Q & A Highlights

Q: Can you discuss the main factors driving the slight uptick in sales in Greater China and whether the sales gains are sustainable going forward? A: Brent Neidig, Chief Commercial Officer, noted that the strong performance in China was partly a tail effect from a robust incentive and new product launch offering in Q1. He highlighted the resiliency of brand partners and customers despite a soft economy, with momentum built over several quarters. Kevin Guest, CEO, added that leadership in China is stronger than ever, with the President, Peter, executing well on strategy, boosting confidence in sustained results.

Q: What is causing the 20% revenue decline in North Asia, and what steps are being taken to improve the trend? A: Brent Neidig explained that Korea, the largest market in North Asia, has slowed over the past couple of years, partly due to a leadership transition at the start of the year. He expressed optimism about the new general manager, unification within the leadership team, and upcoming product launches, including personalized packs unique to that market in Q3, expecting Korea to rebound.

Q: How is the core direct US subscription business performing for Hiya, excluding growth initiatives? A: Walter Noot, COO, stated that Hiya has faced challenges with Meta's algorithm changes, impacting customer acquisition, but has seen improvement in the last few months. He noted that back-to-school season is a strong period for Hiya, and while the outlook appears flat, it assumes adding more subscription customers on top of retail expansion with Target.

Q: Are there plans to diversify advertising efforts beyond Meta, such as using TikTok, given the issues with algorithm changes? A: Walter Noot confirmed that the team is actively diversifying, with plans for TikTok as a significant growth mechanism through the rest of the year and into next year. He emphasized that Hiya has built strong brand awareness through $150 million in advertising, and now sees opportunities in TikTok, retail, and international expansion for future growth.

Q: Can you quantify the impact of the packaging issue at Rise Wellness in Q2 and the related costs? A: Doug Hekking, CFO, explained that the proactive step to stop sales through the channel was disruptive, with a charge taken for some inventory. He noted the delta from the higher guidance range reflects the slowdown and ramp-up. Walter Noot added it was a cosmetic packaging issue, not safety-related, and the company will resell through retail outlets. Doug quantified the change from original guidance at $30-40 million, with about $4-5 million pressure on margin.

Q: How should we think about the tax rate for the back half of the year? A: Doug Hekking indicated that due to near-term pressures in venture companies, the tax rate will be elevated through the year, though not as high as the Q2 catch-up. He noted a structural misalignment between where revenue is generated and where costs are incurred, and expressed confidence in bringing the rate down as the venture brands execute and other initiatives progress.

Q: Beyond near-term operational issues, how are you evolving from a direct seller to an omnichannel distributor, and how can you leverage your integrated product development and manufacturing platform for growth? A: Kevin Guest emphasized the strategy to grow consumers of their brands through an omnichannel approach, focusing on relevant communication and technology investments. Kathryn Armstrong, Chief Scientific Officer, highlighted the strength of the integrated R&D and operations team, leveraging learnings across brands like Hiya and the core business. David Bagley, EVP of Product Marketing, added that the focus is on identifying ideal customers and offering better solutions, with Glow representing a science-backed innovation for the women's category.

Q: Can you provide more color on the new Glow product launch and its significance? A: Kathryn Armstrong explained that Glow, the first skin health supplement, uses clinically tested ingredients at the right doses and forms, validated through consumer challenge tests to ensure visible and feelable differences. Kevin Guest noted it was a test of relevancy for new initiatives, bringing in incremental consumers through a new approach. David Bagley added that it leverages the strong women's audience and positions Usana as a trusted brand for unique, science-based solutions.

Q: What is the outlook for the core nutritional business, and how does it factor into the updated full-year guidance? A: Doug Hekking stated that the core nutritional outlook is largely in line with expectations, with Q2 performance reinforcing confidence in the initiatives for long-term sustainable growth. The lowered full-year outlook reflects the difficult digital marketing environment for Hiya and lower net sales from Rise Wellness, not a change in long-term conviction for either venture.

Q: Can you elaborate on the goodwill impairment charge related to Hiya and its implications? A: Doug Hekking explained that the $29 million non-cash goodwill impairment charge reflects current performance, changes in near-term forecasts, and updated valuation assumptions, including market multiples and discount rates. He clarified that it does not reflect a change in management's commitment to Hiya, which remains strategically important for long-term growth across additional channels and international markets.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .