My name is Anthony Lebidzinski. I'm the equity research analyst that covers USANA Health Sciences here at Sidoti. Ticker symbol is USNA. Joining us today is Doug Hekking, the CFO of USANA, as well as Andrew Masuda, the company's Director of Investor Relations. Certainly very happy to have them here again at our conference. The format for today will be a management presentation for the first 20 or so minutes, followed by Q&A. We will have a total of 30 minutes. For those of you in the audience who would like to ask a question, please type your question into the Q&A box at the bottom of the Zoom screen, and I'll read the questions out loud afterwards. So, with no further delay, Doug, the floor is yours.
Thank you, Anthony. Appreciate the opportunity as well. So let's kind of jump right into it. A lot of the information we talk about today will have some forward-looking content narrative as far as anticipation. And we also will use, maybe not necessarily in this presentation, but in the narrative, may use some Non-GAAP numbers that have been more prominently used following an acquisition in December of last year. So, once again, appreciate the opportunity. At a really high level, to give a snapshot of the company, USANA is a company that manufactures, develops, and distributes high-quality science-based nutritional and personal care products with a real focus on the long-term health and wellness of the individual.
We sell our products primarily through two channels: direct sales, which has really been our legacy business, and also, as part of our diversification strategy, we've broadened out through some M&A activity to different distribution channels and have a growing and building direct-to-consumer channel as well. The company was founded in 1992 as a spinoff of Gull Laboratories. It was an American stock exchange-traded company. We currently have, you can see the number of employees there and the annual revenue and the market cap. But I would say our product mix and kind of our go-to historically has really been on nutritional supplementation. It feeds into our founders' expertise, and it really is kind of carried forward to this day.
On a geographic mix perspective, you can see that we have a meaningful kind of distribution of our sales portfolio with a notable concentration in Greater China, which, although we recognize some risks there, we also see great opportunity with a consumer base there as well. I would note on the geographic mix that this does include the venture side or the acquisitions, and that's caused a pickup in what we have represented there in Americas and Europe. So, next slide. Key investments. Let's kind of go through these real quick. As we mentioned, kind of a key provider or leading provider of high-quality nutritional supplements, really on a global scale with more than 30 years of history in the business. We have differentiated nutritional products. We're very deliberate and intentional with how we formulate and really trying to go back and get kind of the optimal health benefits.
I would note that our capabilities with in-house production and quality control systems and processes have contributed to the execution, and we believe sustainability in this area. The business has been relatively low capital intensity from the history of the company and able to grow and leverage investments in fixed assets fairly effectively. We continue to grow and have a strong balance sheet and have presence in attractive markets. We're currently in 25 markets around the globe, and we think with the current trend, and I think what we continue to expect is people trying to be healthier and maintain their health and be more proactive there. So we think we're positioned in a pretty good area. Better go back in that area.
I would note that I think the diversification that I mentioned briefly with some different distribution channels allows us to go back and approach this in a broader, more strategic way, and that area has grown, is expected to continue to grow in the future, so we're looking forward to those contributions going forward. Let's talk a little bit about our legacy business in the direct sales, so for profitable growth here, as we look at it, active customer growth is really kind of that key indicator that we have in our financial statements, and we'll talk on that a little bit more.
The direct selling model, and I think it's been under a little bit of pressure here, but it's been a beautiful model, and it empowers these independent business owners to go back and market and sell your products and products they're happy to share, but also provides a business opportunity for them. We do a great deal of in-house manufacturing. We have a robust quality system that's really been part of the DNA since inception for the company. And as part of our commercial team strategy within this channel, there's a three-pronged approach. It really is focusing on brand and strategy, on premium and differentiated products, and income opportunity for these independent brand partners that we have. And so that really kind of feeds into this market or this effort as well. New market expansion and M&A are also kind of contributing elements here as well.
As we talk about active customers, we define an active customer as any customer who has purchased in the most recent three-month period. It's comprised primarily of brand partners and preferred customers. As of the end of the third quarter, we had 388,000 total active customers, and about 43% of those were brand partners, and 57% of those were preferred customers, and both groups are very, very important to us, and we understand our approach and appealing to the customer is what makes the job easier for brand partners, and the brand partners are really our distribution engine there, so we see this as a very important aspect to understand relative to our business, key driver of operating leverage. Many businesses go back and address kind of the cost of acquiring customers and what that looks like.
