Good day ladies and gentlemen and welcome to the Fourth Quarter 2009 Nu Skin Earnings Conference Call. My name is Noelea and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Mr. Scott Pond, Director of Investor Relations. Please proceed, sir.

Thank you. We appreciate you joining us today. With us in the room today are Truman Hunt, President and Chief Executive Officer; Ritch Wood, Chief Financial Officer and Joe Chang, Chief Scientific Officer. Just a reminder during this call, comments may be made that include forward looking statements. These statements involve risks and uncertainties and actual results may differ materially from those discussed or anticipated. We encourage you to refer to today's earnings release and our SEC filings for a complete discussion of these risks. Also during this call, certain financial numbers may be discussed that differ from comparable numbers contained in our financial statements. We believe that these non-GAAP financial numbers assist management and investors in evaluating and comparing period to period results in a more meaningful and consistent manner. Please refer to our investor portion of the company's website for a reconciliation of these non-GAAP numbers. And with that, I will now turn the time over to Truman.

Thanks, Scott and good morning everyone. We appreciate you joining us this morning. I'll say right at the outset here that it's a little bit frustrating to have released our results on a day where there is negative news in the market because for us, the news has never been better. As our release indicates, we posted record revenue for both the fourth quarter and for the year. For the quarter, revenue exceeded $378 million, which is a 19% year over year improvement and includes about a 7% currency benefit. Prior to the fourth quarter our largest quarterly revenue level was $334 million which we posted in just the third quarter of last year. So needless to say, we're very pleased to have grown $44 million on the top line, or about 13% sequentially on the heels of what had been a very strong third quarter. With positive momentum that built throughout the year we generated a record annual revenue of $1.33 billion, a 7% improvement over 2008. Earnings for the quarter were $0.47 per share and when excluding items that impact comparability, this represents a 31% year-over-year improvement. For the year, our earnings per share grew 22% on an apples-to-apples basis. So not only are we pleased with our top line growth but we're also delighted with the results of our restructuring efforts and our focus on profitability over the past four years. During our third quarter conference call in October, I stated that the third quarter had been our most geographically consistent quarter to date with each of our geographic regions enjoying healthy growth. I am pleased to say that this was even more evident in the fourth quarter as we saw improving or sustaining trends in virtually all of our markets. We were particularly encouraged with continued…

Thank you Truman. Good morning, everyone. I'll first provide the local currently revenue figures in our major markets. In North Asia region, fourth quarter revenue in Japan was 11.4 billion yen compared to 11.5 billion yen in the same quarter of 2008 and quarterly revenue in South Korea was 47.3 wan versus 42.3 billion wan in the prior year. In the Americas the U.S. posted $67.6 million in revenue, compared against $50.5 million in the prior year. Note that approximately $11 million of these reported sales in the U.S. came from purchases made by foreign distributors attending the global convention held during the quarter. So this $11 million benefitted the U.S. sales number and pulled out some volume out of our foreign markets. And particularly I'd highlight South Korea and Hong Kong were impacted by those convention purchases. Canada reported 7.2 million Canadian dollars in the quarter compared against 5.3 million Canadian dollars in the prior year. Latin America revenue was $4.5 million compared to $4 million in the prior year quarter. In the greater China region, mainland China revenue was RMB139 million during the quarter versus RMB117.7 million during the prior year and quarterly revenue from Hong Kong was 90.2 million Hong Kong collars compared to 100.6 Hong Kong dollars million in the same quarter of last year. Finally Taiwan revenue was NT$805 million compared against NT$749 million in 2008. Our gross margin for the quarter jumped nicely to 82.3%. This is a 60 basis point improvement over the prior year period and the improvement is related primarily to the sales of the higher margin ageLOC products, also benefitted a little bit from currency as well as several supply chain initiatives to reduce freight expenses and improve efficiencies that we've been working on for quite some time and are…

(Operator Instructions) . Your first question comes from the line of Olivia Tong.

Hi, good morning. Just want to first touch on Japan. First a point of clarification. I think you guys have local currency sales down 4% in Q1. Is that correct?

Yeah, that is correct, Olivia.

Okay. Then maybe if you could talk about how trends in Japan progressed in O4? I know you had the initial launch of the serum, but kind of wondering how they progressed, given that you are looking for a decline again in Q1. And then also, sort of marry into that the executive distributor count going up in North Asia in Q4, if you could sort of talk about that as well?

