Good afternoon and thank you for joining the Fourth Quarter 2019 Earnings Conference Call for Herbalife Nutrition Limited. On the call today is Michael Johnson, the Company’s Chairman and CEO; Dr. John Agwunobi, the Company’s Co-President and Chief Health and Nutrition Officer; John DeSimone, the Company’s Co-President and Chief Strategic Officer; Alex Amezquita, the Company’s Senior Vice President of Finance Strategy and Investor Relations; 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, we may make forward-looking statements within the meaning of the federal securities laws. These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated. For a complete discussion of risks associated with these forward-looking statements in our business, we encourage you to refer to today’s earnings release and our SEC filings, including our most recent annual report on Form 10-K. Our forward-looking statements are based upon information currently available to us. We do not undertake any obligation to update or release any revisions to any forward-looking statements or to report any future events or circumstances or to reflect the occurrence of unanticipated events. 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 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. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release submitted to the SEC. These reconciliations together with additional supplemental information are also available at the Investor Relations section of our website at herbalife.com. Additionally, when management makes reference to volumes during this conference call, they’re referring to volume points. I will now turn the call over to our Chairman and CEO, Michael Johnson.

Good afternoon, everyone, and thank you for joining us for our fourth quarter 2019 conference call. Before I start today, I really want to express our heartfelt compassion to the citizens of China for the difficult time they’re going through. John Agwunobi, John DeSimone and Alex Amezquita will talk about the business impacts, but the impact on our employees, distributors and their families is the utmost concern, and we wish them all the best. Onto the year. 2019 was a record year for Herbalife Nutrition. The incredible momentum we’ve built resulted in an all-time high in terms of volume points. And for the fourth quarter 9 of our top 10 countries delivered year-over-year net sales growth. In a moment, John, John and Alex will take you through the results for the full year and fourth quarter, as well as provide an update on our China business. As I wrap up my tenure as CEO at our Honors event in March and retire as Chairman and Board Member at our annual general meeting in April, I just want to state what an honor it has been to work alongside our distributor leaders, our talented corporate management team, and our wonderful employees to serve our distributors and our customers driving growth to Herbalife Nutrition over the last 17 years. It is truly remarkable how far we have come since we began this journey together in 2003. Our growth continues to confirm the demand for our products and the value of our distributors. Since 2003, our volume points have increased from 1.5 billion to over 6 billion in 2019, and that demand has grown around the world as we are now operating in more than 90 countries, up from 58 in 2003. We have the best business opportunity anywhere, and our distributors are…

Thank you, Michael. I’ve had the honor of working closely with you since I joined Herbalife Nutrition at the beginning of 2016. And one thing that has always been abundantly clear is your passion for this Company. That passion has resulted in incredible growth over the past 17 years, as you highlighted in your remarks. The success of our distributors who are at the heart and soul of this Company have been furthered by your vision and your leadership. You have led with integrity. And you’ve brought us to this point in our 40 year history, setting the stage for what I know are exciting years to come. Because of you, we are improving more lives around the world than ever before through better nutrition and an incredible business opportunity. I know, I speak for our distributors, our executive team, our employees, and our shareholders when I say, thank you for all you have done. Our job now, to use your words, is to continue to build it bigger, better and stronger than ever before. But before we look forward, let’s look back at 2019, starting with our financial results. As you saw from our press release today, we delivered full year volume points of 6.1 billion, a record for the Company and a 3% increase compared to 2018. Our performance demonstrates the strength of our geographic diversity, as we achieved this record despite challenges in China. Excluding China, volume points for the year grew nearly 7%. Three of our six regions and six of our top ten countries set volume point records for the year. Today, we also announced sales leader retention results for the last 12 months requalification period ending in January of 2020. The absolute number of sales leaders retained for the year is just under 300,000,…

Thank you, John. I want to once again thank Michael for his countless contributions to the Company and a significant role he has played in leading and evolving Herbalife Nutrition into the premier nutrition company that it is today and in mentoring me for more than a decade. We have a very talented and long-tenured management team, and together I believe we are well-positioned to drive growth for years to come under John Agwunobi’s leadership. Turning now to the regional performance where 2019 was highlighted by three regions setting annual volume point records. As we’ve highlighted before, the geographic diversity of our company is an asset that resulted in a record 2019, despite challenges in China, one of our largest markets. Excluding China volume points grew 6.7% in a year. Net sales grew 6.2%; in constant currency, net sales grew nearly 10%. For the fourth quarter, the year-over-year growth rate accelerated to 4% from 2% in Q3, and we saw continued improvement in the year-over-year trend in China. In the U.S., the strength of the business continued in the fourth quarter with volume increasing by 7% compared to the fourth quarter of 2018. We ended 2019 with year-over-year growth in every quarter for the second year in a row. Net sales for the full year of over $1 billion represents a record high and an increase of over 8% versus 2018 for the USA. Moving to the Asia Pacific region. It continued its record-breaking year with volume points increasing 1% year-over-year and setting another all-time high result. This is the eighth quarter in a row of record high volume results in APAC. And once again the growth was very broad-based. The two-year stack volume point result for the fourth quarter was 53%. The growth rate in the region was led…

