USANA Health Sciences - Earnings Call - Q3 2025

Executive Summary

• Q3 2025 net sales were $214 million (+7% YoY) but profitability deteriorated sharply as GAAP diluted EPS fell to -$0.36 and adjusted diluted EPS to -$0.15, driven by softer-than-expected Brand Partner productivity, higher SG&A tied to the Global Convention and compensation plan rollout, and an extraordinary effective tax rate reset; adjusted EBITDA declined to $13.8 million.
• FY 2025 guidance was cut: consolidated net sales reduced to an “updated estimate” of $920 million (from $920M–$1.0B), GAAP EPS to $0.78 (from $1.50–$2.20), adjusted EPS to $1.73 (from $2.35–$3.00), and adjusted EBITDA to $98 million (from $107–$123 million).
• Direct selling Asia Pacific remained weak (Greater China sales down 9% YoY; SAP down 22% YoY), while Americas & Europe grew +8% YoY; Hiya DTC delivered $31 million revenue but experienced sequential softness in customer acquisition and subscribers; management expects Q4 Hiya sales similar to Q3.
• Near-term catalysts: Q4 incentives to support adoption of the enhanced compensation plan, a $4.7 million one-time rightsizing charge in Q4, and ongoing in-house manufacturing/integration for Hiya expected to improve margins into late Q2/back-half 2026.

What Went Well and What Went Wrong

What Went Well

• Hiya delivered 26% year-to-date sales growth and progressed operational integration (ERP, logistics transition), with USANA preparing to bring Hiya manufacturing in-house to drive efficiencies: “We continue to expect Hiya to generate double-digit sales growth for 2025”.
• Americas & Europe posted +8% YoY sales growth and +12% sequential growth (a relative bright spot within direct selling).
• Global Convention launched several new/upgraded products and an enhanced compensation plan; management is “encouraged by the pickup in sales activity and leader productivity in recent weeks”.

What Went Wrong

• Profitability collapsed: operating margin fell to 0.6%, adjusted EBITDA dropped 44% YoY; extraordinary tax rate reset (annual ETR increased to 65%; Q3 tax rate 471%) converted modest pretax profit ($1.8M) into a GAAP net loss.
• Asia Pacific softness: Greater China (-9% YoY), Southeast Asia Pacific (-22% YoY), North Asia (-14% YoY); consolidated active customers fell to 388,000 (-14% YoY).
• Hiya DTC sequential softness: net sales and active subscribers declined 7% and 3% respectively; management highlighted lower-than-anticipated customer acquisition in a seasonally strong quarter.

Transcript

Operator (participant)

Greetings and welcome to the USANA Health Sciences third quarter earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.

Andrew Masuda (Director of Investor Relations)

Thanks, Diego, and good morning, everyone. We appreciate you joining us to review our third quarter 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, 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 President and CEO, Jim Brown, 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 third quarter 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.

Jim Brown (CEO)

Thank you, Andrew, and good morning, everyone. We continue to execute our comprehensive commercial strategy in the third quarter, which was highlighted by the global rollout of our enhanced compensation plan. While third quarter results were impacted by softer sales and brand partner productivity leading up to the global convention in August, we are in the initial stages of the full rollout, and I'd like to be clear in saying that I'm encouraged by recent activity we are seeing in the business. If you recall, we enhanced our compensation plan to ensure USANA is at the forefront of today's evolving and competitive landscape for entrepreneurs. Our commercial strategy includes an enhanced compensation plan, product innovation, updated and refreshed brand story, and improved tools to assist with building a business. The enhanced compensation plan focuses on three key elements: share, grow, and lead.

This new framework is designed to help our brand partners to have greater success in building their sales organization with new brand partners and customers in a simple and explainable way. This is particularly relevant today as the desire to earn part-time supplementary income or to earn income on one's own terms is as high as it has ever been. Our recent changes have systematically addressed the most important features of a competitive compensation plan in this market: simplicity, early earnings potential, and competitive pay-for-performance. We have simplified the plan, made it easier for new people to understand, act, and share, improved the earnings capability of our new brand partners so that they have the potential to see success faster, and we've enhanced our pay-for-performance criteria, which will more greatly reward those who are doing more of the work.

