Good afternoon, and thank you for joining the Third Quarter 2023 Earnings Conference Call for Herbalife Limited. During the company’s opening remarks, all participants will be in a listen-only mode. Following the opening remarks, we will conduct a question-and-answer session. As a reminder today's conference call is being recorded. I would now like to turn the call over to Erin Banyas, Vice President and Head of Investor Relations, to begin today's call.

Thank you, Sherry, and good afternoon, good evening, everyone. Joining us today are Michael Johnson, our Chairman and Chief Executive Officer; Stephan Gratziani, our Chief Strategy Officer; and Alex Amezquita, our Chief Financial Officer. Before we begin today's call, I would like to direct you to the cautionary statement regarding forward-looking statements on page two of our presentation and in our earnings release issued earlier today, which are both available under the Investor Relations section of our website. The presentation and earnings release include a discussion of some of the more important factors that could cause results to differ from those expressed in any forward-looking statement within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended. As is customary, the content of today's call and presentation will be governed by this language. In addition, during today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or non-recurring items that management believes impact comparability of the periods referenced. Please refer to our earnings release and presentation materials for additional information regarding these GAAP measures and the reconciliations to the most directly comparable GAAP measure. And with that, I will now turn the call over to Chairman and CEO, Michael Johnson.

Thank you, Erin, and good afternoon, and good evening, everyone. You know, it's been a year since I returned to Herbalife a company I believe in, and I am passionate about. Since my return, we've accomplished a lot. We modernized our brand, cast of vision for Herbalife 2.0 met with nearly 125,000 distributors at nine extravaganzas. We reached a key milestone launching our all new herbalife.com website, launched innovative products and our trends, they are improving. We are in a transformational process that touches all parts of our business and we're seeing progress. Rebuilding sales growth is obviously a key priority. Our net sales for the quarter were $1.3 billion, and this is the third quarter in a row that our year-over-year net sales trends have improved. India continues to outperform and EMEA has posted two consecutive quarters of year-over-year growth. Our return to growth in the U.S. and China is our primary focus. In addition, we took proactive steps during the quarter to further secure our balance sheet and the number of our average active sales leaders along with our active preferred customers and non-sales leaders are also trending up. Alex, will present the numbers for the quarter, and we can confidently say we are seeing momentum building. Another key priority with my return was ensuring proper succession management. We've announced some key leadership changes over the last six months that are already beginning to move the needle and support our growth strategy and overall success. We have a strong management team in-place and we are continuing to build on that strength with the addition of key executives, including the recent appointments of former Amway executive Claire Groen is our Chief Human Resources Officer, and Susan Brown is our Head of Global Corporate Communications. Both Claire and Susan bring…

Thank you, Michael. I'm excited to be joining you and Alex today on my first earnings call. It's hard to believe I'm nearly three months into my new role. After working in the field as an independent distributor for over 30 years, it's been an exciting career move to have joined the executive team. I chose to make this transition because I believe we are in a unique position and time in our company's history. As the third largest direct sales company in the world, we have proven that the combination of our products and the business opportunity are incredibly valuable for our customers and distributors globally. As Michael mentioned, we are moving into a new era as a company. One, where our focus will be more on the B2C portion of our business and supporting our distributors to be more effective and successful in the fast moving world that we live in today. I've witnessed our markets evolve and change for over three decades. Most of the changes were driven by the evolution of technology and the accessibility to it. These changes created many opportunities for our distributors and for our company, although some were also disruptive in nature. Herbalife distributor leaders are focused and committed entrepreneurs who are on the ground experiencing in real time the changes in the markets and adapting their DMOs and business flows to be as effective as possible. As we focus our efforts, on further supporting the distributors with the tools, training and platforms necessary to build bigger customer bases and attract more business leaders, we see the potential for unprecedented growth in the years to come. During my first 90 days, a lot of folks has been on North America, China, and Mexico. We've gone deeper than ever before in analyzing the…

