USANA Health Sciences Inc (USNA) 2004 Q4 法說會逐字稿

Good morning and welcome to the USANA Health Sciences Inc. fourth quarter and year ending 2004 earnings conference call. At this time, I would like to inform you that all participants are in a listen-only mode. At the request of the Company we will open the conference up for questions and answers after the presentation.

I will now turn the presentation over to Mr. Riley Timmer.

Good morning everyone and thank you for joining us this morning. Today's conference call is being broadcast live via webcast and can be accessed directly from our website at www.USANAHealthSciences.com. Following the call, a replay will be available on our website. The purpose of this conference call is to discuss financial results for the fourth quarter and full year 2004.

Before we begin, 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 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.

Also during the course of this call management will discuss non-GAAP information. An example of a non-GAAP measure we provide is our customer count data. We provide this and other non-GAAP measures to assist investors in understanding our operating performance.

I will now turn the call over to Gil Fuller, Senior Vice President and CFO of USANA.

Thanks Riley and good morning, everyone. Thank you for joining us to review USANA's record fourth-quarter and full-year results. I am here this morning with Dave Wentz, our President; Fred Cooper, our Vice President of Operations; Bradford Richardson, our Vice President of Asia-Pacific; and Doug Hekking, our Vice President of Finance.

This morning I plan to update you on our continued strong financial progress achieved in the fourth quarter and the past year and also to talk about hour guidance for the first quarter and full year 2005. In terms of fourth quarter results, net sales for the quarter came in above expectations. We were very pleased with the topline results in the fourth quarter. We reported sales of $75.1 million, an increase of 26.3 percent compared with the $59.5 million reported in the fourth quarter of 2003.

Sales growth in the quarter was driven by a couple of different factors. First our active associates based increased nearly 30 percent and our preferred customer base increased 24 percent. Second, sales were positively impacted by foreign currency which added about $2 million in constant currency for our fourth-quarter revenue. Additionally, the strong market reception of our reformulated Sense products had a positive impact on our topline. Dave will comment further on the success of Sense in his remarks.

I want to point out to you that due to the nature of our accounting cycle, fiscal year 2003 was comprised of 53 weeks with the extra week falling in the fourth quarter of 2003. This extra week accounted for approximately $4 million in sales in 2003 and about 2 cents in earnings per share. So when you're looking at the year-over-year comparables, please keep in mind that we were able to achieve strong growth even though the fourth quarter and full year 2004 had one less week than 2003.

For the 2004 fiscal year, the Company reported record net sales of $272.8 million, an increase of 36.4 percent compared with the $200 million reported for 2003. Earnings per share for the fourth quarter increased to 46 cents compared with 32 cents per share in the fourth quarter of 2003. This represents EPS growth of approximately 44 percent. Keep in mind that the fourth quarter of 2003 had an approximate 2 cent positive impact on the EPS due to the extra week.

As was mentioned in the press release, about 4 cents of earnings per share in 2004 can be attributed to a favorable tax settlement that was resolved in the fourth quarter, lowering the effective tax rate for the quarter to 28.5 percent and 31.7 percent for the full year 2004. We anticipate the tax rate for 2005 to be 34 percent. Without the 4 cent favorable tax settlement effect, earnings per share growth would have been 31 percent for the fourth quarter. For the year earnings per share grew 54 percent.

Gross margin in the fourth quarter of 2004 decreased as a percentage of net sales to 74.9 percent, compared with 77.4 percent in the fourth quarter of 2003. As we expected our gross margin was lower in the fourth quarter due to a new pricing strategy on sales tools and sampling our trial size packs. We call this our sampling concept wherein we price the product and sales tools samples at or near our cost.

The second factor was the liquidating of our whole Sense inventory at low margins. A third key factor impacting gross margins was the additional expediting expenses incurred to meet the high demand for Sense in the fourth quarter. Let me also point out the impact that Wasatch's third party business had on our gross margin. If you looked only at our direct sales business revenue, our gross margin on that business in the quarter with 77.1 percent compared with 78.4 percent in the fourth quarter of last year.

