USANA Health Sciences, Inc. Aktie

Greetings, and welcome to the USANA Health Sciences Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce speaker, Andrew Masuda, Director of Investor Relations. Please go ahead, sir.

Thank you, 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 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.

During today's call, we will also refer to certain non-GAAP financial measures, including adjusted EBITDA and free cash flow. Reconciliations of these measures to the most directly comparable GAAP measures are included in our earnings release. 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; our Chief Scientific Officer, Dr. Kathryn Armstrong; and 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 Kevin and Doug before opening the call for questions.

Thank you, Andrew, and good morning, everyone. I'd like to speak to the strategy we're executing, where we're seeing progress and where we still have work to do. Our earnings release and management commentary present the numbers for the business. So I'll focus on providing context for the numbers and then ask Doug to add more color on how our strategy is coming to fruition.

Overall, this was a mixed quarter, but one where I'm encouraged by the progress we're seeing with our strategy. Our strategy is to evolve USANA from a single channel direct selling company into a diversified omnichannel health and wellness company built on consumer acquisition and loyalty.

In Core Nutrition, we're working to increase customer acquisition and customer loyalty by investing in the USANA brand, bringing new products to market and further refining our incentive structure. Through Hiya and Rise Wellness, we're expanding our business to reach consumers at more venues where they already shop, including retail and Amazon. Our debt-free balance sheet lets us fund this expansion with discipline.

Let me start with what's working. In our Core Nutritional business, we generated improved operating profitability through lower event and compensation expenses. Part of that is favorable -- is a favorable comparison against compensation plan in the last year's quarter that did not repeat, but the cost base is in better shape, and that gives us a stronger foundation to invest from.

We also saw real improvement in Southeast Asia Pacific regions. Net sales grew 2% year-over-year after declining 13% last quarter. Active customers grew 3% sequentially and engagement among our field leaders has increased. It's one region and still early, but it's the improvement we're working on to generate elsewhere.

At Hiya, after a difficult year for digital advertising, results began to improve. The team has been diversifying how it reaches customers beyond a single advertising platform, building creator and affiliate programs and more recently, launching TikTok Shop.

As customer acquisition costs came down from the first half of the year, we intentionally invested in digital marketing to drive customer acquisition. Active monthly subscribers grew 18% sequentially, adding about 29,500 net subscribers and net sales returned to year-over-year growth. Target and Amazon net sales combined more than doubled from the second quarter, albeit from a small base.

Back-to-school seasonality helped and the added marketing investment pressured near-term margins. So we're staying measured, but the early results are encouraging. Hiya has historically seen strong retention and lifetime value. So the customers we add today should contribute for many quarters to come, which is why our focus is now on engaging and retaining them.

Reflecting this progress, we raised our Hiya net sales outlook to $130 million. There's still plenty of work ahead, and I'll take a few more minutes to share my thoughts on where we need to do better. First, Core Nutrition. We're tracking inside the range we expected for the year, but it isn't where we want to be. And the clearest example is active customers, which are down 8% year-over-year.

Greater China, our largest market, accounted for most of the sequential decline in net sales and active customers. On lighter incentive and promotional activity during the third quarter and outside of Southeast Asia Pacific, every region declined in constant currency.

Growing our active customer base remains our top priority. Our brand investment, product innovation that we plan to begin introducing in 2027 and the incentive plan refinements are all aimed at growth in active customers, and we expect the benefits to build gradually.

Second, we're not satisfied with Rise Wellness' results, and we're lowering our outlook again. Last year's third quarter included a large club order for Rise Bar that did not repeat, and club orders again came in below our expectations. Club channel sales are inherently lumpy and reflect in part order timing that we do not control.

Improving gross margin remains a priority. Protein Pop is still a young brand. We launched Protein Pop Balance in Target in September. As we said, we would and our goal is to broaden distribution beyond the club channel and turn this effort into more consistent results.

Third, Hiya. The work ahead is retention, building retail and improving profitability. So while there are -- there's plenty of opportunity for improvement in all our brands, we're making progress, and I'm encouraged by what we're seeing come to fruition. These early results reinforce my confidence in our strategy and in the actions we're taking. With that, I'll ask Doug to walk through the correction to our second quarter non-GAAP figures and add some color on the outlook.

Thanks, Kevin. I'll briefly cover our updated outlook and our cash position and then turn it back to Kevin. With the third quarter in the books, we now expect net sales approaching $900 million and adjusted EBITDA of approximately $77 million compared with our prior outlook of $80.5 million.

The change reflects softer sales at Rise, our decision to invest at Hiya, which is partially offset by stronger profitability in the Core Nutritional segment. With about 2 months left in the year, we anticipate Hiya will build on momentum for the third quarter with sequential growth in net sales and adjusted EBITDA as the subscribers we add in the third quarter contribute for a full quarter and retail and Amazon keep building.

For Core Nutritional, we're assuming net sales of roughly $740 million within the range we provided at the beginning of the year and $10 million below our most recent outlook, reflecting fewer active customers. For Rise, our outlook assumes certain retail orders currently scheduled for the fourth quarter to ship as planned. If the timing of those orders shift into the first quarter, our 2026 results could be modestly below the outlook, though we would expect any changes in net sales and earnings to be realized in 2027.

Finally, cash. Cash from operations totaled $45 million year-to-date, up from $26 million last year, and free cash flow was $36 million, more than double last year. Inventory being down 13% from the end of the year was also a positive. We ended the quarter with $179 million in cash and no debt, which gives us the flexibility to continue investing in our strategy and drive future growth. With that, I'll turn it back to Kevin.

Thanks, Doug. To close, we still have plenty of opportunity for improvement, but I repeat, we're making progress. Our priorities are clear: grow customer acquisition and loyalty in Core Nutrition, engage and retain Hiya's new subscribers and improve margins at Rise. We have a strategy we believe in and the teams who are executing it. Thank you for joining us. Operator, please open the line for questions.

[Operator Instructions] Our first question we will hear from Anthony Lebiedzinski with Sidoti.

So first, on the Core Nutritional side, it was good to see some pockets of growth, as you called out, the Southeast Asia Pacific. I guess it's a multipart question here. Are you doing anything meaningfully different there versus the other regions?

And I guess the second part of that question, as you look to evolve your brand partner incentive plan, can you give more specifics as far as what changes do you expect to achieve from this? What's the time frame as to when we could see some improvements in the customer count and also the segment revenue as well?

Those are excellent questions. We have some really strong leadership around the world, and we are seeing some things work in Southeast Asia that we are expanding in other markets around the world. I'd love to have Brent Neidig, our Chief Commercial Officer, who deals directly with those markets, also respond to that question.

Thanks, Kevin. Anthony, thank you for the question. Yes, it was great to see the results from Southeast Asia. I think it's a combination of many things. Southeast Asia has been in a rebuild for the last many quarters and a couple of years actually.

We've changed leadership in several markets, and that's producing fruit. In the quarter specifically, we had an incentive program that ran, which was quite successful. We are going to build on that into the fourth quarter. But I think where the real magic came together was that we have seen a great deal of reengagement from our top brand partner leaders in many of those core markets, specifically in Australia, Malaysia, even in Korea, the Philippines.

And that combination of reengagement from our brand partners who are driving the growth, combined with the incentive program that we ran is really delivering the results that we're seeing. I wouldn't necessarily call it a new trend line, but we're very optimistic to see those results continue to build in some of those core markets. Remind me the second part of that question, Anthony?

Sure. Yes. So as far as the comment about evolving your brand partner incentive plan, so if you could just comment on what types of changes you expect to achieve from these incentive plan changes and kind of the time frame as to when we could see some tangible results from that?