Thank you, Stephan, and welcome, we are thrilled to have you on Board. I'll begin my section with the key financial highlights for the quarter. First, as Michael noted, our trends are continuing to improve and the third quarter marks our third consecutive quarter of improved year-over-year reported net sales trends. For the quarter, net sales were $1.3 billion, down 1.1% compared to the same quarter last year. Second, third quarter gross profit margin was 76.3%, and while the pricing actions we have taken over the past year have led to an approximately 160 basis point benefit to gross profit margin compared to Q3 of last year, we continue to be negatively impacted by the impacts of input cost inflation, which drove a 290 basis point headwind. As well as unfavorable sales mix and FX, each of which contribute to an additional 30 basis points of headwind year-over-year. Third, Q3 adjusted EBITDA was $163 million, with margin at 12.7%, which was a 20 basis point decline from Q2 of 2023, primarily driven by the unfavorable input costs and sales mix impact on gross profit margin, partially offset by our continued cost saving initiatives. Fourth, adjusted diluted EPS of $0.65 was negatively impacted by a $0.07 nine month true-up for an upward revision of our full-year 2023 tax rate, which was primarily due to shift in country mix from our previous expectations. We now anticipate a full-year 2023 adjusted effective tax rate of 25%. Fifth, we continue to take strategic actions related to our previously announced transformation program. Based on the actions we have implemented through September 30th, we now expect to deliver an incremental [$15 million] (ph) cost savings in 2023, bringing our expected program savings for this year to at least $60 million, of which $20 million was realized…

[Operator Instructions]. And our first question will come from the line of Chasen Bender with Citi. Your line is open.

Great. Thanks. Afternoon, everyone. Where I'd like to start, I'd just like to dig in on the volume points and active sales leader trends at the total company level, clearly a sequential improvement from 2Q, but was curious, is there any way to quantify or dimensionalize how much of that change was attributable to all the changes you've made to the business, call it over the last 10 months at this point versus just the normal seasonality that is typical for the business?

Hi, Chasen, and thanks for the question. This is Alex. If you look at the average active sales leaders and obviously for the overall company, those are, it's going in a good direction and we're pleased with that performance. It really is a region by region activity, what's happening in those markets. A lot of the commentary that you heard around the engagement, the excitement, the strategies regarding value proposition and getting distributors back into a healthy active lifestyle. All of those activities at a micro level, strategic level are what is helping to improve those trends. So when we talk about improving trends, getting back to engagement, getting back to what building communities, the part of what we think, as we think about Herbalife is our core competitive advantage. It's those types of activities that are helping to move that average active sales leaders. Now we have still a lot of work to do in some of those -- in some regions. But overall, we're pleased in the direction that we're moving.

Got it. Thank you.

Thank you. And just one moment for our next question. And that will come from the line of Jeff Van Sinderen with B. Riley. Your line is open.

Hi, everyone. Realizing there are various components, but when do you anticipate gross margin beginning to inflect positively year-over-year? And I guess what do you see driving that to happen?

Thanks, Jeff. So the year-over-year and the sequential improvement in our gross profit margin is a little bit under our expectations. Now some of that was due to FX. And as we normally say, we can't we don't forecast FX. We give a give a forecast of how FX might impact our financials based on the current rates. When we were here a quarter ago, we thought FX would be helping us in the second half of the year, but the dollar significantly strengthened. So when we look at our gross profit margin and the results that we looked at Q3 and sort of the expectation for the rest of the year, there is pressure on the gross profit margin from where we thought we were going to be three months ago. So we'll be continuing to monitor how that situation arises. The other impact that is showing up in what we posted this quarter is the mix of our countries. And we continue to have markets like India outperform our expectations and other markets perform under expectations. North America, for example, is a bit behind where we thought we would be this quarter. With that said, positive improvements in the overall market, we hope to see gross profit expansion as our markets continue to perform, but at this present time that's a bit of the pressure that we're seeing in our gross profit margin. So I would say overall, our gross profit inflection, as you ask, will improve as we start to see volumes continue to increase. And we continue to see some moderation in our input cost inflation. Those are really the drivers, which are a little bit longer dated than 2023.

Thanks for taking my question.

Thanks, Jeff.

Thank you. One moment for our next question. And that will come from the line of Linda Bolton Weiser with D.A. Davidson. Your line is open.

Yes. Hi. Thank you. So it's interesting to hear about your increasing focus on the B2C aspect of the business. And I was curious, are you able to say like, what percentage of your sales now are kind of like, placed directly by the consumer on your website or something like that. Is there any numbers you can give about the percentage of your business that's like that now?

Yes, thanks Linda. There we have a lot of those metrics in terms of how different markets perform from a direct ship, from online ordering, from an effectively an e-commerce solution. Obviously, all sales go through our distributors, but sort of platforms in which a customer can order through a through a company supported e-commerce solution However, we don't disclose any of those numbers. We use those internally for our own strategic decisions. We can think about in the future if any of those types metrics might be useful to talk about publicly, but we don't have those available at this present time.

Okay. And can I ask a second one, if I may?

