Good day, ladies and gentlemen. Thank you for standing by. Welcome to the USANA Health Sciences First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, April 25, 2012. I'd now like to turn the conference over to Mr. Patrique Richards. Please go ahead, sir.

Good morning, everyone. We appreciate you joining us this morning to review our first quarter results. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at www.usanahealthsciences.com. Shortly following the call, a replay will be available on the website As a reminder, during the course of this conference call, management will make forward-looking statements regarding future events or future financial performance of our company. Those statements involve risks and uncertainties that could cause actual results to differ, perhaps materially, from the results projected in such forward-looking statements. Examples of these statements include our 2012 strategies for our North America region, China and other markets, as well as updated outlook for 2012. 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. I'm joined this morning by Dave Wentz, our Chief Executive Officer; Kevin Guest, our President of North America; and Doug Hekking, our Chief Financial Officer. We'll hear first from Dave, who will discuss our business activities during the quarter, as well as our strategies moving forward. We will then hear from Doug, who will discuss our financial results and 2012 updated financial outlook. I will now turn the call over to Dave.

Thanks, Pat, and good morning, everyone. I'm pleased to report that USANA began the year with a strong first quarter. We've set new records for both sales and EPS and exceeded our expectations. I'll begin this morning with our regional results and discuss the initiatives that impacted these record results and then update you on our strategies and expectations for the remainder of 2012. We continue to see positive momentum in our Asia-Pacific region, where sales increased by an impressive 14.3%, while the number of active Associates increased 9.2%. This growth is primarily due to strong results in Southeast Asia and Greater China. The Philippines was the primary contributor to our growth in Southeast Asia, while Hong Kong and Taiwan drove growth in Greater China. Additionally, we experienced nice growth in South Korea. Sales in Greater China and Southeast Asia benefited from a surge in sales ahead of price increases in several of our Asian -- Asia-Pacific markets. As a reminder, when we implement a price increase in a particular market, we typically inform the market of the increase a few weeks ahead of time. As a result, we often see sales trend up in that market during the week leading up to the price increases, especially in Asia-Pacific, as our Associates increase their product inventory at the lower prices to boost the retail component of their business. Our internal projections for the first quarter include what we believe were reasonable estimates to reflect the increase in sales anticipated from the price increases. However, the surge in sales that we actually experienced ahead of the price increases was meaningfully exceeded our forecast, particularly in Hong Kong, where we estimate the surge in sales benefited sales by approximately $9 million. Following the price increases, product sales volume in each of these…

Thanks, Dave, and good morning, everyone. I'll begin first by reviewing our first quarter financial highlights and how they differed from our expectations. I'll then discuss our updated financial guidance before turning the call over for a question-and-answer session. One of the tasks we undertake each quarter is assessing the actual results delivered by the business, relative to the guidance we provided. For the first quarter, the most meaningful difference we experienced was a surge in sales in several markets in our Asia-Pacific region in advance of a price increase. As Dave noted earlier, the surge in sales benefited sales by approximately $9 million. This surge, along with the continued weak U.S. dollar, generated higher overall sales than we anticipated for the quarter. While gross margins for the quarter improved nominally on a year-over-year basis, the pressure on this line item that we experienced in a sequential quarter basis was in line with our expectations and was attributed to the increased cost on certain key raw materials. Associate incentive expense for the quarter decreased 100 basis points to 44.1% of net sales compared to the first quarter of the prior year. This decrease was due to the lower relative payout of these base commissions and matching bonus, largely as a result of surge in sales I mentioned a moment ago. Although it may have seemed counterintuitive under our business model, temporary spikes in sales for Associates, or what we call associate productivity, actually resulted in lower associate incentives as a percentage of net sales. This is the case because as sales rapidly increased, the efficiency of earnings, commissions and bonuses on most sales decreases. While this is the case for commissions and bonuses, the potential to earn retail compensation meaningfully increases for our customers. This scenario was the primary reason…

[Operator Instructions] Our first question comes from the line of Scott Van Winkle with Canaccord Genuity.

So the buy ahead of the price increase, a few questions around that. One, how do you measure that?

We look at the basic trend in sales and what we see incrementally for the 2 weeks leading up to it. It's just a simple regression. Anything above that regression line is what we consider the incremental.

Got you. And do you see a higher level of distributor activity or, I should say, higher level of active distributors, as a result, or just more volume per distributor?

Just more volume per distributor is the primary, but we do see some more additional associate activity as well.

Yes. Doug, I was -- I didn't expect the lower volume incentives, and I didn't know the phenomenon of more productivity and its impacts. Would you see something like that reverse in the next quarter? Obviously, you might have a little lower volume per distributor than you normally would after the price increase or after the buy ahead. But do you see volume incentives go up maybe a little more and then settle in after the next quarter?

We don't expect the real spike from what you've seen historically in Q2. Usually it's a very temporary thing, Scott, when we see this. It's related to the period in which you see the spike. But given the magnitude of the spike, it did have an overall effect on incentives.

Great, and then -- go ahead.

We expect the incentives, I think, going forward between the 44% and 45% of net sales. That should help out a little bit there.

Okay. And can you break down any further detail on Mainland China -- I'm sorry, on the Greater China region, maybe between Mainland China and how that progression is occurring?

Dave, do you want to talk about it?

Sorry, can you state the question again, Scott?

I'm trying to get a little more detail on kind of how the transition is occurring and progressing in Greater China towards Mainland. Yes, you gave some commentary, but I was wondering if there's any quantitative numbers behind it.

We made a couple of changes earlier in the year to try and parade an atmosphere that our USANA Associates would be more comfortable in China, and we're still working on helping them understand those modifications to create a model that they're more used to help building in a certain way, a more personal consumption model, less of a retail model, as they put in contact the customers and distributors directly with the company. That's different from what USANA China was doing prior, because it's more of a retail model. And so the shift is just the transition in education, trying to make that plan more into that consumption model and get everyone attached to the company. We definitely like our model when our customers are buying directly from the company because then, if you ever lose those distributors, you still have those sales. And that's a beautiful thing about shipping directly to our Preferred Customers and our Associates acting as customer discount buyers. The mentality of a lot of companies is distributor takes care of 20 people and you don't know who those 20 people are. You just know they disappear with that one person when you lose the one person. So we're shifting that model. It's been tough for the BabyCare people to understand that shift, but they're working on it. And then we're hoping to keep doing some things that will encourage more people to start shifting their business towards the China area.

Okay. And then, if I look at that, the $9 million buy ahead, should I kind of ratably put that against the Southeast Asia and the Greater China market, maybe like 2/3 of it in Greater China, 1/3 in Southeast Asia, is that the right kind of thought?

I think it's more towards 80% in the Greater China region, Scott.

80% in the Greater China region.

And what -- please remember that we did have some of this anticipated in there, just not to this magnitude.

Got you, got you. And then in the last question, also speak on China, last quarter, you had real strong sales in Hong Kong around a promotion. This quarter, you had some buy ahead of the price increase and consistently, the numbers are coming in ahead of your expectations. Is this the quarter where that doesn't happen? Or, I'm just trying to see if maybe you guys have been a little conservative these last couple of quarters.

Well, we'll continue to have anomalies every quarter. And hopefully, they'll be in a positive direction. We're building for the long term, and that we'll have events in each quarter. And how well each of them be received, will they do as big of a spike or a less of a spike, it's hard to quantify exactly, since they're one-time events. They're not historical things that we can model and look at. But we have additional plans for a lot of different markets and hopefully, depending on how effective they are, that we'll see more anomalies and more surges. And that's what our -- our goal is to keep creating that excitement and those pushes, and the last couple were quite successful. So hopefully, we can continue to do so.

Okay. And one last question. If you gave it, I apologize, sorry. What was the U.S. only sales growth trend in the quarter?

U.S. was off just a little bit north of 1%, Scott.

Our next question comes from the line of Rommel Dionisio with Wedbush Securities.

I wonder if you guys could give us a little more color on some of the incentives and programs you'll be having in place in the next few months here, especially with the convention coming up next quarter. With regards to the U.S. business, did you try to rejuvenate the recruiting trends in the active Associate pool in that market?