Yes, sure. We've talked about this many times. Our major evolution to the plan took place last year in July is when the first parts of that rolled out. What that was designed to do was to bring some more money from the back end of the plan to the front end to encourage increased acquisition and help people see success as they -- as soon as they come in the door. That's been successful.

We have seen increased brand partner engagement. And when you look at the numbers, our brand partner decline is less than our preferred customer decline. So we think that the acquisition engine is still intact and still working. Where we really see an opportunity going forward is in consumer loyalty. And Kevin addressed that in his prepared remarks.

But the consumer loyalty piece, that's where we see an opportunity to make some slight adjustments to the current plan, nothing major, but some adjustments to qualification criteria and timing of payout of certain incentives, which we believe will drive increased retention and loyalty, ultimately driving LTV. So that's the program that we've got queued up, and we expect that to roll out throughout 2027. So it's going to be a phased-in approach.

Got it. Yes. And then as far as the comment on the -- as far as new product introduction, can you speak to the pipeline of new products that you have for next year? And also, it looks like you're going to be a bit more aggressive with digital marketing. How do we think about the impact that may have on your costs?

Well, those are great questions. Meeting people where they're at is a key part of our strategy and also speaking to them effectively where they're at and relevant communications is a big part of that as we think about our product launch and expansion and growth. And we've actually done a couple of test markets here in the U.S. that are reaping positive results that we're very optimistic around the consumer-driven product-based offerings. And so -- but I would like to ask Kathryn Armstrong. Dr. Armstrong is our Chief Science Officer. And would you comment on his question?

Anthony, this is Kathryn. Thanks, Kevin. When we talk about our new product launches, to Kevin's point, it's really about the holistic approach of how do we bring these to market. And so we're focusing a lot on women's and kids initiatives.

To Kevin's point, we have a lot of experience in those areas, and we've been testing out new ideas, both through our core brand as well as through our extended set of brands in terms of how we can leverage product execution to drive customer loyalty. And you can expect to see those coming to fruition in 2027 with launches.

Okay. And then with respect to Hiya, how do we think about the balance between marketing spending and profitability for the brand? And I guess as you look to scale Hiya across the core subscription business and add more retail, kind of as you look at building this brand over the course of the next few years, how do we think about gross margins, operating margins for Hiya, where they could be?

When we first acquired Hiya, the thing that got me really excited -- most excited about Hiya was the competency of their team and how proactive and how effective they were at building a national brand and how focused they were.

And it's great to see them expand and grow inside their channel and their product base. But I'd like to ask Walter, who's coordinating from our home office with the Hiya leadership team on the go-forward and execution.

Yes. Think about it this way, Anthony. So when the customer first buys from Hiya, first order is half price. And the first order comes with a nice bottle and it's got a really nice box, and it's an expensive presentation that gets sent to that customer. Hiya invests in that new customer. And we have a really high LTV and it's very predictable.

It's been predictable since the beginning, we've actually seen it gone up over the last year. And so with Hiya, you'll see months like September, especially September, but even this last quarter, where CAC went down a little bit. And so it gave us an opportunity to go out and acquire more customers. And you saw a net gain of about 30,000 new customers that came in. And those customers are going to stay for a long time.

And so what happens in first month is you'll see lower EBITDA, lower margins, and then you'll start seeing us reap that just like Doug said. So in Q4, you'll start seeing margins going up quite substantially. Same thing that will probably happen in Q1 of next year, you'll see a lot more acquisition because beginning of the year, we'll acquire a whole bunch more customers.

And then throughout the year, we'll start benefiting from that. And then on the retail space, we have a much higher margin on the retail space. So we're in Target right now. That's getting us good margins, and that's growing fairly quickly. And then we're going into club at the beginning of next year and early Q1. And so you'll see -- as time goes on, I think we'll build a nice base. With DTC, especially with Hiya's business, the kind of the way it's set up with that first order being half price, that creates some inconsistency in EBITDA. But over time, as we start adding retail, that will start to change.

Okay. That's very helpful context. And then kind of, I guess, a similar question on Rise Wellness. So it does appear that it's a bit more lumpy than expected. However, as you look to diversify your retail distribution, how do we think about sales and profitability for the brand and whether that includes any new additional products that you're thinking of as far as potentially announcing next year? Just how do we think about the trajectory for Rise Wellness?

So with Rise, like you said, it has been lumpy, especially because of club stores. And even though we still are -- it's very promising. Club stores are still very interested in the brand and what we're doing with them. It's just that they do a lot of testing with us and they'll order on a regional basis rather than a national basis at times. So we're going kind of back and forth.

But we have, not just conversations, but we've got orders coming in, and we think it's going to be positive long term. But in the meantime, we've had to start building a base because if you think about it, Protein Pop was a brand-new brand last year. I mean, this is September last year, we launched at Target. So it's a new brand we have to build up.

We have gone -- by the end of this year, we'll have in the retail space, not club, but this is grocery and Target and grocery. We'll have 4,100 stores that we'll be in, which is a huge amount of growth that's all happened this year. That will build a base for us and allow us to -- especially in grocery, there's a better profitability margin for us.

And so I think that you'll see, obviously, we didn't do well this year because -- especially because of club and because of some of the lumpiness of that business. This year -- this next year and the rest of this year, we'll start having more business going through those retail channels.

Protein Pop is -- the units per store and dollars per store is the #1 clear protein product in the U.S. So it's -- and that's a product that started in September last year. So there's -- and there's a huge opportunity for us still in the grocery space and in the club space. We are -- we have just launched a new product in Protein Pop, that's called Protein Pop Balance. It's a prebiotic fiber and a protein. And it's a lower amount of protein. So it competes in the grocery aisle -- or sorry, in the soda aisle.

So because of that, we think we'll get more units per user, per customer. We think it will consume more. And we also think that being in the soda aisle, we'll get a lot more sales per store per week. And that's really been our focus. I think for the next year, I mean, we definitely have new products we'll be launching. But I think Protein Pop Balance is probably our focus for the next year.

And I guess my last question is probably for Doug. So the tax rate has been a headwind. Just wondering if there are any things that you can try to do to minimize the tax impact, anything structurally that you could perhaps do differently or as far as the tax impact? And how do we think about the tax rate beyond 2026?

Yes. I think everything that we just talked about with Hiya, Rise and even Kevin's strategic comments on the Core, all feed into that. I think we've had a little bit of a drag on our venture companies, which I think are -- there's so much positive information there. But as you see that, you just don't get the benefit from a tax standpoint, I think particularly with the amortization of intangibles at Hiya.

And so that really is a headwind. And so one of the things we look at is the absolute tax amount. And the rate is not something, believe me, we sit through Board meetings. And it's a comment every Board meeting, and it's an interesting navigation. I think there's opportunities to shift some of the spend closer to the consumers in different markets, and there's some opportunity there. I think any of those considerations, we want to be very thoughtful and very intentional about something that's going to be additive to the business. But I think just generally getting traction in the businesses and executing on the plans that we have with our venture companies are the best opportunity.

There are no further questions at this time. I would like to turn the floor back to Andrew Masuda for closing remarks.

