Good afternoon, and thank you for joining the Third Quarter 2017 Earnings Conference Call for Herbalife Limited. On the call today is Rich Goudis, the Company's CEO; Des Walsh, the Company's President; John DeSimone, the Company's CFO; and Eric Monroe, the Company's Director, Investor Relations. I would now like to turn the call over to Eric Monroe 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 today's earnings release, and our SEC filings for a complete discussion of risks associated with these forward-looking statements in our business. We do not undertake any obligation to update or release any revisions to any forward-looking statement, or to report any future events or circumstances, or to reflect the occurrence of unanticipated events, except as required by law. 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 US Generally Accepted Accounting Principles, referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe that these non-GAAP financial measures assist management and investors in evaluating our performance and preparing period-to-period results of operations in a more meaningful and consistent manner, as discussed in greater detail in the supplemental schedules to our earnings release. Please refer to the Investor Relations section of our website, herbalife.com for additional supplemental information and to find our press release for this quarter, which contains a reconciliation of these measures. Additionally, when management makes reference to volumes during this conference call, they are referring to volume points. I will now turn the call over to our CEO, Rich Goudis.

Good afternoon, everyone, and thanks for joining us this afternoon. As we've said throughout 2017, this is an important transitional year for our company, as we implement and adapt to changes in the way we do business in the United States. The good news is that we believe we pivoted during the third quarter, and we're looking forward to anticipate a sequential improvements in volume trends in the fourth quarter and in 2018. What's really exciting is that we are now developing plans to use key elements of this transition to strategically transform our business over the coming years. We are beginning to leverage new tools to enhance consumer predictive analytics to improve performance, accelerate innovation and invest in the most competitive advantage our distributor difference. We are all eager to closeout 2017 in the next few months, build off the 2017 base and return to growth in 2018. Okay, let's talk more about the third quarter. During the third quarter, we saw an improvement in the direction of our year-over-year volume point performance in five of our six regions compared to our second quarter results, which is encouraging and is an indication that our strategies are beginning to have an impact. Importantly after our North American business adjusted to the changes implemented earlier this year, our business has been stable, and we believe we will now build off this new base. Key building off this space and returning to growth throughout 2018 is the combination of the growth platform provided to us by the global megatrends of obesity, rising healthcare costs, and increased interest and entrepreneurship, combined with four Herbalife nutrition specific strategies. Our focus will continue to be on leveraging technology, creating a culture of innovation, accelerating the launch of new products and investing in education and training…

Thank you, Rich. Let me first apologize for my voice. I'm powering through a cold with some laryngitis. Today, I'll start by discussing the company's third quarter 2017 reported and adjusted results, which will include key market highlights. I will then review our fourth quarter and initial full year 2018 guidance, and then conclude by providing a brief update on our share repurchase program. Net sales for the third quarter were $1.1 billion, which represented a decrease of 3.3% on a reported basis, and a decrease of 4% on a constant currency basis compared to the third quarter 2016. Volume points for the third quarter, 2017 were $1.3 billion, a decrease of 5.6% compared to the third quarter 2016, which represents a sequential improvement over the 8.1% decline experienced in Q2. Reported net income for the third quarter was $54.5 million, or $0.66 per diluted share compared to a reported net income of $87.7 million, or $1.01 per diluted share for the third quarter 2016. Adjusted diluted EPS for the third quarter was $0.82 per diluted share compared to $1.21 per diluted share for the third quarter 2016. The reduction is due primarily at the higher interest cost from the debt deal done earlier this year without much benefit from the buyback as the tender executed in October is a Q4 event plus the timing of events noted in last quarter's earnings call and the reduction in volume. The adjusted EPS figures continue to exclude items we consider to be outside of normal company operations, and we believe will be useful to investors when analyzing period-over-period comparisons of our results. Please refer to our third quarter 2017 earnings press release for additional details on these adjustments. Currently in the third quarter was a slight benefit to net sales, while continued…

[Operator Instructions] And our first question comes from the line of Doug Lane with Lane Research.

