USANA HEALTH SCIENCES INC

Previous wording

We develop and manufacture high quality, science-based nutritional and personal care and skincare products that are distributed internationally primarily through direct selling. We use this distribution method because we believe it is more conducive to meeting our vision as a company, which is to improve the overall health and nutrition of individuals and families around the world. Our customer base is primarily comprised of two types of customers: “Associates” and “Preferred Customers,” referred to together as “active Customers.” Our Associates also sell our products to retail customers. Associates share in our company vision by acting as independent distributors of our products in addition to purchasing our products for their personal use. In 2023, we launched our Affiliate program in the United States, Canada, and Mexico and are evaluating introducing the program in other markets. This program offers another sales and compensation opportunity to individuals who are interested in selling USANA products. Affiliates are discussed and reported in the report as part of our Associates. Preferred Customers purchase our products strictly for personal use and are not permitted to resell or to distribute the products. We only count as active Customers those Associates and Preferred Customers who have purchased from us at any time during the most recent three-month period. As of June 29, 2024, we had approximately 468,000 active Customers worldwide.

Current wording

We develop and manufacture high quality, science-based nutritional and personal care and skincare products that are distributed internationally primarily through direct selling. We use this distribution method because we believe it is more conducive to meeting our vision as a company, which is to improve the overall health and nutrition of individuals and families around the world. Our customer base is primarily comprised of two types of customers: “Associates” and “Preferred Customers,” referred to together as “active Customers.” Our Associates also sell our products to retail customers. Associates share in our company vision by acting as independent distributors of our products in addition to purchasing our products for their personal use. In 2023, we launched our Affiliate program in the United States, Canada, and Mexico and are evaluating introducing the program in other markets. This program offers another sales and compensation opportunity to individuals who are interested in selling USANA products. Affiliates are discussed and reported in the report as part of our Associates. Preferred Customers purchase our products strictly for personal use and are not permitted to resell or to distribute the products. We only count as active Customers those Associates and Preferred Customers who have purchased from us at any time during the most recent three-month period. As of September 28, 2024, we had approximately 452,000 active Customers worldwide.

Previous wording

We have operations in multiple markets, with sales and expenses being generated and incurred in multiple currencies. Our reported U.S. dollar sales and earnings can be significantly affected by fluctuations in currency exchange rates. In general, our operating results are affected positively by a weakening of the U.S. dollar and negatively by a strengthening of the U.S. dollar. During the six months ended June 29, 2024, net sales outside of the United States represented 90.1% of consolidated net sales. In our net sales discussions that follow, we approximate the impact of currency fluctuations on net sales by translating current year sales at the average exchange rates in effect during the comparable periods of the prior year.

Current wording

We have operations in multiple markets, with sales and expenses being generated and incurred in multiple currencies. Our reported U.S. dollar sales and earnings can be significantly affected by fluctuations in currency exchange rates. In general, our operating results are affected positively by a weakening of the U.S. dollar and negatively by a strengthening of the U.S. dollar. During the nine months ended September 28, 2024, net sales outside of the United States represented 89.8% of consolidated net sales. In our net sales discussions that follow, we approximate the impact of currency fluctuations on net sales by translating current year sales at the average exchange rates in effect during the comparable periods of the prior year.

Previous wording

Because we sell our products to a customer base of independent Associates and Preferred Customers, we increase our sales by increasing the number of our active Customers, the amount they spend on average, or both. Our primary focus continues to be increasing the number of active Customers. We believe this focus is consistent with our vision of improving the overall health and nutrition of individuals and families around the world. Sales to Associates acco unted for approximately 50% of Direct-selling segment sales during the six months ended June 29, 2024, with the remainder of our sales generated from Preferred Customers. Increases or decreases in product sales are typically the result of variations in the volume of product sold relating to fluctuations in the number of active Customers purchasing our products. The number of active Associates and Preferred Customers is, therefore, used by management as a key non-financial indicator to evaluate our operational performance.

