Herbalife Ltd.

The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1. Good afternoon, and thank you for joining the second quarter 2022 earnings conference call for Herbal Life Nutrition Limited. On the call today is Dr. John Ogwunobi, 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 Monroe to read the company's Safe Harbor language.

Good afternoon. On today's call, we will be making some forward-looking statements. And while we are making those statements in good faith, we do not have any guarantee about the results we will achieve. Descriptions of our risk factors are included in the documents we filed with the SEC. We will also be discussing some non-GAAP financial measures. These non-GAAP and adjusted numbers refer to measures that exclude items management believes impact the comparability for the period referenced. Please see the earnings release for additional information on our comparability items. These GAAP to non-GAAP reconciliations can be found in the earnings press release and the slides we will be reviewing on today's call, both of which can be found in the investor relations section of our website. I'll now turn the call over to Chairman and CEO, John Aguinobi.

Thanks, Eric, and good afternoon, everyone. Thank you for joining our second quarter 2022 earnings call. You might have noticed that we've enhanced the format of our call by adding a slide presentation to accompany our verbal remarks. We hope the enhancement not only makes it easier to absorb our quarterly update, but also provides for a richer understanding of our business performance. I'll start with the highlights of what we'd like you to take away from our call today. First, I'm pleased to announce our second quarter financial performance exceeded the top end of our guidance range for net sales, volume, adjusted EBITDA, and adjusted EPS. As you might recall, last quarter we saw a slowing of business trends and certain underlying KPIs at the end of the first quarter, which continued in April. With that backdrop, we're also pleased to update you that compared to April, our business trends and metrics appear to have stabilized in the months of May and June. That said, we acknowledge that there's still a significant amount of work to accomplish, particularly around improving our new distributor and new preferred customer metrics. I'll go deeper into our KPI trends in a moment. To address the macroeconomic landscape that many companies are facing, we implemented meaningful price increases in mid-June to partially offset the dramatic inflationary increases that we are seeing in our input costs. As a reminder, our raw material manufacturing overhead and freight costs are increasing ahead of local consumer price indices. We believe the timing of these pricing actions largely drove the top-line outperformance that we achieved in the second quarter. Specifically, pre-buying ahead of the price increase resulted in sales activity being pulled forward from July into June. Our guidance for the third quarter includes the impact of this pull forward. It should be noted that even without the pull forward, our Q2 top line performance was in line with our guidance. As such, we are reaffirming our full year 2022 guidance for net sales and volume. We're also reaffirming our adjusted EBITDA guidance for the full year 2022. We anticipate the execution of expense management initiatives that help drive our adjusted EBITDA performance in the second quarter will continue throughout the year and will help absorb the significant incremental FX headwind on EBITDA. However, in addition to the FX headwind, an increase to our full-year tax rate as well as the incremental cost of our variable rate debt as a result of Fed tightening are primary drivers of a 25 cent reduction to our adjusted EPS guidance range. Looking to the future, after significant analysis on our digital strategy, we are launching Herbalife One. This will be the cornerstone of our front end distributor facing technology platform. More on this investment in our future in just a moment, but let's get into the details of the second quarter. Reported net sales for the second quarter declined 10.3% compared to the prior year, which exceeded the high end of our guidance range. As a reminder, our second quarter of 2021 was the largest quarter in the company's history, which benefited from situational demand related to the pandemic. With this backdrop, despite the year-over-year decline, when compared to the last pre-pandemic second quarter of 2019, net sales grew meaningfully by 12.3%. Reported net income of $87 million resulted in adjusted EBITDA of $195 million, which is also above our guidance range. EBITDA margin in the quarter was 14%, which was a sequential improvement compared to our Q1 margin. Reported earnings per share of $0.88 resulted in adjusted earnings per diluted share of $0.96, beating the top of our adjusted EPS guidance range. In addition to the top line beats, the team took decisive actions to execute on expense management initiatives that contributed to the bottom line beat. This is in addition to our transformation program that we discussed last quarter. We completed approximately $30 million of share repurchases in the second quarter, bringing our year-to-date total to approximately $132 million. This buyback was consistent with our methodology of returning our excess cash flow to shareholders through share repurchases. Our underlying business trends and KPIs stabilized during the remainder of the second quarter compared to April levels. One of our KPIs, average active sales leaders, showed monthly improvement in the months of May and June. For the quarter, average active sales leaders of approximately 482,000 was just 3% under last year, but were significantly higher than pre-pandemic levels, which were in the low to mid 400,000s. New distributors and preferred customers