Good morning, ladies and gentlemen. Thank you for standing-by. Welcome to the USANA Health Sciences Second Quarter Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions). This conference is being recorded today, Wednesday, July 29, 2009. I would now like to turn the conference over to Riley Timmer. Please go ahead, sir.

Hi. Good morning, every one. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at www.usanahealthsciences.com. Surely following the call, a replay will be available on our website. As a reminder, during the course of this conference call, the management will make forward-looking statements regarding future events for the future financial performance of the company. Those statements involve risks and uncertainties that could cause actual result to differ perhaps materially in your results projected in such forward-looking statements. We caution you that these statements should be considered in conjunction with the disclosures, including specific risk factors and financial data contained in our most recent filings with the SEC. With that, I'll turn the call over to Fred Cooper, our President and Chief Operating Officer.

Thanks, Riley. Good morning, everybody. It's a pleasure to be here this morning to report a fantastic quarter for USANA. These calls are always more enjoyable for me when we're reporting good news and record setting results. Let me quickly take you through the highlights of our quarter before I turn the call over to Jeff Yates, who is our Chief Financial Officer to go through the details with you. During the second quarter, USANA reported a record quarter in terms of sales at a 112.1 million and a record increase in the number of active associates. This number grew by 18.3% to 200,000. These records were achieved notwithstanding the current economic recession and negative impact of currency exchange rates. As you saw in the press release, excluding currency, sales would have been as high as 121.2 million for this quarter. These figures indicate that our two primary associated incentive programs, the Elite Bonus and Matching Bonus are working as intended. During the second quarter, we reduced the amount of spent on SG&A when compared to either last year at this time or our first quarter. I feel this decrease demonstrates our ability and our commitment to manage cost and SG&A expenses. So with that, I've like to turn the time over to Jeff to provide you with the financial details for the quarter.

Thank you, Fred and good morning, everyone. As Fred indicated, the second quarter was a great quarter for USANA. I am personally pleased with our financial results past with the performance of the company in light of the challenges that Fred has mentioned. As what indicated, we are reporting record numbers in both sales and asset associate accounts. Net sales for the second quarter reached a $112.1 million, which is an increase of 2.6% when compared with a $109.2 million reported for the second quarter of 2008. That growth in net sales would have been higher had currency exchange rates remained at the same levels as in the second quarter of last year. As you are well aware, the U.S. dollar has strengthened significantly since then. Consequently, our net sales for the second quarter of 2009 were reduced by 7.5% or $9.1 million. As Fred mentioned, excluding the impact of currency, net sales for the quarter would have been just over $121 million. We have mentioned before the significant impact, unfavorable exchange rates has on our top-line, through the first six months of 2009, this has reduced our net sales by almost $20 million. For the balance of the year, we are modeling for currency to negatively effect net sales by an additional $4.5 million. In the fourth quarter, however, we expect that the currency comparison for most of our markets will be about even or slightly favorable. I'll totally expect the full year impact on sales from the stronger U.S. dollar to be about $24 million. Of course and importantly these estimates are based on exchange rates as of the end of the second quarter. Now, let's cover the second quarter regional results. Net sales for the second quarter in North America decreased by 4.8% or $3.2 million to…

Thank you, Jeff. You know it's positive you saw in I'm responsible for the sales and growth of those sales. And as Chief Operating Officer, I'm obviously responsible for operations and delivering efficiencies in that area. So, I'd like to take a few minutes and discuss these areas of jurisdiction. And I'll begin with sales. Now we reported that sales in all of our markets were up sequentially, except for two of our smaller markets, the Philippines and Japan. The Philippines which is our newest market, is delivering a similar pattern which we anticipated based on past market openings. When the new market opens, in this case the Philippines, the announcement of the new market produces a immediate interest from our worldwide associates, who have family and connections in that market. Once the market is officially open for business, this queue of individuals waiting to join and travel to the Philippines to build the business, causes an initial spike in both enrollment and sales. This spike is also followed by a period of lower sales and enrollment, as the queue is eliminated and associates worldwide return home. We expect sales and associate growth, to begin to trend upward in this market, as our native associate leadership now establishes itself in the Philippines and that market begins to mature on its own. As for Japan, it's the second largest direct selling market in the world. That's one of the main reasons why we are so committed to trying to make that market work. USANA has averaged a new General Manager in that market every year and half, since we entered the market as we've tried to fill this world with an experienced individual. This turnover has created unrest in the minds of our associates there in Japan. We've recently hired a…

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). And our first question comes from the line of Tim Ramey with D.A. Davidson. Please go ahead.

Good morning, guys. Congratulations on some good results.

Thank you, Tim.

Thank you.

I guess to congratulate you and then take a little shot. We call down guidance just I guess 90 days ago and that makes me worry about your level of visibility as a business. Can you talk a little bit about your visibility and whether we should just be taking guidance with the grand result at this point or whether there was, I do know of course with the currency change quite a bit during the quarter and that probably had a meaningful contributing effect. Could you discuss that a little bit?

