Greetings. Welcome to the USANA Health Sciences Fourth Quarter and Fiscal Year 2025 Earnings Call. Please note, this conference is being recorded. At this time, I'll now turn the conference over to Andrew Masuda, Director of Investor Relations. Thank you, Andrew. You may now begin.

Thanks, Rob, and good morning, everyone. We appreciate you joining us to review our fourth quarter and fiscal year 2025 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 materially from the results projected in such forward-looking statements. Examples of these statements include those regarding our strategies and outlook for fiscal year 2026, 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 Chairman and Chief Executive Officer, Kevin Guest; our Chief Financial Officer, Doug Hekking; our Chief Commercial Officer, Brent Neidig; our Chief Operating Officer, Walter Noot, as well as other executives. Yesterday, after the market closed, we announced our fourth quarter and fiscal year 2025 results and posted our management commentary document on the company's website. We'll now hear brief remarks from Kevin and Doug before opening the call for questions.

Thank you, Andrew, and good morning, everyone. As we sharpen our strategic focus and position the company for renewed and sustainable growth, I'm honored to return as Chief Executive Officer while continuing to serve as Chairman of the Board. I appreciate the Board's confidence in my leadership and its commitment to ensuring continued stability and disciplined execution during this next phase of growth. As I reassume the role of CEO, I do so with a deep understanding of USANA's strengths and a clear view of the opportunities ahead with the fruition of our strategic plans that we will execute. Having spent more than 3 decades at this company, including 8 years as CEO, I have seen firsthand the power of our science-based products, the dedication of our employees and the resilience of our sales force across the world. These elements form the core of USANA's competitive advantage and establish a solid foundation for the long-term value creation that we intend to deliver. During my previous tenure, USANA expanded its international footprint, strengthened operational capabilities and achieved record financial results. While this external environment continues to evolve, our strategic pillars remain consistent. Scientific excellence at the center of product innovation, operational discipline and cost efficiency, a high-performing and aligned global sales force and a culture rooted in integrity, resilience and execution. Over the past several weeks, I've engaged in extensive discussions with our leadership team as well as our brand partners. These conversations reinforce that USANA remains well-positioned with strong underlying fundamentals and meaningful opportunities for growth across multiple markets and channels. However, the clear message is that we must move with greater speed, focus, relevancy and precision. As we look ahead, our priorities are straightforward. First, strengthen USANA's global brand positioning by delivering science-backed nutrition through an omnichannel platform and evolving the company's identity from a legacy direct selling business to a modern science-driven nutritional products company. Second, enhance the customer and brand partner experience to drive retention, loyalty and long-term brand equity; third, reinvigorate global sales momentum through enhanced field support, market-specific strategies and strengthen leadership engagement; fourth, advance our product innovation pipeline by leveraging our world-class research and science teams to deliver differentiated offerings; fifth, improve operational efficiencies across the organization through disciplined cost management and streamlined processes; and sixth, execute with accountability at every level of the business, ensuring our actions translate into measurable, sustainable results. We are committed to delivering shareholder value by focusing on these top priorities. Importantly, our consolidated net sales outlook for fiscal 2026 is for growth of 4% at the midpoint, reflecting confidence in our strategy and our ability to execute. We will also remain focused on long-term strategic execution, not short-term optimization as we strengthen the company for its next chapter of growth. Our fiscal 2026 operating strategy entails the following: first, expand our omnichannel reach by leveraging USANA's strong nutrition foundation and diversifying distribution channels to access a larger global base of health-conscious consumers and strengthen brand relevance; second, advance product innovation through refreshed branding, alignment with modern consumer usage behaviors and robust pipeline for upgraded and new products launching globally in 2026. Third, accelerate technology modernization by adopting best in practice third-party platforms to improve customer experience, enable scalable growth and drive long-term IT and operational efficiencies. Fourth, drive Hiya's growth through continued direct-to-consumer expansion, new channel and product launches and entering into additional markets. We are also leveraging USANA's capabilities to improve margins, including transitioning to in-house manufacturing to increase speed, efficiency and reduce costs. Fifth, scale Rise Wellness performance by building on the strong recent momentum, expanding the Rise Bar footprint and accelerating Protein Pop distribution, particularly within major retailers and club retail channels. USANA's mission, culture and people have always been at the heart of our success. As we embark on this transition, I am confident in our direction and energized by the opportunities ahead. Together with clarity, discipline and a shared vision, we will position USANA to deliver stronger performance and create enduring value for all stakeholders. With that, I'll now ask Doug to provide additional color on our fiscal 2026 outlook.