During the fourth quarter of 2004, third-party sales from Wasatch totaled $2.8 million, a 138 percent increase from the $1.2 million we reported in the fourth quarter of 2003. As you know, our third-party sales have lower gross margins than our direct selling business, though relatively small, the increase in contract manufacturing sales does impact overall gross margins. We expected third-party sales from Wasatch to be relatively flat in 2005.

Looking forward, we expect modest progress in consolidated gross margins from what was reported for the fourth quarter and we further anticipate modest improvements in each quarter as we continue through 2005. Fred will provide further details on our Wasatch operations in his prepared comments.

Associate incentive expenses excluding Wasatch third-party sales were relatively flat in the fourth quarter of 2004 at 40.2 percent compared with 40.5 percent in the fourth quarter of 2003. Similarly we believe that associate incentive expense ex Wasatch third-party sales will be approximately 40 percent in 2005. We continue to look for ways to motivate and reward our associates for growing their home-based businesses.

Selling, general and administrative spending decreased relative to net sales to 19.5 percent during the fourth quarter of 2004 compared with 20.7 percent in the prior year quarter. The year-over-year quarterly improvement can be attributed to the operating average gained from rapidly growing sales while maintaining a reasonably streamlined operating infrastructure. We expect to see additional leverage to SG&A coming primarily from a growing sales base for the remainder of 2005. However the timing of our new market opening could cause SG&A to fluctuate modestly in any one quarter.

One other item on the P&L statement I want to briefly discuss is other income. This went up significantly in the fourth quarter primarily as a result of interest income of about $348,000 that was earned related to the tax settlement and also from foreign currency gains of about $168,000 recognized in the fourth quarter.

Regarding our share repurchase program during the fourth quarter, we repurchased a total of 444,400 shares at an investment of $13.8 million. For the 2004 fiscal year we purchased a total of 1.2 million shares at an investment of $34.9 million. For the 2004 fiscal year that works out to be an average purchase price per share of $29.02.

Before I turn the time over to Dave, I'll comment on our future guidance. To reiterate what was said in the press release, we expect net sales in the first quarter of 2005 to be between 76 and $78 million, which is an increase of up to 26 percent over the first quarter of 2004. We expect earnings per share in the first quarter to be approximately 43 cents, an estimated increase of 43 percent.

For the full year 2005 we now believe that net sales will grow between 17 percent and 20 percent compared with 2004, an increase from the 15 to 18 percent growth expectations that we provided in October of 2004. We expect earnings per share for fiscal year 2005 will grow between 20 percent and 25 percent compared with 2004 based on an estimated tax rate of 34 percent. And of course we will continue to update yearly guidance as each quarter develops.

I'll now turn the time over to Dave to comment on some recent operating activities.

Thanks, Gil. It's a pleasure to be with you this morning to talk about our fourth quarter and in 2004 results. First, let me point out an achievement that we are extremely proud of. The fourth quarter of 2004 marked the tenth consecutive quarter of record sales and in 2004 we have more than doubled our 2002 sales of $134 million. We have created an amazing culture at USANA that is focused on providing our customers and associates with quality science-based products.

What a year 2004 was for USANA and we are very pleased with the double-digit sales growth we achieved in all of our markets and strong associate growth of nearly 30 percent. The U.S., Hong Kong, and Japan markets all saw associate growth of over 20 percent and Canada posted strong associate growth of over 15 percent. Our associate leaders in these markets have built very solid businesses. Our priorities have been and remain to facilitate associate growth and leadership and to supply the finest products that are backed by years of clinical evidence.