Because we use these independent brand partners, a lot of that effort is on these talented and capable individuals to introduce our product and brand story to both brand partners and preferred customers out there. And it helps us go back and really align a little bit more of a pay-for-performance type setup. We have the ability to expand internationally in most markets with a pretty low or moderate investment. There's other markets that definitely require a higher investment level, such as China and probably eventually India. We're in India now, and there's some work to do there. And we continue to make investments in that market that has some meaningful opportunity. And so we see this model as having some real advantages, and we've done a pretty good job leveraging that over the history of the company. Next slide, Andrew. We talked about in-house manufacturing.
We really have four manufacturing plants, two in the US and two in China. We make about 69% of the products that we manufacture in-house. We believe, I think particularly it became apparent during some of the COVID and some of the strained supply chains. I think it gives us increased operational and financial flexibility, and a little bit more control relative to the supply chain has taken one of the variables out of there. As I mentioned earlier, that quality side has really been kind of foundational to who we are since the inception of the company, and one of the main reasons that we manufacture the vast majority of our products is to go back and help control that quality cycle. We mentioned earlier also, we're very intentional and deliberate with the types of products we offer. There's a great deal of research. It's founded on clinical studies.
It is founded on kind of combined studies that we do with universities or established papers and leveraged off kind of the takeaways from some of those key research papers, and so we're intentional with not only how we compose the products, but also the types of ingredients that we use in our products, and we think this truly differentiates us from many out there in the vitamin and supplement nutritional supplement category. Because in the direct selling business, a good portion of our marketing sales dollars goes to reward the brand partners for their efforts, we have to be very thoughtful with how we approach kind of broadening out the company story and the brand and how we market it.
And one of the ways that we found that has been very, very beneficial to us is we have thousands of athletes and amateur and professional Olympic athletes that have been very positive on advocating for the benefits of the brand. It's always one of the highest regarded sessions of our communications and our conventions when we have a gathering there. And you can see kind of just a host. And this is done really in our markets all around the world. And these are athletes that have to go back and rely on something being safe and effective and not put them in a position for testing positive for something they wouldn't want to. So we definitely take the extra mile to make sure these products are safe and effective and these incredible athletes can trust them. And so it's been a big part of our business.
As we look at kind of the change in our international presence, it had been years and years ago that we had had the bulk of our business really in kind of the Americas and Europe. You can see over a period of time that's changed quite a bit. The primary catalyst there was the opening of mainland China in 2010. That's just systematically grown over that period of time. It's been a great market for us. On the most recent column there, you can go back and see that the Americas and Europe have jumped from 19 to 29. The primary catalyst there is some of the acquisition work we've done, really highlighted by Hiya Health products that we acquired in December of 2024.
As we look from a global standpoint and focus on the sales and profitability of those sales, we've talked about the active customer growth. We've talked about a little bit on international markets. We'll touch a little bit more going on here, and then also some of the efforts to really go back and diversify and kind of broaden that out through kind of these strategic collaborations and acquisitions, so our active customers, as I mentioned earlier, our commercial strategy really focuses on these three pillars, kind of the innovative and efficacious products, enhance kind of our product portfolio, get quicker, more agile. We're coming out with products that are really current with the scientific times and forward-thinking and tailor a lot of these products to go back and really meet the local demands that consumers want to see in our respective markets.
The opportunity, we need to provide something that engages and motivates these independent brand partners to go out and share and tell the story. And we see a great deal of opportunities there. But some of the in-person events become very important. And we recently had introduced and broadened out a change in our opportunity plan that we thought would broaden out the funnel. And we see some evidence of that and build a stickier customer base. And so we see some progress there. And then it becomes incredibly important that we can tell and communicate the differentiation nature, the story, the commitment we have as a company to why we're doing what we're doing and really broaden that out so it's easy to share and easy for consumers to understand what problem we're helping them to solve.