Thank you, Rochelle, and 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. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Andrew Masuda, Director of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. We appreciate you joining us to review our second 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 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, our Chief Scientific Officer, [ Dr. Catherine Armstrong ], as well as other executives. Yesterday, after the market closed, we announced our second quarter 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. I want to use my time this morning to step back from the quarter and talk about where USANA is headed, because I remain more convinced than ever that the path we're on is the right one. We're building something different, evolving the company. We're building a diversified, omni-channel health and wellness company anchored by science and built on deep, lasting consumer loyalty, with our products reaching consumers wherever they choose to shop. This transformation is well underway, and the progress we are seeing across our portfolio this year reinforces my confidence in our strategic direction. Our core nutritional business continues to demonstrate stability and momentum. Mainland China, our largest and most established market, is showing signs of renewed strength, and that matters because it reflects the deep trust our brand partners and customers place on this brand. We're backing that trust with continued innovation, including the recent launch of GLOW, our first skin health supplement, which extends our science leadership beyond topical skin care into cellular-level formulations.

Looking ahead, I'm pleased to note that USANA will host our live 2026 Americas Convention on August 12th through the 15th in San Diego, California. This event brings together our brand partners from across the United States, Canada, and Mexico for business training, new product launches, product education, and recognition of our top performers, reinforcing the engagement and momentum that we continue to drive from our core nutrition business. That same momentum is what we're working to build across the business. We're evolving our brand partner compensation plan, accelerating our product innovation, and modernizing technology that underpins how our brand partners and our customers interact with our brand. I'm genuinely excited about the compounding effect these initiatives will have as they mature.

Hiya continues to open doors for us in ways that would have been hard to imagine a few years ago. The brand's presence at Target remains strong. Our early footprint in Canada and the U.K. is trending in the right direction, and the Hiya team is leaning into the traction we are seeing on Amazon as well. At the same time, Hiya's direct-to-consumer business has experienced a tougher and more expensive digital marketing environment, and that's had a clear impact on subscriber growth this year. I don't want to gloss over that. It's a real challenge the business is confronting right now. But in the long run, I assure you that the brand equity Hiya has built as the category leader in children's health and wellness is a durable asset that gives us multiple paths for growth. We see a very encouraging future as Hiya expands into new retail channels, new geographies, new product categories, and new customer demographics.

Rise Wellness experienced a packaging issue that affected execution of the commercial plan during the quarter. Although that issue is resolved, we now expect that Hiya's net sales for the full year to be lower than we previously anticipated. Again, when I look beyond this short-term disruption and focus on the future, on Rise's long-term potential, I am very confident. Protein Pop is barely a year into its life as a national brand, and it's already built real distribution and shelf presence across major retail channels. The team is launching an additional Protein Pop product in the third quarter that demonstrates its commitment to speed and innovation. So yes, the current outlook has been disrupted, but our conviction in where the brand is headed long-term remains firmly intact.

I see the potential synergy and growth opportunity in our company that is realized through executing a clear strategy with discipline, and stabilizing and strengthening our core nutritional business while scaling our high-potential venture brands and investing in the technology and innovation that will define our next decade. We anticipate these efforts will stimulate growth, and I'm encouraged by the caliber and engagement of the teams driving this forward. Our balance sheet remains a real source of strength and opportunity for us. We ended the quarter with $169 million in cash, 0 debt, and generated $20 million of free cash flow, driven in large part by efforts to improve our working capital management. Our financial flexibility allows us to keep investing in USANA's evolution into a diversified, omni-channel health and wellness company, as we navigate near-term puts and takes across the portfolio. With that, let me hand it over to Doug to provide additional color on our second quarter financial results and our updated outlook as things come to fruition.

Thanks, Kevin, and good morning, everyone. There are two primary drivers that impacted this quarter's results that I want to briefly discuss. First, the company recorded an estimated preliminary non-cash goodwill impairment charge of $29 million related to the Hiya reporting unit. This non-cash charge primarily reflects the [lower?] than expected performance and changes in near-term forecasts, as well as updated valuation assumptions under applicable accounting standards, including adjustments to market multiples and discount rates. The impairment does not reflect a change in management's commitment to the business. We are confident in the future of Hiya and its management team while recognizing their strategic importance as part of our long-term growth strategy and as they leverage the brand across additional channels and international markets. Second, we recorded $9 million in income tax expense on a pre-tax loss of $19 million during the quarter, which contributed to the loss.

The aforementioned items created misalignment between where we generate revenue and where we incur costs and have the effect of disproportionately impacting income taxes. Now, let me turn to our updated outlook for fiscal 2026. We are lowering our full-year outlook that reflects the more difficult and expensive direct-to-consumer digital marketing environment affecting Hiya's second-half net sales and lower near-term net sales from Rise Wellness. Our core nutritional outlook is largely in line with expectations and its performance this quarter reinforces our confidence that the initiatives underway are the right foundation for long-term sustainable growth. To be clear, this update is about near-term timing, not our long-term conviction in either venture company. Hiya and Rise Wellness are both continuing to build solid foundations with retail relationships, product pipelines, and market footholds that we believe will drive meaningful future growth. I'll now hand the call back to Kevin before we open the line for questions. Thanks.

Thanks, Doug. Let me close with this. Our core nutritional business is performing in line with our expectations and gaining traction from the actions we've taken to stabilize it. And our balance sheet remains strong, debt-free, and cash-generative. Hiya and Rise Wellness encountered near-term challenges this quarter, but both brands continue to build real momentum in retail, e-commerce, and international expansion, and we remain confident in their long-term potential. We recognize that the path to building a diversified, omni-channel health and wellness company will not always be linear, and we are managing the business accordingly with discipline and clear focus on long-term value creation for our stakeholders. With that, I'll now turn the call back to the operator for Q&A.

Thank you. [Operator Instructions] Our first question comes from the line of Anthony Lebiedzinski with Sidoti & Company. Please proceed with your question.

So, the core nutritional segment outperformed our expectations and certainly it was nice to see the sales growth in Greater China. So, as it relates to China, what do you think are the main factors driving the slight uptick in sales, and do you think the sales growth is going to be the main factor? Are gains sustainable going forward?

That's an excellent question. I'm going to ask Brent Neidig, our Chief Commercial Officer, to respond to that.

Hey Anthony, good morning. Yes, we're pleased with the performance of China in the second quarter. As you recall from the last quarter, we did have a very robust incentive and new product launch offering in the first quarter. And any time we do something like that, there always is a tail associated with it, and we saw that tail continue in the second quarter. We are pleased with the resiliency of our brand partners and our customers in the Chinese market. That economy is soft, just like many economies around the world, but they have shown resiliency and there is a tremendous amount of momentum that's been built up over the last several quarters with the initiatives that we've rolled out.

So I expect to see that continue. So we're pleased. We have several things that are scheduled for the back half of the year, just like we do in many of our other markets in terms of new product rollouts, incentive offerings, and other events. So pleased to see the progress that we've made so far, and we expect that to continue.

Hey, this is Kevin. I just wanted to add on to Brent's comments. From my perspective, we have stronger leadership overall in China now than we've ever had, and that leadership is really executing well on their strategy for the market and our overall strategy for the company, and we're seeing that in results. Our president there, Peter, is doing a fantastic job, and my confidence has never been higher in our Chinese leadership, which is a really bright spot for us.

Thank you. Then just switching gears to North Asia, which was a laggard for you guys in the direct business. So it was down 20% in revenue. Maybe if you could just take a stab at explaining what's going on there. I know it's a far smaller market than China, but nevertheless, it's an important market. And kind of, you know, what are your thoughts taking as far as steps to improve that trend?

Yes, so when we look at North Asia, Korea is our largest presence there. Korea has been a very big market for us in the past. We've seen a lot of slowing in that market over the last couple of years. I think I talked about this last quarter, but we went through a leadership transition at the beginning of the year in Korea. That always causes a little bit of disruption, but we're very pleased in our new general manager for that market and we're starting to see a lot of momentum beginning to build. There's unification taking place amongst the leadership team within the market, including our brand partner leadership as well. So just the most recent reports and the things that we're seeing come out of that market, I have reason for optimism to see what's coming out of Korea. We also have a couple of new products that are going to be launched in that market, personalized packs that are going to be unique to that market as well that's going to be launching here in the third quarter. I am very optimistic to see where that takes us and I expect to see Korea rebound.

