Great. Thanks, everyone. Good morning, and we really appreciate you joining us in person, as well as on the webcast. I'm Reid Anderson with ICR, and we're thrilled to have Doug Hekking here. He's the CFO of USANA. He's joining us for the first fireside chat of the 2025 ICR Conference. You've had, Doug, you had some really exciting news the last couple of weeks: the announcement of the acquisition of Hiya Health. And I think it's probably very, very interesting on so many levels, whether it's strategic, financial, operational, so many ways you can work with this. And so I think that I want to spend a good portion of our time this morning focused on that and learn more about it and what it means for the future.
But before we do that, I think it would probably be helpful if you would just start by giving us a brief overview of USANA's business, kind of along with perspective on some of the key points of differentiation, strengths of your model, kind of things that have contributed to success over the last couple of decades. Okay?
Yeah. I would say foundationally, we consider ourselves a premium developer, manufacturer, and distributor of premium supplements. And it's something that really foundationally we did since the inception. And so our founder, Dr. Myron Wentz, was a world-renowned immunologist-virologist. And so all this foundationally, from a formulation, from an approach, from a commitment to how we approached it, was critical. So we've been in business for just a little bit more than 30 years. We now are in 25 different markets around the world. Trailing 12 months was about $860 million. But we have two main manufacturing areas, both in Salt Lake City and in Beijing, China. And I think as we look about it, we have about 90% of our business right now outside of the U.S., with China being pretty close to 50% of that business. And we manufacture about two-thirds of what we sell.
I would say the other relevant point is we have a robust and strong balance sheet, and that allowed some of this flexibility as far as our capital allocation process to go back and make that acquisition of Hiya.
Got it. Okay. So that's great. Thank you. So let's shift into kind of a discussion of Hiya toward that, because I think that is really top of mind for investors. I don't think everyone's familiar with that, and so let's maybe start with a brief overview of that, kind of talk about literally the origin story, the founders, why they kind of got going here, but also the products, business model, wherever you want to take it, but I think a good, healthy, robust view of that would be really helpful.
Yeah. I would say foundation, when we look at it, this appealed to us. We've gone through, we've evaluated a host of different businesses. This made a great deal of sense to us from adding shareholder value. It was a company that had a very similar ethos to USANA and the commitment, the passion towards health and wellness, I think particularly in this case, kids' vitamins and the space they operate. We also saw a business that was, although relatively young, has shown meaningful growth over the last several years with the ability to go back and scale that business and generate some pretty meaningful cash flow. Those, I think at the outset, would be something that I would say would be pretty appealing. Their trailing 12 months in September generated $103 million in sales and an Adjusted EBITDA of about $22 million.
That's some pretty meaningful progress. I think the other aspect that we're quite excited about is really the superior, excellent management team that came with it. We've been pretty intentional with how we structured the deal to keep them engaged and helping kind of drive future performance there as well.
How fast have they been growing? They've been growing, obviously, very fast.
Yeah. Probably north of 50% this last year. What we said in our initial release is kind of looking for growth approaching 30% of the top line this next year.
Okay, and again, just kind of sidebar there, so I mean, they're really focused on a market that you haven't focused on, the children's side of things. I mean, is it almost 100% incremental to your business just from that target customer channel standpoint?
Yeah. I think when we've looked at nutrition, we've looked at it really across the age groups. But relative to penetration, we have less than 1% of our sales in children's supplements. And this is what they do for the entirety. And so I think it's a nice complementary offering in a channel where we don't operate and in something that's probably not real disruptive to our existing business, I think, which we're excited about.
What does their assortment look like in terms of either number of SKUs or kind of what are their hero products, that sort of thing?
Yeah. They have a small number of SKUs, six or seven SKUs right now. About 60% of their revenue is from a daily supplement, a chewable supplement that they have. They introduced a greens product here in July or August of 2024, and it got a lot of traction in a short period of time. And we have a lot of people in our office taking it, pretty excited about that product offering. It tastes like you mix the greens in there, and it tastes like chocolate milk. And so it's hard to get people to take that when it happens.