Simplicity and early success are key requirements of a younger demographic, and early indications are that this offering is resonating with that audience. We are encouraged by our brand partners' response to the enhancements and the recent lift we have seen in sales activity and leader productivity. We are seeing improvement across several key metrics, including engagement as indicated by meeting attendance, brand partner attraction and customer acquisition, speed to earning their first commission, and general stickiness of brand partners and customers. Qualitatively, brand partners across the world are sharing how these new changes have brought renewed excitement, energy, and success to their businesses. Our vision of brand partners being a focal point continues to resonate and build trust with these entrepreneurs as they have expressed improved confidence in sharing the opportunity.

During the quarter, we reported an increase in inventories that can be attributed to, in great part, new product introductions to support our growth strategy, increased investments in location of our inventory to support tariff mitigation efforts, and working capital investments in our venture companies, Hiya and Rise Bar. We have also begun the process of targeted in-house production for our venture companies. We believe our in-house manufacturing capabilities contribute to better margins, improved control of inventory levels, and help to mitigate supply chain risks while providing a meaningful contribution to delivering the highest quality nutritional products. Moving on to our other businesses, if you recall, these businesses provide USANA the ability to reach a broader demographic of health and wellness markets while providing diversification and strengthening USANA's financial profile. Overall, we're encouraged by the year-to-date sales growth of these entities.

I'll start by sharing an update on our direct-to-consumer business, Hiya. Although Hiya experienced some challenges in top-line growth in the third quarter, the company has delivered 26% year-to-date sales growth, putting them on track to deliver another year of record sales. Notably, we have made significant progress on several integration initiatives. In the first half of the year, a large focus was placed on the implementation of a new ERP system and related controls to ensure that Hiya is fully operating as a subsidiary of a public company. There has been significant progress made that we believe will support the Hiya team moving forward. We have also been working on other areas that provide operational synergies. For example, during the quarter, we assisted the team in the transition to a new logistics partner, which is anticipated to drive operational efficiency in the coming year.

We also continue to leverage core competencies at USANA, including research and development activities, manufacturing, and general operational expertise to support Hiya in the new product formulation, international expansion, and cost-savings opportunities. Another example, we anticipate to begin the manufacturing of Hiya Health products in-house over the next several months, which we anticipate will continue to improve margins in the late second quarter and back half of 2026. Altogether, we're pleased with the progress we've made on all these fronts and continue to expect Hiya to generate double-digit sales growth for the full 2025. The team has several exciting growth initiatives planned for next year, which we will address next quarter when we provide our initial outlook for fiscal 2026. Rise Bar, which was acquired in 2022, reported record third quarter net sales, and year-to-date net sales have increased 169%.

Although Rise Bar is still relatively small as a percentage of our sales portfolio, we're very pleased with the progress, including channel expansion and new product offerings that we believe will contribute to strong future sales heading into 2026. We are investing additional resources and working capital, as well as leveraging USANA's operational expertise to capitalize on current momentum and to drive long-term growth and efficiencies. We believe there are meaningful growth opportunities in the health and food space over the next several years. As included in our third quarter earnings release, we reported that we have initiated and are executing a global cost reduction process, including a right-sizing of our workforce. This process will focus on prioritizing top strategic priorities while also charting efficiencies that support a more agile and adaptable organization moving forward.

We expect to incur an estimated one-time charge of $4.7 million in the fourth quarter, which has been reflected in our updated outlook. In closing, we remain confident that our comprehensive commercial team strategy will position USANA to drive long-term growth in our direct selling business and deliver long-term value for our customers and brand partners. Additionally, we are succeeding in our diversification strategy with the growth of Hiya Health in the children's health and wellness market and the growth of Rise in the healthy foods market. Together, these elements reinforce our positive outlook for the future and our commitment to create lasting value across our portfolio. With that, I'll now ask the operator to please open the line for questions.

Operator (participant)

Thank you. At this time, we'll conduct our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question comes from Anthony Lebiedzinski with Sidoti & Company. Please state your question.

Anthony Lebiedzinski (Senior Equity Analyst)

Good morning, everyone, and thank you for taking the questions. You have stated, both in the release and this morning, that you have seen a pickup in sales activity and leader productivity in recent weeks, which is encouraging. Can you just kind of walk us through, maybe share some additional details as far as the trajectory of your business trends as you went from July through August, September, and maybe so far in October, if you could comment on that?

Brent Neidig (Chief Commercial Officer)

Sure, Anthony, it's Brent. It's good to hear from you.

Anthony Lebiedzinski (Senior Equity Analyst)

Likewise.

