Good morning, and thank you for joining the first quarter 2012 earnings conference call for Herbalife Ltd. On the call today is Michael Johnson, the company's Chairman and CEO; the company's President, Des Walsh; John DeSimone, the company's CFO; and Brett Chapman, the company's General Counsel. I would now like to turn the call over to Brett Chapman to read the company's Safe Harbor language.

Before we begin, as a reminder, during this conference call, comments may be made that include some forward-looking statements. These statements involve risk and uncertainty and, as you know, actual results may differ materially from those discussed or anticipated. We encourage you to refer to yesterday's earnings release and our SEC filings for a complete discussion of risks associated with these forward-looking statements and our business. In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles, referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe these non-GAAP financial measures assist management and investors in evaluating and comparing period-to-period results of operations in a more meaningful and consistent manner. Please refer to the Investor Relations section of our website, herbalife.com, to find our press release for this quarter, which contains a reconciliation of these measures. Additionally, when management makes reference to volume during this conference call, they are referring to volume points. I'll now turn the call over to Michael.

Thanks, Brett. Good morning, everyone, and welcome to our first quarter 2012 earnings conference call. Our financial and business trends continue to be strong. Yesterday, we announced a 24% increase in EPS driven by a 24% volume point growth. Each of our 6 regions experienced strong volume point growth in the quarter. Five of the 6 regions had double-digit volume increases. Four of our regions, Asia, North America, China, South and Central America exceeded 20% growth. Mexico had a 16% increase in volume points and EMEA was up 6%. Before I elaborate on the quarter, let me say thank you to our distributors, employees and vendors around the world. The consistency of our growth and financial results is due to your dedication and hard work. My ninth anniversary with the company was in April and as I approach my first decade at Herbalife, I have been reflecting on how much our company and business have changed over the past decade, primarily because more people than ever are using our products every day. We call that daily consumption. We have worked very hard to position Herbalife as a global nutrition company that uses network multilevel marketing as its channel of distribution, which we believe, by the nature of our human network, is a competitive advantage for selling nutrition products in both developed and emerging markets. Our independent distributors are leading this transformation by focusing on creating loyal customers. Their efforts include employing business methods that offer the opportunity for frequent interaction between the distributor and her or his customer. This interaction fosters prosper use of our products while providing a person-to-person support that leads to a successful product result. Whether the individuals goal is weight loss or weight gain, weight maintenance, improved health, improved athletic performance, more energy, healthy skin nutrition…

Thank you, Michael. The first quarter was our third consecutive quarter of more than 1 billion volume points and it was 24% higher than last year's first quarter results and is now the highest volume point quarter in Herbalife's history. As Michael mentioned, we continue to be very pleased with the momentum we see in the underlying trends in our business as all 6 regions posted volume point growth and 5 regions finished the quarter with double-digit volume point gains. The main driver of our growth continues to be the adoption and the expansion of daily consumption business methods. Additionally, this initiative has been augmented with the expanded use of systemized training methods that enhance training for new distributors and Sales Leaders. And our City by City approach continues to localize the Herbalife opportunity and distributor support. Daily consumption business methods not only drive increased distributor engagement, they also drive increased consumer engagement. One key characteristic of daily consumption business methods whether Nutrition Clubs, weight loss challenges or distributor-led fitness camps is that the distributor and their customers have much more frequent contact than is normal for traditional direct sellers. As Michael mentioned a few moments ago, the benefit of creating lifelong customers cannot be underestimated for either the distributor or the company. And with daily consumption in its infancy in so many markets, we believe that we have a long runway of growth still ahead of us. Let me spend a few minutes discussing Nutrition Clubs and perhaps, more importantly to some of you, the number of commercial Nutrition Clubs our distributors are operating. In the past, we have provided investors with a global count of Nutrition Clubs that encompass both home-based and commercial clubs. However, while both are estimates, the number of home clubs has been much more…