Rommel, we have some things that are in the works right now. In fact, I think you heard in Dave's prepared comments that we have an event coming up in Hollywood, California this Saturday, where we're going to announce some changes that we believe are going to be very well received by our field, which will allow us to go back and target those in North America. We have Kevin in the room with us here. Maybe Kevin will add a little flavor on that.

Well, we don't want to say anything prior to the announcement coming up on Saturday. We're going to announce to our field through a worldwide webcast that will be broadcast to our markets around the world simultaneously. So stay tuned for what's coming and to be announced on Saturday. I will say that we have found great success with an incentive that we've been executing in Mexico that we intend to further test and develop and try in our United States and markets in Canada. And so -- and that promotion was a bonus, which would allow people to receive cash in a more efficient and quicker way to get a bonus as they enroll and grow their business, which is being very well received.

Our next question comes from the line of John San Marco with Janney Capital Markets.

Thanks for your comments on the -- what drove the sharp decline in associate incentive margin. I was hoping you could explain maybe why, historically, that's always been a little bit meaningfully lower in 1Q? And then whatever that seasonal effect is, did you feel a little bit of that in the first quarter as well?

Yes. Regarding the payout rate, absolutely we see it. The Chinese New Year is something that affects this company more and more with our base of Associates out there. And so typically, we pay a higher matching bonus in many of the markets over in Asia Pacific. And so when they're taking some time off to spend with their family, they're not focusing as much on those types of incentives.

Okay, that's helpful. And then a little follow-up on the $9 million sales lift you referenced a couple of times. Is that -- I just want to make sure I understand it. Is that just the incremental volume component? Or does that include the sales benefit of higher prices?

No, it's just the incremental volume.

Okay. And sorry if I missed this, but how large was the price increase? Or what impact did pricing have?

It ranged from 6% to 10%, and we did it in 4 markets in our Asia-Pacific region.

Okay. And then -- so lastly, just want to clarify your comments about returning to -- your experience, historically, has been that you get right back to run rate growth. I mean, first, did I get that right? Is that what you said? And then, when you say you get right back the run rate growth, does that mean 2Q should -- in these regions, you expect to look something like 4Q? Or does it take longer to get back to that growth rate?

It's a combination of things. So definitely, you're not going to see any remnants in Q2 what you saw in Q1, but we have done several initiatives to go back and help manage incentives volume, try to go back and reward behavior that builds our business long term. And so we see the incentive line coming down, perspectively. I think for the year as a whole, we'd expect incentive somewhere in the 44% to 45% range, which is a tick below what you saw last year.

[Operator Instructions] Our next question comes from the line of Frank Camma with Sidoti & Company. Frank A. Camma - Sidoti & Company, LLC: Most of my questions were answered, but I did have one big one and that was -- so what do you plan to do on the impressive buildup of cash?

We have a few things that we're working on, Frank. One is we see some opportunity for vertical integration. We would see on an annual run rate if we ever go back and put these things very effectively and that we'd see -- right now, what we manufacture and how it's represented is roughly 74% of our sales. After we go back and execute some of these things that we're investigating right now, I think you'll see us right around 80%. We also have facilities that we're looking at across the world, try to go back and build a more solid infrastructure. Outside of that, we'll probably build cash for a little bit, look for some opportunities that are going to help grow and sustain the company long term. But that's our initial plans right now. Frank A. Camma - Sidoti & Company, LLC: Was there any reason why -- that you can point to that you didn't buy back shares this quarter? I mean, historically, you have bought back shares.

Yes. The board, just because they've been so active, and the board wants to kind of take a stall for a quarter and kind of let things marinate for a little bit, and they just want to see how that kind of played out a little bit. So that was the reason we're idle in the first quarter. Frank A. Camma - Sidoti & Company, LLC: Okay. Maybe you said this, but could you just break down -- I think someone asked this question, but a little bit more on breaking down the China -- Mainland China sales versus Hong Kong growth. Can you just break that out again?