Thank you, John. Fourth quarter net sales of $1.2 billion represents an increase of 3% on a reported basis compared to the fourth quarter in 2018, which included growth in nine of our top 10 countries. Full year 2019 reported net sales of $4.9 billion were approximately flat on a reported basis, but adjusting for foreign exchange impact, net sales for the year increased 3%. And excluding China, local currency net sales grew almost 10% for the year. For the fourth quarter, we reported net income of approximately $56.7 million or $0.40 per diluted share. Adjusted earnings per share of $0.74 included expenses related to the China growth program of approximately $9 million or $0.05 per share. This was above the high end of our guidance range of $0.68. The impact of currency fluctuations represented a year-over-year headwind of approximately $0.04. Reported gross margin for the fourth quarter of 81.2% increased by approximately 20 basis points compared to the prior year period. Note that the incremental but now discontinued tariff in Mexico that negatively impacted our gross margin earlier in the year is no longer a headwind. Fourth quarter 2019 reported and adjusted SG&A as a percentage of net sales were 43.3% and 39.9%, respectively. Excluding China member payments, adjusted SG&A as a percentage of net sales was 30.5%, approximately 50 basis points unfavorable to the fourth quarter 2018, which was largely due to the timing of certain year-end accruals. Our fourth quarter reported effective tax rate was approximately 29.2% and our adjusted effective tax rate was 16.5%, which was materially lower than our expectations. This was primarily driven by discrete tax benefits of approximately $11.4 million or $0.08 per share. Turning to the full year. 2019 reported net income was $311 million or $2.20 per diluted share, compared to…

[Operator Instructions] Our first question is from line of Doug Lane from Lane Research. Doug?

Yes. Hi. Good afternoon, everybody. Talking about the FCPA. I know you didn’t mention it. But, I noticed in your commentary in the 10-K that you put a dollar figure in there, or $40 million. How show we read that? Does that show movement on the FCPA front? And what about timing of ultimate settlement?

So, the accrual that you see in the FCPA disclosure doesn’t indicate a timeline, it doesn’t indicate where we might ultimately land. It is simply an artifact of the discussions that have continued to progress. It triggers accounting principles in which we have to record that accrued liability. And so, we’ll continue to have our discussions with the SEC and DOJ. All of the outcomes, please look at the FCPA disclosure as we’ve outlined it, to see what the possible outcomes may be. But, it -- the accrual doesn’t necessarily imply any specific outcome at this point.

Okay. Thank you. And shifting to the financial statement here. One, I just wondered -- I noticed the SG&A as a percent of sales was up 140 basis points from the third quarter. And I know it can be lumpy from quarter to quarter, but I just wondered why there was a big increase in the fourth quarter as a percent of sales on a sales number that was pretty good, probably the upper end of expectations, versus the third quarter.

So, Doug, again, you’re talking about the Q4 specific?

Yes.

Yes. If you look at Q4 ‘19 versus Q4 ‘18, there was some year-end accruals, one went one direction last year, the other went in the other direction this year. So, it created about a $19 million difference in yearend accruals. It doesn’t really impact the full year SG&A as a percentage of net sales, but it does impact at the quarter when you’re looking at it year-over-year. So, there’s nothing fundamental or systemic going on in that number. It’s really more of just a timing issue. And so, if you look at how that kind of evens out for the year, you’re going to see SG&A as a percentage of sales, effectively flat ‘19 over ‘18.

Okay. That’s helpful. And just one last thing. With the big move in the tax rate and you saying that you largely would have reaffirmed your outlook for 2020, does that include the tax rate outlook for 2020, so that that fourth quarter was really a one-off and really didn’t change your structural tax situation, looking into 2020?