Yes, hi. Good afternoon everybody.

Hi, Doug.

Couple of questions, John you indicated that the buyback benefited the fourth quarter by $0.08. Do you have a figure for the full year 2008 benefit from the tender?

2008? You mean 2017?

2018, no sorry 2018.

Well, it's 6.7 million shares. So, no, I don't have the number. Certainly, Yes, that's pretty easy to calculate. But I guess what I communicate is one of our objectives when we started the debt deal. We announced the debt deal was to buy enough - back enough stock to be accretive next year. We've accomplished that, does not mean we've done volume stock options, you get 750 million, almost 750 million remaining on our authorized buyback program from the Board. But right now the combination of the cost of the new debt deal for 2018 and the benefit of the entire buyback that's been done so far is an incremental $0.06 of accretion. So we've crossed the line where it's accretive next year. And anything else we do in the future will be just additionally accretive.

Okay, that's very helpful. And just one quick thing on the timing you mentioned on the margins, the gross margins being down sequentially and year-over-year. How many more quarters do you think we have of DFX having a negative impact on gross margins?

Yes, it will be - it's about one more quarter. The way to think about it, there is five to six-month turn of the inventory. So with respect to FX impact on cost to goods sold, we'll realize that in the P&L above five or six month after inventory is manufactured. So if you look at movement in Q3, which was really earlier in Q3 that will roll through in Q1 of next year.

And then once we anniversary that do we look for favorable gross margin comparisons are there other things going on with input cost of country mix or something else going on there in addition to FX?

There's only one other thing that's timing that will go on in COGS. And it will be like the Q1 of next year, which is our reduction of inventory program that we put in place in the third quarter this year. So you'll see a benefit in working capital, sorry, $25 million, about $24 million to $25 million reduction in inventory in Q3 of this year. You'll see that in the cash flow statement, so that excludes any impact from currency. And in Q3 of last year we grew inventory by around 50 million. So that's a $75 million swing in the manufacturing. And that creates what we call manufacturing variances less of a favorable variance this year which will roll out in Q1. So from a comparison of Q1 of 2018 to Q1 of ' 17, you've got this timing of manufacturing variances from the inventory reduction program. But once you get to Q1, that's over and you'll start seeing benefits in gross margin in Q2.

Okay, thank you.

Your next question comes from the line of Tim Ramey with Pivotal Research Group.

Good morning.

Hi, Tim.

Thanks so much. So it looked to me the way the quarter came in - it was very close to my expectations, but for the tax rate that you put out at roughly 20% to 22% on October 2nd. And you mentioned in your prepared remarks, John, that related more to other discrete items not ASU 2016-09 issues that affected the full-year projection? Can you tell us what impact ASU 2016-09 might have had on the full year in terms of percentage points of tax rate? You said I think you said $0.30 in EPS.

Well, for the full year, it's about 550 basis points.

550, okay.

550 basis points. To your other point about the tax rate for the third quarter, the way tax rates work is according to GAAP is you project based on items that you're allowed to project full year rates and then you booked year-to-date quarter at the full year rate. And so once we finished our forecast, which was later in October for the rest of the year. We had a mix issue that increased the full year rate by about 200 basis points from what we thought when we got it earlier in October. But that 200 basis points required a catch up for Q1 and Q2. So, that's why it's a big discrepancy in the Q3 number. So if not for the tax rate - tax rate come in where we thought we actually would have been at the very high end of our BPs.

Right. It would have been $0.91. Got it. And then - this is more of a question for Rich, I think, but it looks to me, it's hard to say, because there is some change in mix, but if we look at new members, total company new members and sales leaders there's certainly a positive sequential trend there. How would you talk about that, Rich, are you comfortable with that? Or is that what you wanted to be, it's hard to really gauge year-over-year because the business is different year-over-year. What do you think about new member acquisition and sales leaders?