The international expansion, you can see there, continues to grow and be a great deal of area. I think, particularly in the kind of what our sweet spot is, in the mid- to high 80% of what we sell, and we would expect this to continue moving in that direction. I think there, just, you already saw a trend before COVID transpired, and I think once COVID's happened, I think you just see a higher level of awareness from the consumer and individual about the responsibility to help manage their own health journey and try to be a little bit more proactive with it, so we think there's some wind in the sails and some opportunity relative to the products and kind of the general trends on that type of product moving forward.
As we look at some of our targets and M&A and strategic collaboration opportunities, we definitely go through. We look at a variety of different opportunities. There's a great deal of filtering that goes on, a lot of conversations, a lot of review before we go anywhere, but these are some very, very high-level kind of metrics that we look at. Channel diversification, and we talked about that a little bit, potentially an opportunity that helps us expand geographically. We entered China in 2010 through an acquisition, so that's one example there. A company that has unique product and core competencies that we could leverage and kind of broaden out what we do as a company. Vertical integration is something we've looked at pretty systematically over time, and really, a primary lens is that holistic approach to health and wellness.
That really is a focal point that we stick to pretty seriously. As we look to talk a little bit about direct-to-consumer, we want to highlight the acquisition of Hiya in December of 2024 and talk about maybe some of the merits of Hiya and what we saw there. The fast-growing emerging leader in children's health and wellness. And that's an opportunity, even though we have products within our direct selling, that this is a company that does substantially more with that type of focal point. We've done a great job with it. It helps us go back and expand into a broader DTC wellness market with a leading improving brand that has a lot of awareness out there. Helps to strengthen our financial profile prospectively. Presents opportunity to accelerate growth and enhance profitability by leveraging synergies.
And we'll talk a little bit about some of Hiya's growth strategies coming up here that'll factor in and helps definitely expand kind of our domestic presence in our geographic portfolio as well. One of the areas that we looked at is how well aligned are we kind of with Hiya and are we compatible? Do we see this as being something that's very synergistic going forward? And you can see on the left in the dark blue, these are all the areas that Hiya has consistently and repeatedly mentioned and kind of articulating what their vision is. And you can see USANA is in the light blue on the right. And so they're a company that's committed to health and wellness just like we are. They're committed to high-end premium products that really make a difference, which is aligned with USANA. Health-focused customer base.
Once again, I think they have the same opportunity we have with this demographic of kind of health aware and people who want to be more proactive with their health, and then in children's wellness category, I think you see some opportunity there and really trying to go back and help parents solve the problem for how they get kids to take vitamins and help with their health, and so we definitely have a commitment to that impact in the children's market. We do that both from a product and a foundational standpoint relative to our charity as well, so let's talk about Hiya's approach a little bit to health and wellness. They're a fairly young company, established in 2020. They really have been very proactive and intentional in developing their products as well.
They want to have clean, transparent, honest ingredients to help parents discern kind of the types of products their kids are taking, and it's great taste and really high engagement that kids love, and so Hiya has coined the term KISSPERIENCE, and it removes the traditional barriers that I kind of alluded to earlier with better nutrition by making healthy habits fun and interactive for kids, and so they've done a really good job, and that was kind of a key element when we looked at them as something they were doing different than almost everybody else. As we look at marketing, we've been in the same legacy business for more than 30 years now and recognize the need to broaden out and diversify, and Hiya truly has a different approach to marketing than what we've had in the direct selling space, and we've learned a great deal from them.
And there's ebbs and flows, but we're really comfortable with the competency and the professionalism of the management team there. And we've learned a lot in the process and see a lot of this information understanding kind of benefiting the broader group going forward. But it's good to see leveraging some of these different media and marketing sites in this channel. Hiya sells most everything on a subscription basis. And they go back and they subsidize the initial order where they're getting that on a discounted price. They get a sustainable jar or bottle to go back and load their products into. And then when they get future orders, this product can go back and just be put into that sustainable container. And I think it's a very thoughtful approach.