joining the business have also stabilized off April trends, showing a slight improvement in the months of May and June. While still above pre-pandemic levels, our recruiting trends remain meaningfully below 2020 and 2021. We view this as an opportunity to drive growth, and we are working closely with our distributor leadership on ways to increase the number of new members entering the business. During our first quarter call, we stressed the importance of returning to in-person events as a potential catalyst to return to growth. As a reminder, we believe that the interactive discussions, face-to-face team building, and social elements that are characteristic of our in-person events are all an important source of ideation, motivation, and inspiration for our distributors. Based on a sample we analyzed from a series of US events in April, We measured both increased activity rates and productivity from distributors that chose to attend an in-person event versus non-attendees. During the two months following the event, May and June, we observed an improvement of 8 percentage points in activity rates and a 10% improvement in productivity from those that attended an event in person versus non-attendees. Again, we believe in-person events are one of the best opportunities to educate, train, and motivate our distributors, particularly those that are new to the business. Turning to our regional results, where I will highlight activities from our two largest regions. The Asia-Pacific region had another quarter of growth, up 15% compared to the prior year. and set a quarterly sales record for the company. The region was led by continued strength in India, which grew 30%. India is supported by strong underlying metrics, including 25% year-over-year growth in new distributors and preferred customers and 37% growth in active sales leaders. The preferred customer program in India has been a significant driver of growth in the market as both a means to engage new product consumers as well as to introduce consumers to the potential business opportunity. Over 40% of our total sales leaders in India converted from the preferred customer program to become distributors and go on to eventually qualify as sales leaders. Looking at North America, we saw a decline in net sales of 16% in the quarter. This decline is against a challenging prior year comparison period from the largest quarter in the region's history. However, compared to Q2 2019, prior to the pandemic, the business increased by approximately 23%. Distributed recruiting remains a focal point for the region. Just a few weeks ago, we hosted our first in-person region-wide extravaganza for NAM since 2019, with attendance of over 20,000. As a result of the stabilization of business trends observed during the second quarter, despite a significantly stronger U.S. dollar, we are reaffirming our volume point, net sales, and EBITDA guidance for the year. Our guidance continues to imply year-over-year net sales will show growth for the fourth quarter. For the full year, our updated adjusted earnings per share guidance includes a projected year-over-year currency headwind of approximately $0.55 per diluted share, an incremental $0.32 headwind from prior guidance. Alex will provide more details on our guidance in just a moment. Moving on to the launch of Herbalife One, the future of Herbalife Nutrition's digital technology. Designed to supercharge distributor growth and elevate customer experiences around the globe, Herbalife One will be our first ever unified data and AI-powered global digital platform, enabling growth by delivering a best-in-class digital experience around the world. From reimagining sign-ups, e-commerce, downline management to providing seamless payment options and other innovative capabilities to drive ongoing engagement, satisfaction, and loyalty, Herbalife One will help differentiate and strengthen our leadership in the market. We will build Herbalife One on a brand new architecture that will allow for scalability, flexibility, performance, and speed to market of future capabilities, laying the foundation for our future success. We are projected to invest approximately $400 million in this program, with net incremental expenditures of $200 million to $250 million over the next three years. Herbalife One represents the single most significant investment in the company's history, and it demonstrates our confidence in the potential of our business. I'm also proud to announce that we're making some executive leadership promotions to ensure we are better supporting our independent distributors and unleashing the potential and power of our regional teams. John DeSimone will become executive vice chair of the company. John's vast experience and unmatched knowledge of our company will enable him to work on transformative growth initiatives that are central to the company's future. Additionally, we are looking to move more responsibility to the regions, and we're creating three regional presidents. Stephen Conchie will be the regional president of APAC and China. Eddie Heinrich will be the regional president of EMEA and India. And Frank Lamberti will be regional president of the Americas. These individuals have proven to be effective leaders, and their new titles reflect the importance of their roles. These three people will also report directly to me, and I look forward to their continued contributions. Before I turn it over to Alex, I'd like to say that we have unwavering confidence in the resilience and strength of our distributors. We continue to innovate with local product development, which resulted in approximately 60 new SKU launches during the second quarter and over 20 new launches so far in Q3. We believe our ongoing investments in our business and products will drive performance and ultimately create meaningful shareholder value. I will now turn the call over to Alex.