Yes, Tim, this is Des. Let me take that one. So, look, as you know, over the number of years we've been actually focusing on quality rather than quantity, you've seen that throughout our strategy in relation to sales leaders where we've seen considerable improvement in terms of retention rates, activity rates. And essentially what we're doing is we're taking that same strategy down one level to our members. So what you're seeing is we are seeing less new members coming in, but we are always purchasing greater levels of productivity. From our perspective, what we are also seeing is we're seeing the impact of some of the promotions and programs that we put in place for those of you who have been in our events, who have seen us launched this member activation program or distributor activation program depending on which part of the world you are in and we're really and that's focused on, obviously, bringing new people into the business and having them engaged in consistent customer focused activity, and we're seeing that reflected in the trends that we have out there today. So obviously, it's a - we see as a very positive trend. We actually see - saw - three - third quarter sequentially improved from the second quarter and we're going to see that trend continue throughout the rest of the year.

Let me add, Tim. This is John. Just a couple of October stats are probably relevant, normally we don't give intra-quarter information. But I'll give you one positive, one negative. So in the US, in October, which is obviously done now. Volume points, we're still down, but down single-digits, not double-digits. So, as we said - with implementation of the FTC settlement had a bigger initial drop and we thought that the base is stable, and we expect a trajectory to be in line with expectations prior to the implementation just off a slightly low base. And so I think, as we have said, it's really pivot going on in Mexico. There was a - they had two earthquakes. There was a significant one on September 19th that had an impact of 200 basis points in the quarter and that carried in the third quarter, right and that's only two weeks of impact in the third quarter. So I have bigger impact in October and it's down in the low-teens in October. It will get better in November and December as Mexico recovers from that, but that's just another thing to keep in mind. So just I wanted to give you profiling and give our investors the profiling of those two markets and some changes to expect.

Right. And just one more, well, I got you, the ad station that your external monitor needs to make, I think, it's gone up on the 15th. No reason we should really expect anything there. Should we even expect to see anything publicly released on that date?

No, no, it's a private report, Tim.

Okay. All right. Perfect thanks for your help.

Thank you.

Your next question comes from line of Mike Swartz with SunTrust.

Yes, good evening, guys. Maybe question for Rich and Eric and John to bring it here, but just the some of the stabilization that you've started this year in the United States. I think, John, you referred to volume points in the - in October improving, maybe give us a little more color behind what's driving that. What's taking hold, and maybe what we should expect as we go into 2018?

Yes, let me jump in first. So obviously, it's a low - these are comp rates coming of a lower base from last year. So one of the important points we were trying to communicate over the last couple of quarters in the US, anyway. Is that, there was a drop in the business, the implementation, the changes that we made, but it was a quick drop and not a slope and once the quick drop - quickly bottomed out and was slowly building off of that. So, the base is stable, starting to grow and the comps are getting easier. The only exception to that was in Q1 of next year, I mean, it's not like exception right, but in Q1 of next year, will you be still comping the old days. So when we talk about growth in the US, it's really a Q2 forward than from our current expectations.

Yes. And just to add some color to that Mike. So, obviously as always we work with our distributor leaders, and obviously recognizing the impact the distractions that we are going to have in Q2. We sit down with them, we put together a series of promotions obviously engaged in a couple of things, we are obviously incurring engagement, incurring sponsorship. Our focus on bringing more people into the business and most importantly, having those few people being successful. So we saw the impact of that in Q3, right. We've reported 9% increase in your distributors in Q3 compared to Q2. The significant double-digit increase in terms of sponsors increased level of engagement. So every key metric in terms of that, this is now being reflected in this volume point growth improvement that you heard, John, referenced in October. And so that's a trend that obviously is already in place and we expect to be continue.

Okay, thank you. And then just looking at the 2018 guidance, I'm just trying to understand some of the puts and takes in there. It looks like at the midpoint, EPS of 6% that you're looking at 5.5%, 9.5% topline growth. So there seems to be a little maybe deleverage there, and I think, John you said gross margins should get better as we get through the year. So I'm trying to understand what what's exactly driving that deleverage.