They do send, on this KISSPERIENCE, they send stickers and games that the kids can play upfront and on an ongoing basis. So it really builds that engagement. But I think this builds those strong customer relationships. I think the cost efficiencies on a retained customer base get to be pretty strong and robust. And there's some real operational benefits to how they approach it, not only engaging the customers, but how they execute operationally with how they have this established. So as we look at Hiya moving forward on their growth initiatives, one of the key things they've had is expanding their product portfolio. And I think that's more to broaden the kind of consumer funnel and get more people interested. But they're also looking at expanding their distribution, not only from DTC, but also in retail and Amazon.
We'll also work to support Hiya on expanding their geographic footprint. For the most part, they're pretty much an exclusive US brand right now. We'll see that change in the near future as well. We see some good opportunity there. Let's touch on the financial highlights real quick. Cash, it's been something we've had. At the end of 2024, we'd invested a great deal of money in the acquisition of Hiya. You can see that represented in the change from 2023 to 2024. It's definitely made some investments in a variety of areas and some working capital recently here to help some of our venture companies kind of accelerate growth. As of the end of third quarter, we had no debt. Continue to have healthy free cash flow.
Third quarter was a little bit anomaly with the introduction of this new opportunity, created a little bit of stall in the direct selling business where they're waiting to see kind of the full plan and have that communicated. We definitely expect to see a little bit better performance than what you saw in Q3 on the trailing 12 months. But I think continue to go back and be a positive cash flow generating company. Our capital allocation priorities, I think internal investments in organic growth. And this would include both the direct sales and kind of the Hiya and the Rise Wellness brand. And you go back and we keep evaluating and assessing different opportunities we move forward here. And so that would just be a part of what we do.
And then share repurchases on there if we generate cash to a certain point that we don't have plans for. That's typically how we've looked to return capital to shareholders is through a share repurchase program. And I think with that, I would maybe turn over to Anthony to facilitate the Q&A.
Thank you very much, Doug, for sharing the USANA story. And as a quick reminder for those in the audience, if you do have a question, please type that into the bottom of your Zoom screen in the Q&A box. So we already have a few questions in the queue here. So I'll start with that. So looking at your business, obviously, you're mostly an international business. Before Hiya, you were at around 90% of your revenue outside of the US With Hiya, it's in the low 80% range.
But as we think about the future of the company, talk about maybe, Doug, in terms of the long-term growth opportunities that you see internationally. I know India is your newest market, but maybe if you could provide further details on India. And then how do you see the future beyond the 25 countries that you operate in now?
Yeah, I think from a geographic mix perspective, I think the goal is I think we'd like to see maybe a little bit more balance. And I think some of the ventures and M&A, I think you'll see that contribute pretty meaningfully to domestic growth. I also continue to believe there's opportunity within the direct sales, but there is also opportunity in our international markets. All of those believe they have some meaningful room for growth prospectively here. And there's opportunity.
We have a lot of work to do to execute on that. There is also growth within these venture companies. As we mentioned with Hiya, one of their key foundational things for future growth is getting into some international markets. We'll see some of that this next year. You'll see that broaden out moving forward. Yeah, I think we see some real meaningful opportunity in each of the areas. I would imagine just based on what we see on the horizon with the venture companies, we'd probably see a little bit more domestic tilt going forward. You'll definitely see some continued growth in some of our key international markets as well.
Gotcha. Okay. Then just looking at Hiya a little closer here. You acquired the business just about a year ago.
Maybe talk to us in terms of the opportunities there for gaining manufacturing efficiencies, kind of sharing best practices. Where are you with that journey? How do you see Hiya in terms of also growing through more direct channels through not only DTC, but also moving into third-party retailers as well?
One of the things we communicated as we did the acquisition, we weren't acquiring Hiya to take over everything they're doing. We wanted to acquire a competent management team that could execute, that could move quick. That's what we've gotten. That's very important. I think to your point, Anthony, we've worked on a variety of things to go back and help build efficiency and synergy and made a lot of progress. They're coming from a situation where they weren't a public company and needs to become a public company.
So we've done a lot of system work, a lot of controls work, a lot of public company prep work on that side. On the operational perspective, they've done a lot of work on mapping out, bringing production in-house. And you'll start to see that in 2026 here. And also on some of the distribution channels, we've kind of leveraged the internal resources to help negotiate, get some new contracts in place to get them some better rates on some of their distribution costs. And then I would also say on some of the expertise or core competency we've had from just being in 25 markets, we've also supported the Hiya management team in evaluating and helping advance kind of their international growth and ambition as well. So all those things kind of factor in there.