That's good to hear, certainly. And then switching gears to Hiya, so certainly I know you have expanded into brick and mortar and doing some international there as well, but just wanted to get a better sense as to how is the core direct U.S. subscription business doing? I don't know if you are prepared to give us an exact number, but just wondering how it's doing on an organic basis, excluding some of the growth initiatives.

That's an excellent question, and I'm going to ask Walter Noot, our Chief Operating Officer, who also, from a home office perspective, is managing that business for the management team. Walter, will you give some color to that question?

Yes, thanks. Yes, so Hiya, we talked about this several quarters in a row that with Meta, the CAC's been going up. We've had issues with Meta's algorithm and it's created issues for us as far as customer acquisition. And we've seen improvement in that over the last, let's say last few months, last month, let's say, we've seen improvement in those numbers and that's been encouraging. The other thing is that it's back-to-school time, so that's a great time of the year for Hiya. We believe when you look forward, we think that's going to help us for this year. That's obviously a great thing. When we acquire customers, first order with Hiya is half price, which is different than a lot of other subscription businesses. So you'll see, as you look at our outlook, you can see that it looks, let's say, somewhat flat, but that also assumes that we're going to be adding more customers with our subscription business on top of the retail that we're doing right now with Target.

Mm-hmm. Got you. So as you alluded to, you know, Hiya has had some issues with Meta, changing their algorithms and so on. So just wondering, what are your thoughts on shifting some of the advertising more towards, let's say, TikTok, for example, maybe using some influencers on there, you know, just wondering if there are ways that you can just try to diversify your efforts beyond Meta, which as you've alluded to, you've had issues with.

Yes, that's exactly right. That's exactly what the team's doing right now. We are, uh, with the Hiya team, they've got plans in place throughout the rest of this year and beginning of next year. TikTok is going to be a big mechanism for them to be able to build growth and of course retail. We're adding more retailers. So that's why we're very excited about the future of Hiya, where it's going. It's a transition time, I think. You know, we've been a subscription-only business for, what, 4 or 5 years, and it's been great. Hiya has been awesome at that. I think that business is somewhat flattened out, as you've seen. Hiya has spent $150 million on advertising over the last X amount of years, has built a really, really good brand. It's got a great brand presence and really good awareness with parents and their kids. And so we just see these opportunities in TikTok, retail, international business. We think the business is going to do well in the future.

Okay. Sounds good. And then just shifting gears also to Rise Wellness. So is it possible for you guys to quantify the impact of the packaging issue in the second quarter and the related costs associated with that?

Yes, Anthony, this is Doug. And Walter can kind of provide some clarity. He's been in the middle of it. But essentially, as we identified the issue and took proactive steps, it essentially stopped the sales from pushing through the channel. And I think doing the right thing, I think represented us well with that customer and gives us future opportunity, but without a doubt it was disruptive. We did take a charge for some inventory and there's other inventory that we think we can go back and find a way to get out there where we feel good about standing behind the product. So that's a big picture. But we had a much higher guidance range than what we provided. And that delta is really kind of the slow down and kind of the ramping back up. But as Walter indicated, there's a lot of real positive momentum at Rise, some new product innovation that we see on the horizon. So we're quite excited about it. But yes, it's definitely been a short-term disruption. Walter, anything else?

Yes, it was a cosmetic issue with some packaging. We voluntarily pulled the packaging back. Sold product, it wasn't a safety issue or anything like that. We're going to continue to be able to resell through that channel, through those resellers, through those retail outlets. We have good relationships with them. So, again, this is a short-term thing, and it affects our quarter because we have negative impact on revenue. We're very positive about where Rise is going. It's a great brand. And if you look at the year, we've already exceeded what we did last year to date with Rise. And there's a lot more coming. By end of year, we'll have over 4,000 retailers we're selling in, 4,000 doors, and that's, you know, of a brand that's less than a year old, that's pretty good.

Yes, and more specifically, Anthony, the range relative to kind of the change from our original guidance in that $30 million to $40 million top line, and probably about $4 million to $5 million pressure on margins just from having a little bit lower top line of some of that operational infrastructure.

That's very helpful color. And then, you know, last question for me is just how do we think about the tax rates for the back half of the year?

Yes, I think just because of the near-term pressures we see in these venture companies, we're going to see an elevated tax rate. Those things really contributed to structurally something where we've had a little misalignment with revenue, where revenue is generated, costs are incurred, and this amplified it. It's definitely going to be an elevated tax rate through the year. Obviously not what you saw in the second quarter on the catch-up, but I think it'll definitely be much higher than what we'd like to see it. And so we're definitely working on things. And I think as we execute in these venture brands and work on some other things, you'll see that come down perspective, which we're confident we can do.

Sounds good. Well, best of luck. Thank you.

Thanks, Anthony. Thank you. [Operator Instructions] Our next question comes from the line of Ivan Feinseth with Tigress Financial Partners. Please proceed with your question.

So beyond some of the near-term operational and, you know, goodwill issues, could you talk, you know, bigger picture? You're evolving. It looks like you're evolving to me from, you know, a direct seller to an omni-channel distributor because now you have subscription direct sellers, direct to consumer, now in-store availability. Can you give some, you know, your thoughts on how you're growing that? And second, you know, you have this tremendous vertically integrated product development manufacturing platform, like how you could, when you make acquisitions, bring more brands onto your platform, develop new products to address what is an increasing interest on the consumer side on nutrition, preventative health, sports nutrition. So it looks like you have a huge and growing market and an infrastructure that you're building to address a market on multi-levels and multi-different kinds of products, including the new one you said you just introduced, the skin care supplement.

Ivan, thank you. That's a great question. Strategically, if you look at the world overall, the wellness platform, as you stated, is a growth market, and we are involved in a growth marketplace, and we believe we're the best in the world at what we do. And as we explore and find new ways to service consumers and grow consumers, the overall strategy statement is to grow consumers of our brands. We need more people every day putting what we make in their mouths, to put it simply. And that's what we're focused on. We've got it on signs hanging around the building. And that does lead us into the omni-channel approach and being better at what we do. And just if you look at our core nutritional business, we have a massive opportunity just by upgrading our technology and making our products more accessible to the consumer and making the interaction be more relevant.

I truly believe that the frequency of relevant communications equals brand loyalty. And so as we focus on relevant communications leveraging technology, which is, you know, one of our major spends here as we invest in the change and evolution of the company, it's more about interaction and experience. And one thing you mentioned was our GLOW product. And it was really, for me, a test to really see the relevancy on some of our initiatives as much as it was a very, very good product launch. And we were very pleased with the amount of incremental business we were able to generate and new consumers who hadn't experienced our brand through a new approach and a new avenue. I'm going to ask [ Dr. Catherine Armstrong ], our Chief Scientific Officer, if you would, just add some color to Ivan and the notion of product extension and how it can fit into an omni-channel marketplace. Also, leveraging across the different categories, the opportunity we have there.

Ivan, good to talk with you again. So I mean, exactly what you said, right? We have a very strongly integrated R&D team operations execution. And that's the strength we have that can be leveraged not just through what has been traditionally our core business, but through the acquisitions of the brands that we have acquired and through many other means. And so we are looking at how do we grow that? How do we make sure we're leveraging all of the talent we have at USANA in a way that best drives return? For us, it's been a lot of fun, as you and I have discussed, as we look at these different formats and these different opportunities, things that we're learning in the core business globally has helped us as we look at, you know, for example, Hiya's expansion and how we understand kids through the Hiya market clearly can feed back into how we understand kids within our USANA core. So all of those are accurate reflections, insights on your part and aligns with what we're thinking.