Sure. We had a very positive reception to the launch of ageLOC serum in Q4. Now recall that the ageLOC skin care system includes what we call the elements products which are daily used morning and night products as well as what we call the ageLOC future serum. Just the future serum component of the transformation set launched in Q4, late in Q4 in Japan. The elements component of the ageLOC transformation set will not launch in Japan until April. So they won't be the full beneficiary of the ageLOC skin care launch really, until the second quarter. So as Ritch indicated we do expect the business to track down a little bit on a year-over-year basis. But we did see a nice uptick in the quarter sequentially in our executive count. We are seeing signs of hope. But we'd like to see some continued improvement in key metrics before we get any more bullish on the market.

Was the exact count up in Japan?

Yes, over Q3 sequentially. Not (inaudible). For the fourth quarter Olivia, the executive count was down 5% in Japan, which was a nice improvement over where we've seen it tracking throughout the year. We were down 5% revenue wise in the third quarter. So fourth quarter improved and we expect some that came from the launch of the ageLOC serum. So conservatively, we're trying to model out a business in the first quartet that doesn't have that promotional push of a new product and still expect the business to continue to show improvement and especially for the year, we expect it to continue to improve throughout the year but try to model them conservatively where we would expect Q1 to be.

So if I understand this correctly, ageLOC's launching in most of the other markets in Q1, but not until Q2 for Japan, the elements package?

The elements component of the ageLOC transformation set, yes.

Okay. Thanks for the clarification on that. And then secondly on Pharmanex, the 4% volume growth, what drove that and then also what was the comp last year?

Well, what drove it was the intentional focus on Pharmanex promotions that were designed to enable the ageLOC skin care launch to be as incremental as possible. So our management teams around the world are doing a great job of just keeping Pharmanex in front of consumers in the face of all of the promotional attention on ageLOC skin care. But the region of the world that's also performing very well from a Pharmanex perspective right now is Southeast Asia where the Pharmanex TRA weight management system is a very hot product and that continues to help our Pharmanex numbers globally.

Throughout the year Olivia we saw our Pharmanex business actually very stable. We are about a $130 million in the first quarter, $137 million, $146 million and $153 million. So as we went throughout the year, we continue to see the Pharmanex business very solid and stable and so the growth in the personal care business became more and more accretive to the overall story.

Would you expect to post local currency growth in Pharmanex in 2010?

We really don’t model out the different sides of the business. We look for overall growth. We do anticipate a solid launch of the ageLOC nutrition supplement later in the year. We're not sure how many markets will actually take that launch in the fourth quarter. So its a little bit hard to project at this point in time but we like the stability we see and don't anticipate that it's going to reverse from where we're at today.

Fair enough. And then just lastly on the balance sheet, working capital, it looks like inventory days and payables days improved. I'm just wondering if that's a timing issue or there is something specific that's going on?

No when we transformed the business three years ago and started that process, tried to look at every aspect of the business, including supply chain and as we've analyzed best practice and so forth we believe there's a lot of opportunity to show improvement. So I believe that's very real progress. I believe it's progress you'll continue to see. We're somewhere around 2.2 turns at the end of the year. Our goal is to push that closer to even 2.5 turns over the next 18 months and so you'll see us continue to make nice progress on our inventory balances.

And then just one last question. Are you expecting for 2010 for this year count to stay roughly in line of where it was roughly in Q4?

Yeah. We'll continue to participate in the market in terms of buying our stock back. But generally speaking if you were to model around 65 million shares, that would be a good number to keep.

Your next question comes from the line of Doug Lane.

You had raised your forecast for the quarter back in November following the convention and still beat the rates forecast pretty handily. What was the key delta at the end of the quarter that really drove the upside following your release in November?

Well, we had projected Japan to be down around 2%, came in down 1%. So we picked up a little upside there but generally speaking, every region in the world just performed a little bit stronger than what we had anticipated. We had a very solid November, very solid December. So it's hard to pinpoint Doug, I would say one item. I think the $10 million of incremental above and beyond our guidance was really a spread across every region in the world just doing a little bit better than what we anticipated.

Would it be fair to read the Japan upside as the reception of the ageLOC launch?

Yeah, clearly.

And are you seeing similar receptions elsewhere following the first of the year? Maybe if you can back up and just refresh us or me on what the plan is for the launch of the ageLOC skin care lines. Its staggered geographically, isn't it?

