Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is designed to provide an understanding of USANA's financial condition, results of operations and cash flows by reviewing certain key indicators and measures of performance.

The MD&A is presented in seven sections as follows:





  ? Overview




  ? Products




  ? Impact of the COVID-19 Pandemic




  ? Customers




  ? Non-GAAP Financial Measures




  ? Results of Operations




  ? Liquidity and Capital Resources




This discussion and analysis from management's perspective should be read in
conjunction with the Unaudited Condensed Consolidated Financial Statements and
Notes thereto that are contained in this quarterly report, as well as Part II,
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations of our Annual Report on Form 10-K for the year ended January 1,
2022 (  "2021 Form 10-K"  ), filed with the SEC on March 1, 2022, and our other
filings, including the Current Reports on Form 8-K, that have been filed with
the SEC through the date of this report. Forward-looking statements in Part I,
Item 2 may involve risks and uncertainties that could cause results to differ
materially from those projected (refer to the section entitled "Cautionary Note
Regarding Forward-Looking Statements and Certain Risks" on page 1 and the risk
factors provided in Part II, Item 1A for discussion of these risks and
uncertainties).



Overview



We develop and manufacture high quality, science-based nutritional and personal
care and skincare products that are distributed internationally through direct
selling. We use this distribution method because we believe it is more conducive
to meeting our vision as a company, which is to improve the overall health and
nutrition of individuals and families around the world. Our customer base is
primarily comprised of two types of customers: "Associates" and "Preferred
Customers," referred to together as "active Customers." Our Associates also sell
our products to retail customers. Associates share in our company vision by
acting as independent distributors of our products in addition to purchasing our
products for their personal use. Preferred Customers purchase our products
strictly for personal use and are not permitted to resell or to distribute the
products. We only count as active Customers those Associates and Preferred
Customers who have purchased from us at any time during the most recent
three-month period. As of April 2, 2022, we had approximately 552,000 active
Customers worldwide.



We have operations in multiple markets, with sales and expenses being generated
and incurred in multiple currencies, our reported U.S. dollar sales and earnings
can be significantly affected by fluctuations in currency exchange rates. In
general, our operating results are affected positively by a weakening of the
U.S. dollar and negatively by a strengthening of the U.S. dollar. During
the three months ended April 2, 2022, net sales outside of the United States
represented 89.6% of consolidated net sales. In our net sales discussions that
follow, we approximate the impact of currency fluctuations on net sales by
translating current year sales at the average exchange rates in effect during
the comparable periods of the prior year.



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Products


The following table summarizes the approximate percentage of total product revenue that has been contributed by our major product lines and our top-selling products for the current and prior-year periods as indicated:





                                    Three Months Ended
                                 April 2,        April 3,
                                   2022            2021
Product Line
USANA® Nutritionals
Optimizers                           70%             70%
Essentials/CellSentials(1)           17%             17%
USANA Foods(2)                        7%              7%
Personal care and Skincare            5%              5%
All Other                             1%              1%
Key Product
USANA® Essentials/CellSentials       11%             12%
Proflavanol®                         10%             11%
Probiotic                            13%              9%



(1) Represents a product line consisting of multiple products, as opposed to the actual USANA® Essentials / CellSentials product.

(2) Includes the Active Nutrition line, which launched in five markets late in the first quarter of 2021 and will roll out to additional markets in future periods.

Impact of the COVID-19 Pandemic





The COVID-19 pandemic, including the spread of new variants of the virus, has
negatively impacted economies, businesses, sales practices, supply chains, and
consumer behavior around the world.  The ongoing COVID-19 pandemic has created
an unpredictable operating environment for us in many of our markets around the
world and caused meaningful disruptions in both sales and operations.
Government-imposed restrictions, health and safety mandated best practices, and
public hesitance regarding in-person gatherings have reduced our ability and the
ability of our Associates to hold sales meetings, required our Associates to
share and sell our products in a predominantly virtual environment, resulted in
cancellations of key Company events and trips, required us to utilize a
work-from-home strategy for all non-manufacturing and non-distribution
employees, and required us to temporarily close our walk-in and fulfillment
locations in some markets where we have such properties. The pandemic has also
affected the availability and cost of various of our raw materials, packaging
materials and shipping resources to transport our products to our various
markets around the world. Our supply chain and logistics have incurred some
disruption and we could experience more significant disruptions or closures in
the future. These factors and others related to the COVID-19 pandemic, including
the spread of new variants of the virus, will likely continue to negatively
affect our business throughout 2022 in a number of ways.