When it comes to GLOW, I think that's really representative of who USANA is. We started with ingredients that have strong clinical data, and we didn't stop there. We wanted to really think about how do you address skin from the inside and not just through a topical solution. So we took those clinically tested and relevant ingredients and then put them into a consumer challenge test to really understand if our consumers could see and feel the difference. It's important to us, as Kevin said, you know, we believe we are and will continue to be the best in this space. So for us, making sure we have that clinical data, those ingredients that are at the right doses and the right forms, and then ensuring that those deliver all the way through to the customer experience is important to all of our businesses and all of our brands.

Um, Ivan, I also have Dave Bagley here who is our Executive Vice President over Product Marketing. And he works hand in glove with Catherine, strategically on your question. And would you add some color also to Ivan's question?

Yes, thanks, Kevin. Ivan, it's been a bit, but it's good to chat with you again. Thanks for being on the call. I think at the root of it, it's not the activities we're doing. It's really, to Kevin's point, it's the strategy. And at the root of that is what are we doing to not just sell products but really identify what the ideal customer looks like? And how do we offer something better to them than what the other people are offering. And GLOW is definitely representative of that. We have a very strong audience in the women category, and they're looking to us as a trusted brand to bring unique and innovative solutions to them. I applaud Kevin's leadership in wanting to be able to look at some ways that are uncommon, but yet very founded in science to deliver something meaningful that's more rooted in, I'd say, less marketing and more consumer experience that elevates the USANA brand. So we're going to continue to lean into that, and in partnership with Dr. Armstrong and her team, we're very confident where this is going, so we're excited about it.

It's an interesting new product, a new category. It's good to see because everything is going back to gut health, including collagen synthesis. Everything is in your gut, skin, digestion, health. So it's a huge area. Even, let's say, teeth care is more even being focused on the gut than just toothpaste. So congratulations on the new product.

Thanks, Ivan. Thank you. That concludes our question and answer session. I'll turn the floor back to Mr. Masuda for any comments.

Thanks, Melissa, and thank you all for your questions and participation on today's conference call. If you have any remaining questions, please feel free to reach out to Investor Relations at 801-954-7210.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the USANA Health Sciences First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Andrew Masuda. Please go ahead, sir.

Thank you, Carrie, and good morning, everyone. We appreciate you joining us to review our first 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 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 first quarter results and posted our management commentary document on the company's website.

We'll now hear brief remarks from Kevin before opening the call for questions.

Thank you, Andrew, and good morning, everyone. Our first quarter results reflect USANA's continued and deliberate transformation from a single channel direct sales business to a diversified omnichannel health and wellness platform. That evolution is the defining story of this company right now and the progress we are making across our 3 business segments reinforces our confidence that this strategy will deliver sustained compounding value over time.

In our core nutritional business, we saw sequential improvement in Q1. Net sales of $204 million grew 7% sequentially, driven by active customer growth, particularly in our China market, which benefited from customer acquisition activity around the Lunar New Year. The sequential improvement is encouraging and consistent with our view that the actions we are taking to stabilize the business are beginning to take hold.

These actions are organized around 3 clear priorities. First, we are advancing the rollout of our enhanced brand partner compensation plan, which is designed to strengthen the business opportunity and improve the productivity and retention of our distributor network. Second, we are accelerating new product launches, bringing a robust pipeline of new and upgraded formulations to market. And third, we are accelerating our technology initiatives to modernize our core systems and fundamentally improve how customers experience our brands while driving future cost efficiencies across our IT infrastructure.

Taken together, we remain confident that these initiatives will continue to stabilize active customer counts and position the core nutritional business. We are returning to sustainable growth.

Turning to our omnichannel brands, Hiya and Rise Wellness. They are expanding the aperture of what USANA can be, reaching consumers in new channels and through innovative formats. Hiya generated $32 million in net sales in the first quarter with active monthly subscribers of 186,000, reflecting modest sequential improvement from Q4. The business has been navigating a period of elevated customer acquisition costs stemming from disruptions in the Meta advertising environment beginning in the third quarter of 2025.

The Hiya team is deploying the resources and capabilities needed to reaccelerate subscriber growth, and we expect the second half of 2026 to reflect stronger performance. Several important milestones position Hiya well for that recovery. The brand launched in Canada in January and in the United Kingdom in March, establishing its first international direct-to-consumer markets. Hiya also expanded into retail and products are now available at Target, representing the brand's first partner in brick-and-mortar retail.

Lastly, I want to point out how we are leveraging USANA's assets to accelerate growth and improve margins. Since the acquisition a little over a year ago, we have implemented a new ERP system, transitioned 3PLs, leveraged our R&D team to develop new products, leveraged our market expansion team to expand internationally and brought manufacturing and packaging of Hiya products in-house, a strategic shift that we expect will generate incremental margin efficiencies beginning in the back half of 2026. We continue to project full year 2026 net sales of $140 million to $155 million for Hiya.

Rise Wellness delivered $14 million in net sales for the first quarter, more than 8x the prior year's first quarter and -- which is a 143% sequential increase. This performance was driven by the national launch of Protein Pop Plus into Costco. Protein Pop's journey from concept to national shelf placement in a matter of months is compelling proof of this team's ability to capitalize on speed and execution.

While this market has proven to be a competitive and evolving marketplace, Protein Pop has gained meaningful share in the market and emerged as a leading brand that we expect to see on shelves across many more retailers in the coming months and years. Rise Bar also continues to benefit from the retail distribution relationships established last year.

As with Hiya, we have been able to leverage our significant assets and expertise to benefit the 2 Rise Wellness brands. We are manufacturing Rise Bars on USANA's high-speed, high-tech bar line. Our world-class operations team is managing inventory and demand and planning for both Rise and Protein Pop to create efficiencies.

Lastly, our R&D team is reformulating existing products and developing future products for these brands to ensure our customers have an excellent experience while also receiving the best nutritional products possible. We are pleased with the market reception and remain confident in the long-term potential of this segment. We are reaffirming our full year 2026 guidance across all metrics, projecting consolidated net sales of USD 925 million to USD 1 billion.

Omnichannel net sales are on track to represent more than 20% of the total net sales this year, up from 16% in 2025 and approximately 1% just 2 years ago. That trajectory speaks to how quickly our omnichannel platform is taking shape.

Please note that our guidance includes an incremental, but modest investment for our technology modernization initiatives, which we are funding primarily through a repurposing of existing resources as well as savings generated from operational efficiencies and the initiatives, which underscore our commitment to innovate without sacrificing fiscal discipline.

Let me close by putting this quarter in context. We came into 2026 with a clear strategy, stabilize the core nutritional business, scale our omnichannel brands and modernize the platform that ties it all together. The first quarter showed progress on all 3 fronts. Active customers in the core business grew sequentially. Hiya reached new markets and a new retail channel. Rise Wellness delivered a strong launch in the quarter at Costco and Target, and we have formalized technology investment plans that will improve how we operate and how consumers experience our brand.

None of this happens overnight. We are committed to making impactful investments that generate robust returns. Our balance sheet is strong. Our people are aligned and our strategy is clear. We have solid -- 3 solid segments, an evolving omnichannel platform and a mission that resonates with health-conscious consumers around the world. We remain committed to executing with focus and delivering sustainable long-term value for our shareholders.

With that, I will now turn the call back over to the operator for Q&A.

[Operator Instructions] And our first question will come from Anthony Lebiedzinski with Sidoti & Company.