Sure. By the way, for all the -- anyone. I know that we said that you can only ask one question. Please ask the questions you feel like. Yeah, ask away, there's no need to limit to just one. Sorry about that. That was a miscommunication.

Well, I was just wondering, when you talked about you mentioned the new DMOs that are kind of driving some of the improved performance. Can you be more specific and give some examples, of specifics those improving trends?

Sure, Linda. Stephan here. One of the things that we're seeing that I mentioned is the healthy active lifestyle return. And just for a bit of context if we go back pre-pandemic. And I know it's kind of talking about the pandemic, it's kind of tiring, but there was a lot of activity that was taking place at that time in terms of what we consider to be a healthy active lifestyle, meaning attracting people, having them participate in workouts, building the communities locally, when the pandemic hit, that went away for the most part. And so people, they kind of were forced into an online environment, which had its benefits because at that time, there was a lot of eyeballs that were looking at what was going on and people attracted a lot of people. But the stickiness in the community aspect of it, it just wasn't there. It's not the same thing. So we are seeing a resurgence now of healthy active lifestyle activities. And one of them, I don't want to go too much into the details and just kind of just overall talk about is really this new challenge, that's actually called the ‘We Do Challenge’, which is actually gaining a huge amount of traction for us. And over a period of months, it's been something that not only here locally in North America, but also has been picked up in Mexico and South America, and we're not going to report on the numbers, but the numbers for us are very promising. And the numbers we talked about, it's the amount of coaches or distributors that are participating and the amount of customers that they're bringing in. So all of that translates over time, and it's still over the last few months if this has been happening and picking up momentum. But we know based on the numbers that we're seeing now in the month to month overall, directionally where things are headed. And we can directionally say where we know the impact is going to be. So these are the types of things. It's not just that. That's one of the very exciting ones. We've got more workouts happening worldwide now than we've had since 2019, probably. And the trend just keeps growing. So those are the types of things that are out there. And there are others, but we won't take too much time to talk about them.

Okay. Sounds good. Thanks very much.

Thank you.

Thanks, Linda.

Thank you. One moment for our next question. That will come from the line of Anna Lizzul with Bank of America. Your line is open.

Good afternoon and thank you for taking our question. You have [Kristin] (ph) on for Anna. Can you provide us with an update on consumer sentiment by region and where do you see the biggest differences in terms of performance in the quarter versus internal expectations? Thank you.

On consumer sentiment rather than my opinion on consumer sentiment rather than my opinion on consumer sentiment. What I could say is region to region, we have different markets in their evolution post pandemic. A lot of the activities that Stephan just mentioned and how they're taking hold in each relative markets. We're seeing net sales growth in three of our five regions. We're anticipating as a company to see net sales growth in the fourth quarter. So I'd say overall, we're trending to a positive level with engagement. Obviously, with that engagement is, consumers that are willing see the value proposition that Herbalife nutrition that Herbalife has to help people with their nutrition, to help them with their healthy active lifestyle, to help them in all the ways in changing lives. So we're really excited about where we're heading.

Thank you. I'll pass it along.

Thank you. One moment for our next question. And that will come from the line of Karru Martinson with Jefferies. Your line is open.

Good afternoon. In regards to the major extravaganza events that you held last quarter and this quarter, could you talk to us of what you guys see whether it be actual sales numbers that you see a lift from these events And how does that sustain itself as we go forward? Because you're just trying to think about, you know, what drives us to that growth in the fourth quarter, what turns around North America? It does seem that we're very focused on these in person events, but just trying to get a quantification of what does that do to the bottom line?

So I'm going to start. This is Michael and I'm going to let Alex and Stephan jump in if they want. So these distributor events are re-emergence of Herbalife right now. During the pandemic and I hate to keep referring to something that's now a year out, but we were shut down on these events and getting people, as you know, and you've heard us say person to person to share ideas to get motivated and inspired to see business methods that may be useful for their businesses and a chance to meet and work with new distributors as well as their up lines, all valuable parts of an extravaganza. The sales lift we're seeing, it's so we launched the vegan product in San Antonio and we sold out of this product. So it's fantastic sales lift. We've got a challenge with supply chain, obviously, to keep us in stock and in supply of that, and they're doing a fantastic job. So we're seeing lift there. We're seeing lift of new customers and seeing lift of new distributors are coming to the company because of a new product offering. The momentum that we're starting to see into the fourth quarter, I'm going to let Alex address some of the fundamentals of that and Stephan if he wants to jump in. The momentum that we're seeing in the marketplace goes to what Stephan said about more people engaged in transformational style of operations in terms of the distributorship. People coming and getting healthier, people coming for a workout, people coming to do what we do best is create community around our product. It's something that we believe will have a unique advantage of in the marketplace through our nutrition clubs, through our distributors' activity, through redo transformations and other types of healthy active lifestyle outings we're seeing through certain states in North America and we're seeing a take hold on a global basis. These are the things that all spring from an extravaganza. And they spring from that idea sharing and they spring from us getting back to this community effort around healthy active lifestyle. So, Alex, I'll turn it over to you.

