Patrique Richards - Investor Relations Kevin Guest - Co-Chief Executive Officer Dave Wentz - Co-Chief Executive Officer Paul Jones - Chief Financial Officer.

Tim Ramey - Pivotal Research Group Frank Camma - Sidoti Scott Van Winkle - Canaccord Genuity Eric Gottlieb - D.A. Davidson.

Good day and welcome to the USANA Health Sciences Second Quarter Conference Call. Today’s conference is being recorded. At this time, I would like to turn the program over to Patrique Richards. Please go ahead..

Thanks, Linda and good morning everyone. We appreciate you joining us this morning to review our second quarter results. Today’s conference call is being broadcast live via webcast and can be accessed directly from our website at www.usanahealthsciences.com. A replay will be available on our website shortly following the call.

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. Examples of these statements include those regarding our strategies and outlook for 2015.

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 am joined this morning by Dave Wentz, Kevin Guest and Paul Jones.

Yesterday, after the market closed, we announced our second quarter results and posted our Management Commentary, Results and Outlook document on the company’s website. Before opening the call for questions, we will hear first from Kevin, who will briefly review the quarter’s highlights.

Kevin?.

Thanks, Patrique and good morning everyone. The second quarter was another record quarter for USANA with exceptional results on both the top and bottom line. We are excited about the overall momentum we are currently seeing in our business, particularly the continued customer growth worldwide.

Before taking your questions, let me give you a quick overview of the quarter. First, net sales came in at over $233 million, representing a 23.9% increase from a year ago. The majority of this growth came by way of Mainland China, where sales increased 84.4% and active associates increased 98% year-over-year.

While success in China continues to be our primary driver of growth, I want to point out that we generated sales and customer growth in nearly all of our markets around the world during the quarter.

Second, we generated worldwide growth notwithstanding continued headwinds from currency fluctuations, which negatively impacted sales by approximately $9.7 million year-over-year. Unfortunately, we expect currency to continue to impact our results in the second half of 2015. Finally, we leveraged our sales growth this quarter by managing expense.

Relative to sales, gross margins and SG&A expense improved both year-over-year and sequentially. While our associate incentives expense increased year-over-year, this expense decreased significantly on a sequential quarter basis as a result of our management of regional incentives and promotions.

In light of our better-than-expected second quarter results, we have increased our top and bottom line outlook for fiscal year 2015. This updated outlook reflects momentum we continue to see in our business. And I believe we have the appropriate strategies in place to position us for continued growth in the back half of the year.

Finally, before opening the call for questions, I would like to welcome Dave back and turn the call over to him.

Dave?.

Thanks, Kevin and good morning everyone. It’s great to be back full-time and to join all of you on this call this morning. Clearly, I am pleased with the results that USANA has produced over the last year and the overall direction of the company. The management team has just done an amazing job and Kevin has played a key role in our success.

Kevin and I met with the Board recently to discuss the management’s structure of the company as we approach $1 billion in sales. Given our current expectations for growth, we recommended that the Board consider a Co-CEO structure that will allow Kevin and I to share in the growing CEO responsibilities.

And I am happy to say that the Board agreed with our recommendation. This structure will allow Kevin and I to focus our attention on areas of the business, while our individual strengths will yield the greatest returns for all of our stakeholders. Going forward, I will oversee our global operations and Kevin will lead our worldwide sales efforts.

Kevin and I have worked together for over 20 years and have formed a strong working partnership, which has the same vision and goal of empowering individuals and improving the health of USANA’s customers around the world. I look forward to continue to work with Kevin to help USANA capitalize on its growth potential going forward.

With that, I will ask the operator to please open the line for questions..

[Operator Instructions] And we will take our first question from Tim Ramey with Pivotal Research Group. Please go ahead. Your line is open..

Good morning and congratulations on just amazing results. I think those of us who are sitting here on the West Coast have a hard time picturing what the turmoil of the Chinese stock market or disruptions in Korea and so on meant for business. And that was really an open question of mine.

