Herbalife Ltd.

Good afternoon, and thank you for joining the fourth quarter and four-year 2021 Earnings Conference Call for Herbalife Nutrition Limited. On the call today is Dr. John Agawadnobi, the company's chairman and CEO, John DeSimone, the company's president, Alex Amoskita, the company's chief financial officer, and Eric Munro, the company's senior director, investor relations. I would now like to turn the call over to Eric Munro to read the company's safe Harvard 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 statement 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 available at the Investor Relations section of our website, Herbalife.com. 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 chairman and CEO, John Aguinobi. Good afternoon.

Thank you for joining us on the call today. 2021 was another record year for Herbalife Nutrition. Even during this period of continued global uncertainty due to the pandemic, Our entrepreneurial direct sales channel helped consumers around the world pursue their nutrition and wellness goals by giving them access to our high-quality nutrition products. For the full year, demand for our nutrition products resulted in net sales of $5.8 billion, an increase of 5% compared to the prior year and an annual record for the company. Our three largest regions, Asia-Pacific, North America, and EMEA, along with 37 individual markets, set annual net sales records. Full-year 2021 reported diluted earnings per share of $4.13 and adjusted diluted earnings per share of $4.79 was an increase of 49% and 29% respectively compared to the full year 2020. Full year 2021 reported net income of $447 million and adjusted EBITDA of $874 million were both annual records for the company. For the full year, we averaged over 500,000 active sales leaders per month, a record for the company and an increase of 9% compared to 2020. We brought in 2.9 million new distributors and preferred customers, which was down just 1% compared to 2020 and actually up 31% compared to the more normalized 2019 year. We continue to broaden our reach and attract new audiences in 2021 with two thirds of our new distributor and preferred customers identifying as millennials or Gen Z. This younger demographic drives a high level of business activity by engaging with the business in new ways, including innovative nutrition club models and increased utilization of social media and digital tools. Today, we also announced sales leader retention results for the last 12-month requalification period ending in January of 2022. This year, a record 68.9% of our sales leaders were retained, up from last year's prior record of 67.9%. We believe this result reflects the ongoing sustainability of our business and the attractive opportunity that we offer to our distributors. Turning to the fourth quarter, our net sales of $1.3 billion decreased 7% compared to the fourth quarter of 2020. The Q4 year-over-year trend was impacted by a challenging comparison period. On a two year stack basis, we saw growth of 8% compared to the fourth quarter of 2019. As I now go a little deeper into our regional performance, I shall touch on a few forward looking key initiatives that we expect will contribute to a return to year over year growth in the back half of 2022. The Asia-Pacific region had another quarter of growth, up 5% compared to the prior year. The region was led by continued strength in India, which grew 33%. India is supported by strong underlying metrics, including 35% year-over-year growth in new distributors and in preferred members, as well as a 32% increase in active sales leaders. We're making investments in India to further support the market with a newly opened 150,000 plus square foot state-of-the-art center in a suburb of Bangalore. The new facility will allow us to accommodate planned growth in India as we go from the current level of 900 jobs to approximately 1,500 employees over the next five years. The space will be home to a new local product research and development facility designed to accelerate new product launches. It will also contain a state of the art quality control lab, a distributor meeting facility, and a global business services center. Looking at North America, we saw a decline in net sales of 3% in the quarter. This decline is up against a challenging prior year comparison period. However, the two-year stacked growth rate in the region increased by approximately 29% compared to Q4 of 2019. One area of continued strength in North America is our U.S. nutrition club business. We ended the year with over 12,000 nutrition club locations, an increase of more than 30% compared to the end of 2020. We're excited to see our sales force is energized by the return of in-person distributor events across the North America region, which began in October and continued with 36 separate in-person events so far in 2022. Although several Q4 events were disrupted by the Omicron variant, attendance has been high for these events. And we believe the interactive discussions, the face-to-face team building, and the social elements that are characteristic of our in-person events are all an important source of ideation, motivation, and inspiration for our distributors. Additionally, In North America, we're pleased to share that we recently acquired intellectual property that will serve as the basis of our first ever vegan product line in the region. It's expected to launch in early 2023. We believe this line will allow us to reach a brand new market of savvy vegan consumers who are looking for certified vegan and organic nutrition products and dietary supplements. EMEA experienced a challenging year-over-year comparison, resulting in a 7% decline. However, in the region, we actually saw a 9% year-over-year increase in the number of active sales leaders, which reflects the continued strength and the solid foundation of the EMEA business. Looking at the two-year stack in the region, EMEA grew 21% compared