Brent Neidig (Chief Commercial Officer)

We have seen some promising trends from our new compensation plan that was launched earlier this year, earlier in July. I think primarily what we've seen is we've seen more engagement and excitement around the offering than we historically have seen over the last couple of years, so it's been quite promising from that perspective. As Jim mentioned in his notes, we're really trying to focus on the upfront earnings opportunity. We know that as soon as people can engage with USANA, as soon as they see success, and they can see that success sooner on, they're more likely to stay with us longer. That's what's really resonated with our field right now and our brand partners. Historically, that's somewhat been a challenge over the last couple of years.

As people's expectations have changed in today's marketplace, they've been looking for an easier upfront earnings opportunity, and we feel like we've delivered on that front. It's still early, yet what we've seen in September and now the first couple of weeks in October, all signs are pretty promising, especially from our more mature markets like the United States. We've seen some re-engagement from some of our longer tenured brand partners, which is really encouraging to see.

Jim Brown (CEO)

Yeah, just for the comment on that. During the quarter, you know, we mentioned we didn't have the best quarter or it didn't meet our expectations. We did the kind of launch at the beginning of July of the compensation enhancement, as well as some other stuff for our brand partners. We saw a slowdown at that point in time where people were absorbing and not really getting into the business for a while. We've seen what Brent talked about, the pickup has really been after our global convention in August. It really hit right at the end of August into September. Very promising signs, but again, early yet.

Doug Hekking (CFO)

Yeah, Anthony, this is Doug, just for context. We talked about a little bit of this in the pre-release. We anticipated when you roll a lot of information out, as Jim said, it takes some time to process. We anticipated a little bit of softness as they took time to digest and understand and have some more of these in-person meetings. Our convention served in that investment there, I think, served us well to be able to have some of those conversations. We saw maybe a little bit softer than we anticipated and it lasted a little bit longer. As Jim and Brent both indicated, we're pleased by kind of the traction we have now. There's a lot of work to do, but we're definitely leaning into it and working on executing the plan.

Anthony Lebiedzinski (Senior Equity Analyst)

All right, that's very helpful context. I guess that explains why the Americas and Europe region performed relatively better than some of your other regions, right? As far as looking at the percentage of your sales declines, is that why? Because they're more mature, those markets?

Jim Brown (CEO)

I think we had the event. We had some sales at the event. The other thing that you have to recognize is because Rise Bar has been a relatively small percentage of sales, and because it's been there, we indicate, and you can see in the tables that we include that in the Americas and Europe number. Part of that contribution, without a doubt, what Brent said is accurate, but part of that contribution is also from the pickup in performance at Rise Bar as well.

Anthony Lebiedzinski (Senior Equity Analyst)

Got it. Okay, thank you for that. Can you just also talk about the incentives that you plan for the fourth quarter and whether some of those incentives may need to spill over into early 2026, or you think this is just a short-term one-quarter event?

Brent Neidig (Chief Commercial Officer)

Yeah, Anthony, we're going to continue to look for strategic opportunities to provide incentives for our brand partners. Specifically now, as we've just launched our new compensation offering, it's really important for all of our brand partners around the world to understand it, to feel excitement around that offering, and to really get going, working according to that plan. I think it's been indicated already, but we do have some incentives planned for the fourth quarter, which should help us land with where we're guiding in terms of revenue, and it certainly will spill over into Q1 of next year. Just like it always does, we're always looking for opportunities for promotions, to incentivize our brand partners.

Anthony Lebiedzinski (Senior Equity Analyst)

Understood. Okay. Switching gears to Hiya, as I look at the active customer count, it has declined. Can you talk about the reasons for that and how confident are you that Hiya can get back to growth next year?

Walter Noot (COO)

Yeah, this is Walter. We're very confident with Hiya. We've had some slowdowns. In the third quarter, we expected more pickup because, typically, you know, their business is all DTC, and they do a lot of marketing through Meta. Meta has changed algorithms, and we're trying to figure that out. We've been through this multiple times with Hiya in the past. We expect that to bounce back. As Hiya continues to grow through DTC and retail and international expansion, we expect that to continue to grow.

Anthony Lebiedzinski (Senior Equity Analyst)

Got it. Okay. Lastly for me, before I pass it on to others. In terms of just the right-sizing of your organization that you plan to do in the fourth quarter, how should we think about the level of annualized operating cost savings that you plan to achieve with this?

Doug Hekking (CFO)

Yeah, Anthony, this is Doug. We're very early in the process. One of the components, as Jim mentioned, is the right-sizing of staff as part of it. There's far more to it than that. I think what we'll look to do, because we've still got a lot of work and analysis in progress to make, is comment on that in February more fully. We definitely expect to go back and see some cost savings and kind of cost reduction as a part of this process. We'll talk about that in more detail in February.

