USANA Health Sciences, Inc. (USNA)

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USANA Health Sciences, Inc. (USNA)

Q4 2010 Earnings Call

February 9, 2011 11:00 am ET

Executives

Riley Timmer - Vice President of Finance

David Wentz - Chief Executive Officer

Jeff Yates - Vice President and Chief Financial Officer

Analysts

Timothy Ramey - D. A. Davidson & Company

Douglas Lane - Jefferies & Co

Scott Van Winkle - Canaccord Genuity

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the USANA Health Sciences Fourth Quarter Earnings 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, February 09, 2011.

I would now like to turn the conference over to Riley Timmer. Please go ahead, sir.

Riley Timmer

Good morning everyone. We appreciate you being on the call this morning to discuss our fourth quarter and full-year 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 our website.

Now, as a reminder, during the course of this conference call, management will make forward-looking statements regarding future events or the 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. We caution that 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.

Now, I’m joined this morning by Dave Wentz, our Chief Executive Officer; and Jeff Yates, our Chief Financial Officer. First, we’ll hear from Dave who will discuss our business activities during the quarter, as well as our plans for 2011, and then you’ll hear from Jeff who will discuss the financial details of the quarter.

I will now turn the call over to Dave.

David Wentz

Thanks, Riley, and hello to everyone on the call. I appreciate you joining us to talk about yet another record year for USANA. I want to begin by thanking our management team, our employees, and of course, our independent associates worldwide for their tireless efforts to positively impact more lives in 2010 than ever before.

As we look forward to 2011, I’ll begin by updating you on our activity in China and then discuss what we anticipate for China during 2011. Then, I’ll turn to North America and discuss our strategies for the New Year, which we believe will help us rejuvenate that region.

Now, with regard to China, obviously we’re excited about our acquisition of BabyCare. As you know, China is the second largest direct-selling market in the world. We believe that in light of our rapid growth in Asia Pacific and the strength of our Asian associate base, China represents the most imminent and significant growth opportunity for USANA. Although, we will need to make meaningful investments in both capital and human resources in the short-term, we believe that our acquisition of BabyCare is the most efficient way for USANA to capitalize on this opportunity.

I’d like to stress, however, that our acquisition of BabyCare and our plans for China represent a long-term growth strategy for USANA. While we understand the importance of reporting our progress in China quarterly, we are positioning ourselves in laying the foundation for a successful future in China. It’s absolutely critical that we did it right.

We spent the first eight months of 2010 negotiating and finalizing the acquisition of BabyCare and the best possible returns for USANA.

As Jeff will discuss in a moment, the small amount of debt that we used to fund this acquisition was repaid within three months of closing. And we now own BabyCare free and clear. I am very proud of our disciplined business model and the amount of cash we generate through operations.

Over the last four months, we have been working diligently to successfully integrate and align USANA and BabyCare. This integration applies not just to typical factors like operations, but to all aspects of the business.

Most importantly, it requires that we learn as much as possible about the direct-selling market in China from our experienced BabyCare management team and then work to develop an aligned vision for growth in that market. Although this integration process will take time, we are well on our way and pleased with our progress.

For example, over the past several months, we have been working very hard to have USANA products registered and approved to sell in China. Our BabyCare staff is among the most experienced and qualified in China, particularly with regard to government and regulatory matters.

With their assistance and our in-house expertise, we continue to believe that we will be able to introduce USANA labeled product through BabyCare over the next three to nine months. Although, we are excited to offer USANA products through BabyCare, we will not sacrifice quality for expediency.

In addition to product registrations, USANA will begin to shift much of its international attention in 2011 to assisting BabyCare with customer growth in China. As a result, we believe many of our associates in our current Asia Pacific markets, particularly Hong Kong, will shift their attention to facilitating growth in China. As a result, we will likely experience a slowdown in the growth of our Hong Kong market.

It’s very important to note that our growth opportunity in China will be a much different experience for existing associates because of the direct-selling regulations in China. As you know, these regulations require that we utilize a business model that has been specifically designed for China and approved by Chinese regulators, namely, BabyCare’s business model. It will take time for our associates to understand and become comfortable with the requirements of BabyCare’s model.

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