Adults, not just children.
That's a big statement.
That's great. You gave a little of the financial details, but maybe talk a little bit about just the structure of the deal, because it was a little bit unique in that the founders are still going to retain some equity ownership. But talk about the structure and then kind of why that made sense for this deal for you?
Yeah. So we invested $205 million for about a 78.8% stake in Hiya. And it was really important to us because they operate in a space and have some expertise, some knowledge base that we don't have. So it was important that we got the talented management team along with the deal. And so as part of this, there's a put-call feature at the end of year three and at the end of year five that gives us the ability to go back and buy the remaining rollover equity from the transaction at predetermined valuation scale. And so it was important that we would have the ability to go back and do that, not necessarily be mandated to do it, but also to keep those founders engaged and running the business and doing what they've been doing.
In all honesty, I think we'd be really, really happy if we had to pay them a lot of money at the end of year three and year five. So we've set it up to be really a win-win structure.
Yeah. That makes sense. That's good. You've talked about the strategic aspect of it. But one thing I was going to ask too about, I guess, just thinking about the deal in general relative to investors, because again, it's kind of outside of your core space. It's a direct-to-consumer business. What is the key message that you want investors to take away, whether they're prospective investors or whether they're investors in USANA today? What is really the kind of is there a pivot point, or how should they think about this longer term?
Yeah. I would say it's a thoughtful allocation of capital in a business that's growing quick, that's generating cash flow. We've been very consistent in delivering the message that we are committed to the direct sales channel. And so this is not a move away from that, but it is a move to something, a move towards something that has a different distribution channel, different growth aspects that are looking for, a demographic, as you mentioned earlier, that maybe we're not addressing at the same level they are. And so there's so many additive benefits to do this. And I think just bringing on some different core competencies that this team brings on. And I think we offer kind of some competencies to them to help really leverage what they're doing prospectively as well.
Yeah. And you're going to run this business they're going to run separately. You're going to let them keep running the business. I mean, there'll be integration, et cetera, overlap. But because of how you're doing that, how should we think about either integration or the timeline to how you become more assimilated as a couple of businesses?
Yeah. I would say when we looked at the business, came into it, we recognized we're going to run it independent. We didn't layer in a bunch of synergy modeling in there to go back and justify the business. We think there's a host of opportunities there relative to us manufacturing, how we distribute, our expertise at operating internationally. I think in the near term, we're really going to work on bringing them in, supporting them, and getting them acclimated to being part of a public company. Some members of our corporate development team, their whole focus will be just to help this group and be additive. We don't want to be disruptive. We don't want to distract what they've been doing. They've been doing a very good job with growth and scaling the business.
And so every step that we take, we want to be pretty intentional and deliberate with. But we do think down the road, there's some opportunities to go back and maybe look at some different synergies.
Okay. Again, staying with Hiya, because again, I think that really is what people are very focused on. Let's talk about their competitive position. So who are their competitors? What's enabled them to become kind of the number one provider in a space that it's a niche market, but it's still a big market and it's competitive? So how do you think about their competitive position? What are some of the characteristics?
Yeah. I would say they've positioned themselves pretty well. Trying to get kids to take vitamins. We know from our business, it's not always the easiest thing to do. But I'll give them credit. They've developed something that's clean. It doesn't have sugar, and it's healthy and good for them. They've gamified it. They have this experience. They call it the kid's experience, where when they first order, they come in and they get a bottle. And with that, they get a sticker pack, and then they get games on subsequent subscriptions. So right now, the business is 100% DTC, and it's all subscription-based. And so typically, that first order is subsidized. We charge them a discounted rate on that first order, kind of get that initial bottle out there, and really engage the kids in the process.
And they've really had a unique approach with how they've addressed the marketing and engaging both parent and kid and the way they've kind of broadened out their reach. So it's been pretty impressive.