to the fourth quarter of 2019. Although the combined new distributor and preferred customer numbers are lower than Q4 of 2020, we saw growth of 23% compared to the more normalized 2019 comparison period. We're in the early stages of a new project in the region designed to re-architect our distributors e-retail and ordering platform. The goal of this initiative is ultimately to completely overhaul and modernize all our current ordering platforms with growth in mind. And we're currently in the vendor selection phase for this project and expect a new platform will be available for our distributors in the region in 2023. The softness in our China business continued in Q4 as net sales declined 31% compared to the fourth quarter of 2020. Pandemic-related disruption contributed to challenges in attracting, training, and retaining new entrants in the market. We remain confident that our strategic initiatives aimed at enhancing digital capabilities and daily consumption at nutrition clubs is going to end up benefiting our sales performance over time. In Mexico, sales declined 5% in the quarter following three quarters of growth as the market was adversely impacted by intermittent pandemic-related disruption. Although our business wasn't directly impacted by any government pandemic-related restrictions, we do believe that a high case number during the quarter impacted attendance at our nutrition clubs. Beginning this year in Mexico, we initiated a new weekly commission payment system that enables distributors to receive their commissions on a weekly basis instead of a monthly basis. This is a first of its kind payment system for Herbalife Nutrition, and it's an exciting opportunity for our sales force to receive their earnings more frequently and expedite their cash flow patterns. We will be analyzing this program's success, including its impact on distributor metrics, and evaluate the possibility of extending it to additional markets in the future. For the South and Central American region, the fourth quarter declined 14% year over year. The region was negatively impacted in markets such as Brazil and Colombia, where government restriction related to COVID-19 persisted throughout the quarter and impacted our Nutrition Club activity. More broadly in the region, the pandemic has contributed to macroeconomic challenges which have impacted consumer spending. Turning to our 2022 outlook, we're initiating net sales guidance to be in the range of flat to 6% growth for the year. We expect the progression of year over year comparisons in 2022 will shape the cadence of our quarter to quarter performance. We estimate first quarter net sales to decline in the range of down 10% to down 4%. However, We anticipate that the decline will improve in the second quarter, and as previously stated, we expect to return to year-over-year growth in the back half of the year. Like many other companies, we expect the bottom line in 2022 to be impacted by unique inflationary pressures being felt across many markets. We are currently observing higher-than-usual cost increases in our supply chain with respect to raw materials, shipping costs, and labor at our manufacturing facilities. This pressure, as well as cost increases expected due to a return to normalized levels of in-person distributor events and activities, are resulting in expected declines for adjusted earnings per share and adjusted EBITDA versus 2021. We anticipate, however, that we can partially offset cost increases in our supply chain by executing on our pricing strategy, which is to increase prices in a way that keeps up with local CPI in each of our markets. In 2022, we don't expect pricing will fully offset all cost increases, which will result in a net headwind to gross profit of approximately 100 basis points for the full year. Our efforts to improve margins through productivity and efficiency improvements within our business operations are also anticipated to help offset the near-term margin pressure that we face. One specific opportunity to achieve this is through our Transformation Program, first referenced on last quarter's call. This program is a structural realignment of both the front and back office with the goal of ensuring our infrastructure processes and organizations are efficient and scalable to support our business growth. Once fully executed, we expect the first phase of our transformation program will result in ongoing incremental savings in SG&A of $10 to $15 million per year. We're also assessing a second phase of the program, which we're preliminarily planning for 2023 and anticipate that it will result in annualized savings in the same magnitude as phase one. Alex will provide more details on our transformation program, as well as our annual and Q1 guidance in just a moment. We continue to execute on our long-term growth strategy, including product innovation. And in 2021, regional product launches contributed to over 400 new SKUs in the company's portfolio. Approximately 100 of these new SKUs have been part of our fast-growing energy, sports, and fitness category, which continue to lead our core product categories with an increase of 26% for the full year. Our commitment to product is one of the factors that led us to be recently named by Euromonitor as the number one brand in active and lifestyle nutrition, as well as the world's number one Health Shake. The success of our company is rooted in the work and the dedication of not only our distributors, but also our employees. And I'm honored that Herbalife Nutrition was selected as one of America's best midsize employers and one of the top 10 employers in our industry in the 2022 Forbes rankings. Each member of the Herbalife Nutrition team is valued and their contributions are helping us expand access to good nutrition and economic opportunities all around the world. I'm confident that these positive impacts will only continue to grow in 2022 and beyond. I'll now turn the call over to Alex.