Yes. Thanks, Michael. So I think, Karru, the question was then how does that then translate into numbers? And so whenever we've talked about sort of the financial model or the financial profile of Herbalife, if you end that net sales, the next step before that is to see growth, interactive sales leaders, before that is to see growth in your customers, your preferred customers, and new folks coming into the organization. As we're seeing these events happening, we're seeing all of the trends that ladder up to that net sales growth out into the future. So we know it's coming. The trajectory and the slope of that trajectory is a little bit difficult to forecast right now, but we know it's moving in a direction that suggests net sales growth in the fourth quarter And then we'll see how that translates into 2024 when we meet with you again, in February.

Thank you very much, guys. I'm sorry. Go ahead.

Yes. No, I was just going to add that there's two components to this. So as Michael said, 125,000 people around the world in the events there's an aspect of inspiration and motivation and validation when people are all together seeing what's happening within their markets and either other markets. And they're seeing the models that people are going to market with. And so there's the aspect of yes, being in the room, but then there's the lag of them going back to their homes, their cities and starting to implement a lot of the different models. And so when we look at the regions, really what you see is you see different levels of implementation of models. That are having a level of effectiveness in the marketplace. And so I think if you look at India, they did an amazing job through the pandemic and the transition and figuring their models out. If you look at a region like EMEA, it's also showing signs of distributors figuring out the models in the marketplace that are the most effective. And so this is the situation. It will take a little bit of time because people are some of the models are new. The ‘We Do Challenge’ that we mentioned, for some, it's only been a month that they've been working with it. For others, it's been a couple of months. And so there's always this kind of lag to when it translates exactly into numbers. But again, what we're seeing based on the activities, based on the participation, by the way, not just at extravaganza, it's all of the other events that are taking place. Some of them very specific to DMOs, which is really that level of support at the DMO and the B2C level that we're talking about. So Again a little bit of a lag, I can imagine that by the next quarter, we'll have more to share.

Thank you very much guys. Appreciate it.

Thank you. One moment for our next question. And that will come from the line of Hale Holden with Barclays. Your line is open.

Hi, this is Marianne on for Hale. Thanks for taking our question. You've discussed your focus on the US market given its recent underperformance. Could you provide some clarity around what is driving that underperformance and maybe any changes in consumer behavior that are negatively impacting results there?

So I think we've kind of hit that, on this call. I think generally, different markets have been coming out of the pandemic in different ways. The US is no different. The US is behaving in a way a little bit different than other markets. But the answer and the solution is the same. It's engagement. It's getting back to healthy active lifestyle. It's making customers understand the value proposition that Herbalife has. It's the engagement that we're seeing at extravaganzas and how that trickles through to, to further effectively show them the value proposition of Herbalife. So that's all happening. Yes, the slope has been, in other words, the recovery has a little bit slower than we would have hoped. But nonetheless, the trends are moving in the right direction and we're encouraged that, that we will be back to growth in the future.

Okay. Thank you.

Thank you. [Operator Instructions]. That will come from the line of Doug Lane with Water Tower Research. Your line is open.

Yes, hi. Thank you. Good afternoon, everybody. I just want to go back to China a little bit. I know it's only 7% of sales now it used to be 5 years ago, 20% or more of sales. So it's an important market, and I just want to get a better sense on two things. One, do you think we're nearing inflection point here? I noticed sequentially your sales have improved first quarter, second quarter, third quarter this year, And then secondly, Michael, you've been talking about China for forever and I've always been very bullish on it. And I just wondered if your longer term perspective on China has changed given the difficulties there in the last five years.

