USANA Health Sciences Inc 2026 Q2 Earnings Call

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 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, our Chief Scientific Officer, Dr. Kathryn 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. Good morning, everyone. I want to use my time this morning to step back from the quarter and talk about where USANA is headed. 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. 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. 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 skincare 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 nutritional 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 experience and 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've 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. 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 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. Yes, the current outlook has been disrupted, but our conviction is where the brand is headed long-term remains firmly intact.

I see the potential synergy and growth opportunity in our company, that through executing a clear strategy with discipline and stabilizing and strengthening our core nutritional business while scaling our high-potential ventures brand and investing in the technology and innovation 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, zero 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, even 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. 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 current and 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 had the effect of disproportionately impacting income taxes. 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, 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. 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.