And you touched on marketing. So give us some thoughts on that too. Are they just really good in the digital space? I mean, obviously, it's an e-commerce business. I mean, what are they doing that's really been very effective?
Yeah. I think it's as simple as sharing the message. They're broadening out. They're advertising in a lot of the areas that you'd think, on Meta and Google and some of these other things. But I think that engagement, both with parent and child, I think is what's resonating with folks. And they've done a really effective job of getting that message out there and being mindful with their spend and acquiring new customers.
All right. Again, sticking with Hiya, so let's now think about the future. You think about growing this business, just more just what Hiya. I mean, you obviously have some opportunities to cross-pollinate ideas, but really just as you want to keep growing Hiya. Help us dimensionalize how you think about that. I mean, they're obviously going to grow their customer file just because they've got a great position in the market. But what else is there that can amplify the growth, whether it's channels, products, et cetera? How are you thinking about all that?
Yeah. So when we interact with them, there's really kind of a three-pronged approach. Really short-term and focus is product innovation and broadening out their product offering. As we mentioned earlier, they have maybe six or seven products in their product portfolio right now. And there's a lot of room there. I think right now, they're really focused on a younger demographic within the two to 18-year-old. I think there's room to kind of broaden that out and target different age groups within that continuum. And you see plans that they have for that. So that would probably be the number one focus in the short term. They also are looking to go back and expand the channels where they distribute. So right now, it's just DTC directly from the company. And so they're looking to go back and thoughtfully approach how they would go back and expand that footprint.
And then in everything they told us, international was something that appealed to them, but it was a longer-term proposition. I think we're, as we talked about synergies earlier, an area where we've done a lot. There is expanded internationally. And so with our experience and kind of what we've kind of gone through, I think maybe that's something that could accelerate a little bit too. I wouldn't expect anything in 2025, but I think it's something we could definitely pull forward a little bit from their forecast.
Yeah. Okay. That's helpful. Okay. Good. Let's do maybe one more on Hiya. I guess you kind of hit on this, but I'll just ask it one more time or a different way. If you think about kind of your long-term vision for USANA, what are there with Hiya? What other adjacent categories might make sense? Again, you talked within that 2 to 18, et cetera. Are there any other adjacent categories that might fit in there?
Yeah. I think we continue to go back and be pretty open-minded with how we look at it. I think our focus on the near term for the size of investment this is for the company. I think a lot of the focus will be there. But we'll continue to go back and have conversations and entertain different thoughts that we have coming through. And so we'll be very open ears and open-minded to go back and listen to different propositions. But I think anything that's focused on the health and wellness space, maybe some geographies where we're not currently doing business, or maybe how to accelerate in some of the geographies where we are.
Okay. All right. Let's shift back to your core direct selling business, and so last year was kind of a challenging environment for the entire industry, really, so maybe start with some thoughts about what you're seeing currently. Where are you seeing the most opportunity? Where is it still most challenging? Just kind of maybe paint a picture for us what you're seeing today.
Yeah. As you said, I think across the space and trying to go back and reach out, it's been a more challenging environment to go back and deal with. I think from our standpoint, we'd had a period of time where the sole focus was going out and getting out to customers firsthand, and I think we lost the focus a little bit about putting our distributor kind of first in that kind of value chain and enabling that group to go back and tell the story, because truly in our business model, they're the ones that are reaching out, touching, making the introductions, and we do all the back office. We do development, distribution, incenting, kind of the sales behavior we want to see, and so there's a renewed focus on that.
As part of that, we introduced mid-last year kind of a redevelopment of our or reorg of our commercial team. And that commercial team has three general agendas. One is to focus on the product and the innovation cycle there and pick that up and really be mindful there. And I would tell you, I think we have the best supplements you can find out there. The other one is the opportunity, because we deal with kind of independent business owners that really want to do this as a side income. And how do we engage that? How do we motivate that group to get out and be operational? And the other one is just fundamentally do a better job telling the brand story and how we differentiate. We have so many wonderful ways we differentiate. We got to tell the story better.