Thank you, Des. For the first quarter, we reported net sales of $964.2 million, an increase of 21.3% compared to the first quarter of 2011. For the period, foreign currency had an approximate 300 basis point drag on net sales, and local currency net sales increased by 24.3%. Since Des has already covered in detail all the necessary color of our volume and net sales results, I'll move on to gross margin. Our gross profit margin improved slightly compared to the first quarter of last year. Our Seed to Feed strategy and price increases benefited gross margin in the quarter by approximately 40 basis points each, partially offset by the impact of currency and gross margin and by country mix, as well as slightly higher inventory reserves. Sequentially, gross profit margins declined by approximately 100 basis points comprised of the negative impact of currency in excess of 100 basis points, which was partially offset by the additional benefits from our Seed to Feed strategy. As in discussed last month at our Analyst Day, the foreign currency impact to gross margin for countries that purchase most of their product from the U.S., as opposed to be purchased locally, have a lag of essentially one inventory turn. Accordingly, the impact from the strengthening dollar during the latter part of 2011 is reflected in our Q1 results and negatively impacts the sequential comparison. Turning to SG&A. SG&A as a percentage of sales, both with and without China independent service provider expenses, was essentially flat for the quarter compared to 1 year ago. From a dollar perspective, most of the increases this year are associated with the volume growth that we've experienced. However, specific to recorded foreign currency gains and losses, this year's first quarter included $9.1 million in losses compared to $2.1 million…

[Operator Instructions] And your first question is from the line of Mike Swartz with SunTrust Robinson Humphrey.

Maybe you could start off by fleshing out some of your thoughts that you touched on in your opening remarks about the 1,500 volume point limit that you're going to be reinstating at some point. Maybe you can quantify how many of your new distributors or what percentage or above that right now and do you expect any kind of maybe short-term impact from that?

This is Des. So, Mike, one of the things we've seen with the increased adoption of the 5K supervisor qualification is the tremendous impact that happens when people who qualify as supervisors over an extended period of time and they do so having built a solid customer base. And so the 1,500 volume point first order limitation is sort of a step in that same direction and we're going to be testing this in a number of countries and we think just like the 5K qualification, we think it's going to be a very positive addition to the business.

And is there any way to quantify maybe how many of your new distributors are coming in ordering more than that? Is it a very high percentage?

So the majority of our distributors today come in using the 4K method or 2 months of 2,500 volume points. What we saw is that for all of 2011, approximately 20% of worldwide supervisors now come in through the 5K method. And in Russia, where, as you know, the 5K method was first implemented about 1.5 years before we rolled it out it elsewhere, that number through the 5K method is 45%. So that sort of gives you just a rough indication of how many come in through the 4K today if you subtract the 2. But what we believe again, Mike, is this is another step along the road of daily consumption where we've got a lot of people doing a little volume and then moving up the marketing plan as a result.

Okay, great. And then a second question on Herbalife 24. Based on what you said in the kind of preamble, it sounds like it was about $15 million in the first quarter, is that right? And is that the kind of run rate we should be looking at for the rest of the year?

Directionally, that's correct, Mike. But again, we see Herbalife 24 as having a greater impact than purely the product sale itself. What you're seeing is this is contributing to continuing to make Herbalife a hip, cool company. Attract a younger generation of distributors and attract people who are focused on a healthy active lifestyle. So we see the impact, the halo effect of Herbalife 24 way beyond the product sale itself.

Right. I mean, from what it sounds like, I mean, you're seeing a lot of new clubs open up around this product and you would assume that would mean that it's not cannibalistic to the legacy portfolio. Maybe that $15 million number should build as we move throughout the year.

Yes, it's absolutely possible and you're right by the way, Mike, about the impact of the club. I think for those of you on this call who have actually seen the fit camps, the Herbalife 24 is just an essential element of that and we believe that it's capable of attracting a whole new generation and focus for our distributors.

And your next question is from the line of David Einhorn with Greenlight Capital.

I've got a couple of questions for you. First is how much of the sales that you make in terms of final sales are sold outside the network and how much are consumed within the distributor base?

So, David, we have a 70% customer rule, which effectively says that 70% of all products is sold to consumers or actually consumed by distributors for their own personal use. So, obviously, what we've seen with Nutrition Clubs is that we now have visibility for the first time to our customers. You know that we reported on this call for the first time, the number of commercial clubs around the world, which is in excess of 30,000. So that has given us visibility to the tremendous amount of products that are being sold directly to the consumers and we see that as a growing trend in our business.

So what is the percentage that is actually sold to consumers that are not distributors?

So we don't have an exact percentage, David, because we don't have visibility to that level of detail.

Do you have an approximation?

So well, again going back to our 70% rule, we believe that it's at 70% or potentially in excess of that.

Okay. What is the incentive for a supervisor to sign somebody up to become a distributor as opposed to -- if they're just going to consume it for themselves, as opposed to just selling them the product for the markup? How does the supervisor come out better?

