USANA Health Sciences(USNA) - 2022 Q4 - Annual Report

Financial Performance - In 2022, USANA Health Sciences generated $998.6 million in net sales and had approximately 490,000 active Customers worldwide[21] - Mainland China accounted for approximately 45.4% of net sales and 45.9% of active Customers[21] - In 2022, net sales outside of the United States represented approximately 89.4% of consolidated net sales, highlighting the company's international presence[41] - The Auto Order subscription program generated 65% of product sales volume for the year ended December 31, 2022, offering a 10% price discount[81] - Product returns were approximately 0.7% of net sales in 2022, indicating strong customer satisfaction[84] - No single Associate or Preferred Customer accounted for 10% or more of net sales in the last three fiscal years, indicating a diversified customer base[85] - 89.4% of the company's total net sales for the year ended December 31, 2022, were generated outside the United States, making it vulnerable to currency fluctuations[186] Growth Strategy - The company plans to execute a global growth strategy in 2023, focusing on increasing active Customers through digital commerce initiatives and market-specific promotional strategies[24] - In 2022, USANA completed the acquisition of two companies, Rise Bar and Oola Global, LLC, to leverage their expertise for growth[33] - The company plans to invest in research and development to roll out new science-based products in 2023 and beyond[29] - USANA aims to enhance its digital capabilities and customer experience through initiatives like an Affiliate program launched in January 2023[26] - The company is optimistic about long-term growth in China despite recent challenges, with plans for market-specific strategies and in-person events in 2023[30] Research and Development - USANA's product sales breakdown for 2022 shows that Nutritionals accounted for 70%, Essentials/CellSentials for 17%, Foods for 7%, and Personal Care and Skincare for 5%[35] - USANA's R&D efforts focus on high-quality, science-based products, with ongoing research supporting proprietary technologies like InCelligence[42] - In fiscal years 2022, 2021, and 2020, the company spent $11.6 million, $11.1 million, and $10.6 million on product R&D activities, respectively, indicating a consistent investment in research and development[47] - BabyCare's R&D efforts include collaborations with universities and clinical studies to evaluate product efficacy, enhancing product quality[72] - The company has established partnerships with various universities and research institutes globally to advance knowledge in applied human nutrition, with plans to accelerate clinical studies in the coming years[45] Manufacturing and Quality Control - The company conducts manufacturing and quality control operations for approximately 65% of its products in-house, with a significant manufacturing facility expansion completed in 2019[49] - The company plans to increase the proportion of personal care and skincare products manufactured in-house, reducing reliance on third-party suppliers, which currently account for approximately 35% of product sales[54] - The company maintains in-house microbiology and analytical chemistry labs for quality control, testing for biological and chemical contamination, and ensuring compliance with internal specifications[55] - The company’s Salt Lake City manufacturing facilities are registered with multiple regulatory agencies, ensuring compliance with Good Manufacturing Practices (GMPs) and other quality standards[51] - BabyCare's in-house manufacturing accounts for approximately 65% of product sales, providing a competitive advantage in quality control and production reliability[73] Regulatory Compliance and Challenges - The company engages in ongoing dialogue with government officials to navigate regulatory challenges in China[69] - The Chinese government has increased scrutiny of the direct selling industry, impacting the company's operations and regulatory compliance[106] - The company has obtained direct selling licenses in Beijing, Jiangsu, Shaanxi, and Tianjin, but requires additional licenses for further expansion in China[108] - The Chinese government has suspended the application review process for direct selling licenses since 2019, impacting BabyCare's ability to grow[178] - Regulatory compliance is critical, as failure to meet FDA requirements could lead to product withdrawals or fines, adversely affecting marketability[189] Employee and Corporate Culture - The company had approximately 1,900 employees across 23 countries, with 46% in the United States and 28% in China, and 58% of the workforce being female[124] - The company has a commitment to diversity, equity, and inclusion, with initiatives such as the Women in Leadership Program and mentorship programs[126] - The company has established a wellness program that includes free nutritional products and access to on-site health services for employees[132] - The company is focused on sustainability, with a strategy centered on products, people, and planet, and aims to fortify these pillars for meaningful progress[121] - The company has not experienced work stoppages due to labor disputes and maintains a good relationship with its employees[125] Legal and Regulatory Risks - The company faces potential legal obligations regarding the classification of Associates, which could lead to increased costs and liabilities if they are deemed employees[162] - The company is subject to various anti-corruption laws, and any violations could result in severe penalties and adversely affect its reputation and operations[208] - Changes in tax laws and regulations could materially affect the company's effective tax rate and financial condition[210] - The company faces risks related to maintaining effective internal controls, which are necessary for reliable financial reporting[212] - Legal actions against the company by former Associates could harm its business, although such litigation is typically routine and not materially impactful[203] Cybersecurity and Data Management - The company relies on information technology for operations and reporting, with significant amounts of data, including personally identifiable information (PII), stored in data centers and cloud systems[217] - Data breaches could lead to significant losses, including damage to reputation, increased cyber insurance premiums, and loss of customer confidence[219] - Cybersecurity measures are continuously improved, but the company remains vulnerable to persistent attacks, including viruses and ransomware[218] - The company faces potential legal liabilities from affected individuals or business partners due to data breaches[219] - Regulatory compliance is critical for the secure collection and storage of data, impacting business strategy[219]