Certainly nice to see the better-than-expected results. And specifically, I wanted to start with China actually. So we saw some improvement there in Q1. Just good to see. Just wondering if you've seen any notable changes from a macro perspective in China or maybe elsewhere as it relates to increased fuel prices since the Iran conflict started. Just wondering what you've seen just from a broader consumer perspective as it relates to higher fuel prices.

Yes. Brent, I'd like you to respond to that. He's our Chief Commercial Officer. Brent?

Yes, Anthony, it's good to hear from you. As of this point, we haven't. I'd say the macro environment in China is pretty stable relative to the rest of the globe. They've been somewhat insulated from different inflationary pressures that the rest of the markets have been under. I think it's still a little too early to tell in terms of the Iran conflict and what we might see with fuel prices there. But everything that we've seen and that I'm hearing from our brand partners there and from our leadership there is that there's no material impact as of yet.

That's good to hear. And as it relates to the core nutritional business, so you talked about accelerating product development and also as far as the time lines are concerned for that. Can you share any more specifics as far as maybe like the number of new products that are in the pipeline or anything else that you can share as to what you are -- you have coming up as far as new product development?

Yes, Anthony, we have our Chief Science Officer, Dr. Kathryn Armstrong here. Kathryn, will you go ahead and handle that question?

Yes. Anthony, good to talk with you. So for us, a lot of the focus has been on how we better leverage our skill sets internally and externally across all of the different product formats that we now offer against the expanded brand portfolio.

So when we talk about the number of products under development, obviously, there are products for development in all of our sections as well as in our team in China. It's certainly over 20. And so I wouldn't go into specifics on launch dates and in which categories they fall under, but we have a plethora of products we're developing for all of the brands and for all of the markets.

The focus for us is really on how do we help more people ingest the products that we are making across the brands and how do we leverage things we've learned in our different channels that appeal to different types of consumers or to different types of use occasions and how do you expand each of the channels to allow for more of those consumers to engage across those channels.

So for example, you can expect to see us bring in things to our direct sales channel that are aligned with key insights we've had around how consumers are evolving their experience desires for product usage and really pulling those learnings together to make sure we have products in each of the channels that are appealing to the right consumers to meet them where they are in their health journey.

Anthony, this is Kevin. Just to jump in, and I'm going to ask Walter to comment on this as well. To your point and what Kathryn just alluded to, one of the things that I've been very optimistic about is how we're leveraging the expertise and knowledge base from other sales channels into our core business and the learnings that we're gaining from that -- from a direct-to-consumer approach and how that helps lend itself in other categories.

And Walter, just again, to Anthony's point about just our product strategy overall as it relates to the omnichannel and how that's affecting each other. I'd be curious to hear your thoughts on that.

Yes. I mean cross-platform. I mean, I think what it's done is it's -- traditionally, we've been a direct sales business. And it's an international business. But with the rapid growth we've had with retail, with the -- for instance, with Protein Pop, launching that new product recently, we've just seen how quickly trends change. Right now, there's some -- obviously, there's some really big trends around weight loss and using protein to be able to supplement that weight loss. And that's been a really big benefit.

And we've seen -- we've been able to leverage that and use product development and the teams we've got to be able to help us to design and develop new products for the direct sales channel. I think you're going to see some of the things that we do in retail and direct-to-consumer, you'll see those bleed over into the direct sales channel.

That sounds like you certainly are leveraging all your assets, which sounds promising. Now just switching gears to Hiya. So definitely it was good to see a sequential uptick in sales, though the SG&A was higher than the fourth quarter and higher than last year. Is that just seasonality of the business as far as marketing costs? Or is there anything else that's impacting the SG&A?

Yes, Anthony, this is Doug. As Kevin alluded to and Walter kind of contributed as well, Hiya is diversifying within its own channel, and it had the initial foray into retail towards the latter part of the quarter and also entered both Canada and the U.K. And so those things consume some operational resources as well. The other aspect that you see is kind of this meta algorithm that we've talked about a few times, the cost of acquiring a customer in that short term was definitely present there on a year-over-year comparison.

And can you give us an update as to how Hiya is doing so far in Canada, the U.K. and the selling at target?

Canada -- for Canada, I think we've put some Targets in place, and we've exceeded those targets in Canada. And I think that's only because I think a lot of people in Canada are -- have probably seen Hiya. They understand the brand. It kind of bleeds over. With the U.K., it's a new market for us. It's a brand-new territory. We're using Meta also in the advertising there. And it's -- I would say it's very new for us. I mean we've been out about a month, probably about a little -- maybe a month, maybe 5 weeks.

So I would say, again, it's a very slow start for us because it's a new market, but we have very high hopes for the U.K. I mean we went across the world and looked at what the best markets are for the Hiya products. And we believe that with the DTC appetite in the U.K. and with the competitive landscape there, we think Hiya is going to do really well.

And as far as Target goes, Target has really been -- I think it's been 2 weeks, maybe a little more than 2 weeks that it's been on shelf. About a week ago, many of the Targets, I would say most of the Targets have gone -- had put end caps in place with Hiya products. So we went live with Target, then we put end caps in place. So we're going to see -- we really don't know. I think in the next few weeks, we'll have a much better idea. But the placement in the store, the amount of attention that Target has given us gives us high hopes, and that's why we've kept our guidance in place.

Yes. And I would say, Anthony, that things are going according to plan. And as we kind of step into this area, even maybe expanding into Amazon a little bit more than we have in the past is things are going according to plan, but we expect it to be kind of a build as we go on here, and we're very early stage.

The other thing that Walter and the BizDev team has worked with the Hiya team on and what they communicate is the diversification with their own advertising and consumer spend of different ways to reach the consumer and being a little bit more insulated relative to being too committed to just one channel for advertising. They've always been diversified, but they continue to work on that aspect as well.

Okay. And then just switching gears to Rise. So you spoke highly of your relationship with Costco. So just curious, after the initial selling into Costco, have you seen reorder activity from them? And as far as any other retailers, have you seen new order placements?

Yes. We are seeing reorder placements on a weekly basis with Costco. So we are selling through. We -- obviously, we had to -- if you look at our balance sheet, we've used up a lot of cash for -- and a lot of that was building up Costco inventory, and we're selling through that to Costco. So that's going on.

I would say it's still -- with any retailer, Target has been in place for a while. We've had Target in place, I think, since September of last year or August September, something like that. So Target has been very consistent for us, and we know the cadence, and we know what that business looks like.

I think Costco is still -- we've gone through multiple iterations. We had a discount for a couple of weeks that we agreed to upfront with Costco, and that gave us a lot of sell-through. And you kind of see a little bit of up and down as you go through that process. And so I wouldn't say we know exactly how that's going to go long term, but we have a lot of conversations with them about new products that we're going to put out, different types of protein pop products that they're interested in. And I think that -- I mean, at least the relationship is really good, and I think the opportunity continues.

Okay. And then just quickly to follow up, are you -- as far as other retailers, will you be selling to others in this quarter or in the second half of the year?

Yes. We have already agreed -- we have 9 more retailers, major retailers that we've set up for this year. Some will be in second quarter and some in third quarter, major retailers in the U.S. And so Protein Pop will continue to expand. We are in 500 Walmart stores already, and that's been good. The Walmart buyers like us, and they feel like that's a good product for them. So we hope to expand that, but we are going to be adding more retailers throughout the U.S., yes.

Our next question will come from Ivan Feinseth with Tigress Financial Partners.

Congratulations on the great results and the success with Hiya and Rise. [Kathryn], you give me some insight into your R&D initiatives and where you see some new growth opportunities going forward?