Anthony Lebiedzinski (Senior Equity Analyst)

Thank you very much, and best of luck.

Operator (participant)

Thank you. Just a reminder to the audience, to ask a question, press star one on your phone. You can press star two to remove your question. Our next question comes from Susan Anderson with Canaccord Genuity. Please state your question.

Susan Anderson (Managing Director and Senior Analyst)

Hi, good morning. I guess maybe just a follow-up on Hiya, it sounds like as you integrate it further, maybe there are some more efficiencies to be had there. Maybe if you could talk about that a little bit more. I don't know if you could quantify it and the impact it's going to have to margins at all?

Walter Noot (COO)

I won't give you all the details as far as this is Walter, by the way. I won't give you all the details on quantified. I think we'll have more information in February about that. Specifically, you know, Hiya makes vitamins. That's their number one product. They also do protein powders. We have reformulated or formulated their products for our manufacturing process. We've got that ready. We'll be making all of their vitamins here in-house, which we have all capabilities to do. Also, as far as operational efficiencies, there's just a lot. We're really good at operations because of the size of our business, and we're able to absorb a lot of support for supply chain. They've had a 3PL that they were using that we helped them transition to a different 3PL. That reduced our cost by quite a bit and allowed them to be much more efficient.

Susan Anderson (Managing Director and Senior Analyst)

Okay, great. That's really helpful. Maybe if you could just talk a little bit about the industry in general. Are you seeing any slowdown from consumers as it relates to either VMS or wellness purchases? Are they looking for more value maybe than what they were, you know, six months or a year ago? I guess maybe if you could talk about it by region as well. Thanks.

Jim Brown (CEO)

Yeah, Susan, to clarify, this is on the broader business, not specifically related to Hiya? Is that accurate?

Susan Anderson (Managing Director and Senior Analyst)

Correct, yeah. Just in the industry in general.

Jim Brown (CEO)

Yeah, we're a part of some associations that help the industry in general. Quite honestly, the direct selling business has struggled over the past few years, probably since COVID. A lot of direct selling companies are basically enhancing their offerings, making it quicker and easier to earn modest income as well as share products. We have seen that same struggle over that time period, but I think we're getting there when it comes to what we just offered in July through August of this year. We're setting ourselves up for the future. Definitely, the product or the vitamin side of the business has struggled some. There is a lot of competition out there, and our biggest challenge is to make sure that we can easily show people our competitive offering.

Again, our offering is a little bit different than some of the companies out there because of the direct selling industry. We offer fantastic products as well as an opportunity to earn. That's one of our highlights when we go out there. When we look at Hiya and Rise, and that information, I'll let Walter speak to that.

Walter Noot (COO)

Yeah, Hiya's children's vitamins, and the children's vitamin market's been, I would say, as, you know, there's quite a bit of competition there, but Hiya creates a completely different experience for their customers. Because of that, and because they're DTC, and because they're all subscription, that business has actually been really, really good for us. They've been able to take market share from other companies. I think they'll continue to do that. For the Hiya side, it's been really good. Riseis protein powders, bars, RTD. That business has really been good for us too, you know, especially with the protein business in the U.S. You just see a huge uptick and huge demand for proteins. We're capitalizing that with Hiya or with Rise. That's why we're seeing such growth.

Jim Brown (CEO)

Yeah, Susan, a little bit more color on kind of just the broader category and what we're seeing with the consumers. We also play in a space where we have, you know, what I believe to be the best quality product out there. One of the commercial team's strategies is to get better and better at articulating that story so they really understand the value proposition. We're not a commodity-type product. That's not a place we're going to play in. We're going to continue to differentiate what we're offering. We're going to make sure that we convey that story so consumers understand the differentiation of our products.

Susan Anderson (Managing Director and Senior Analyst)

Okay, great. I guess, maybe if you could just talk about if you think there's opportunity, you know, Hiya's been pretty successful. The DTC business seemed to be doing better. I mean, is there opportunity, you think, to maybe buy a couple more DTC businesses maybe to tack onto that? How are you thinking about kind of like your future strategy?