Of course, Tim. Thank you for the questions. I think you nailed it. Currency is a significant factor and played well into the guidance that we provided in the first quarter, needless to say we've had a nice improvement sequentially from Q1 to Q2, we're reflecting that but given those fluctuations its hard to predict what's going to happen in Q3 and Q4 and we've tried to take that into consideration. But we've also had a nice growth in our associate counts and that reflects the impact of that going forward.

Thanks for that. And would you expect the associate growth to start to more closely or sorry, say it the other way. Sales growth to more start -- start to more closely near the associate growth. In the years past, they were a pretty good mirror of each other but there has been some disconnect here recently.

This is Fred and yes. We would expect that those two numbers will align better going forward.

Thanks so much guys.

Yes.

Thank you. (Operator Instructions). And your next question comes from the line of Scott Van Winkle with Canaccord Adams. Please go ahead.

Hey guys. Congratulations as well.

Thank you, Scott. Welcome.

Okay. First question, on distributors, and I don't know how you answer this because it's not a metric, you do know the path. How much of the distributor growth sequential, was new distributors coming in, rather than, and here's my thinking, my thinking is that some distributors just didn't purchase in the first quarter because of the economy, and I would assume that some of those people have become active again, are back in the second quarter, and that drove a good chunk of that distributor total at the end of the quarter and I think you see where I'm going with this, is how much of it was kind of new distributors, new to the system, driven by recruiting that we kind of see that momentum and new distributors continue to work? How much of it was kind of a catch up from the first quarter, may people just kind of sat on their hands.

While it's true, we have being doing targeted campaigns, with a big emphasis on preferred customers and so naturally we're going pickup some buyers, who don't buy on a quite -- as regular basis as we prefer. But as you can see the growth line of our enrollment is greater than our growth line of sales, so a big pickup on that in momentum is the enrollment activity, that we are seeing from our associates.

Okay so, am I completely wrong in assuming that there might been a lot of active distributors in the fourth quarter of last year that just went inactive in the first quarter and is that in a normally or am I way out in this. I have to assume that would have been the case to some extent. And I don't mean preferred customers, I mean people who are in the comp plan, driving business in the fourth quarter of last year that maybe just fell off because the economy and now they're back, they're active again, they're back in the comp plan. Not so much of preferred customer kind of moving up, but more so just kind of a last quarter in there for some distributors who maybe just kind of panic with the market.

Certainly your statement is true and there are some individuals that do that and we don't have that exact number of the number of, we call that a win back of individuals that have done that in the fourth quarter and first quarter. So I wouldn't argue with your statement, but I would try to temper that statement with the majority of that coming from new growth.

Okay. Thank you. And then on the volume incentive line, maybe I missed it. Did you mentioned currency driving some of that growth as a percentage of sales year-over-year as well?

Not year-over-year. Year-over-year we had still a compression, it was $9.1 million but sequentially we were up almost four.

In absolute dollars in the volume incentives? I'm sorry, I was thinking volume incentives as a percentage of sales rose and maybe I just misread that but...

That the associate incentive increase was due to the two compensation plan enhancements.

But there is no impact in currency, in the last quarter we talked about how you're still paying out at the same rate, despite currency and in some cases it's kind of going against you or is it a benefit?

The FX impact on that Scott, is negligible.

Okay, great. And what specifically was in those kind of buckets of SG&A control you talked about. You talked about legal obviously we can see that pretty easy. But you mentioned some salary based type of items. You didn't change staffing. What type of SG&A control did you do in the quarter and how reputable was that going forward?

Yeah, overall the lower promotional expenses; keep in mind that our focused motivate an incentive yield is about -- is focused on these bonuses, the add hard one-time special type of promotions we've backed up significantly because those enhancements are driving that growth adequately and in fact famously for us. Otherwise, the overall effort to reduce SG&A just as an operating model, we're seeing benefits across the board including rent and travel and some wage related expenses, we're managing health plans better and so forth.

Okay. So would it be fair to say in time looking forward into the future that as long as the higher volume incentives translate into stronger sales, the promotions that would normally flow into SG&A are going to be tempered, and maybe that picks back up if the revenue growth doesn't continue to be driven so well by that compensation plan changes.

Yeah, you know how well the leverage works for our model Scott and that's what we anticipate. Our effort is to continue to manage those costs, we believe we run a very lean and efficient organization, we anticipate doing so going forward, and reaping the benefit of that leverage.

And on that note, for years, you saw -- kind of led the industry, at least among the public companies, as far as the profitability levels, operating margins and such. Do you look at the new model now with incentives where they are and you know, maybe you don't get back to an 18% margin, but have you kind of changed what you -- long-term what you think the profitability level as a percentage of sales, can be in the business because of these top-line changes?