That product focus was heightened in September when we announced the reformulation of Sense, our line of personal and skincare products. This reformulation introduced a first of its kind self-preserving technology in every product in the Sense line. This revolutionary technology has allowed us to create a line of personal and skincare products where we add no traditional and potentially harmful chemical preservatives. The reception that our reformulated Sense line receives far exceeded our initial expectations. In fact due to the exceptional demand, we have had to place a number of our products on backorder. And Gil mentioned, Fred will provide you with an update on the manufacturing progress of Sense.

What I want a focus on next is the new concept that we introduced to our associates at our convention in mid-September, the concept of sampling. On the product side, we had developed 2 separate sampling kits of Sense products. One we called the Prelude, which contains a five-day sample of each of our skincare products, and the other is called the Splash Sensation, which contains of five-day supply of our care and bath products. We sell these sample kits in bulk packs to our associates at or near our cost. Our distribution model promotes person-to-person education. We have found that when people experience our products and understand the health benefits, they become lifelong loyal customers.

We believe sampling will allow our associates to get the product into the hands of the consumer so that they may experience the product and have immediate results. So far the product sampling concept has been very successful. Demand has continued to outpace supply since we launched the bulk pricing concept at the September convention. I believe this is the main reason why Sense product sales increased from 13 percent of total product sales in the third quarter to 16 percent of total product sales in the fourth quarter.

On the business, training and development side, we have developed 4 unique business building DVDs that we offer to our associates in bulk quantities at or near our cost. The response to the new DVDs and pricing has been excellent and we believe it will help facilitate recruitment, retention and ultimately sales.

In 2005 our main focus will be on further penetrating our existing markets. I believe that we are underpenetrated in every market where we currently do business and have the potential to increase sales with our existing products. We will continue to help facilitate the development of associate leaders who are key to ensuring the future growth of our business. We do intend to open one new market before the end of the third quarter and would anticipate announcing concerning that market sometime in the second quarter.

Before I turn the remainder of the time over to Fred, I want to comment on China. We realize that this market is potentially a great opportunity for USANA. We are continuing to evaluate that opportunity and we expect the new direct selling laws to be issued some time in the first quarter of this year. We will evaluate these laws and other factors as we define our China strategy.

With that, I will now turn the call over to Fred Cooper, our Vice President of Operations.

Thanks Dave. Good morning, everyone. As most of you are aware, in July of 2003 we acquired Wasatch Products to manufacture our skincare and personal care line. Over the past 1.5 years we have made some significant upgrades to the Wasatch facility to get them up to our high manufacturing standards. Currently at Wasatch we're running at roughly 64 percent of capacity and we're in the process of expanding the facility, which will increase the capacity by about 25 percent by adding an additional production line.

We are also looking to add more sophisticated and automated production equipment that will further increase this capacity. Let me be the first one to tell you that capacity is not the issue with the delay in getting Sense to our customers. The enhancements we're making at Wasatch are for the anticipation of future growth and not for the current issues we're facing. The delays in getting Sense produced, which has a negative impact on our gross margins, was primarily related to our inability to accurately forecast the high demand for the new Sense products.

For example, just recently our new sampling methodology was introduced for the Sense line at the Australian convention. In anticipation of the convention, we increased our forecast for the Prelude sampling kit by 50 percent. Thus we delivered 28 forecasted weeks of Prelude. That entire 28 weeks of inventory was sold in four days with additional units of the Prelude being placed on backorder. Now of course the resulting backorder of unrecognized revenues from these Prelude sales incurred significant additional costs since -- well we must expedite the Prelude components; we have to alter the production schedule, which increases production setup and overtime costs; and finally, we have to airship the final product that is already priced at our standard cost to produce.

Having a better handle on the forecast, we now believe the issues surrounding our Sense production will be resolved by the end of the first quarter.

I will now turn the time over to the operator to facilitate the question-and-answer session.

(OPERATOR INSTRUCTIONS) Mimi Sokolowski.

Hi, I wanted to ask on the China issue, Dave, this is probably a question for you, what gives you conviction that you think you're going to see the realization of these regulations in the first quarter?