Yes. That’s correct. It doesn’t really affect our structural tax -- structural tax rate. What we saw in Q4 was a number of onetime items. They just -- some of them happen to be very large and hit in Q4. But as you know, we typically every year have a basket of onetime items. It just happened to be particularly large this year and have to be particularly large in Q4 that that’s what really impacted the rate for going forward. And again, as you as you noted, had we reaffirmed guidance, our tax rate for 2020 would have largely remained unchanged.

And our next question is from the line of Steph Wissink from Jefferies. Steph?

I just had a follow-up question on Doug’s question regarding the FCPA. Can you just remind us what the accounting process is or the rules related to the accrual? Is it some sort of reasonable likelihood or ability to estimate, like what trips or triggers the ability to include that level of disclosure in your filing?

Yes. Unfortunately, when you go through the accounting steps to arrive at the accrual, it’s really based on the facts and circumstances of the discussion and of the case. So, I can’t really disclose what those -- I can’t really disclose what conversations are actually taking place that caused those accounting rules to trip. So, unfortunately really what we have in the disclosure is all we can really say. And we’re just following U.S. GAAP principles here.

And then, two bigger picture questions on technology and new product initiatives. I know, this is something that’s been kind of underlying some of the headlines. But, if you could just give us an update on some of the technology platforms, rollouts across your major regions and then some of the new product initiatives we should expect from you over the next 12 months or so, particularly as you look at some of your growth markets of the world?

Yes. So, I mean, one of the biggest technology initiatives we put in place coming out of the 100-day campaign was some of the distributor to customer technology in China specifically. And so, that was a significant investment we made in 2019 or began to make in 2019. It’s still ongoing. That project is very much in the middle of its rollout of different features and capabilities. But, what we’re seeing is and particularly in light of the coronavirus situation, we’re seeing our distributors adopt that technology and really figuring out another way to go to market, which has been helpful. It’s all very much still in its infancy, but I think, the progress of that technology implementation is really encouraging. And we’re going to look to continue to update on that progress. I think, generally, for the rest of the world in the U.S. in 2019, we put in a productivity tool for distributors and nutrition clubs, and they are more broadly just rolling out our toolkit, or what I would call as our core technology toolkit, which is available in a lot of our larger markets, but really rolling that into our tier 2 and tier 3 markets so that every distributor in every country has a core set of tools and that continues to roll out and it will continue to roll out in 2020. So, just overall, I think you’ll -- that will contribute to just productivity and making sure distributors have a good way to go about doing their business. What was -- and then you mentioned something on the product standpoint?

Yes, just expectations or messaging you want us to hear regarding product innovation and product initiatives above and beyond your core assortment.

Right. So, the product initiatives, again, we’re really focused on choice, we’re focused on products, whether that be in sports nutrition, targeted nutrition, or even weight management in the management category where it’s choice around clean label or choice around different distributors and they react with their customers in their local market in a way that they want to speak. It’s about choice and giving that option. So, some of these products might be door openers to get into our core products or some of it might be giving offerings so that our distributors have a way to talk to a customer that they haven’t been able to. And maybe John…

Yes. Let me just add in too, actually both those. You got obviously two of the core -- you asked questions about two of our core strategies, right? So, technology of course is about creating scale for our distributors to do more without losing the connection they have with customers and Alex talked about a lot of those key initiatives. On the product side, Alex gave you a lot of examples of things we’re doing. I think another one to keep in mind, that’s really going to drive an acceleration of launches is the localization of product and the pushing out of the resources into the regions to develop the products to their particular market needs, whether it’s flavors that unique to a particular region or health and wellness products unique to particular region. So, it’s less of a global approach than it’s been in the past and more of a local approach.

And our next question is line from the line of William Reuter from Bank of America. William?

Good afternoon. The first is just a follow-up on that last question about localization of products. Where are you in that process now in terms of trying to get product that is unique for a region versus products that are generally available across all your regions?

So, it’s a process. Some regions were further along than others. I can tell you that, in China for example, it’s done. Right. China has its own R&D center now and it’s very localized. In other regions they are developing the resources and certainly working with our local distributors, we are -- I think far along in the journey, I think a little bit more on the resource side needs to be done. But I think culturally within the product development group and the teamwork done with the distributors, we are out there. So, it’s just a matter of getting the right resources.

Okay. That’s a very helpful. And then, I understand that it would be impossible to try and gauge the impact of coronavirus on this year. But I guess, are there certain regions where you do have clubs that continue to operate? Do you have any even thoughts on when you may have some clubs that are beginning to open again?