Customers



Because we sell our products to a customer base of independent Associates and
Preferred Customers, we increase our sales by increasing the number of our
active Customers, the amount they spend on average, or both. Our primary focus
continues to be increasing the number of active Customers. We believe this focus
is consistent with our vision of improving the overall health and nutrition of
individuals and families around the world. Sales to Associates account for
approximately 52% of product sales during the three months ended April 2, 2022.
The remainder of our sales are to Preferred Customers. Increases or decreases in
product sales are typically the result of variations in the volume of product
sold relating to fluctuations in the number of active Customers purchasing our
products. The number of active Associates and Preferred Customers is, therefore,
used by management as a key non-financial indicator to evaluate our operational
performance.



We believe that our ability to attract and retain active Customers is positively
influenced by a number of factors, including our high-quality product offerings
and the general public's heightened awareness and understanding of the
connection between diet and long-term health. Additionally, we believe that our
Associate compensation plan and the general public's growing desire for a
secondary source of income and small business ownership are key to our ability
to attract and retain Associates. We periodically update our Compensation Plan
in an effort to ensure that it is among the most competitive plans in the
industry, to encourage behavior that we believe leads to a successful business
for our Associates, and to ensure that our plan provides us with leverage to
grow sales and earnings. Additionally, the initiatives we are executing under
our customer experience and technology enhancements strategy are designed to
promote active Customer growth.



To further support our Associates in building their businesses, we traditionally
sponsor meetings and events throughout the year, which offer information about
our products and our network marketing system. We also provide low-cost sales
tools, including online sales, business management, and training tools, which
are intended to support our Associates in building and maintaining a successful
home-based business. Although we provide training and sales tools, we ultimately
rely on our Associates to sell our products, attract new active Customers to
purchase our products, and educate and train new Associates. We sponsor meetings
designed to assist Associates in their business development and to provide a
forum for interaction with our Associate leaders and members of our management
team.



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The table below summarizes the changes in our active Customer base by geographic region, rounded to the nearest thousand as of the dates indicated:





                                  Total Active Customers by Region
                                  As of                       As of               Change from       Percent
                              April 2, 2022               April 3, 2021           Prior Year         Change
Asia Pacific:
Greater China              255,000          46.2 %     276,000          44.7 %         (21,000 )         (7.6 %)
Southeast Asia Pacific     110,000          19.9 %     137,000          22.2 %         (27,000 )        (19.7 %)
North Asia                  57,000          10.3 %      59,000           9.6 %          (2,000 )         (3.4 %)
Asia Pacific Total         422,000          76.4 %     472,000          76.5 %         (50,000 )        (10.6 %)
Americas and Europe        130,000          23.6 %     145,000          23.5 %         (15,000 )        (10.3 %)
                           552,000         100.0 %     617,000         100.0 %         (65,000 )        (10.5 %)




Non-GAAP Financial Measures



We report our financial results in accordance with accounting principles
generally accepted in the United States ("GAAP"). However, to supplement the
financial results prepared in accordance with GAAP, we use non-GAAP financial
measures described below. Our management believes these non-GAAP financial
measures that exclude the impact of specific items (described below) may be
useful to investors in their assessment of our ongoing operating performance and
provide additional meaningful comparisons between current results and results in
prior operating periods and in understanding the activities and business metrics
of our operations. We believe that these non-GAAP financial measures reflect an
additional way of viewing aspects of our business that, when viewed with our
GAAP results, provide a more complete understanding of factors and trends
affecting our business. We provide non-GAAP financial information for
informational purposes only. Readers should consider the information in addition
but not instead of or superior to, our consolidated financial statements
prepared in accordance with GAAP. This non-GAAP financial information may be
determined or calculated differently by other companies, limiting the usefulness
of those measures for comparative purposes.



In this report, we use "constant currency" net sales, "local currency" net
sales, and other currency-related financial information terms that are non-GAAP
financial measures.  We believe the use of these terms is helpful in
understanding the impact of fluctuations in foreign-currency exchange rates and
facilitating period-to-period comparisons of our results of operations
and provides investors an additional perspective on trends and underlying
business results. Changes in our reported revenue and profits in this report
include the impacts of changes in foreign currency exchange rates. As additional
information to the reader, we provide constant currency assessments in the
tables and the narrative information in this MD&A to remove or quantify the
impact of the fluctuation in foreign exchange rates and utilize constant
currency results in our analysis of performance. Our constant currency financial
results are calculated by translating the current period's financial results at
the same average exchange rates in effect during the applicable prior-year
period and then comparing this amount to the prior-year period's financial
results. The GAAP reconciliations of these non-GAAP measures are contained in
the tables within Results of Operations.