But what is the backdrop of a Chinese economy that’s faltering a bit or the stock market that’s in disarray mean for your business, if anything? Did it influence it in any way?.

I don’t know if it has really any influence. As we have seen over the years that, in slow economic times, our business sits well and in strong economic times. Of course, if there is a huge cliff and a wall like we have had back in ‘08 or something, then that’s a little bit different situation. However, there is a little more paralysis.

But in general, a down economy is good for us as well as good economy just changes our focus a little bit and our people’s tactics. But I don’t see, China – the people who are joining our business are not worried about the stock market in China or things like that.

They are trying to feed their families, build the business, take the best products, same with Korea. So, I don’t see it affecting our industry that significantly..

So, Dave, I mean the results really are spectacular.

And so can you give us some sense of to what do you attribute the 84% growth in sales and 98% growth in active associates as it just doesn’t happen everyday?.

I think we have got a great management team and we have got a great field of distributors out there who are working hard and doing things right. We are just doing it right and things continue to grow and we foresee that continuing to happen..

Okay..

And this is Paul in addition to that, as you have seen the momentum through the first of the year we had anticipated that those promotions we ran in first quarter would continue, but it’s been very strong and continue to see that. So, we are still riding some great momentum and it is a momentum business..

Okay. And just a question on surprised that there wasn’t any share repurchase now for the second quarter in a row.

Obviously, with hindsight, it would have been good to buy some stock in and you have $150 million in cash, what are the thoughts that go into that?.

Well, we are still authorized of the $61 million in our repurchase that has not been used and we continue to evaluate that based on the internal metrics that we used, looking at our current valuations, etcetera, but – and it’s something that we are continually looking at. So, Dave is back. So, we will see how this goes.

We are continuing evaluating that and looking at an opportunity when we believe it will be best to provide a return for our investors..

Okay, thanks..

And we will take our next question from Frank Camma with Sidoti. Please go ahead. Your line is open..

Good morning, guys..

Good morning, Frank..

Not to throw a damper on the results, but just a question on guidance. Obviously, you had amazing second quarter and you raised the guidance. It would suggest that the second half is slowing from a growth rate. And I was just wondering if you could talk about that a little bit. I mean, it still got good growth, but not in comparison to the first half.

So, I wonder if you could discuss that?.

Certainly. And as we look at it, if we want to remind everybody of the – some of the elements of the first half of the year that are key to look at, we had a stronger than expected result from the promotions that we ran in first quarter. We also had a $17 million buy up ahead of some price changes that occurred.

When you take those out of the mix, then that growth trajectory becomes quite a bit different. Also, if we look at the second half, if we compare second half of 2015 with looking at what we have guided to the second half results of 2014, we see that up about 11 – right around 11%. Some of that is due to the currency headwind that we see.

We had originally projected in our model about $34 million at the first of the year. As we look at the back half and we are looking at the projections of all of the sources that we use to determine that, we have increased that in our model to about 41 – right around $41 million..

Is that $41 million of negative FX in just the second half or is that the full year?.

Full year..

So you gave the first half. So okay, I will get back....

That’s one week in the fourth quarter..

Okay, alright.

So what – obviously China is not impacted by – so what markets are you most impacted on the FX there?.

We have seen – ANZ has been strong. Canada has been a big impact. Those are some of our major ones. And there are if you noticed, I can pull them out real quick here..

Good.

While you are doing that, just talk about the Associate growth, with China would you expect – because you had started to kind of recover in the third quarter of last year from the disruption you had there, would you expect that growth, I would assume on the Associate side to slow, I am assuming that’s how you are modeling this?.

We anticipate that it will continue to grow, but perhaps not at the accelerated rate that we have seen over the last couple of quarters. Now hopefully, we are conservative in these things. But this as we look at our model, that’s how we are anticipating we will see it unfold..