Dave didn't touch on it earlier, but Greater China was roughly flat. The growth really came from Hong Kong and Taiwan. It's in that market. But the Greater China was, given what Dave talked about what kind of this is education program was going on. It was in line with our expectations, and we understood there ought to be an adjustment period, but it's roughly in line with what we expected for the quarter. Frank A. Camma - Sidoti & Company, LLC: Okay. And were there any new products announced in China? Are you still -- I think it was about 15 products. Is that correct?

In Mainland China, we've -- yes, I don't remember the exact number of account, but we've brought in 3 waves of different products. It was about 4 or 5 products each wave. So 12, I think -- it's approximate of 12 to 14. I don't remember exactly. But yes, we're definitely making a shift from baby -- mother-child focused products to full-family product line, so that we can expand away from the smaller niche that they had before into the bigger population. And we're seeing those products start to become more accepted and understood so that people can then sell them on. So we'll see a shift in education process, and it's going to be -- take time as thousands of people to talk to and work with and to get them on board understanding. Change is always tough. It takes longer than you want it to.

Yes. The nice thing to remember, Frank, real quick, is the product registration process in Mainland China is a very long process. We're fortunate to have done an acquisition several years ago of a small manufacturer over there, where we had products registered in advance. And that's why they're able to roll these products out so quick. Frank A. Camma - Sidoti & Company, LLC: The 12 products that are USANA, and then you have the BabyCare products on top of that, right?

Correct. And we perceive those being the products for quite a few years because we have one of the highest product offerings -- SKU offerings of all of our competitors within our products that we have currently, partially due to the 3 to 5 years it takes to get a new products through registration and all of the costs and difficulties. So we have a lot of SKUs for that market, compared to billion-dollar companies over there in our industry.

Our next question comes from the line of Scott Van Winkle with Canaccord Genuity.

So if I think about a 6% to 10% price increase across Asia, and just to make the math work easy that it's affecting the majority of Asia and therefore, half of your total volume, the midpoint of your guidance doesn't really assume a lot of volume growth if you're going to have maybe a 4-point impact from price. Am I thinking about that right?

Scott, we had a price increase in 4 markets in Asia. So just it wasn't in all the markets in Asia, and you are thinking about it right. We're just trying to wait and kind of see how this plays out. What we've seen initially after the price increase is we've seen volume -- roughly sales dollar volume, flow in line with what we've seen in the recent weeks leading up to the price increase, excluding the surge, of course. So we expected a little bit of unit volume decline as a result of that price increase. And so yes, your interpretation is accurate.

Okay. And how does monthly sales volume get impacted when you have maybe a little buy ahead, ahead of a price increase for the distributors? I guess, I always think about the distributors really being focused on kind of consistent monthly personal sales volume. Is that somehow impacted by buying ahead of the price increase? I'm trying to think of how that would play out.

Well, as you know with our business model, there are qualification volumes that they have to produce every month and those remain the same. And so people need to still produce the same amount of volume each month to maintain their business, to maintain their lifestyle and the compensation that they're used to. So those kind of stay pretty steady. There may be a little bit of buying that was going through retail that won't happen because they have that product to sell. But we believe normal trends will continue on after this. And they'll fulfill their retail orders for a while, but we'll keep the business growing and strong, based on the business model itself.

Great, great. And then, Doug, your comments about gross margin, I think the term was remain a little under pressure compared to last year. Even after the price increase, I would naturally assume that the gross margin will be up sequentially a little bit, alleviating some of the pressure you had in commodities. Are we just going to see incremental commodity pressures that kind of mitigate the impacts of the price increase?

Yes, that's roughly what we're expecting. I think you see in the first quarter roughly what we have modeled for the remainder of the year.

There are no further questions in the queue. I'd now like to turn the conference back over to management for closing remarks.

Thank you for your questions and your participation on today's conference call. If you have any remaining questions, please feel free to contact Investor Relations at (801) 954-7961.

Thank you, ladies and gentlemen. This concludes the USANA Health Sciences First Quarter Earnings Conference call. If you'd like to listen to a replay of today's conference, please dial (303) 590-3030 or (800) 406-7325, followed by the access code of 4532943. ACP [ph] would like to thank you for your participation.