Results of Operations



Summary of Financial Results



Net sales for the first quarter of 2022 decreased 11.4% to $272.9 million, a
decrease of $35.1 million, compared with the prior-year quarter. This decrease
resulted primarily from a 10.5% decline in active Customers compared to the
prior-year quarter, and unfavorable changes in currency exchange rates, which
negatively impacted net sales by $2.8 million.



Net earnings for the first quarter of 2022 were $22.5 million, a decrease of
26.6% compared with $30.6 million during the prior-year quarter. The decrease in
net earnings was primarily the result of decreased sales and higher relative
operating expenses.



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Quarters Ended April 2, 2022 and April 3, 2021

Net Sales

The following table summarizes the changes in net sales by geographic region for the fiscal quarters ended as of the dates indicated:





                                  Net Sales by Region
                                    (in thousands)
                                     Quarter Ended
                                                                                                                       Percent
                                                                                                                       change
                                                                            Change                     Currency       excluding
                                                                             from         Percent       impact        currency
                       April 2, 2022              April 3, 2021           prior year       change      on sales        impact
Asia Pacific
Greater China      $ 133,739         49.0 %   $ 148,978         48.4 %   $    (15,239 )     (10.2% )   $   2,530          (11.9% )
Southeast Asia
Pacific               54,742         20.0 %      72,148         23.4 %        (17,406 )     (24.1% )      (2,596 )        (20.5% )
North Asia            29,939         11.0 %      30,165          9.8 %           (226 )      (0.7% )      (2,446 )           7.4 %
Asia Pacific
Total                218,420         80.0 %     251,291         81.6 %        (32,871 )     (13.1% )      (2,512 )        (12.1% )
Americas and
Europe                54,447         20.0 %      56,685         18.4 %         (2,238 )      (3.9% )        (293 )         (3.4% )
                   $ 272,867        100.0 %   $ 307,976        100.0 %   $    (35,109 )     (11.4% )   $  (2,805 )        (10.5% )




Asia Pacific: The decline in this region is largely the result of a challenging
operating environment in several of our Asia Pacific markets due to the COVID-19
pandemic. The decrease in constant currency net sales in Greater China was
primarily the result of a sales decline in China, where local currency net sales
decreased 12.4%, due to a 7.9% decrease in active Customers. The decrease in
constant currency net sales in Southeast Asia Pacific is largely the result of
sales declines in the Philippines, and Malaysia, which had local currency net
sales decline of 29.8%, and 27.0%, due to a 28.6% and 17.1% decrease in active
Customers, respectively. The increase in constant currency net sales in North
Asia was primarily the result of sales growth in Korea, where local currency net
sales increased 8.6%, due to an increase in average spend per customer.


Americas and Europe: The decrease in constant currency sales in this region was
primarily the result of a sales decline in Mexico, where local currency net
sales decreased 27.8%, due to competitive pressures, which led to a 20.7%
decrease in active Customers.  The decrease was partially offset by a 4.9% net
sales increase in the United States.



Gross Profit



Gross profit decreased 10 basis points to 81.2% of net sales, down from 81.3% in
the prior-year quarter. The decrease in gross profit margin can be attributed to
inventory valuation adjustments, unfavorable changes in currency exchange rates,
and increased product costs. These decreases were partially offset by favorable
changes in market and product sales mix, and increased transportation costs
related to the strategic buildup of inventory in the prior-year quarter due to
COVID-19 related disruptions to our supply chain and logistics.



Associate Incentives


Associate incentives increased 10 basis points to 43.8% of net sales, up from 43.7% in the prior-year quarter. The relative increase can primarily be attributed to a market specific incentive promotion and increased spend on miscellaneous associate incentives.

Selling, General and Administrative Expenses





Selling, general and administrative expenses increased 210 basis points relative
to net sales and decreased $2.8 million in absolute terms.  The relative
increase can be attributed to leverage lost on lower net sales. The decreased
expense in absolute terms can be primarily attributed to lower costs on current
year sales and operating performance.