We have no guarantees that they will get the regulations. All we can do is hope that they'll -- worth it, they will come out soon. They were supposed to come out in December but they've been delayed. We hope first quarter. It may not be the first quarter. We will just have to wait and see at this point.

So you don't necessarily have any evidence that convinces you of the first quarter over the second quarter? It's just intuition? I don't understand. Why not by midyear or before the end of the year? Why the first quarter?

That's when they told us they would come out so all we can go by is what they told us. If they don't meet that guideline again, then we will just have to continue to wait.

And who is they?

The officials and people who have been working on putting the laws together, a number of different organizations have been working together debating this back and forth. And the word we're getting from those meetings is that they hope to but you never know what the bureaucracy and the government (multiple speakers) will be.

Certainly. Thank you, that's all I have.

Doug Lane.

The thing on the gross margins, what is the differential between the sample packs and the normal gross margin?

Doug, I think as we said in our comments that basically we are pricing these sample packs near our cost. So we're virtually selling those at no gross margin, zero gross margin. But in our objective there is to get the product -- make it as inexpensive as possible for our independent associates to get the product for new customers, potential new customers and for the potential and associates to try.

I guess you can kind of look at it as a marketing expense that shows up on the gross margin line?

In a way you could.

So is that going to be the key driver? You mentioned in the press release that net margins should increase in the second half of '05. Should we take that all the way to the gross margin line?

I think so, yes. We believe that we will see gross margins improve as we go forward beginning in the quarter we are in and will probably be more modest in the first quarter; hopefully picking up a bit more steam as we get further into the year. It's still a little bit in the catch-up mode on Sense.

When you say improved, you mean sequentially from the December quarter but not necessarily year-over-year?

We mean sequentially from the December quarter.

My question was on year-over-year, when do you think gross margins will improve?

I think we will have to wait and see that play out. We certainly haven't thrown in the towel on gross margins in terms of wanting to get back to where we were. It is a little bit difficult to predict what the sampling concept might -- how long will this almost feeding frenzy last on this sampling concept. We just haven't been able to produce these things fast enough.

It sounds smart. I just want to try to see how it's going to play out on the quarters next year. So if I'm looking at the gross margin issues, you've got the samplings -- adverse mix from sampling, you've got adverse mix from Wasatch and you had the backorders on Sense. And it sounds like the backorder issue will be gone this quarter. (multiple speakers) The sampling will anniversary I guess fully in the fourth quarter but it sounds like -- are you at a certain level and that's it or are you going to let that thing ramp so that even when we get to the fourth quarter and anniversary the much bigger dollar this year in the fourth quarter than it was last year in the fourth quarter?

I think that depends on the growth element but we would be quite happy I think to see the sampling process continue rigorously because it is driving the top line. That is bringing in new customers. And so while it might be higher in absolute terms, I think in relative terms it could well be smaller.

Doug Lane. Right. That's a fair point because if it’s working, then it should drive your core direct selling business.

Also don't forget, Doug, but Fred mentioned his expediting costs, one of the issues there was not just sampling. We were flying components in and raw materials in and airfreighting it in and then airfreighting it out. So we had kind of a double-edged sword there with regards to meeting the demand.

Right. So I guess that's my point. If those two issues the Wasatch's shouldn't be growing as a percentage of the sales, it should be actually shrinking if it is stable on an absolute basis and then the expediting impacted gross margins should pretty much go away very shortly.

Yes. I think the impact from the Wasatch expediting was more significant than the sales tool margin, still a small percent of our overall sales even if sampling continues on at a great rate, it will still be a small percentage and not affect gross margins as much as the expediting of the Sense product has. And those samples. So we're not even selling those samples really at cost currently because of the extra cost we've had incurred on those.

We're actually a negative gross margin now but it will be going back to a zero gross margin once we get caught up on this thing. So I we will see a gross margin improved quite a bit over the year.

Now did you come into '05 with a backorder on Sense?