I'd take that question, I'd say no. I believe its still stepped and there is still room to improve that on operating leverage, its just in an economic time, where you're competing for a new associate, you're going to spend a little more to make sure you get those. But gross margins still have room that we can improve on some pricing strategies that we're putting in the place still improve and there's still room on SG&A. So nope, I still think we can be the most operationally efficient as well.

Okay. And, probably tough question to answer, but is there any impact from all this marketing by Amway Global, I mean its just an odd amount -- historically I've never seen anything like it, traditional advertising Amway -- has it -- is there a talk about it in distributor force, what's been your perception or impact?

As one who gets out in the field quite a bit and travel across the world, I don't believe I have ever had anyone in five years tell me Amway is pushing hard and is a competitor to them in their region, ever.

Okay. Fair enough. And then kind of a big picture question for you. One of a remarkably strong consumer categories at retail is an interesting supplement industry. You know 18 yields, ROI reporting 10% type of growth, in the mass market is, do you have any opinion on that. Do you think maybe there is some kind of trading down from some of the more premium price channels towards the mass or are you kind of getting even in your customer and distributor force that supplements are just kind of involved or are just not being impacted by the economy. Its a remarkable growth we're seeing in the industry, I'm just wonder what you're thoughts are.

Speaking to that end, I don't believe a premium product in terms of quality and potency is ever going to go out vogue to the mass. It will always be a market that attracts a significant portion of individuals, in fact in our targeted win back campaigns, if that statement were -- I kind of towards with demise of USANA because everyone is going to mass purchasing vitamins and nutritional supplements. We wouldn't had such an affective impact on our win back campaign. USANA enjoys an excellent reputation as the finest nutritional supplement in the industry. We have a slogan that we use that's called in good company with many, many endorsements that are unpaid or solicited for the use of our products and nutritional vitamins. So I think the growth is just in the industrial as a whole, and awareness for the need for nutritional supplementation. Those that can only afford mid range quality purchase that. But as a whole everyone is starting to have a better appreciation for the need of nutritional supplementation.

Okay. And just a last question, progress so many. Was there anything specifically done to target preferred customers from the win back or did you target them differently obviously no comp plan changes are going to effect the preferred customers or unless it's effecting distributors who driving those customers. Is there anything specifically done towards those customers?

Yes. We actually look at how long ago they had purchased, what items that they had purchased, what items we believe they would have an interest in and then targeted them with e-mails, flyers and catalogs to see which class and substrata of the target market would be the most receptive to sending back that information to them and we are very persistent (ph) in keeping track of which campaigns are the most effectives and which ones aren't, so that we can further refine our target market.

Great. Thanks very much.

You're welcome.

Thank you and our next question comes from the line of Rommel Dionisio with Wedbush Morgan. Please go ahead.

Yeah. Good morning. A question on the gross margins, I think in your prepared comments, you talked about how there was a slight increase in product cost. From other companies are recording the sector, I think we've noticed that some of them are saying they see the civilization of product loan. That's just a function of bringing out some over inventory that was at higher cost, is there something unusual, I understand every company is a little different, but could you just talk to that point?

No, generally speaking we've had just several product cost increases depending on the product that we're talking about and keep in mind that we're sourcing some of the finest quality product in the entire world. And most of those product costs have been subtle not significant with -- the increase is mostly attributable to the FX impact.

Okay. thanks. Seems we are not talking of the major magnitudes?

Oh no, no.

Yeah. Okay, fair enough that's all I had. Congratulations on the quarter again.

Thank you very much.

Thank you.

Thank you for calling in.

Thank you. And our next question comes from the line of Mimi Sokolowski with Sidoti & Company. Please go ahead.

Thank you, good morning. Sir, I think I have just have two for you. If you can disclose between the new compensation plans, the bonus and the Matching, which of the two was more important to total revenue in the quarter?

The Matching Bonus.

The matching okay. Then that's makes sense. Now as I think of getting greater leverage out of those bonus programs, why would I assume that particularly since most of the benefits extends from the matching without taking that away and just realizing some lagging benefit, how can you actually leverage that cost better, I understand on the Elite side perhaps the competition for that intensifies, as more people try to attain that goal but on the managing side I'm having a difficult time seeing how that expense ratio will come down.

Oh, the Matching Bonus is limited to 32 weeks.

Okay.

So, that will answer your question.

Alright.

So as a result right, as we get more individuals attain the rank of Platinum Pacesetter status, especially because its new, people will gravitate towards that status, then they go for 32 weeks getting bonuses on the individual say introduce to USANA and then as those people drop off their match payroll if you will, they have to bring new individuals into USANA to maintain that same level.

Okay, okay, I think that's clear. Thank you for fighting on that.

Thank you and gentlemen at this time there are no further questions.

Okay, well everybody thank you for your questions. If you have any remaining questions, please feel free to contact Patrick Richard, Richards is in Investor Relations, and his phone number is 801-954-7961.

Thank you ladies and gentlemen. This concludes the USANA Health Science second quarter conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 1800-406-7325 using the access code 4116100 pound. ECT will like to thank you for your participation. You may now disconnect.