It is a little bit staggered the full ageLOC system is now available in the Americas, in Europe and in South Korea as of the month of January. And yes, we remain optimistic about the impact of the ageLOC launch in the quarter and that's all reflected in the guidance that Ritch provided.

Of course. And then on the nice improvement in the executive distributors, can you give us some color there on what you think is driving it? It's been a while since you've had that kind of sequential growth in executive distributors.

We saw the executive count tick up in almost every market of the world and in every region for sure almost literally in every country where we do business. And that's really a reflection of the fact that more and more people are looking for alternative ways to supplementary replace income and they're finding it with us. The proposition that we're putting in front of them is compelling and it's fresh and it's exciting. AgeLOC is a big story. It has proprietary components to it. So it's just very compelling. And to see the executive count tick up in the fourth quarter sequentially in Japan is very encouraging.

Your next question comes from the line of Mark Astrachan.

First question on the rollout in Japan. What was the Japan growth number after the ageLOC rollout or do you know what the sales were for ageLOC in the fourth quarter there?

Yeah. The sales, trying to think if I have that number. The growth rate probably would have been similar to where we were at in Q3, kind of a down 4% to 5% and then ageLOC just pushed it a little bit. It's always a little bit tricky at our business because people have to reach certain volume requirements. So some of the volume that's purchased becomes a little bit cannibalizing to the other products in the business but probably without the launch of the ageLOC products, which we pre-launched, by the way a little bit in October at the same time the convention was going, the ageLOC serum and then the primary launch of the ageLOC serum happened in December. But we saw strong attraction to the ageLOC serum in both of those months which helped the business be strong in the fourth quarter.

Okay, great. And then galvanic spa sales in the quarter, what was that number? And then relatively with the rollout of the spa 2, what do you anticipate, if any sort of margin expansion as a result?

Yeah, galvanic spa sales in Q4 ticked up slightly over Q3 and it's going to be interesting to see in Q1 whether the rollout of the ageLOC skin care system cannibalizes to some degree spend on the galvanic spa, on the new ageLOC addition galvanic spa. But I personally believe that with a large consumer base already installed and using the galvanic spa, there is going to be huge interest in upgrading their prior units to the new units. So I think we'll continue to see some good growth there. The new unit does enjoy better pricing and from a gross margin perspective will contribute along with the ageLOC skin care system to an improving gross margin line.

Great. And then just thinking broadly about ageLOC, given what I think has been a positive response in the market that is rolled out including, by the way you've made a fan out of my grandmother for what it's worth. Can you keep up with the demand in terms of what you're anticipating now and what you're producing?

Yeah. We obviously ran into a bit of a supply chain buzz saw at convention where we blew through our expectations there. And to be totally honest and transparent, one of the things that is impacting us here to some degree is that we've had to put our markets on allocations for ageLOC products here in the first quarter. But the allocation process will pretty much be relieved after the first quarter so that going forward in the second quarter, we'll no longer have any supply chain constraints.

Your next question comes from the line of Scott Van Winkle.

Following up the question earlier about the share count, there was some incentive stock that was coming your way, the management team. I think its $1.50. Is that included in that jump in the share count in 2004?

Yeah, most of those shares were already included because we're anticipating that we would hit that number. But the primary shares that came into the share count were stock options that had strike prices at $21, $22, $23 granted a few years ago when our stock price was a little higher, that have not been in the dilutive share count for the last year or two because we've been trading in the $16 to $18 range. So the average stock price for the quarter pushed above $25. Those options all became part of the dilutive share count.

And Ritch, last year was the first year in a couple of years at least that the share count rose, ending share count year-over-year. What were the buy back numbers in 2009 in total, if you have them? And now that you're in a net cash position, should we assume, you said you're going to be active in the market but should we assume you're going to get a little more aggressive?

Well, we purchased $20 million for the year and cash flow continues to be very, very strong. So we'd anticipate that we used excess cash to drive shareholder value and so the two options really for us are to buy back stock and to increase dividend and we continue to evaluate those going forward but yeah, if we're sitting on a great deal of excess cash we'd expect to be using that, particularly opportunistically. Our focus is really, number one to make sure that our equity incentives to management are not dilutive and we have granted, as you know, some performance based incentives, some of which vested $1.50 and the others that vested $2 per share. Those were a little bit larger grants. So we need to buy back to make sure those are not dilutive, but secondly, to look opportunistically for opportunities to support the stock and to support our shareholders as we have excess cash to do so.