Current wording

Because we sell our products to a customer base of independent Associates and Preferred Customers, we increase our sales by increasing the number of our active Customers, the amount they spend on average, or both. Our primary focus continues to be increasing the number of active Customers. We believe this focus is consistent with our vision of improving the overall health and nutrition of individuals and families around the world. Sales to Associates acco unted for approximately 52% of Direct-selling segment sales during the nine months ended September 28, 2024, with the remainder of our sales generated from Preferred Customers. Increases or decreases in product sales are typically the result of variations in the volume of product sold relating to fluctuations in the number of active Customers purchasing our products. The number of active Associates and Preferred Customers is, therefore, used by management as a key non-financial indicator to evaluate our operational performance.

Previous wording

Net sales for the second quarter of 2024 decreased 10.6% to $212.9 million, a decrease of $25.3 million, compared with the prior-year quarter. The decrease in net sales was primarily the result of a decrease in active Customers and a decrease in average spend per customer, partially offset by modest price increases compared to the prior-year quarter. Additionally, unfavorable changes in currency exchange rates negatively impacted net sales by an estimated $5.3 million.

Current wording

Net sales for the third quarter of 2024 decreased 6.2% to $200.2 million, a decrease of $13.1 million, compared with the prior-year quarter. The decrease in net sales was primarily the result of a decrease in active Customers and a decrease in average spend per Customer, due to a challenging economic environment in many of our key markets, which had varying degrees of impact on attracting new customers. This was partially offset by modest price increases compared to the prior-year quarter. While we've experienced an unfavorable impact from changes in currency exchange rates over the past several quarters, the impact was minimal on the current quarter.

Previous wording

Net earnings for the second quarter of 2024 were $10.4 million, a decrease of 39.7% compared with $17.3 million during the prior-year quarter. The decrease in net earnings was the result of decreased sales and higher relative operating expenses combined with an increase in effective tax rate.

Current wording

Net earnings for the third quarter of 2024 were $10.6 million, a decrease of 6.5% compared with $11.3 million during the prior-year quarter. The decrease in net earnings was the result of decreased sales and higher relative operating expenses, partially offset by a decrease in effective tax rate during the quarter.

Previous wording

Asia Pacific: The constant currency decline in this region was primarily the result of lower active Customer counts and lower sales per active Customer, partially offset by modest price increases throughout the region. This decline was primarily concentrated in China, South Korea and the Philippines. A local currency net sales decline of 8.3% in China was due to a decrease of 8.3% in average spend per customer, mainly influenced by promotional activity, while active Customers remained consistent with the prior year. A local currency net sales decline of 19.3% in South Korea was primarily due to a 16.3% decrease in active Customers and a 3.5% decrease in average spend per customer. A local currency net sales decline of 28.8% in the Philippines was primarily due to a 18.2% decrease in active Customers and a 13.1% decrease in average spend per customer.

Current wording

Asia Pacific: The constant currency decline in this region was primarily the result of lower sales per active Customer and lower active Customer counts, partially offset by modest price increases throughout the region. This decline was primarily concentrated in China, South Korea and Singapore. A local currency net sales decline of 4.7% in China was due to a decrease of 10.6% in average spend per customer, largely due to the challenging economic environment within China, partially offset by a 6.6% increase in active Customers. A local currency net sales decline of 12.5% in South Korea was primarily due to a 16.7% decrease in active Customers partially offset by a 5.0% increase in average spend per customer. A local currency net sales decline of 22.2% in Singapore was primarily due to an 11.1% decrease in active Customers and a 12.6% decrease in average spend per customer.

Previous wording

Americas and Europe: The decrease in this region was primarily the result of lower active Customer counts and lower average spend per customer, partially offset by modest price increases. The decrease in constant currency net sales is largely the result of a sales decline in the United States, which had a net sales decline of 10.3% due to a 6.8% decrease in active Customers and a 3.8% decrease in average spend per customer.

Current wording

Americas and Europe: The decrease in this region was primarily the result of lower active Customer counts and lower average spend per customer, partially offset by modest price increases. The decrease in constant currency net sales is largely the result of a sales decline in the United States, which had a net sales decline of 8.5% due to a 9.3% decrease in active Customers partially offset by a 0.8% increase in average spend per customer, and Canada, which had a net sales decline of 4.2% due to a 6.3% decrease in active Customers partially offset by a 2.4% increase in average spend per customer.