What - you were talking about EPS, right, on the EPS line?

Yes.

And if you adjust - in this year's adjusted EPS is approximately $0.30 of excess tax benefit from the exercise of options. So you, kind of, got to back that out to make it equivalent to our guidance. Now we'll probably have some of that next year, but we don't guide for it. I think you'll see the math works out a little better, once you adjust for that.

Okay. So that's the single biggest part of it?

Yes.

Okay.

I mean, there is an ample of other things, right. So can we got some investments in technology some of that sales force, some of it is other technology where we are vesting in, and one of the strategic shift that we've been making is moving away from in-house hosting of technology with cloud, and that does swing the expense from capital to SG&A. Doesn't impact cash flows, we make our decisions based on what's best economically and the accounting follows and if accounting needs you, we'll quote something as OpEx when you spend it. That's fine. It just means low CapEx, but the CapEx might have gotten spread historically over a few years and the OpEx is in year one, so you got year two and year three before you catch up, but it's not a cash flow issues. You got a little bit of that next year, we get $10 million of $11 million of technology investment spend next year. And then you've got some of the things I've talked about earlier on the call about cost of sales were already in Q1, because of FX and the inventory reduction program from this year. Those are really the drives.

Okay, that's helpful, thanks. And then maybe really one last one real quick here before we lose you. What do you assuming as your average diluted, sorry, share count for 2017 and 2018 at this point, in your EPS guidance?

I think it's 76ish somewhere on 76 for next year.

For 2018, okay, and then you said 6.7? 6

77.

So, 77, okay. So it's - we were assuming no additional buyback again, that's our historical practice right as we take whatever our share base is now, and we're all with it. And then if we do buyback that's upside. Okay, wonderful. That's all from me. Thank you.

And your next question comes from the line of Beth Kite with Citi.

Hi, guys. Hello, it's Beth. Thank you. I guess, if I could just start with one quick thing on the third quarter. I believe the latest guidance for the topline in local currency had been down 1.6% to down 3.1% and if that's correct, then kind of what's changed from when you reported?

It's a local currency when we guided in October, there is definitely.

Yes, exactly. So I think that early October revision and prior to the self-tender closing was down 1.6 to down 3.1.

Let me get back to you on that. I just don't know on top of my head on the costs there? Thanks.

Sure. And then you kind of talking about some of the questions that have been on the call so far, but just thinking about 2018 besides the obvious. So we think our big markets are going to turn, as the 6% growth at the midpoint, a little bold if you will, relative to at least my model. What specifically is it beyond some of the things you talked about in the US and are you more confident in constructive on China. Next, I have taken out some of the tragedy lately, okay, earthquake did that just go better, if you could help us on sort of the drivers of that 6%.

Yes, so Beth let me take that one. So obviously, that's what we see is we see just a strong fundamentals in the business when you look at our staff, like, the other sales leaders with volume obviously for us, that's the key metric in terms of distributor engagements. We look at the impact of some of the promotions that we're having. We look at strength in the business in number of areas. And so, although obviously as John is flagged - Q1 of next year. Obviously, we got a very difficult comp, but once we get through that and now we start anniversarying if you'd like the FTC implementation likely and anniversarying the issues that we currently have in Mexico. We just cautiously optimistic about the, about the year that lies ahead and that's reflected in the guidance. Yes, and a couple of things that are dragged or more growth in the past. We complete Brazil. It's still down, but it's down 1.8% and we expect to build over that new base for some of those things that have been driving this down historically won't be driving start next year.

Okay. Very specific to China then, are you able to comment has the number of nutrition clubs. I know that was in decline has that stabilized in the fourth quarter. Are you at this point growing the number of nutrition clubs in the country.