Ivan, it's good to talk with you again. This is Kathryn. Our focus continues to really deepen into women's health and children's health and looking across our brands and the integration of Oola into our direct sales brand. I think that's a very logical place for us to be across all of the channels we're in. You can expect to see us continuing to push further into the real science behind women's health and children's health. We've done a lot of investment in terms of true research and working on clinical research to really understand how we can more meaningfully impact the health for both of those sort of segments of the population.

We also have a strong focus. Obviously, our direct sales business is essential to us, and we have a strong focus on how we can ensure that, that product pipeline is both continually updated as well as streamlined to help people navigate it more efficiently and really get the health benefits that they're seeking in order to sort of achieve what they're looking for. So I would say those are our big focus areas right now, Ivan, so women's, kids and then ensuring that our core product line is updated and streamlined to enable consumer efficiency.

And how about additional focus on gut health, which seems to be like the major focus, the driving of overall health. And also any updates or insight to products in your active nutrition category?

So when we think about gut health, it impacts all segments of humanity. Women have some unique gut health topics that need to be addressed. People tend to think about gut health still in our less developed microbiome-focused markets in terms of just digestion and obviously, the expansion into all possible health benefits beyond digestion and immunity.

For women, you'll see us putting a focus there on what does that look like for women in all of the various aspects of what addressing gut health can do for them holistically, physiologically. Obviously, for children, we have probiotic lines and fiber lines, and those will continue to expand and continue to be leveraged as appropriate across our channels.

Active Nutrition, we are hearing, as there was a reference earlier, a lot of focus on protein and how to help consumers consume protein in ways that are more aligned with their needs and their desired consumption profiles. You can expect to see more products in those categories as well coming to market to really ensure that people are being supported both on their weight loss journeys as well as on their health and sort of muscle building journeys.

And Ivan, this is Brent here. Just to add a little bit more color in terms of the Active Nutrition. In the first quarter of this year, we relaunched new active nutrition shakes, so weight management, weight loss shakes in China. We made an investment into manufacturing equipment, filling equipment in that facility so that we could do it in-house and do it ourselves, and we upgraded our formulas. So that was launched in Q1 with a lot of excitement from our brand partners, and we have a really strong weight management campaign that's currently running there. So it's still a big focus for us, and we'll continue to invest in that area.

This now concludes our question-and-answer session. I would like to turn the floor back over 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, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Greetings, welcome to the USANA Health Sciences Fourth Quarter and Fiscal Year 2025 Earnings Call. [Operator Instructions] 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, Robin. 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 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 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've 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, 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 six, 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, advanced 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 higher 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 within club retail channels.

You saw this 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 road map 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 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 higher 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 onetime 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.

[Operator Instructions] And the first question is from the line of 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 puts and takes 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 puts and takes for revenue and EPS guidance.

Yes. So I think it's easier if we break it down by some of the kind 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. And so as we look at Rise, that's kind of the range that we provided, specifically on the sales there.

Hiya is just very, very 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 kind of equation and kind of the margin profile, I think achieving the top line is going to be the main thing that will help us go back and deliver at the top end of the EPS.

Yes. And Walt -- we have Walter here. Walter, will you just give some color to what Doug said? Walter is on the management team that's in the trenches day to day on some of these things, and I thought I might bring you some added color to hear from Walter on the subject.

Yes. As what Doug was saying, we've got -- we've booked a lot of business on the retail side, but when you look at the inventory buildup, most of that inventory buildup is already committed revenue, which is -- which we've had through these retailers. We've got Target. We're in all the Target stores in the U.S., we're in all the Costco stores now as of last week. And then we've got other major U.S. retailers that we're talking to right now. And so that's really -- as we move forward, we're adding more flavors to the Protein Pop line that's going to go into Target. And then, of course, all the new retailers that are coming in.

So we just see a huge upside, a huge potential for us, but, again, that's why we put such a big range on the guidance. And with Hiya, we're super excited. What we've seen so far in Canada has been really good. We just barely launched that probably in the next couple of weeks, 6, 3 weeks. We're going to see the U.K. go live in April, you see Target go live on the retail side, and that's a stand up that goes in every store.

So we're like we're pretty bullish on both these businesses and the growth of these businesses. And a lot of it's just -- because there's such a range, I mean, the reason that range is there is because you don't know exactly what you're going to do, but Hiya's been such a great brand. The company has spent so much money on marketing and creating so much awareness in the U.S., we think the retail channel is going to be really good for us.

And one of the things that I'm sure of which you all are aware 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 also long-term strategy just to diversify where revenue is being generated because as you could 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 as good as products, as you can find out there. And so we really see these things as enablers moving forward.

Got you. So as we look to update our models here, is there anything that you guys can say -- I mean, obviously, you will have one less week of sales in the fourth quarter, so I realize that. But other than that, I mean, for -- as we look at the business of quarter 1 to 2, 3 and 4, I mean, is there anything to keep in mind as far as -- will the revenue ramp up as the year progresses? Or do we think that it should be more kind of even throughout the year? Anything to point out to as far as 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, has 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. And so the -- I would say the activity that 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. And I have -- we have Brent Neidig here at the table, who is our Chief Commercial Officer, that also could add some color to what we're seeing from the revenue base as it relates specifically to 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 is 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 or 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, and 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 don't know how much color I can share. When I look at that business, of course, there's -- it's a growing trend, protein, especially Protein Pop, there's a really strong trend there, and we basically introduced late last year, we really introduced Protein Pop retail. So it's a very new brand, and it's building. And as that brand continues to build, I think we'll continue to see it grow in the retail channel. I don't know exactly what the numbers are going to look like, but we've put some guidance in place and we're feeling really good about where we're going.

Got you. All right. And so -- and it sounds like you also feel good about Hiya as well. So as far as the cost realignment that you guys did in the fourth quarter, can you just help us out as far as how much that lowered your headcount? And then I know you're using some of those cost savings for other things as well. But maybe just -- maybe you can also touch on how to think about gross margins here for '26 as well as your SG&A? Any sort of added color there would be certainly appreciated.

Yes, Anthony. So the total was about 10% of the workforce that was impacted in that cost realignment. Overall, on a net basis after some of the money has been repurposed, we're probably about $10 million or so in savings, maybe $10-plus million in that range. I think a lot of the things these are being repurposed to are very important to the business and executing strategy and stabilizing. But that's -- those would primarily reside in SG&A. I would expect a whole lot in gross margin or cost of sales.

The primary issue you're going to see on a few of our key line items is the mix between the different businesses, right? And so as you see Rise grow, and right now, the -- we talked about them being breakeven this year. They're going to be a little bit -- they'll be at a much thinner gross margin, and so that will kind of give the impression, but we'll break that out accordingly. So you have some optics there as we move forward into the year as well.

Got you. Okay. And then you touched on some of the -- you mentioned 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 as far as how impactful that could be as far as some of the changes that you're looking to do on the technology side?

Well -- this is Kevin. From my perspective, the notion of staying relevant in today's world is so important for us and how people interact with our brand and/or brands is very critical and will determine the future growth of our company, I believe. And so I want to focus on the ability to be quick and be nimble. And our traditional approach has been where we build things in-house, and that has served us very well. Strategically, we're going to look at how can we leverage outside resources in a more robust way both in the U.S. as well as internationally.

But I think speed to market and speed to change and the relevance of how people interact will be a big part of the focus of the strategy behind our technology spend, which will allow people to interact in a much more robust way with our brand and our brands across the board.