And I think the long-term debt came down sequentially in Q4. What percentage of that remaining debt is your yen denominated debt that I assume your not going to touch and what was the actual interest expense in that fourth quarter and what should we think of that going forward before we consider the effect of currency on your other income line?

Interest expense was about $1.8 million for the quarter. Approximately half our debt resides in Japanese yen today and it's really on an amortization schedule that we're paying off over the next seven years and really not something, we can't adjust that amortization schedule so to speak. From an overall standpoint we will pay down about $35 million in debt this year. And then from this year forward, so 2011 forward, our debt payments drop down because we'll have completed a couple of the tranches of our debt, to about $15 million to $17 million over the next six to seven years to pay off completely the balance of debt. But we would expect this year for it to drop in 2010 from about $157 million down into around $130 million or slightly below. And then from there, again, the debt payments drop down and so nice for cash flow really beginning in 2011 and forward.

And to stick with the numbers quiz, in Q4, if you take out the $7 million of convention expense and throw back the $1 million of the accrual reversal which I assume would be on the G&A line, you had about $98 million of G&A in that Q4, up a bunch sequentially and year-over-year. Is there something in there that I missed or is that kind of a quarterly run rate we should consider?

It is a little bit higher, Scott. We pulled in some incentive pay including the $1.50 options which we hadn't anticipated hitting in the fourth quarter. That accounted for $1 million. I think as you look at our, as I model it out going forward, we'll probably drop closer into the 97-96 range as we go into the first part of this year. Obviously that depends on where sales go and so forth. But it was a little bit high, due primarily to some incentive related expenses that kicked in, in the fourth quarter.

And Truman, a couple questions for you. This is going to seem somewhat unfair but you went through a whole list of accomplishments and things you've done at the end of your remarks before turning it over to Ritch, things like margin and innovation et cetera, et cetera. I guess what's next from your mind of what the big agenda is, I think in the last couple years is being around ageLOC and margins but what's the next agenda you were going to be talking about? And then second, if you can comment, I wonder if you have any thoughts as to whether there is risk or opportunity or something to do with one of your competitors in the skin care world Arbonne, filing for bankruptcy.

Well, I think that's a fair question, Scott. So on the innovation front, we're going to continue to innovate from a product perspective and the big story here in 2010-2011 is going to be taking ageLOC to the inside of the body and starting to fight the aging battle from the inside out while we also fight it topically. We have a lot of innovation to do on that front and we also have continued innovation to do down the road on the skin care front. So from a product perspective, again in my 14 years with the company, our product strategy and our R&D pipeline has never been more compelling. We're starting to plan three, four and five years out because we just have a lot of good stuff in the pipeline. Other innovation areas will include some continued innovation from a compensation plan perspective for our distributors. So, in 2010, we will continue to distinguish ourselves in the direct selling space with further innovation on that front that we are not yet prepared to talk about in detail but that we'll be talking about as the year goes on. And then the third area of innovation is continued innovation in our sales model. So we're working on various concepts that we believe will further distinguish us in the direct selling space, just in terms of how distributors are able to build their business. So, lots of room to run there. The Arbonne question, the Arbonne issue is just a question of them having levered up to too high a degree. It's a mistake that sometimes companies make, and they're now paying the price for it and hopefully they'll be able to restructure their debt and continue to be viable and I have every expectation that they will.

There's no opportunities for other direct sellers particularly with similar product lines and as you always know this direct spelling space momentum kind of goes against (inaudible). It starts to impact your distributor force. I'm wondering if there is an opportunity there?

Well, there always is kind of a little bit of a feeding frenzy whenever a drug selling company struggles but I know those people. I know they're management team. Its an impressive and they'll figure out a way to survive.

Your next question comes from the line of Bret Jordan.

A couple of quick questions and one of them just on a year-over-year basis. You talked about the Americas 67.6 benefitting from $11 million at convention. What was the contribution to the prior year convention product launch? Just to get apples to apples on that.

Yeah, we really didn’t have a substantial convention in the prior year. If we factor out what was purchased by and I hope I'm answering your question correctly here. If we factor out really the push that we got from international distributors at the convention, on a kind of an apples to apples basis, the U.S. business was up about 12% over the prior year.

Okay. And then the 60 basis dips of gross margin, you mentioned ageLOC and (inaudible). What was the ageLOC contribution if you were to sort of carve that out to the gross margin gain in the quarter?