Sure. So I think there's 2 reasons for that. So we know from our business today that many of our future supervisors and business builders come in as customers and then they become distributors. So the benefit from a supervisor is the ability for a greater retention of that customer/distributor because they are now earning a 25% discount. The second issue is that it preserves lineage. So obviously, if I sign you up, David, as a distributor, my hope and expectation is that based on the tremendous product result that you're going to achieve, that you will have friends and families go to you and say, gosh, David you look great, what are you on? You're going to respond and say I'm Herbalife and that will encourage you to say, wow, maybe this is a business opportunity I could be interested in. So the benefit for me as your supervisor is one, the discount that would get and therefore, my greater likelihood of retaining you as a permanent customer. And secondly, the hope that at some stage, you will decide to do the business and therefore, that you are already in my lineage and is part of my group.

But just trying to understand this clearly. If I sell to a customer -- I bought it, I'm a supervisor, I buy at a 50% discount, I sell to a customer and make 50 points if he pays the full price. If he signs up as a distributor and buys it himself, he gets a 25% discount and I get 7 points as a royalty, is that how it works?

No. You will get the other 25%.

I'll get the 25% plus the 7.

So unless you're earning royalties, you would simply earn the difference. So you're in a 50% discount, you're selling at a 25% discount. And so the difference between the 2 is your profit on that sale.

Right. So if he signs up as a distributor and buys it for himself from Herbalife, I still get the 25%?

That is correct.

Okay, good. One last question. When you had your previous 10-K, you disclosed 3 groups of distributors at the low end. You called 29% self consumers, 57% smaller retailers and 14% potential Sales Leaders. And then that disclosure did not repeat in the subsequent 10-K. So I've got 2 questions. First of all, how do you track that and how do you characterize and know which ones are which? And second, why did you stop disclosing that in the last 10-K? Is that something that you've stopped tracking or just stopped disclosing?

This is John. The criteria for grouping distributors into different classes was based off of their volume purchases. And we make assumptions that people below are a certain volume weren't doing the business, they were buying self consumption. And I don't remember the exact amounts but I can get it to you after the call. It's how we delineated between the 3 classes. One of the reasons we took it out of the 10-K is a change in CFO for which to me, I didn't view it as valuable information to the business or to the investors. However, we can easily provide the exact same breakout going forward if you like. I could email it to you and to our investors. Again, I don't remember the exact delineation between the 3 classes but I can certainly get it to you. Our objective is to be completely transparent.

And our next question is from the line of Tim Ramey from DA Davidson and Company. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Just focusing on EMEA for a second. Well, just wondering how large the contribution from Russia is to EMEA and if you've looked at it, how EMEA is doing without Russia because it obviously seems to be a tale of 2 cities there.

Jim this is Des. So obviously, Russia is the driving force behind the growth in EMEA. What's interesting for us, of course, is that everything that is happening in Russia we believe is duplicable in the rest of Europe. And so to that extent, the 5K adoption, the systemized training, the united leadership, the City by City approach. All of those are elements, which are absolutely duplicable and which our leadership in other parts of Europe are very focused on. I think you know that the driving force behind Russia is one key leader. He, in fact, give a master class at the end of last year, which was attended by all of our top Leaders throughout the rest of Europe. And so that's one of the reasons that we think that we're going to see those same philosophies spread to Western Europe and we're going to see that happen in the months ahead. Timothy S. Ramey - D.A. Davidson & Co., Research Division: Sounds good. And, John, if I could follow up, thanks for your early heads-up on gross margin impact of the FX on inventory. How does that play out in the 2Q? Can you give us any sense as how the 2Q will look on a sequential basis relative to gross margin?

I don't know the answer off the top of my head, but I will get it to you. There's always one inventory lag. So I can easily get it, I just don't know the information on the top of my head. I don't think it's material. You're talking sequential, right? Are you talking... Timothy S. Ramey - D.A. Davidson & Co., Research Division: Yes, sequential. Sequential.

And our next question is from the line of Bill Leach with TIAA-CREF.

I was just wondering why you haven't been more aggressive buying back your stock. You only went down 200,000 shares on the fourth quarter given the fact you have a net cash position.

We routinely buy back, it's what we told -- it's around $50 million worth of stock a quarter. We have the capacity to do much more and we had said we would keep that as a dry powder for a potential overreaction of stock at which time we define more [indiscernible].

Well, I think that opportunity has arisen.

It's a possibility.