Thanks, Kevin, and good morning, everyone. I'd like to provide some additional color on our fiscal 2026 outlook and the key financial considerations shaping our guidance for the upcoming year. As Kevin mentioned, we're expecting net sales growth at the midpoint of about 4%. The sales growth is being driven by our venture companies, Rise Wellness and Hiya. Note that our outlook reflects a 52-week fiscal year in 2026, which includes one less week of operations when compared to fiscal 2025. As Kevin indicated in his remarks, we intend to accelerate our technology roadmap to fundamentally improve how customers experience our brand as well as allow for future benefits in both speed and cost efficiency. This incremental investment has not been factored into our fiscal 2026 outlook at this time. We will provide updated information once the scope, timing and capital requirements of this project are finalized. Turning to inventory. Inventories increased $35 million or 48% to $107 million at the end of fiscal '25. Approximately 80% of the year-over-year increase was driven by initiatives to support the significant growth opportunities at Rise Wellness and Hiya. Let me break this down further. For Rise Wellness, the increase reflects the inventory necessary to support the launch and growth of Protein Pop, particularly retailers like Costco. For Hiya, the inventory increase largely reflects channel expansion, including distribution into Target, international expansion into Canada and the United Kingdom and building raw materials inventory in connection with USANA to begin manufacturing Hiya products in-house. Given the growth trajectories of both Rise Wellness and Hiya, we anticipate elevated inventory levels throughout fiscal 2026. Although we will continue to focus on working capital efficiency, our intention is to continue supporting product demand as well as the expansion of distribution channels and geographies for these important brands. We expect Rise Wellness to operate at approximately breakeven in fiscal 2026, while we position the company for future growth, thoughtfully scale the business and strengthen long-term revenue and profitability profile. Let me now touch on our expected effective income tax rate. Our effective tax rate guidance for fiscal 2026 is expected to range between 55% and 60%. The primary challenge we continue to face is a geographic misalignment between revenue generated and costs incurred. This dynamic has been particularly evident in our effective tax rate during the second half of fiscal 2025 and particularly felt with the recognition of certain one-time costs during the period. Execution of our growth strategy as well as targeted cost efficiencies are expected to contribute to a lower effective tax rate in future years. With that, I'll now turn the call back to Kevin before we open the line for questions.

Thanks, Doug. Let me close by saying this. We believe USANA is in a strong position, and the path ahead is both clear and compelling. Our core business has faced year-over-year sales declines, but we are seeing encouraging signs of stabilization as we take the right steps to return the business to growth. Hiya and Rise Wellness broaden our market and bring new energy to the portfolio, while our strategic investments are strengthening the foundation that will support our next phase of expansion. And with a solid financial position, including a strong cash balance and an efficient model that generates healthy cash flow, we have the flexibility to invest thoughtfully, execute with confidence and build long-term value. Put simply, we have the people, the products and the financial strength to win, and we're committed to doing exactly that. This, we believe, will deliver sustainable value creation for our shareholders. I'll now turn the call back to the operator for Q&A.

And the first question is from Anthony Lebiedzinski with Sidoti & Company.

It's certainly nice to see the better-than-expected results for the fourth quarter as well as the higher-than-expected EPS guidance for '26 as well. So as we look at the guidance for both revenue and EPS, obviously, you provided revenue guidance in January. But nevertheless, they are pretty wide ranges. Can you just walk us through the different considerations as to what you would need to do to get to the top end of the guidance? Are you perhaps assuming a notable improvement in the macro environment? Maybe just kind of walk us through the different considerations for revenue and EPS guidance.