Okay, alright. That’s all I had. Thanks..

And we will take our next question from Scott Van Winkle with Canaccord Genuity. Please go ahead. Your line is open..

Hi. Thanks, congrats guys on the good results. In North America, was the U.S.

business up year-over-year, you didn’t call it out as being up double-digits, so I am wondering if it was up year-over-year?.

For all intents and purposes, it’s flat. It’s not that we didn’t call out North America. But yes, it’s very, very modestly up. But so we will call it flat..

And the preferred customer number continues to look real good year-over-year, is that kind of fall in the same with distributors as far as Canada and Mexico being sources of strength or is there a U.S.

piece in there that’s showing some strength?.

Well, go ahead, Paul..

Primarily Canada and Mexico and not – there is some growth in the U.S. but those are the other markets are primarily where we are seeing the preferred customer growth..

And one other things from my perspective, as we talk about preferred customers, it’s a testament to our products and the products that we offer. And we do have tens of thousands of people around the world who are taking our products simply because they see the value in our products.

And as we see our preferred customer counts grow around the world and as I travel the world and meet with people, it’s really is a solid customer base that truly is using our products because they see the value in them..

Okay.

And then turning to China, I mean you talked about still benefiting from the promotion back in Q4 and Q1, is there something about that promotion that kind of tail on it, that drove activity and continues to drive it for a couple of quarters or is it simply the fact that you built a bunch of momentum and now you are feeding off the momentum, I think you know what I mean there like you might have some volume commitment for 180 days or something to get an incentive, is there something structurally that drives a tail on that promotion or is it just the momentum?.

It’s really just the momentum. We did run a small promotion in the second quarter that helped with that. And we will continue to look at small, regional promotions that will drive that.

But it really was just a momentum that carry-forward as we saw the increase in Associate counts, active customer counts having that effect exponentially has been positive..

And what’s working, is it sales incentives, sell something get an iPad or is it compensation tweaks, what is that’s really working?.

It really, really is a couple of things. One of them is, in China in particular, we have a strong team that’s doing meetings on a very regular basis. And the momentum that’s generated through those meetings is meaningful. And so you get the excitement of the people that are out talking.

So we are doing a lot of those, it has to do with the quality of the product and the brand image that’s out there with that product, as well as compensation plan around the world is one of the best compensation plans in the space..

Okay.

And then when we look at all this growth in China, how did they compare to kind of historical averages with percentage of customers that might get an automatic replenishment, automatic fulfillment plan?.

We are seeing – if we look at the bigger picture, we are around, right about 50% all of our orders are coming into the Auto Order system. And if we look in particular in our China region, it’s a little bit below that. But we are right around 40%, 46%, 47%, right around there. So it’s pretty close to consistent worldwide..

Okay.

And sticking with China, you talked about continue to work on the new facility over there, where do you stand from the standpoint of capacity to handle this short-term or this near-term growth that we are seeing in the market are you running into capacity limitations before you get a larger facility?.

That’s an excellent question that’s been scrutinized very carefully by our operations team. We have just a phenomenal group who has – we have done a lot of creative things to build up our inventories, to take some short gap measures on making sure that we have the inventory covered.

We have been building up that inventory for time now in order to transit into the new building. So we feel confident that we will not have any inventory problems, but it’s something that we are watching very close and have some creative alternatives. We have actually leased out another floor in our existing facility.

We have bought ahead some of the equipment that we will be using in the new facility to increase our productivity. So there are a lot of things that have been done already in place to make sure that we have no supply gaps..

And when does the new facility open?.

We anticipate it will be operational in the first part of 2016..

Okay.

And any update on Indonesia, timing of announcing – maybe you did, I didn’t see it, did you actually announce the interims of the market, I know you announce the plans of enter, but I didn’t see if it actually opened yet?.

We have announced Q4. And we anticipate that we will be able to be in that market early Q4 and operating..