Jim Brown (CEO)

Yeah, this is Jim. You're definitely hitting it. Our future strategy is diversification. We're committed to the direct selling channel. We're going to continue to work on making that grow and be a big engine. As we get cash through our business, we are going to look at other opportunities in M&A or opportunities within the companies that are there to actually expand within. Yes, that is part of our strategy. I think diversification will make us stronger, USANA, and we'll continue down that path. Even if you look at where we've been with direct sales and getting modest growth there, just over time with the growth rates of both Hiya and Rise, we'll see a shift in overall, you know, over our portfolio getting more omnichannel and more diversified.

I would also say, given the recent announcement during the fourth quarter, as we look to pivot to be more agile and adaptable and work on some of these cost reductions from a capital allocation priority in the near term, it'll be investing in the commercial strategy as a top priority. As Jim mentioned, our venture companies, because we see really good opportunity in both Hiya and Rise, and we continue to evaluate different opportunities. Those, without a doubt, will be our priorities from a capital allocation.

Susan Anderson (Managing Director and Senior Analyst)

Okay, great. Thank you so much. Good luck the rest of the year.

Jim Brown (CEO)

Thank you.

Operator (participant)

Thank you. There are no further questions at this time. I'll hand the floor back to Andrew Masuda for closing remarks. Thank you. I'm sorry, one question just popped in. One moment.

That question comes from Ivan Feinseth with Tigris Financial Partners. Please go ahead.

Ivan Feinseth (Director of Research)

Hi, thanks for taking my question. I have a few questions as far as now. I see your strategy is to delineate between direct-to-consumer and still your sales marketing channel. For example, there's still a lot of confusion about supplements that I feel your advisor channel can help. Like everybody's saying that the number one supplement that you should take is magnesium, but there's just tons of different formulations. You should take magnesium formulated with different amino acids or different formulations at night versus the morning. How do you feel your product line could meet some of those demands and that your advisor channel could help consumers better understand that?

Kathryn Armstrong (Chief Scientific Officer)

Hi, Ivan. It's Kathryn. I think the data on magnesium is interesting and still, as we've discussed, a little confusing, right? When we look at the clinical data and sort of who has been pushing the clinicals and what types of forms have been studied and whether or not there's been a lot of A/B testing of them versus each other, the data there is not consistent and solid. I think in alignment with USANA's core values, we are always prioritizing science and ensuring that our customers and brand partners have the best possible options. We continue to look at different magnesium blends, as well as all of the different elements that are important for human health. We'll continue to look at that and to ensure that the research that's being vetted is being vetted objectively.

Ivan Feinseth (Director of Research)

Thanks. How do you feel that RFK's Make America Healthy initiative is helping you to create some sales opportunity, getting more people interested in the need for supplements? How are you capitalizing on that, both direct-to-consumer and to your direct sales channels?

Jim Brown (CEO)

Yeah, I think, Ivan, this is Jim. I think in general, we appreciate any direction that shows that vitamins and supplements are very important for people around the world. Even if we look in at some of our other markets, there are initiatives from a government standpoint that we can attach to and educate and give people great offerings to meet the needs. We talked about this for years. Our diet and our diets really aren't hitting the mark, and that's why supplements are so important. I think over time, people are getting more and more educated and understand that. That just helps USANA, and it helps the whole industry in general. Like Doug had said a minute ago, the thing that we supply is the best vitamins in the world, and we'll continue to do that.

We'll always look to see what our customers and brand partners need and make additions or adaptations to what we're offering. Anytime you have the government or even other agencies talk about how supplements are needed for your overall balance and diet, it's just a benefit to us.

Ivan Feinseth (Director of Research)

For a long time, the government.

Jim Brown (CEO)

Go ahead, Ivan. Sorry.

Ivan Feinseth (Director of Research)

For a long time, the government has kind of been a headwind to the supplement industry, and now it really looks like it's going to be a tremendous tailwind led by, you know, the Make America Healthy initiatives.

Jim Brown (CEO)

I agree with that. That's just fantastic for the industry. We've believed that all along. We've been in business 30 years. I can only imagine, I've been with the company right at 20, how difficult it was at the beginning when vitamins were really not looked at positively, or there was just no information about it. Our founder, Dr. Wentz, made the decision to move forward and give us the best product line out there. We'll go along with what's out there, and it's especially helpful when it's positive to the industry.

Ivan Feinseth (Director of Research)

All right, thank you. Good luck for a strong year and finish.

Jim Brown (CEO)

Thanks, Ivan.

Doug Hekking (CFO)

Thanks, Ivan.

Operator (participant)

Thank you. That was our last question. I'll now hand the floor to Andrew Masuda to close. Thank you.

Andrew Masuda (Director of Investor Relations)

Thanks, Diego, and thank you all 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.