We did.

Was there -- can you give that to us?

We have not -- I don't think we have that number handy to us. It looks like our VP of Finance here, Doug Hekking, estimates that number to be between 0.5 million and 1 million.

Okay. Two other issues real quickly. One is -- does your EPS forecast include expensing of options in the second half of the year?

No, it doesn't, Doug. What we're doing, we are devaluating which evaluation model that we ought to use -- we've got a study underway right now and we're just looking at our option structure and so forth. We didn't want to comment on that until -- or formally comment on it until we have a better handle of that. But it is probably going to be on the order of maybe 2 cents a quarter, something of that order. But when we see that more clearly and have this evaluated, we will comment on that.

Okay, fair enough. Lastly on China I know that you have been talking about it and I know you are active in the marketplace there although you don't have sales and earnings yet. Can you give us a feeling for leads and lags here? If the direct selling laws are enacted next week, that I assume sets some sort of clock ticking on your entry into the market. Can you give us some sort of a timeframe once these direct selling laws get implemented?

No, we really can't. First of all we don't know how the laws are going to affect us, what will have to change, what will have to modify to meet those laws. And also we're very careful not to give dates of future launches until we're ready to go because it leads to premarket activity of our associates, which can get us in trouble and prevent us from opening those markets. So we really are a wait-and-see to see how much the laws are going to change what we need to do and how much work is going to be involved to modify business to meet the China laws.

Fair enough. So it is safe to say that it is unlikely we will see any sales from China in 2005?

Again as Dave said, it is hard to response. That is not bad assumption, but --.

Okay, great. Thanks.

Scott Van Winkle of Adams Harkness.

Congrats on the results and glad to see the whole team is there. A couple of questions. Another backorder question there. The Sense line is not very broad. How many of the products are on backorder?

That really depends on market. With 12 markets and different formulas and different shipping times and customs, we have about 20 percent of the products on backorder depending on the country. Australia and New Zealand, we made sure they had everything for their convention, so they have all the products except for those sampling products. So it varies by country to country. Fred, any other comments?

One nice thing about the backorder situations is that the formulations for the Pac-Rim are similar. So as a result, when we make one run, we're able to knock off quite a few backorders for each of the particular countries. So that helps alleviate the time required to get all products off backorder.

And did the fact that you're doing sampling have any impact on the backorder for full margin products?

Yes.

Just talk about the sampling. I certainly understand the idea of selling tools with no margin and I can definitely get the idea of the sampling products with no margin and the benefits but can you help us quantify this? I could see the situation where customers simply buy lots of samples and get it at a better price. Is there a way we can see how many new customers came in because of sampling? Is there some metric where you can actually pin down some value of a new customer relative to the cost of giving away a product at no margin?

That's always difficult to say exactly unless you are tracking with different source codes, etc. I imagine if we see the Sense percentage continue to increase we could feel fairly comfortable that the sampling is working. Also the associates will show us if it is working or not. They won't continue to invest in samples if they are not getting new recruits from it and they'll stop quickly. We'll know when they stop buying samples that they weren't working as a good way to build their business. That's always a good indicator -- feedback from the field by buying or not buying.

If one of the questions you are asking, Scott, is will they just use the samples instead of the real products? The sample packs are not that convenient. They will migrate -- if they buy up on the samples of the products, they will go for the new product.

We considered that when we were pricing the items because you have to also take into account commission and points associated with the products. They don't get any commissions or points associated with the sampling products. They are sales tools like brochures, DVDs. With the samples they would not get any credit toward the compensation plan if they were only doing the samples.

Understood, okay. I was just thinking my wife calls me cheap -- I would give one of your sample packets, throw it in a little basket and give it to her for Valentine's Day.

You have to be careful because she tries it she'll get hooked and then she'll want all of it.

And I certainly respect your decision to never give us markets before they are launched or at least any significant leadtime. Can you give us an idea maybe relative to Mexico or Singapore, what can we expect from this new market? Is it going to about a same type of contribution to revenue?