It was just over half of the total benefit that we received. We sold about $28 million of ageLOC during the quarter and the majority of the other benefit came really from foreign currency benefit. We had a 7% overall foreign currency benefit. That ends up playing through the gross margin line and benefitting us there. But over half of it came from the ageLOC and it's ageLOC and we mention that but there are really several initiatives that we put in place in the supply chain, initiatives to improve margins on several products and continue to rationalize our SKU count. Those are all beginning to bear fruit today. We're able to keep our air freight down. We've put a warehouse in Singapore that helps with the building and manufacturing of the spa. So we're not having to ship that back into the U.S. and then back to Asia. So all those initiatives are benefitting that gross margin line.

And then this question maybe it is something you don't want to talk about in advance but when you think about taking ageLOC to an internal product, what type of product SKU's do you think of? Is this is sort your replacement or vitamin packs and then how does one apply the ageLOC product line to injected products?

That's a good question and we are working on various delivery mechanisms right now and are not yet prepared to talk about what the manifestation will look like in the fall of 2010. But we're considering a number of different delivery alternatives.

Next question comes from the line of Mimi Noel.

First I wanted to get an idea of just how addictive ageLOC is. Can you give me a sense of what replenishment orders look like for that?

It's too soon to say. The October offering was just a convention, limited in time offering and the system has really only rolled out in the last few weeks. So we just don't have reorder information yet.

And is it typically a supply for about a four week period?

Yeah. That’s right and that's actually a very good point because historically it was far easier to craft automatic shipment programs around nutrition because you can more easily measure a 30 day supply of a nutrition product. We went to great lengths with the ageLOC system to package it in a way that also facilitates a 30 day automatic delivery program. So the transformation set is designed to last 30 days. And I think frankly, it's an innovation in this category from a packaging perspective that's going to be meaningful to us.

Okay. The other thing I wanted to ask about also, would you mind reviewing what you said earlier on the galvanic spa, how the new unit is different from the old one?

Yeah. It's more user-friendly. Have you used the spa, Mimi?

I've held it in my hands but I stay out of the sun. I haven't used it.

Not that you need it but you would like it. The new unit is just easier to use. The interface is larger, it's more intuitive. We've changed the gooey, so to speak, interface so the consumers can figure out how to use it a little more easily. And the heads that attach to the top of the unit have also been reconfigured quite significantly. So the head that's used to apply the pre-treatment as well as the treatment gel is significantly larger and has a tread on it that looks somewhat like a tire tread which our engineers designed to enable a higher level of interactivity between the galvanic spa itself and the user with the active ingredients in between. So we're still collecting clinical data but we expect the new unit to be even more effective than the old unit.

And you said the margins on this one are more attractive than the prior?

Yes

Is the pricing the same?

It was increased just slightly.

Okay. And can you remind me how big the galvanic franchise is now with the units and the gels?

Yeah, the galvanic spa franchise now represents close to about a $70 million a quarter franchise.

That's great. And then the last question I had, at the analyst day you mentioned that there was a proposal before the board to develop a new facility for product development. Is there any update on that?

We are close to being able to provide an update on that and in fact you'll be hearing of developments on that front in the next 30 days or so.

(Operator Instructions). Your next question is a follow-up question from the line of Scott Van Winkle.

Hi, can you give us the timing of events you have scheduled for this year or your conventions and relative to last year and at which convention will there be the launch of the Pharmanex ageLOC products?

Okay. In the spring of this year we have a Korea convention in April. We have a greater China convention in May for the greater China region. We will have a U.S. regional convention in the fall, October, and the ageLOC Pharmanex product is scheduled to roll out in connection with the fall events so the fourth quarter of 2010. And we have also a Japan convention in the fourth quarter. Not sure on the timing of the ageLOC nutrition product rollout yet in that market.

And last year you had a similar event, except you had U.S. and Japan kind of in one in the global convention?

Yeah. Well, Japan had an event in the fourth quarter of 2009 that wasn't technically a convention. It was a gateway to success seminar. But the response was so huge from people who wanted to attend; it ended up looking like a convention. So it wasn't technically a convention. They will have a convention in the fall of 2010. And let's just wrap up here by thanking you all again for joining us on the call. It was a great quarter. It was a great year and our sights now turn towards making sure that 2010 becomes another record year for us and we have every expectation and all the confidence that we can muster that it will be as we continue our march to the $2 per share earnings level which is where management incentives are and which is where we intend to get as quickly as we possibly can. So thanks for joining us and we're available to answer any further questions you may have.