Previous wording

Associate incentives decreased 50 basis points to 42.5% of net sales, down from 43.0% in the prior-year quarter. The relative decrease can primarily be attributed to decreased spending on Associate related incentive trips in certain markets and benefits from modest price changes.

Current wording

Associate incentives decreased 10 basis points to 42.0% of net sales, down from 42.1% in the prior-year quarter. The relative decrease can primarily be attributed to benefits from price increases and afavorable shift in market sales mix.

Previous wording

Selling, general and administrative expenses increased 160 basis points relative to net sales and decreased $3.8 million in absolute terms. The relative increase is largely due to a loss of leverage on lower year-over-year net sales. The lower expense in absolute terms can be primarily attributed to a decrease in spending for meetings and events, advertising, and other professional services.

Current wording

Selling, general and administrative expenses increased 90 basis points relative to net sales and decreased $2.0 million in absolute terms. The relative increase is largely due to a loss of leverage on lower year-over-year net sales. The lower expense in absolute terms can be primarily attributed to adecrease in spending for employee related costs, legal costs and meeting and events.

Previous wording

The year-to-date effective tax rate increased to 43.0% from the 35.5% reported in the comparable period of 2023 or 37.7% for fiscal 2023. The higher effective tax rate can be attributed to: i) China’s increased relative share of taxable income, ii) a concentration of infrastructure costs in our corporate headquarters, and iii) generally softer operating performance, including the impact of unfavorable exchange rates, in our other markets around the world. The revised year-to-date effective tax rate resulted in a 48.4% rate for the second quarter of 2024.

Current wording

Income taxes decreased to 43.0% of pre-tax earnings from the 44.7% reported in the comparable period of 2023 or 37.7% for fiscal 2023. The higher effective tax rate in 2023 can be attributed to an increase in the year-to-date effective tax rate estimate due to an unfavorable change in the mix of taxable income by market. There was no effective tax rate increase in the third quarter of 2024.

Previous wording

Diluted EPS decreased 39.3% to $0.54 as compared to $0.89 reported in the prior-year quarter. This decrease can be attributed to lower net earnings.

Current wording

Diluted EPS decreased 5.1% to $0.56 as compared to $0.59 reported in the prior-year quarter. This decrease can be attributed to lower net earnings.

Previous wording

Six Months Ended June 29, 2024 and July 1, 2023

Current wording

Nine Months Ended September 28, 2024 and September 30, 2023

Previous wording

The following table summarizes the changes in net sales by geographic region for the six months ended as of the dates indicated:

Current wording

The following table summarizes the changes in net sales by geographic region for the nine months ended as of the dates indicated:

Previous wording

Asia Pacific: The constant currency decline in this region was primarily the result of a sales decline in Southeast Asia Pacific and North Asia. There were local currency declines in nearly all markets in the Southeast Asia Pacific sub-region, most notably in the Philippines, Australia, and Malaysia, which had local currency net sales declines of 27.5%, 10.4%, and 8.0%, respectively. The decrease in local currency net sales in the Philippines was primarily the result of a 23.4% decrease in active Customers and a 5.7% decrease in average spend per customer. The decrease in local currency net sales in Australia was primarily due to a 12.5% decrease in active Customers, partially offset by a 2.4% increase in average spend per customer. The decrease in local currency net sales in Malaysia was primarily due to a 10.9% decrease in active Customers, partially offset by a 3.6% increase in average spend per customer. The decrease in constant currency net sales in North Asia was primarily concentrated in South Korea, which had a local currency sales decline of 21.8%. The decrease in local currency net sales in South Korea was primarily due to a 16.8% decrease in active Customers and a 5.9% decrease in average spend per customer.