And what was the – the last market you opened was a couple of European markets a couple of years ago, is that correct?.

It was France and Belgium. I am trying to remember Colombia and France. Colombia was the last one. Yes, so they are all looking..

So this is probably the largest incremental opportunity from a new market since Thailand opened, correct?.

I would say it’s largest since China. The fourth largest population in the world, good direct selling market, it’s got a lot of potential..

Yes..

Great. Thank you, guys..

Thank you. I appreciate it..

And we will take our next question from Eric Gottlieb with D.A. Davidson. Please go ahead. Your line is open..

Good morning gentlemen. Congratulations on an excellent quarter..

Thanks..

You are welcome.

First, I want to talk a little bit about the management changes, I am wondering if there are any projects or goals that Kevin specifically is going to undertake which is regarding development and sales efforts and if there is any change in strategy or direction?.

There isn’t any change in strategy and direction. We are staying the course and we have stayed the course throughout this last year. And we do have a long-term strategic plan that we are carefully following. Obviously, we changed it as needed. You are not going to see any major changes and/or shifts.

But for me personally, it’s more of a focus in my area of expertise, which will be field development in helping our field development teams around the world implement growth strategies to grow their markets. And so from my perspective, one of the things that’s high on my list from a strategic perspective is how do we refine our promotional strategy.

And as we look at, from a global perspective as a company, what is localized versus what is global from a promotions perspective and what makes the most sense? And so as we go into this next quarter with our senior management team, that topic is high on my list.

But Dave and I have met many, many times over the last several months and we are in a great place. We have great strategies in place for the future. And for the next several years, the plans are in place and we are going to see them through to continue to build upon the successes we are already seeing right now in the company..

Alright.

Looking at the results if you can talk a little bit about Hong Kong, I am wondering how they have performed this quarter?.

As we have discussed, we believe that Hong Kong has really hit its run rate. And we are – as we get to our year-over-year comparisons, we are still down if you look year-over-year about 33%, 34%, which we anticipate and we have been talking about that we believe that we have, over the last couple of quarters, really normalized that effort..

Got it, okay. You had mentioned in our release the 130 basis point in gross margin improvement.

And now it’s due to mix sales and price increases, could you break that apart in anyway and how much drove each part of the 130?.

Sure. So, maybe backing up to give a little higher level on this, I know there have been some maybe a few challenges on just the model in general. As we guide forward, we are anticipating that we will see – we are seeing some improvement in our gross profit margin.

Some of that, if you look at our mix, has increased a little bit, but some of that is due to – some of the increase is due to the mix. Some of that change is due to price increase. And then the currency has had a negative impact on that.

From a bigger picture model, if you look forward, we are really anticipating that we would see around – we try to hover around the 15% earnings from operations based on what we are guiding at this, but we anticipate it would be around 15.5% earnings from operations ending the year..

Thank you.

As far as associate incentives, what you have guided is actually higher than the 43.7 that you had this quarter, wondering why they are expected to increase as we move through the year?.

It really has to do with local market promotions. We ran a few local market promotions in the second quarter as I referred to, but not as robust as we had thought we may in the second quarter. We had the momentum. And so it made sense to do what we did.

Going forward, we will look at the local market promotions and that’s why we anticipate would be around 44 to 44.5 still going forward..

Got it. Okay. And then lastly, I know you moved the AP convention, but the timing of this year.

Is it staying where it is or it’s going to move back?.

Staying where it is..

It’s April next year..

Staying with it. Got it. Okay, great. I will pass it on and again congratulations on the quarter..

Thank you..

Thank you very much..

And it appears we have no further questions at this time. I would like to turn the program back to our speakers for closing remarks..

Well, thank you all for your questions and for your participation on today’s conference call. If you have any remaining questions, please feel free to contact Investor Relations at 801-954-7961..

And this does conclude today’s program. You may disconnect at this time. Thank you and have a great day..