Yes. So I think it's easier if we break it down by some of the key brands we talked about, Anthony. And so with Rise Wellness, they're really on an emerging path. There are some of these orders we have in our back pocket and some are banking on having orders in the back half of the year. As we look at Rise, that's kind of the range that we provided specifically on the sales there. Hiya is just newly into Canada and will soon be in the U.K. and then launching Target here in April. So there's a lot of activity on the horizon there to go back and bridge that. I think in short, when we look at the revenue equation and the margin profile, I think achieving the top line is going to be the main thing that will help us deliver the top end of the EPS.

Yes, we have Walter here. Walter, could you provide some additional context on what Doug mentioned? Walter is part of the management team that is involved in day-to-day operations on these matters, and I thought it would be beneficial to hear his insights on this topic.

Yes. As Doug mentioned, we've secured a significant amount of business in the retail sector, and a large portion of our inventory is already accounted for in future revenue from these retailers. We're present in all Target stores across the U.S. and have recently expanded into every Costco store. Additionally, we're engaging with other major U.S. retailers. Moving forward, we're introducing more flavors to the Protein Pop line that will be available at Target, along with new retailers joining us. This positions us for substantial growth potential. That's why our guidance range is broad; it reflects the uncertainty of future performance. We're very optimistic about the progress we've seen with Hiya in Canada since its recent launch, and we're looking forward to launching in the U.K. in April, with Target simultaneously rolling out in their stores. We're quite positive about the growth trajectory of both businesses, and the wide range in our projections is due to the unpredictability of outcomes. Hiya has established a strong brand presence, and substantial investment in marketing has significantly raised awareness in the U.S., making us confident in the potential of the retail channel.

And one of the things that I'm sure you're all aware of is that the omnichannel strategy is also a diversification of revenue strategy, meaning the more of these succeed and we're generating money, so it's not disproportionate to China and more locally based, that will help our effective tax rate where we're generating income, which is part of our long-term strategy just to diversify where revenue is being generated because as you can see from what hit us this last quarter, it's pretty significant. And so that's a very real opportunity for us.

Yes. And maybe, Anthony, to kind of go full circle on this, we're still very bullish on our core nutritional business, and there are so many opportunities. I think Kevin's initiative to go back and look at technology and advance some of those road maps and really support that team. But I think we're at a time where people want health and wellness products, and we make some of the best products you can find out there. And so we really see these things as enablers moving forward.

Got you. As we update our models, can you share thoughts on how having one less week of sales in the fourth quarter will impact things? Additionally, as we consider the business from quarters one to four, should we expect revenue to ramp up as the year goes on, or will it be more stable throughout the year? Are there any notable points regarding the seasonality of the business?

Yes. So seasonality, I think, particularly in our core nutrition business has really, as we evolved and grown in China revolved around that Lunar New Year. And it's fairly impactful. And so that market as well as many of our markets in the Asia Pacific region really set up a pretty heavy promotional cadence surrounding that to support the business as we go through there. I would say the activity we see quarter-to-quarter isn't perfectly equal. And so you'll see some ebbs and flows, which we can just give color as the year progresses.

Yes. We have Brent Neidig here at the table, our Chief Commercial Officer, who can provide additional insights into our revenue trends, particularly concerning our core nutritional business. Brent?

Yes. Thanks, Kevin. Doug just highlighted, there is a certain element of seasonality in our core nutritional business, especially with our predominance within the Chinese community. We're currently in Chinese New Year right now and typically leading up to that new year in many of our Chinese markets, specifically in Mainland China, there is a heavier emphasis on promotional activity as many of our brand partners want to stock up on product to provide for gifts and other selling opportunities throughout the Chinese New Year. That's why we typically see a stronger Q1. And then that momentum starts to escalate into Q2 as well as we have different conventions and events that kick off both in our first quarter and our second quarter. As we hit Q3, summer season and a lot of our brand partners typically take time off where they go on vacation, they spend time with families, their kids are out of school. So we typically see a lull there. That's what we're expecting. That's what I'm continuing to expect. And then Q4, people start to get back into action and prepare for the following year. So that's typically the model that I see.