Current wording

Asia Pacific: The constant currency decline in this region was primarily the result of a sales decline in North Asia and Southeast Asia Pacific. The decrease in constant currency net sales in North Asia was primarily concentrated in South Korea, which had a local currency sales decline of 18.9%. The decrease in local currency net sales in South Korea was primarily due to a 16.8% decrease in active Customers and a 2.5% decrease in average spend per customer. There were local currency declines in nearly all markets in the Southeast Asia Pacific sub-region, most notably in the Philippines, Singapore, and Malaysia which had local currency net sales declines of 22.1%, 14.9%, and 7.4%, respectively. The decrease in local currency net sales in the Philippines was primarily the result of a 17.9% decrease in active Customers and a 5.1% decrease in average spend per customer. The decrease in local currency net sales in Singapore was primarily due to a 13.8% decrease in active Customers and a 1.0% decrease in average spend per customer. The decrease in local currency net sales in Malaysia was primarily due to a 13.1% decrease in active Customers, partially offset by a 6.9% increase in average spend per customer.

Previous wording

Americas and Europe: There were local currency sales declines in most of the markets in this region. The decrease in constant currency net sales was primarily concentrated in the United States and Canada, which had local currency net sales declines of 13.4%, and 10.3%, respectively. The decrease in net sales in the United States was primarily due to a 5.7% decrease in active Customers and a 8.3% decrease in average spend per customer. The decrease in net sales in Canada was primarily due to a 3.0% decrease in active Customers and a 7.2% decrease in average spend per customer.

Current wording

Americas and Europe: There were local currency sales declines in most of the markets in this region. The decrease in constant currency net sales was primarily concentrated in the United States and Canada, which had local currency net sales declines of 11.9%, and 8.4%, respectively. The decrease in net sales in the United States was primarily due to a 6.9% decrease in active Customers and a 5.4% decrease in average spend per customer. The decrease in net sales in Canada was primarily due to a 4.0% decrease in active Customers and a 4.3% decrease in average spend per customer.

Previous wording

Gross profit remained consistent at 81.1% of net sales for the six months ended June 29, 2024 compared to the six months ended July 1, 2023. While currency exchange rates and a loss of leverage on lower sales continue to be a detriment to the gross profit margin, these were offset by benefits from decreased scrap charges, favorable changes in market and product sales mix, modest price increases, and lower freight expense.

Current wording

Gross profit increased 10 basis points to 80.9% of net sales, up from 80.8% for the nine months ended September 30, 2023. The increase in gross profit margin can be attributed to favorable changes in market and product sales mix, decreased scrap charges, price increases, and lower freight expense, partially offset by unfavorable changes in currency exchange rates and loss of leverage on lower sales.

Previous wording

Associate incentives decreased 60 basis points to 42.2% of net sales, down from 42.8% for the six months ended July 1, 2023. The relative decrease can primarily be attributed to decreased spend on promotional incentives, as well as modest price increases. These improvements were partially offset by an unfavorable shift in market sales mix.

Current wording

Associate incentives decreased 40 basis points to 42.2% of net sales, down from 42.6% for the nine months ended September 30, 2023. The relative decrease can primarily be attributed to benefits from price increases and decreased spending on promotional incentives. These improvements were partially offset by an unfavorable shift in market sales mix.

Previous wording

Selling, general and administrative expenses increased 150 basis points relative to net sales and decreased$6.4 million in absolute terms. The relative increase can be attributed to leverage lost on lower net sales. The lower expense in absolute terms can be primarily attributed to a decrease in spending for meetings and events, advertising, and other professional services.

Current wording

Selling, general and administrative expenses increased 120 basis points relative to net sales and decreased$8.4 million in absolute terms. The relative increase can be attributed to leverage lost on lower net sales. The lower expense in absolute terms can be primarily attributed to a decrease in spending for employee related costs, meetings and events, advertising, legal and other professional services.

Previous wording

Income taxes increased to 43.0% of pre-tax earnings, up from 35.5% of pre-tax earnings for thesix months ended July 1, 2023. The higher effective tax rate can be attributed to: i) China’s increased relative share of taxable income, ii) a concentration of infrastructure costs in our corporate headquarters, and iii) generally softer operating performance, including the impact of unfavorable exchange rates, in our other markets around the world.