Income Taxes


Income taxes increased to 32.5% of pre-tax earnings, up from 30.9% of pre-tax earnings in the prior-year quarter. The effective tax rate increase is due primarily to a change in distribution of pre-tax income by market.





Diluted Earnings per Share


Diluted EPS decreased 20.7% to $1.15 as compared to $1.45 reported in the prior-year quarter. This decrease can be attributed to lower net earnings, partially offset by lower diluted share count.


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Liquidity and Capital Resources





We have historically met our working capital and capital expenditure
requirements by using net cash flow from operations and by drawing on our line
of credit. Our principal source of liquidity is our operating cash flow.
Although we are required to maintain cash deposits with banks in certain of our
markets, there are currently no material restrictions on our ability to transfer
and remit funds among our international markets. In China, however, our
compliance with Chinese accounting and tax regulations promulgated by the State
Administration of Foreign Exchange ("SAFE") results in transfer and remittance
of our profits and dividends from China to the United States on a delayed basis.
If SAFE or other Chinese regulators introduce new regulations or change existing
regulations which allow foreign investors to remit profits and dividends earned
in China to other countries, our ability to remit profits or pay dividends from
China to the United States may be limited in the future.



We believe we have sufficient liquidity to satisfy our cash needs and expect to
continue to fund our business with cash flow from operations. We continue,
however, to evaluate and take action, as necessary, to preserve adequate
liquidity and ensure that our business can continue to operate during these
uncertain times. Additionally, we continually evaluate opportunities, to
repurchase shares of our common stock and will, from time to time, consider the
acquisition of, or investment in complementary businesses, products, services,
and technologies, which has the potential to affect our liquidity.



Cash and Cash Equivalents



Cash and cash equivalents decreased to $237.8 million as of April 2, 2022, from
$239.8 million as of January 1, 2022. Cash flow provided by operating activities
generated $19.7 million partially offset by cash used in financing activities of
$19.6 million during the three months ended April 2, 2022.



The table below presents concentrations of cash and cash equivalents by market
for the periods indicated:



                                         Cash and cash equivalents
                                               (in Millions)
                                       As of                  As of
                                   April 2, 2022         January 1, 2022
China                             $         176.4       $           139.9
United States                                17.0                    51.9
All other markets                            44.4                    48.0
Total Cash and cash equivalents   $         237.8       $           239.8




Cash Flows Provided by Operations





As discussed above, our principal source of liquidity comes from our net cash
flow from operations, which results from a strong operating margin. Net cash
flow provided by operating activities was $19.7 million for the
first three months of 2022.  Net earnings combined with adjustments of non-cash
items contributed positively to our net cash flow provided by operating
activities, partially offset by cash used to pay the 2021 annual employee bonus,
and a reduction in trade payables.



Net cash flow provided by operating activities was $19.7 million for
the three months of 2021. Net earnings combined with adjustments of non-cash
items contributed positively to our net cash flows provided by operating
activities, partially offset by cash used to pay the 2020 annual employee bonus,
reduce accruals related to inventories received at year-end, renew our annual
insurance policies, and renew contracts for certain IT-related services.



Line of Credit



Information with respect to our line of credit may be found in Note F to the
Condensed Consolidated Financial Statements included in Item 1 of Part I of this
report.



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Share Repurchase


Information with respect to share repurchases may be found in Note I to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this report.

Off-Balance Sheet Arrangements





None.



Summary



We believe our current cash balances, future cash provided by operations, and
amounts available under our line of credit will be sufficient to cover our
operating and capital needs in the ordinary course of business for the
foreseeable future. If we experience an adverse operating environment or
unanticipated and unusual capital expenditure requirements, additional financing
may be required. No assurance can be given, however, that additional financing,
if required, would be available to us at all or on favorable terms. We might
also require or seek additional financing for the purpose of expanding into new
markets, growing our existing markets, mergers and acquisitions, or for other
reasons. Such financing may include the use of additional debt or the sale of
additional equity securities. Any financing which involves the sale of equity
securities or instruments that are convertible into equity securities could
result in immediate and possibly significant dilution to our existing
shareholders.



Critical Accounting Policies



There were no changes during the quarter to our critical accounting policies as
disclosed in our 2021 Form 10-K. Our significant accounting policies are
disclosed in Note A to our Consolidated Financial Statements filed with our 2021
Form 10-K.

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