Got you. And then as it relates to Hiya and then Rise, any added color there that you can share?

This is Walter. I'm not sure how much detail I can provide. Looking at the business, there is a noticeable growing trend, especially with Protein Pop. We introduced the Protein Pop retail brand late last year, and it's still in its early stages but gaining traction. As the brand develops, I believe we will see continued growth in the retail sector. While I can't predict the exact numbers, we have set some guidance and are optimistic about our direction.

Got you. All right. It sounds like you also feel good about Hiya as well. Regarding the cost realignment you implemented in the fourth quarter, can you clarify how much that reduced your headcount? I know you're reallocating some of those cost savings for other purposes as well. Additionally, could you provide insights on how to consider gross margins for 2026, as well as your SG&A? Any further details would be appreciated.

The total impact on the workforce due to the cost realignment was about 10%. After reallocating some funds, we expect to see around $10 million in savings, possibly slightly more. The resources being repurposed are significant for our business and strategic execution, primarily impacting SG&A. We don't anticipate major changes in gross margin or cost of sales. A key factor to consider is the mix of different businesses; as Rise continues to grow and aims for breakeven this year, it will operate with a notably thinner gross margin. We'll provide clarity on this as we progress through the year.

Got you. Okay. And then you touched on some of the technology initiatives that you're working on. I know you're not ready to share specifics. It sounds like it's still something that you're working on. But can you give us a sneak peek as to what you're thinking in terms of how impactful that could be regarding some of the changes you're looking to make on the technology side?

Well, this is Kevin. Staying relevant in today's world is essential for us, and the way people engage with our brand is crucial for our company's future growth. I want to emphasize the importance of being quick and agile. Traditionally, we've built things in-house, which has worked well for us. Strategically, we will explore how to leverage external resources more effectively, both domestically and internationally. Speed to market and adaptability will be significant aspects of our technology strategy, enabling more robust interactions with our brand across the board. Additionally, we will tap into the expertise of partners like Hiya, known for their brand awareness knowledge, to enhance our USANA brand recognition. Although this is a high-level overview and lacks specific details, I believe leveraging AI effectively is vital. Many leading brands are successfully integrating AI, and we need to catch up. We aim to excel in technology and AI utilization just as we do in nutrition, as that represents the future for growth in our sector. I'm particularly excited about the projected global growth rate of 5% to 8% in the health and wellness industry, where we operate. Our company should align with that growth, and technology will play a crucial role. That's where my thoughts are focused.

The next question comes from the line of Ivan Feinseth with Tigress Financial.

Congratulations on the ongoing success of Hiya and the new Rise Bars, which I sampled at the ICR Conference, and were really delicious and subsequently have purchased them. So I think that's really great. Going to the technology question for Kevin, what are your focus and thoughts on integrating technology into the consumer health management journey? Recently, another company launched a product that can give you a nutritional absorption reading through your finger. And when I was at the ICR Conference with Doug and Andrew and Patrick, we were talking about the monitor from Kolar, and what gets measured, gets managed. The more technology that a consumer can use to give insight to their health and nutrition journey, the more they can see where they need products or creating product opportunities for your company.

So Ivan, thanks for the question. That's a great question. I am highly interested in the utilization of technology and the ability to personalize how a person receives their nutrition and not have it based on a one-size-fits-all approach and moving further into the technology space. I have our Chief Science Officer here with us, Kathryn Armstrong. Kathryn, do you want to jump in on this real quick with this conversation with Ivan?

Ivan, it's good to talk to you again. We have, of course, a focus on integrity and ensuring that everything we provide to our customers through all of our brands meets scientific rigor. We have all of us watched with eager anticipation over the past decade and more as these types of devices have been launched and then really struggle to link to clinical efficacy. It's a lot about behavioral science versus physiological science, as you know. So are we actively looking at how to help individuals personalize and monitor their health status, of course, we will continue to do so. We are partnering to better understand how to advance that in a way that has scientific integrity and ensures our customers are able to apply their spend to true physiological benefit.

Thank you. This will conclude our question-and-answer session. I'll now hand it back to Andrew Masuda for closing comments.

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.

Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day.