And so those three things working together, we think are going to be really impactful.
On the brand side, what areas or what initiatives do you have? Are you using, whether it's social media or traditional media, that you're using to promote that, to expand kind of the profile of the brand?
Yeah. I think we're using the ability to leverage the technology that we have. We are using our independent distributors to do this. And we're just being far more intentional with telling the story. There's already such a great story to tell there. And just being more intentional with that and providing in a way that's very shareable and portable.
Gotcha. Okay. Good. China. So it's your largest market. I mean, at least direct sales-wise, it's probably 50%. How would you characterize the operating environment there today? And what impact, if any, do you anticipate from the government's recent stimulus?
Yeah. The first thing I would say is we've gotten in China, we have a great management team there, hardworking employees, and incredible associates. It's really an industrious culture who wants to work, and they've definitely had some more difficult economic times, and it's good to see the government start playing a little bit more of a role to put some stimulus out there. Right now, it's very macro. We haven't seen a great deal of trickle down there. I think more will be to come as far as what they'll be doing there, and I think that is important that we engage there, but I'll give you an example. This last quarter, we saw some pretty good growth in the number of distributors or customers that we have in that market, but we also saw a decrease in the average spend per customer.
And so we can go back and control what we control and really continue to work and engage that group and find more compelling opportunities, either it be a value proposition or different incentive structure to kind of motivate some of that behavior.
That's great. So a lot of initiatives probably in place for the next year or so.
Yeah.
Okay. That's good. More to come on that. Let's talk about capital allocation, because again, it kind of goes back to the Hiya thing. I mean, you guys were very judicious and patient to find that deal. That worked out really well. So how do we think about that kind of going forward? I mean, frame where we are today and then kind of going forward.
Yeah. I would say top priorities for us have always been direct selling model. Any opportunities we have there to go back and accelerate that and grow the direct selling model. Then we've looked at kind of inorganic growth, which is what Hiya was. But I would reposition a little bit and go back and tell you it's still kind of the direct selling. But I would also say our existing companies that we own. So in addition to Hiya, we had a couple of small ones we did before there and really focus on investment in those things and really leveraging the investment to the best of our ability.
And then I think second would be going back and looking at maybe some of these areas, having the open ears and open eyes of maybe at least considering some of these alternatives as we're focused on really kind of integrating Hiya and kind of building them up. And then subsequent to there, we'd probably take. We put a little bit of debt on the books with this transaction, not much, as $23 million, but still in a very positive net cash position. We'd probably look to go back and just make some choices there depending on what's happening in the interest environment, what makes sense, what doesn't. And then historically, when we've had excess beyond there, we've typically bought some shares back in the open market. That would be kind of our priority stack.
The investments you talked about, again, in kind of those several buckets, how would you, I mean, A, you haven't really given an outlook for 2025, so you don't need to pin down a number. But just from a quantity standpoint, is it kind of stable? And then secondly, is it focused on technology? Kind of what would be the nature or characteristic of those kind of over the next year or so?
Yeah. Just investments?
Yeah. Exactly.
Yeah. A lot of it's been used to be most of it was on productive capacity, different equipment. A lot of that has migrated more towards technology and leveraging technology. I would see that being the case going forward. We're a very low capital-intensive business, so we can really leverage some of these pieces of equipment, be very mindful in that. A lot of the investment is really on the technology and the talent and the resource side that's going to catalyze and generate momentum in the top line.
That's great. Well, I think we're getting close here, kind of about and so that kind of ends my questions. But is there anything else you'd like to say or just kind of closing thoughts for folks here?
Yeah. I think we're very excited about the Hiya acquisition. We're excited about many of the initiatives at USANA, the direct selling business that we've been putting into play and starting to go back and get a little bit of traction there. We still got a lot of work in front of us, but we make a fantastic product, and we got to find a way to get that message out to more and more consumers out there so they can share in that benefit.
That's great. Well, thank you, Doug. All right. That concludes our Fireside with USANA. Thank you.
Thanks, Reid.