We will have Bradford, our VP of Asia-Pacific, take a crack at that.

Certainly Mexico is a great opening and I think we should all be pleased that we entered that market which is one of the larger markets and have seen good results. I think what you'll see from our next market is a strong opening as well, and we are looking to focus our attention as a Company on markets that will generate, if you will, returns at opening at least on the level of Mexico. So that is kind of -- our goal is to try and go into new markets that are going to give us the biggest bang for the buck.

Now if I look at Mexico and at Singapore, just coincidentally they both did exactly 2.9 million in revenue in their first two quarters. So I would think we're talking something close.

Scott, we don't forecast by market but I think from what Bradford said you get the idea of where we are headed with the judgment of which markets to open and what we would like to see happen.

I understand. And just as to the accounting, Gil, airfreight out is also included in cost of goods sold?

Yes, it is. In our case it is.

Great. Thank you.

David Block of The Seidler Company.

Good morning and congratulations on another outstanding quarter. I just actually had one backorder cleanup question. Was that 0.5 million to 1 million at the end of the year or is that present backorder?

That was at the end of the year.

Okay, and have you made any process in moving through that, or if you can even answer the -- ?

Yes, we are making progress every week.

One quick question on South Korea. I know it's a pretty small market for you still, but I think it is probably safe to say that it has underperformed your expectations. Can you go over any precise problems that still loom in that market, what you are doing to address them, and when you expect the market to stabilize? Or any other thoughts or insights you have on the market would be great.

Let's turn to Bradford for that one again.

I think if you look at the Korean market overall from the macro side it is very weak and the micro side on the direct selling space is very weak as well. A number of our competitors are facing similar challenges. And as you did note, it is a small percentage of our overall business but what we're focusing on there is rightsizing the business, making sure that we are creating a business model in line with the current revenue projections and also looking for ways to improve it. And one of our markets in our portfolio we're going to keep doing some of the same programs that has allowed us to see growth through our markets worldwide and we hope those things will start clicking and generating some benefits in the market.

Okay, so we should look maybe for stabilization out of that market?

That is our goal. That's for sure.

Ezra Solomon (ph) of J.L. Advisers.

Hi guys. Great quarter. I just had a question about China and want to get a sense of what your expectations are in terms of the favorability of the regulations that come out, do you expect it to be multilevel, single level? And just in general will the favorability of the environment and the regulations allow you to sell in a similar fashion to other markets?

We have been speculating for awhile now and it seems like the story changes every week.

What is the latest?

I haven't checked today. So I don't know what the latest is but we're trying to brainstorm and come up with ideas to try and fit any scenario that they throw at us. But right now it would just be a guessing game because they've been changing it back and forth in all directions on a number of different aspects, not just one or two. They keep changing the game on us regularly and we keep playing with ideas to handle it. It is almost getting tiring in coming up with all these solutions to problems that may never come about, but we are going to keep working on it and waiting. And we will be going full steam ahead trying to figure them out once they actually finalize something.

Any thoughts on the chances of it becoming multilevel in China at this point?

We are certainly hoping so. We have a number of forces over there lobbying for that and we of course hope that will come about but we don't know how strong the forces are and what will result in the end of that lobbying.

Great, thanks so much.

A follow-up question from Scott Van Winkle.

Hi Gil, a question on an option, but I realize that you don't have it all studied yet. Have you considered any changes and we're not talking about big numbers here -- a couple cents a quarter -- but have you considered any changes to your stock option plan as a result to the expensing means (ph)?

Yes, Scott, the Compensation Committee of the Board in our meeting last week as a matter-of-fact had some lengthy discussions about are there other ways to look incenting the key people here and the commission to catching an eye to come back with some analysis of a couple of different ways to approach this. We are hearing things like settled SARs and staggered options and restricted stock and so forth. And so the Comp Committee while we are unhappy with the decision that the accountants have made on this and think it inappropriate but we've got to deal with it obviously and there's a number of things we're looking at to evaluate it. Nothing decided yet.

