and help them stay longer. To reiterate, we are not moving away from the model that has sustained us for over 32 years.

At Jim's direction and with work from the sales organization, we've been testing various initiatives across markets for several years. Those tests informed our expectations for behavior and influence in the business, and we've approached the rollout intentionally.

Okay. That's helpful color. Thank you.

Thanks, Doug.

Thank you. And there are no further questions at this time. I'll hand the floor back to management for closing remarks.

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.

Thank you. And with that, we conclude today's call. All parties may disconnect. Have a good day.