The other thing we're going to do, which we haven't really spoken much about, is we're going to leverage the knowledge and expertise, for instance, Hiya, they have a great knowledge and expertise in brand awareness. And so how can we utilize some of their expertise and resources to help us leverage the USANA brand and USANA brand awareness. And so as we move forward, that's very kind of high-level fluff and not real detail, but I just -- I am convinced that if we can leverage, especially AI in a way that we see many, many really high-end brands interact and utilize AI, which we aren't to its fullest capacity right now, and it's changing literally every day, and we have to play in that space and be as good at technology and utilizing AI as we are in Nutrition is the goal. I think that's the future of a growth company in our space.

One of the things I'm most excited about is, if you look at the -- I've seen numbers, a global CAGR of about anywhere from 5% to 8% growth in the health and wellness space. Well, that's where we play. We should be on those curves as a company and technology plays a key role in that growth. So that's where my head is at.

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 [indiscernible] and what gets measured gets managed and 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. So I think for us, we have obviously a focus on integrity and ensuring that everything we provide to our customers through all of our brands meet scientific rigor. And I know all of us have watched with eager anticipation over the past decade and more as these types of devices have been launched and then really struggled to link to clinical efficacy. And 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'll continue to do so. And 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.

[Operator Instructions] Thank you. At this time, this will conclude our question-and-answer session. I'll turn the floor 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.

Greetings, and welcome to the USANA Health Sciences third quarter earnings call. [Operator Instructions] 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 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.

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 earnings 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 risk 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 market 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 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 is 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 rightsizing of our workforce. This process will focus on prioritizing top strategic priorities while also targeting efficiencies that support a more agile and adaptable organization moving forward. We expect to incur an estimated onetime 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 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 Instructions] And our first question comes from Anthony Lebiedzinski with Sidoti & Company.

So 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. So can you just kind of walk us through maybe some -- 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?

Sure, Anthony. It's Brent. We have seen some promising trends from our new compensation plan that was launched earlier in July. And 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 that they can see that success sooner on, they're more likely to stay with us longer. And so that's what's really resonated with our field right now and our Brand Partners. And historically, that's somewhat been a challenge over the last couple of years. And 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.

So it's still early. Yet what we've seen in September, 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 reengagement from some of our longer tenured Brand Partners, which is really encouraging to see.

Yes. Just a further comment on that. During the quarter, 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, and we saw a slowdown at that point in time where people were absorbing and not really getting into the business for a while.

And then we've seen what Brent talked about. The pickup has really been after our Global Convention in August. So it really hit right at the end of August into September. So very promising signs, but again, early yet.

Yes. And Anthony, this is Doug. Just for context, and we talked about a little bit of this in the prerelease. When you roll a lot of information out, as Jim said, it takes some time to process. So we anticipated a little bit of softness as they took time to digest and understand and have some more of these in-person meetings.

And our convention served and that investment there, I think, served as well to be able to have some of those conversations. But we saw maybe a little bit softer than we anticipated and lasted a little bit longer. But 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.

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

Well, no, I think -- we had the event. We had some sales at the event. The other thing that you have to recognize is because the Rise Bar has been a relatively small percentage of sales. And because it's been there, we indicate -- you can see in the tables that we include that in the Americas and Europe number. And so 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.

Got it. Okay. And then 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 '26? Or you think this is just a short-term one quarter event?

Yes. 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.

So 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.

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

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

Got it. Okay. And then lastly for me before I pass it on to others. So in terms of just the rightsizing 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?

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

[Operator Instructions] And our next question comes from Susan Anderson with Canaccord Genuity.

I guess maybe just a follow-up on Hiya. It sounds like as you integrate it further, maybe there's 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.

Well, 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 quantify. I think we'll have more information in February about that. But specifically, Hiya makes vitamins. That's their #1 product. They also do protein powders. And we have reformulated or formulated their products for our manufacturing process. We've got that ready. So we'll be making all of their vitamins here in-house, which we have all capabilities to do that.

Also as far as operational efficiencies, there's just a lot. We're really good at operations as far as because of the size of our business, and so we're able to absorb a lot of support for supply chain. And they had a 3PL that they were using that we helped them move, transition to a different 3PL. And that reduced our cost by quite a bit and allowed them to be much more efficient.

Okay. Great. That's really helpful. And then maybe if you could just talk a little bit about just the industry in general. Are you seeing any, I guess, slowdown from consumers as it relates to either VMS or wellness purchases? Are they looking for more value maybe than what they were 6 months or a year ago? And I guess maybe if you could talk about it by region as well.

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

Correct, yes, just in the industry in general.

Yes. We're a part of some associations that help the industry in general. And 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. So 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, and we're setting ourselves up for the future.

Yes. And 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. And 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. So that's one of the highlights when we go out there when we look at Hiya and Rise. And that information, I'll let Walter speak to that.

Yes. Hiya is children's vitamins. And the children's vitamin market has been, I would say, there's quite a bit of competition there. But Hiya creates a complete -- a different experience for their customers. And because of that and because they're DTC and because they're all subscription, that business has actually been really, really good for us. And they've been able to take market share from other companies and I think they'll continue to do that. So for the Hiya side, it's been a really good.

Rise is protein powders, bars, RTD, and that business is really, really good for us too, especially with the protein business in the U.S. You just see a huge uptick and huge demand for proteins, and we're capitalizing that with high with Rise. That's why we're seeing such growth.

Yes. And 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 what I believe to be the best quality product out there. And one of the commercial team's strategy is get better and 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. And we're going to continue to differentiate what we're offering and we're going to make sure that we convey that story so consumers understand the differentiation of our products.

Okay. Great. And then I guess maybe if you could just talk about if you think there's opportunity -- Hiya has been pretty successful. The DTC business seem to be doing better. I mean, is there an opportunity, you think, to maybe buy a couple more DTC businesses maybe to tack on to that? Or how are you thinking about kind of like your future strategy?

Yes. 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 they're there to actually expand within.

So yes, that is part of our strategy. I think diversification will make a stronger USANA and we'll continue down that path. And 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 been, we'll see a shift in our overall portfolio of getting more omni-channel and more diversified.

Yes. I would also say kind of 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 will be investing in the commercial strategy as the top priority and, as Jim mentioned, kind of our venture companies because we see really good opportunity in both Hiya and Rise. And we continue to evaluate different opportunities. But those, without a doubt, will be our priorities from a capital allocation.

And there are no further questions at this time, so I'll hand the floor back to Andrew Masuda for closing remarks -- actually, one question just popped in. And that question comes from Ivan Feinseth with Tigress Financial Partners.

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. But as an example, there's still a lot of confusion about supplements that I feel that your adviser channel can help.

Like everybody is saying the #1 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 adviser channel could help consumers better understand that?

Ivan, it's Kathryn. I think the data on magnesium is interesting and still, as we've discussed, a little confusing, right? So 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, right, we are always prioritizing science and ensuring that our customers and Brand Partners have the best possible options. So we continue to look at different magnesium blends as well as all of the different elements that are important for human health. And we'll continue to look at that and to ensure that the research that's being vetted is being vetted objectively.

And then 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 kind of capitalizing on that both direct-to-consumer and to your sales channels?

Yes. 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. I mean, even if we look in at some of our other markets, there's initiatives from the 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 diets really aren't hitting the mark and that's why supplements are so important. And I think, over time, people are getting more and more educated and understand that, and 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. But I mean, any time 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. And it -- go ahead, Ivan. Sorry.

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 the Make America Healthy initiative.

Yes, I agree with that. And again, that's just fantastic for the industry. And 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. And our Founder, Dr. Wentz, made the decision to move forward and give us the best product line out there. So yes, again, we'll go along with what's out there, and it's especially helpful when it's positive to the industry.

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

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) 954-7210.

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