Do you yet have the number and I realize it's going to be in the 10-K, do you yet have a number for fiscal 2004 impact if you had expensed them?

I think we do. Doug, have you got that?

If you use the (indiscernible) as we have in our past to disclosure, we will be about 9.5, 10 cents for the year.

Great, thank you much. This question is probably for Fred. Fred, has there been an impact on the percentage of distributors buying above the minimum on a monthly basis because of Sense and if so, is that a temporary impact or something we would see that is maybe long lived because of a fuller productline.

While the preliminary results are short, so we don't have a great history to evaluate, current numbers would suggest we are seeing an improvement in wallet share on those that have purchased. However, we are cautioned by the fact that with any new product launch you have this initial wave of purchases that come out and our job is to evaluate whether that wave of a sampling purchases will continue at its current rate or fall over time.

Okay and relative to any history, is it the same as it has been in the past? Has it been better or worse?

For those individuals purchasing the Prelude and the sampling kits, it has improved.

Okay last question -- I don't know who this for but maybe Dave, has there been -- I guess I think of it as a comparison to Nu Skin. Nu Skin has two sets of distributors, one basically Nu Skin distributors, one Pharma and they can actually sell across. Are you seeing any growth of new distributors that maybe are more focused on personal care? I recognize the productline is not very broad but -- yet anyway -- have you seen that people are coming in maybe to focus just on Sense or am I getting ahead of myself?

Throughout the years we have seen those who come in and focus solely on Sense and I would say it has grown since the launch of our new products. But the party plan has been successful quite a bit the last few years with other companies and we're starting to pick up some distributors bringing that party plan mentality where they have the parties in their homes, make some immediate retail profit and are able to get profitable at the Company a lot sooner. So a lot of people are looking at that model as an additional way to develop their business with USANA.

But for the most part we usually get even our Sense people involved the nutritionals. Just the education and the focus of this Company, they tend to use all the products across the line even though they may focus on building their business more and getting them into the door with the Sense line.

I hate to keep harping on 16 percent of your sales, but have you done anything yet to begin to market the potential -- I don't know the best way to say it -- but the belief among many and we have seen it in the media about paradigms and things like breast cancer and potential risk. Have you begun to actually go out and throw literature or research to your distributors yet or is that still to come on the Sense line?

We have actually held off on that due to -- well, first we held off because we wanted to make sure we had all the products switched in all the countries which was part of the reason we ran into these problems. Usually when we launch North America and then follow four or six months later. Because of this type of change, the paradigm changed wanting to get those out of the products worldwide as fast as possible because it wouldn't be congruent to tell the story in one market and not the other. That is a major reason why we had the backorder problems because we took on so much trying to get all the languages, all the packaging, all the formulas for multiple countries done and then we had the backorder problems. So we we've held off -- we were holding off until we had all the countries launched but then we have had to hold off again as we waited for the backorders to get filled. We are feeling confident that we will be off backorder soon. And then we will feel much more comfortable telling that story in a much stronger way once we have enough product to incent them and get them excited about it.

Potentially, you still have another big boost coming?

Would certainly hope so. If we do a good job of marketing it, I would hope we have a boost.

Congratulations.

(OPERATOR INSTRUCTIONS) Gentlemen, at this time there are no further questions.

Thank you for your questions. We continue to remain confident in the future outlook of USANA and the investment opportunity we provide. We will be presenting at the Smith Barney Small Cap conference in Las Vegas on Wednesday, February 16 at 10:15 AM. If you have any remaining questions please feel free to contact us at Investor.relations at US.USANA.com or call Riley Timmer, Manager of Investor Relations, at 801-954-7922. We appreciate your interest in USANA and thank you for joining us on our conference call this morning.

Once again thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.