Hi, Doug. It's Michael. Long time no see no talk. China. China is one of those great enigmas, but it's a great opportunity for us. And if any market got hurt really badly during the pandemic, it was China where we were highly, highly leveraged in the business of Nutrition Clubs. And they've got different names and they've got different styles in that marketplace. But regardless, when China shut down, it wasn't like any kind of shutdown that any of us the western world experienced, couldn't leave your apartment, let alone operator business in brick and mortar. So that is coming back slowly differently. Stephan has been with the regional management team as well as with the distributors there who he knows very well. We brought in a few other distributors to sit down and map out a progress and a plan for the future in China that's going to change some of the way we go to market. We're going to look at different channels of distribution, different styles in which our distributors will be rewarded. The opportunity there, I believe, is still immense. There is a huge under, what should I say, under employment in 26 year old and unders in that marketplace, it's staggering the opportunity for us to bring a business opportunity and a health opportunity in that market. I believe still alive. It's going to take a little time for us to get back on track there. But believe me, and I've seen the action in the activity and we're looking at a strategic plan there. But I believe we'll get us back to maybe not to the numbers we enjoyed in 2017 to 2018 anytime soon, but it will get there. And I'm pretty confident that that marketplace will turn and become a vital part of our future in Herbalife. Stephan, you want to add anything to that?

Yes. Just to support what Michael is saying, I think that the pandemic and the tail there was just extremely long. I can tell you the timing also was very impactful. Opening up thousands of Nutrition Clubs just before and then having a period of two years, two and a half years where they couldn't operate. So I will say that the distributors there are focused. They're excited. The market opportunity is huge. And it's really just a question of figuring out post pandemic again. And I hate to say it, but it's just a reality. Of where we need to go and how we need to move there. And so I would say that the distributors, they see the opportunity, the management team sees the opportunity, It's just a question of giving it the time and attention that it needs. And that's what we're focused on. So Alex, I don't know if you want to add something.

Yes. And so, Doug, I think you were looking for an inflection point. I believe we have seen an inflection point. We had a second quarter larger than a first quarter, which have some seasonal impacts, typically second quarters are larger than first quarters, but you also had a third quarter larger than second quarter on the top line. So, it feels to us like we are -- we've seen that the bottom and we're continuing to grow from this base. For fourth quarter, don't expect necessarily the fourth quarter to be larger. There is seasonality still in China, but again, from a trend basis, I think if you look at our third quarter results and you look at some of the supplemental data, you'll be encouraged by what's happening in that market.

Thanks. That's very helpful. And just a quick follow-up, given that your business definitely feels like it's stabilizing. Is there any thought to resuming giving guidance here?

We'll come back to you next quarter on that. Obviously, we're still in a -- we're still in a world where the sort of the volatility from different shocks around the world is difficult to forecast at this point, but we'll come back to you in a quarter to see if there's an update to that.

Okay. Thanks, Alex.

Thank you. I'm showing no further questions in the queue at this time. I would like to turn the call back over to Michael Johnson for any closing remarks.

So thanks everyone for being on the call, joining us and asking the questions. Our vision in this company is pretty straightforward, we are going to be the premier health and wellness company and community. And this continues to evolve. The style in which we go to marketplace, this is a 43 years young company, what started in 1980 the business practices then, the fundamental ones of use wear talk, getting people face to face, building a community around the practice. Those are all still the same. The opportunities for us in the future are to expand ourselves across multiple channels, about making sure that we build a model that is relative to the consumer, to our business partners, to our distributors, to make sure that they can profit and build an incredible business in their lives. We've seen so much success in 43 years, and we see the opportunity for us only getting better. I want to welcome to our team, Susan and Claire and Stephan. We have brought new ideas into this company already. We are already building for a future. We visit next week with our distributors in Japan, our leadership. We'll sit down with them and share with them what we shared with our board of directors in a strategic plan last week that shows us getting back to growth. Shows us building this company stronger, building on that promise that we made you that the fourth quarter will be a net sales gain for us in the marketplace. We still believe in that. We still see that coming. The indications are very good. We always are going to have challenges in the 95 market business. The thing that just came up in Mexico with the potential suspension of our product into the marketplace got alleviated today. On that, we still will have to refill some of that pipeline. But this is business in the world today. This is the way we operate. This is the challenges that we face. But we're going to continue how we can discuss to build and drive our communities better to ensure that we bring this company to the next level. We're on a great journey here. This is really something that's exciting. And I'm excited about it. I know that all the senior team and all of our distributors share in fact that we know we've got work to do to continue our growth trajectory, but we also know that that's possible and its potential is great and its right in front of us. So we're engaged, committed, we're on the right track, and we got momentum. So we're going to stay the course. We're going to change the course when we need to and remain committed to help people live their best lives. So I want to thank you all for your continued support and it wouldn't be me if I didn't say let's go Herbalife at the end. Thank you all very much.

This concludes today's program. Thank you all for participating. You may now disconnect.