So, the answer of that is it has stabilized and now we're obviously focused in terms of best practices in those areas where we're seeing the club's over perform or right perform and working with our leaders in terms of increasing productivity in addition to expanding number of clubs. The other thing we're looking at there that as far as you know primarily the clubs have been focused on your top-tier cities. We're now looking at second-tier and 3rd tier cities because as you know from clubs in other markets. It's actually in those lower-tier cities that you actually have almost the greatest opportunity because your operating costs are so much lower, and frankly the need for that for good nutrition is even greater. So when you expand the addressable population by going into those other areas, you actually achieve sometimes even greater success. So that's really a focus now of our business in China as we look to 2018 and beyond.

Okay, great thank you so much. And just one more question on country and then back to some profitability, real quickly the close that for the US and it looks like the current of the preferred members in the third quarter was down from what you'd seen in the first two quarters of this year. Are you able to share with us kind of where you think a healthy level will be and even to get about next year for new preferred members in the North America business kind of what would you like to see that number settle in to be quarter in and quarter out.

So, I don't know, Beth that I've got a specific number for you. Other than the fact that obviously we want to see, not just the increase in productivity that we've seen, but we do want to see an increase in growth as well. In terms of the balance, today, we've got about 470,000 preferred members We've got about roughly 215,000 distributors. So it's roughly a sort of a 2/3rd, 1/3 ratio. That we've always believed, as you know, historically that we had roughly that number of people coming into the business, primarily for discount on the products, but obviously if you look to the future of the other thing that we're excited about is the sales force initiative. So with salesforce.com, we are, we anticipate that that will drive not just new member account, but actually primarily focused on enhancing the productivity in the activity rate of that preferred member account. So we're excited about that obviously, it's, we got this pilot program beginning, but certainly in the future. We're going to be able to take advantage of all of this consumer data that we've never had in the past, but we now have because of the millions of receipts that we're getting every month.

Got it. Okay, super. Thank you. And then just a last one and maybe, John, this goes back to the question just before me, but in terms of thinking about profitability for 2018, I understand, that you talked about, some of your kind of specific thing there for IT and otherwise, but do you expect to have to spend more in some of these markets Next year, then you did this year to have some of the top line growth. Do you think you have to put more people on the ground in China for instance for my focus here in the US or even in Mexico.

Look, we do go back historically as to how this cost, our cost structure, generally works, there is a little leverage in our business as we grow. As you know, but our fixed cost are pretty low our variable costs are pretty high when you have high variable cost you get low leverage and high fixed cost, you get high levered. So we are hoping to get a little bit of leverage next year. But we tend to add in infrastructure as we see the growth and try not to get ahead of the growth. So if you're asking do we have to invest in front of the growth, not very much. We will invest behind it as we see it as we traditionally have done in the past. And that's how we've been able to operate this model now for quite some time.

Got it. Okay, thank you so much and John, I sure, hope you feel better too.

So do I. Thanks.

Bye.

Your next question comes from the line of Ivan Feinseth with Tigress Financial.

Hi. Thank you for taking my call. My questions, I have three questions is one what do you still was the biggest cause of the reporting results under the guidance. And what do you feel you could be doing, you spoke about a new ERP system and forecasting system to be more accurate in your forecast. And then second is, what are your plans going forward as far as the share repurchase. And then third, where do you feel the new product introduction categories are going to be or what would be some of the key products that you're going to be introducing in 2018? Thank you.

Yes. So couple of things. So the, so we didn't miss our guidance, right which is in the lower side and it was all because of tax rate. We have talked a little bit earlier in detail when Tim asked the question as to what drove the tax rate, but it was all tax driven it's not for the tax rate of our tax rate and committees plan. We've been around the high end of guidance, so that's the entire reason for the change your second question, when you talked about a new ERP system for forecasting. That's not what we were saying. We did put a new ERP system and upgraded of an ERP system for stability because the last system we are putting was in 2008 because we start for an upgrade. When we talk about forecasting predictable behavior, it's not about getting our financial forecasts right. It's forecasting consumer behavior. So we get impact at that behavior and used to it grow sales and that's something we're looking to do with Salesforce. So it's called predictive analytics. But it's not predictive analysis. So that we can get our financial forecasts, right so that we can drive high growth and so that's what we're talking about. Then your three questions was on the buyback, we are in what I think is a pretty, pretty good position. Our net debt is $650 million, a little less than $650 million. That includes about a $1.6 billion of cash we have almost $750 million remaining in our authorized program. We haven't decided and generally do not communicate our strategy for buybacks until after it happens. And so we are going to stick with that. But we are in a good position to do whatever it is that we think will add most value for the long-term benefit of our shareholders. And lastly you asked about product and I'm going to push that over to Rich to answer.