Your next question is from the line of Linda Bolton-Weiser with Caris. Linda Bolton-Weiser - Caris & Company, Inc., Research Division: I guess, there's been some speculation out there that your stock is a short sell idea. And I can say that I've been looking at stocks for over 20 years and the type of cash flow growth that you guys are producing is quite amazing. You did have 11% operating cash flow growth in the quarter and free cash flow growth, I think, was over 30%. I guess, the one question I had on the cash flow was your inventories were up 36%, which, I think, that was the case last quarter and I remember asking you about it. But can you just remind us again about that? That's really the only thing I saw in working capital that would impact cash flow. But is there anything else in cash flow that would be anything unusual to mention? But your cash flow pattern has been extremely strong and it looks to me like your cash flow in this quarter is strongly growing as well. So can you just address the inventory question in any other thing that might be a one-time item in cash flow?

Well, let me address the one-time item first. There's a line item in our cash flow that's titled excess cash benefits from share-based payment arrangements and it's a negative $20 million in the quarter. And it's really a non-cash item, and it's a re-class from an operating cash flow item to a financing cash flow item. And basically, it is the compensation expense the company gets -- excuse me, the competition deduction company gets from the exercised employee options. That gets booked right to equity, not to the P&L, at least the excess amount above the FAS123r amounts. The way the FASB is written, that should be viewed as from a cash flow standpoint, an expense. So it looks a negative item to cash and then at the pick up in financing as if it was issuing stock. So that's an unusual item in the first quarter, it was a $20 million item this year, only $6 million last year. So you kind of normalize that out and you'll see our cash flow is more in line with where it's been historically. Other than that, this is a high cash-flow generating business. Inventory is a relatively small percentage of our net sales price. So the investment in inventory is the growth we've been having is one we felt it was a valuable investment, which is why you've seen a growth in the inventory, especially in the high-growth markets. But I think we've got the transition to our own manufacturing, so we built a little inventory buffer. So I think that's behind us. But to your first point, our cash flow is usually an excess of net income or pretty close to net income and that's a signal that's a strong financial model. Linda Bolton-Weiser - Caris & Company, Inc., Research Division: Right. And then I just want to applaud you for increasing the reporting in the transparency by reporting to us the number of Nutrition Clubs, I think that's really great. There's actually been some numbers circulated among distributors that indicate the numbers are higher but I think that would include the home clubs as well. And the numbers I've seen would be globally about 70,000 which is about double the number that you gave and in the U.S. or North America, the number I saw was 6,000, which is about double. So is that roughly correct that the total number might be about double the commercial clubs?

Yes, it's roughly correct. I mean, I got to put the right qualifiers on that. I mean, the information that gets circulated is information that the company is putting out but the information comes from the company from distributors and the home clubs are not validated. Whereas the commercial clubs, we've instituted a validation process. It's not completely implemented but it's much further along than anything we've done for the home clubs. So we just feel more comfortable giving the commercial club data. Linda Bolton-Weiser - Caris & Company, Inc., Research Division: Okay. And then can I just ask about -- I thought it was very interesting, the explanation you provided about Mexico and the difference between the volume point growth and the average active sales leader growth and that there's a gap between those 2 numbers. And you indicated because when you increased access points within a company, it actually spurs on the growth of ordering. People are ordering more from the company than distributors, rather than from their upline distributors. So I wonder, a follow on to that would be acceleration of the volume points to follow the acceleration of the active sales leader growth, if you follow what I'm saying. Is that something we could expect or am I not thinking right on that?

No. As you create more access to the products, more distributors have the ability to order directly from the company instead of their upline and they do that for 2 reasons. One is to access, two is because of the change to the 5K program, distributors can accumulate volume and become a sales leader. To accumulate that volume, they need to order from the company. So in a market like Mexico, where we dramatically increased the access points, we're seeing more distributors order. Those distributors were already buying product from the company -- I mean, from the company but indirectly through the upline. Now they're buying it directly from the company, so you see a greater increase in the activity and slightly less increase in the total volume points. Linda Bolton-Weiser - Caris & Company, Inc., Research Division: And then finally, on the point of access, you showed at your Analyst Meeting, the Angelina. I know you don't want to call it a vending machine, but that could be very instrumental in increasing access points further around the world. I know you don't want to talk about it a lot but do you have any plans for when you might know from the testing you're doing whether you would expect this globally?