Well look, it’s tough to know. A lot of the clubs aren’t operating right now, just like most of the restaurants aren’t because people aren’t physically going into locations like that. And so, those distributors have moved over to the online platform. And we’ve seen -- actually we’re comping a pretty easy scenario with the a 100-day campaign last year and we are seeing activity levels actually higher than a year ago and actually, new sales leaders higher than a year ago, but don’t really know where this will end up because the situation’s not over. And so, we don’t know where the dominos could fall, and exactly what this -- how this plays out over the medium term. But with respect to clubs, it’s somewhere maybe -- it’s 80% of our clubs probably at somewhere on there right now aren’t open. So, there are some clubs that are performing okay, but most of them right now aren’t -- the customer is just not coming in there and they are not open.

That makes sense. And then lastly, in your prepared remarks, you used the word improve around your capital structure. I guess, when you think about improving it, what does that mean? I think your leverage target has been three times. So, I would assume that might mean something to increase your leverage, but there’s obviously a lot of uncertainty. So, I don’t know if the coronavirus changes that thought.

No, the coronavirus doesn’t impact our capital structure thoughts. Our target gross leverage is around 3 times. So, we do have capacity and we continue to monitor the capital markets in concert with just overall being -- having efficient capital structure. So, you could envision some -- sometimes during 2020 we may be out in the market looking to fill that gap to get our target leverage back up -- or get our leverage up to that target level. So, that’s certainly one of the reasonable expectations, but obviously that’s an execution question and we just have to make sure that we’re doing it at the right time.

[Operator Instructions] And our next question is the line of Hale Holden from Barclays. Hale?

All right. Thanks for taking the question. I had a couple quick ones. Are you still manufacturing in your facility in China, and/or would we expect any potential shortages from that facility to the broader Asian region?

Yes. So, we are now manufacturing. I mean, we were down for a couple of weeks during the extended Chinese New Year. I think as of late last week, our factories opened, not every employee is in, but certainly enough to keep production going. So, we’re in a pretty good spot there. And that includes the two local manufacturing facilities in China plus the extraction facility in China.

And then, you had also mentioned in the prepared remarks the potential for geographic weakness, I guess, beyond China. Is that something you’re seeing now or is that just a little caution?

Well, I mean, we’re certainly postponing some meetings in some areas of Asia. Sometimes you got to make those calls early. And so, out of abundance of caution, there are meetings being canceled. Canceled is the wrong word. They’ve been postponed. They’re just being pushed out till later in the year. And that could have an impact, but it might not have any impact. So, given that we’re not sure yet how this plays out, we’re being cautious in our guidance.

Okay. And then, my last question was -- I was wondering if in the quarter Mexico turned out to your plan and any thoughts on how that market’s doing.

So, it turned out pretty close to our expectations. It had a slight improvement in trends versus Q3. Net sales on a local currency basis were down 1.5%; on a reported basis were actually up 1.7%. So, it’s tracking with expectation. As we said last quarter, the objective now in Mexico to get the market back on track is more recruiting. That’s where the weakness has been for about a year now and that’s where the focus needs to be to recover. Nothing is materially different than we had thought a quarter ago.

And at this time, I’m showing that we have no other questions. So, I’d like to turn the call back over to Michael Johnson for any closing remarks.

Thank you very much. You know, when I began my Herbalife journey in 2003, I had a wonderful mentor who reminded me that a few get a platform like we have at Herbalife. I then and today see Herbalife through four buckets, our product, our business opportunity, our brand and our image. In March, we celebrate 40 years of enhancing and enlarging each of those buckets. This February we celebrated and celebrate our founder Mark Hughes. Mark had a very simple yet incredible vision, change the nutritional habits of the world and give people an opportunity to earn what they’re worth. That vision has grown into a multibillion international company that is fueled by the passions of distributors and employees who are proud to be team Herbalife. Let me close by expressing my gratitude. Following Mark Hughes in leading this Company for the last 17 years has been a ride of a lifetime, and the success we’ve achieved together has been really nothing short of exhilarating. I want to thank our distributor leaders, our distributors and our employees all of whom I adore for the support and encouragement you’ve provided me along the way. And to our Board of Directors and long-term shareholders, thank you for your faith and trust for hanging in there in the good times and in tough times. During the past 17 years, we’ve generated substantial cash flow and returned approximately $5.1 billion of capital to our shareholders. And we continue to keep you reminded everyday as we continue to grow our business together. I’ll now take my place alongside shareholders, like you on this call, as an enthusiastic long-term investor knowing that the best of Herbalife is ahead, and we are just getting started. So, thanks for all your support through all the years.

Ladies and gentlemen, thank you for joining us for Herbalife’s fourth quarter 2019 earnings conference call. You may now disconnect.