So obviously, USANA is well known for its science-based product development and certainly using premium ingredients. You also have talked about your in-house manufacturing as being a competitive advantage. I think you said 69% of your products are made in-house. So in terms of thinking about this vertically integrated approach, do you think there is room to grow from here, from that 69% level? And as you think about highlighting that competitive differentiation, how do you guys think about your messaging to either brand partners or just overall highlighting the fact that your products are superior to a lot of products that are out there on the marketplace?
Yeah, I would say the 69% is really relative to the direct sales and what we manufacture for that business. Presently, Hiya has outsourced all its production. And you'll definitely see that come in-house.
So you'll see us making more and more products as we move forward. We obviously want to go back and partner with firms on the outside that can help address a need that maybe we can in the real short term and then systematically kind of build that over time. And so I definitely see opportunity to go back and manufacture more. And that's kind of on the development cycle here. And so you'll see that happening in 2026 and into 2027. And we definitely want them to have the freedom to be innovative and agile in how they approach things. And sometimes that'll go back and incorporate using someone on the outside. And where we can support and add value there, we definitely will.
So as that happens, how do we think about the gross margin opportunity as you bring more of Hiya's manufacturing in-house?
Yeah, I think we think there's definitely some opportunity. I think it also allows us from an operational standpoint to just be a little bit more intentional with how much we build when we build it. It allows us to be a little bit more responsive than maybe what a third-party provider would do. And so I think you'll see some benefit to gross margin prospectively. I think the operational efficiency helps out as well. And that'll be manifested there in addition to just kind of savings and what they're paying through a third party.
Okay. And I guess someone who's new to your story, how would you summarize the key advantages of your business model here as they look to invest in your company?
Yeah, I think something you see very prevalent in the marketplace now is a lot of us do our own research.
We have information at our fingertips. But it really helps when you hear someone's personal testimony of taking a product. I think kind of the direct selling side is really have that established. And that's really broadened out. And I think that's some of the pressure you've seen on the channel. There's just so many different ways to do that. And so those are things that I think really provide an advantage, a trusted resource and someone you can who has a personal experience with the product recommending it. I think entrepreneurs in many of our markets are really just looking for a chance and an opportunity and having a side hustle. And so I think we definitely solve a problem there in providing products they can be proud of offering and kind of communicating to friends, families, and those in their social networks.
Gotcha. All right.
And then so as you look forward to 2026 after what's been a bit of a tougher 2025 than you would like, what do you think are the key or the biggest opportunities and challenges for both the core business and for Hiya as we look forward?
Yeah, let's start in reverse order there and start with Hiya. Hiya is going to be, and once again, I reemphasize that we're very pleased and very confident in the management team there. They're going to be broadening out their offering to retail and Amazon. They've already started doing a little bit on Amazon. And so this is an area that I think they're very familiar with, but it's still relatively new to them. And we believe they're going to execute very well on it. But as that scales up and stuff, these folks are very savvy in how they'll utilize that.
So those are the, I think, both opportunity and challenge for Hiya, which we have great confidence they'll execute on. On the direct selling business, we've had some trends and some downward trends in the top line. And those are actively being addressed. And I think the primary tool that we've used to communicate that is this commercial strategy that we have within the direct selling, which is kind of the product innovation and really leaning into that and leaning into the business opportunity and the brand and story. And so you can see the systematic execution of that. And so we're still fairly early on kind of broadly announcing and putting into place some of these changes in the opportunity plan. And there's still a lot of work to do there and kind of a lot of effort that we have to put into it.
But that's foundationally where we expect that we can go back and kind of get the message out to a broader group that would have more interest here.
Gotcha. All right. Well, it looks like we're out of time. Well, I wanted to thank you again, Doug, Andrew, and Pat for sharing the USANA story. And thank you also to everyone joining here and asking thoughtful questions as well. So with that, we'll wrap it up and hope everyone has a productive day at the conference. So thank you very much. Thanks, Anthony. All right. Take care.