So, Linda, thank you for noting that we don't call it that word that you mentioned. Yes, so this is for everybody on the call who isn't familiar, this is an automated sales center that we believe that this will have a significant impact in terms of improving access points to our distributors. The plan is to put it in test in the second quarter of this year and based on the success of that test, then we'll actually will roll out a larger scale in the second half of 2012 and then 2013. So more to follow on that. But again, we saw the impact of improved product access in Mexico. Obviously, we are constrained with the absence of all those equivalents in other parts of the world and therefore Angelina, the automated sales center, is our opportunity to re-create a Waldo's-type environment but on a very large scale around the world. So something we're very excited about in the future. It also, obviously, Linda, very much leads into our City by City focus because what we know is that City by City focus with our distributor leadership combined with greater access, gives us deeper penetration. And again, going back to our presentation at Analyst Day, we look to Iceland as our North star about 19 volume points per person in Iceland. Around the world, as you know, less than 1 volume point per person and that's one of the reasons why once we replicate some of these factors for success, we believe that we can be on our way from that 1 towards that 19.

And your next question is from the line of John San Marco with Janney Montgomery Scott.

I know sometimes in the past, the rapid growth of daily consumption in a new market is sort of temporarily driven negative volume per supervisor. And until this quarter, I guess, it's been a couple of years since the last time volume per supervisor grew in North American segments. So I was just wondering if there's any usual product approach on activity or anything like that or maybe to what do you attribute the higher volume for Supervisor this quarter.

I think, John, it's just an indication of greater productivity of our distributors in North American markets. Traditionally, if you say the average volume point for Supervisor may decline because of that switch away from 4,000 volume point orders. But then I think what we're seeing is increased productivity make up for that change here in North America. The club market is a very efficient model because it's a model in which your customers come to you every day. And therefore, that frees up more time for greater invitation, greater other activity. So very efficient business model I think we're seeing that translate into increased productivity.

Okay, I got it. But you don't think the mix shift shifted back away towards the traditional methods at all, do you?

No, we do not believe that.

Okay. And then my second question is on Latin America coming out of -- it's your first quarter after coming out of 4Q is pretty monstrous new distributor number. Just in general, your observation so far with that promotional experience and how you think these new recruits are progressing through the system.

Yes. So, John, we obviously were pleased with the results of that welcome to Herbalife test. It certainly showed that we could bring in significant number of new distributors into the business. The key issue for us and for our distributor and leaders in South America wasn't whether we could bring in more new distributors. We actually were pretty confident that was the case. The real issue was how productive will those new distributors be and whether our distributors in the company have the infrastructure in place to train and support those new distributors. So we were pleased enough with the results of the test in terms of not just the number of distributors but more importantly their productivity to actually repeat the test. We've just begun it and we'll continue through the end of this year and then based on the results of that longer test period, we'll make a decision as to whether we expand it either in South America or perhaps, even in other markets around the world in 2013.

And your final questions come from the line of Anand Vankawala with Avondale Partners.

Just a few quick follow-ups on manufacturing. Given that currently 30% of the volume is being manufactured by in-house and you want to get up to 2/3, what is the current capacity of the manufacturing facility, will there be a need to acquire another facility?

So we're getting close to the capacity of the facilities we have. There's a little bit of expansion available in the China facility and a little bit of ramp up left in the HIM facility. But we are going to need to acquire assets outside of what we currently have in order to hit our target, like 2/3 self manufacturing.

Okay. And then I'm just trying to get a feel for the margin benefit from the extraction facility. Can you give us an idea of what you have built into your model for the remainder of this year? I mean, I know that it was 38, 40 basis points in this quarter. Should we expect something similar going forward or should we expect something a little bit more modest?

So while we expect some benefit from the extraction facility, we have modeled in nothing for the rest of this year. So we're not guiding, there's no assumption. So anything we get will be upside. I can tell you that we've test piloted all of our key ingredients in the new facility. We are still right now scaling up. So whatever benefit is generated from that facility, by the time it rolls through inventory, it won't likely to be until early next year. Might be late this year but we haven't incorporated anything yet.

Well, let me close by first saying thank you for everybody for being on the call with us. We've had our best quarter ever in the company, this reported growth that's really sensational for our distributors, our employees, our vendors, everybody is benefiting from the opportunity. Our consumers who are losing weight, people who are getting the better and healthier active lifestyles. Terrific momentum in our company. We're very excited, very confident and secure in what we are doing and confident about the future. So thank you for joining us, we appreciate it and we'll see you again next quarter. Thanks.

And Thank you for joining us on today's conference call. You may now disconnect.