Great, thanks John. Just to go down a few of the topics on new products and we sort of led a little bit on the call. Without giving too much competitive information I think they've broken a few categories. Number one is more consumption occasions of our top selling products. So, for example, expanding into more into soups to attract a hot meal or launch or dinner expand our dinner shake that won an award in Russia this past summer, to again attract customers at an evening occasion, new sizes of our top selling products. We had a couple successful launches here in the last month of our Protein Bars and also our top selling Formula 1, Meal Replacement in smaller sizes to create excitement attract new customers, new flavors and local flavors more importantly of some of our existing products. Moving into more personalized extending our GeneSTAR DNA test kit with successfully in Korea early next year. Expansion of our important sports line, I don't want to go into too much specifics there, but we think that's a very important line, especially with millennials coming into the business representing a larger percentage of our business and expanding our line into and attract more affluent wellness consumer, that we see with some of our, let's say, new formulations and new protein sources of some of our top-selling products. So that's just give you sort of a tees, if you will, without giving too much of our competitors leg upon us.

Well, I mean like the probiotic you launched. I mean to me that's an important category. The other important categories, I mean, I see a nutritional trend seem to be antioxidants that seems to be another big thing. A lot of consumers have interest and also more so - lifestyle or health stage specific things like nutrients focused on diabetes or other things like that - those seem to be important areas that consumers are either concerned about or have an interest in somehow improving. Are you thinking of more custom nutrition - more custom items along those lines?

Look, first, I think we're more in line with what you're saying so. We'll launch an immunity booster next year which is antioxidant driven. The Probiotic was the introduction to the microbiome and taking our distributors to that journey and we have some of the exciting things that we are working on. I don't want to say too much about that. I think there's more we can do with microbiome. Yes, I prefer to be a little quite on product and let us get these close to the market with our distributors before we show too much.

Okay. I appreciate your help.

Okay. Good question. Thanks.

Thank you, bye.

I think that's the last question.

And we have no further questions in queue at this time. And I would like to turn the call back over to Rich Goudis, CEO for any closing remarks.

Thank you again for joining us today. Before closing the call, I want to talk about corporate social responsibility because supporting the communities where we live and work is an important part of our purpose to make the world healthier and happier. And I couldn't be more proud of our distributors and employees whose community outreach following the recent natural disasters in Mexico and the US, including Puerto Rico made such an impact even while many of our volunteers were impacted themselves. Our teams in Mexico joined the relief effort on the front lines providing food including thousands of Formula 1 express Meal Bars to first responders victims and volunteers. They also donated and delivered clothing toys and medical supplies to those in need. In the US, our distributors and employees raised money and gather donations for hurricane victims in many cases, driving hours to donate supplies directly to shelters and nonprofit organizations. Our main sale center in Puerto Rico was reopened just 48 hours after the hurricane servicing our distributors and helping provide their customers with much needed food and nutrition. As a company, we expanded our support of the American Red Cross increasing our ongoing Protein Bar donations to support first responders, rescue workers and victims. We also partnered with Somos, a nonprofit agency to coordinate relief efforts in the form of product and water donations for the people of Puerto Rico. We are proud of our employees and distributors and applaud their efforts. But we're not surprised. It's all about our shared purpose to make the world healthier and happier. We look forward to updating you in late February with our full year results.

Thank you for your participation. This does conclude today's Herbalife's Third Quarter Earnings Conference Call, and you may now disconnect.