USANA Health Sciences Management Discusses Q2 2012 Results - Earnings Call Transcript

USANA Health Sciences (USNA)

Q2 2012 Earnings Call

July 25, 2012 11:00 am ET

Executives

Patrique Richards

David A. Wentz - Chief Executive Officer

G. Douglas Hekking - Chief Financial Officer

Analysts

John P. San Marco - Janney Montgomery Scott LLC, Research Division

Rommel T. Dionisio - Wedbush Securities Inc., Research Division

Frank A. Camma - Sidoti & Company, LLC

Timothy S. Ramey - D.A. Davidson & Co., Research Division

Presentation

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the USANA Health Sciences Second Quarter Earnings Conference Call. [Operator Instructions] I would like to remind everyone that this call is being recorded today, July 25, 2012, at 11:00 a.m. Eastern Time. I would now like to turn the conference over to Patrique Richards, Manager of Investor Relations. Please go ahead.

Patrique Richards

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. Shortly following the call, a replay will be available on our website.

As a reminder, during the course of this conference call, management will make forward-looking statements regarding future events or the future financial performance 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, Greater China region and other markets, as well as our 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; 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'll now turn the call over to Dave.

David A. Wentz

Thanks, Pat, and good morning, everyone. I'm pleased to report that USANA delivered another quarter of record results both on the sales and EPS lines. While there were many positive developments during the quarter, the highlight was certainly the launch of our new Lifetime Matching Bonus. For several years, USANA has offered a matching bonus to our Associates around the world. However, many Associates viewed it as a short-term incentive and did not result in the long-term benefits we hoped for.

Additionally, the old matching bonus was successful only in certain regions and underutilized in other regions, especially North America. We have attempted to change it's dynamic with the introduction of the new Lifetime Matching Bonus. As the name suggests, the Lifetime Matching Bonus is a long-term incentive. It rewards Associates for helping those they sponsor become successful over the life of their business. This new bonus is intended to incent our Associates develop long-term, enduring sales organizations by developing and continuing to mentor new Associates they bring into the business.

We launched the Lifetime Matching Bonus at the end of April in front of thousands of Associates worldwide. It has been received by our sales force with overwhelming support and enthusiasm, and we are confident that the Associates in all of our regions will utilize the bonus to grow their organizations.

We also launched the Lifetime Matching Bonus with an 8-week promotion that we have offered with success in the past. The objective of this promotion was to immediately increase the number of Associates who will receive the Lifetime Matching Bonus. This 8-week promotion proved to be successful again and helped fuel our record results for the quarter.

Operationally, we expect that the Lifetime Matching Bonus will relieve pressure on Associate incentives by reducing monies being paid out for the wrong behaviors and provide us with flexibility to implement market-specific incentives to drive sales and customer growth in each of our regions. We intend to continue providing a rewarding compensation plan for our Associates that is sustainable long term.

I'd now like to discuss our regional results and then update you on our strategies and expectations for the remainder of 2012.

We continue to see strong momentum in our Asia Pacific region where sales increased by 11% and the number of active Associates increased by 10%. This growth was driven by solid results in Southeast Asia/Pacific and Greater China. The Philippines, which increased 124.4% in sales, was a significant contributor to our growth in the region. We continue to see impressive growth in this market where our Filipino Associate leaders include highly educated professionals who have capitalized on the unique earning potential under the USANA compensation plan, which is often more rewarding than their current profession.

In addition to the Philippines, we saw growth in almost every other Asia Pacific market in this quarter. Factors that led to this growth include increased Associate counts in many markets, price increases in certain markets and increased Associate productivity from the introduction of the Lifetime Matching Bonus and the related short-term promotion we offered during the quarter.

Also included in our results for Southeast Asia/Pacific this quarter were sales for Thailand. Our initial results in this market were softer than expected primarily because our customer base currently consists of more consumer-minded customers as opposed to the entrepreneurial Associate leaders. Fortunately, we have a well-experienced Thailand management team that is focusing their efforts on developing Associate leaders and organizations in this market. In May, these efforts focused on our grand opening event, which was very well attended by our Thailand Associates and prospects. Although growth in Thailand will come in a slower pace than originally anticipated, we believe that this market will be a meaningful addition to the region.

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