Current wording

Income taxes increased to 43.0% of pre-tax earnings, up from 38.0% of pre-tax earnings for thenine months ended September 30, 2023. The higher effective tax rate can be attributed to: i) China’s increased relative share of taxable income, ii) a concentration of infrastructure costs in our corporate headquarters, and iii) generally softer operating performance, including the impact of unfavorable exchange rates in our other markets around the world.

Previous wording

Diluted EPS decreased 23.9% to $1.40 as compared to $1.84 reported for the six months ended July 1, 2023. This decrease can be attributed to lower net earnings.

Current wording

Diluted EPS decreased 19.3% to $1.96 as compared to $2.43 reported for the nine months ended September 30, 2023. This decrease can be attributed to lower net earnings.

Previous wording

Cash and cash equivalents incre ased to $332.4 million as of June 29, 2024, from $330.4 million as of December 30, 2023. Cash flow provided by operating activities was$25.7 million partially offset by cash used in financing activities of $13.3 million, cash used in investing activities of $5.6 million, and the unfavorable effect of exchange rate changes on cash and cash equivalents of $4.8 million.

Current wording

Cash and cash equivalents incre ased to $364.9 million as of September 28, 2024, from $330.4 million as of December 30, 2023. Cash flow provided by operating activities was$55.2 million partially offset by cash used in financing activities of $13.4 million, and cash used in investing activities of $8.0 million. Additionally, favorable changes in currency exchange rates have impacted cash and cash equivalents, and restricted cash by $0.6 million.

Previous wording

During the six months ended June 29, 2024, our China subsidiary remitted profits through an annual dividend of $75.8 million to the United States, inclusive of net proceeds from a dividend hedge and net of applicable taxes.

Current wording

During the nine months ended September 28, 2024, our China subsidiary remitted profits through an annual dividend of $75.8 million to the United States, inclusive of net proceeds from a dividend hedge and net of applicable taxes.

Previous wording

Net cash flow provided by operating activities was$25.7 million for the firstsix months of 2024. Net earnings combined with adjustments of non-cash items contributed positively to our net cash flow provided by operating activities, partially offset by cash used to pay accounts payable, accrued associate incentives, and the 2023 annual employee bonus.

Current wording

Net cash flow provided by operating activities was$55.2 million for the first nine months of 2024. Net earnings combined with adjustments of non-cash items contributed positively to our net cash flow provided by operating activities, partially offset by cash used to pay accounts payable, accrued associate incentives, and the 2023 annual employee bonus and the purchase of inventories.

Previous wording

Net cash flow provided by operating activities was $22.4 million for the first six months of 2023. Net earnings combined with adjustments of non-cash items contributed positively to our net cash flow provided by operating activities, partially offset by cash used to pay accrued associate incentives and the 2022 annual employee bonus.

Current wording

Net cash flow provided by operating activities was $44.6 million for the first nine months of 2023. Net earnings combined with adjustments of non-cash items contributed positively to our net cash flow provided by operating activities, partially offset by cash used to pay accrued associate incentives and the 2022 annual employee bonus.

Previous wording

We believe our current cash balances, future cash provided by operations, and amounts available under our line of credit will be sufficient to cover our operating and capital needs in the ordinary course of business for the foreseeable future. If we experience an adverse operating environment or unanticipated and unusual capital expenditure requirements, additional financing may be required. No assurance can be given, however, that additional financing, if required, would be available to us at all or on favorable terms. We might also require or seek additional financing for the purpose of expanding into new markets, growing our existing markets, mergers and acquisitions, or for other reasons. Such financing may include the use of debt or the sale of additional equity securities. Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilution to our existing shareholders.

Current wording

We believe our current cash balances, future cash provided by operations, and amounts available under our line of credit will be sufficient to cover our operating and capital needs in the ordinary course of business for the foreseeable future. If we experience an adverse operating environment or unanticipated and unusual capital expenditure requirements, additional financing may be required. No assurance can be given, however, that additional financing, if required, would be available to us at all or on favorable terms. We might also require or seek additional financing for the purpose of expanding into new markets, growing our existing markets, mergers and acquisitions, share repurchase, or for other reasons. Such financing may include the use of debt or the sale of additional equity securities. Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilution to our existing shareholders.