Herbalife Ltd.

Good afternoon, and thank you for joining the fourth quarter and four-year 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 is being recorded. I would now like to turn the call over to Aaron Baez, Vice President and Head of Investor Relations, to begin today's call.

Thank you, Tawanda, and good afternoon, good evening, everyone. Joining us today are Michael Johnson, our chairman and chief executive officer, Stefan Graziani, our president, and Alex Amaskita, 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 the comparability of the periods referenced. Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial 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 happy Valentine's Day, everybody. You know, you guys, when I returned to Herbalife in late 2022, we met in Cairo immediately. It was the 1st of November, and we set out a vision for Herbalife. And that vision is to be the world's premier health and wellness company, community, and platform. We're working on it, and we're working towards it. the results are getting very exciting 2023 though was a very challenging year we all know that so we laid out a plan to have net sales growth by the fourth quarter which we delivered our year-over-year net sales trend improved every quarter in 2023 we modernized our brand we updated our look and we modernized our digital atmosphere We enhanced our data management and transactional capabilities. We launched new websites in markets representing 70% of our sales. On the product front, we introduced 17 innovative products that supported our distributors' businesses, and we launched our first-ever vegan line. And it was so successful, the demand higher anticipated, we experienced out-of-stocks. Not proud of that, but it's been a great line with great success. We had strong cash generation. Our 2023 free cash flow exceeded 2022. We paid down debt ahead of schedule. Our transformation program, we took out $115 million out of SG&A, which exceeded the $70 million we set out to achieve. We did this through an aggressive back office consolidation. This helped us build out centers of excellence in Krakow, Guadalajara, Bangalore, and Kuala Lumpur. We employed an aggressive distributor engagement plan. Between corporate and distributor events, we're back in action. Our retention is up. Those are the news points from 2023. So now let's focus on where we're going in 2024. We know the road ahead. Our top line sales and recruiting of new distributors and customers is our number one focus. Bringing stuff on end to work with an incredible team of executives here is helping Herbalife get closer to the market, dive into analytics and data to support distributor businesses for insights and opportunity. It's allowing us to maximize sales and business opportunity through customer and distributor acquisition, productivity, and retention. We are deploying account management teams more aggressively in the field to work closely with distributors to support their distributor methods of operations in more aggressive manners. We are investing and positioning ourselves for growth through 2024. Based on our line of sight today, we are forecasting this year to be relatively flat. With that said, stay tuned. USA is our major focus. We get it. It's our home court. It's important to all of our stakeholders, to you, our investors, to our employees, and our distributors. We are in this to succeed, to get growth back into North America. We need to drive top-line growth here in the USA to get deeper and closer to the market, which is what we are doing. Great product for the market. Already mentioned the vegan line, which is an exciting product for us, opening up new customers, new distributors, and new opportunity. In the GLP world, we've just launched Nutrition Companion product combos. It is positioned to meet market demand. It's ready to support our distributors and respond to any demands they have from their customers in the marketplace. Distributors are looking at unique ways to work with their local markets alongside GLP-1 providers. There's going to be more news about this as the year unfolds. We are ready to support them in their innovation, and they bring it to us, and they enhance their markets locally. We have studied this market very, very closely. We're also excited about the CDC Diabetes Prevention Program, which allows our distributors to be more deeply trained in offering their customers a lifestyle change enhanced by weight loss and behavioral modifications. So let's summarize North America. I'm spending a lot of time there because it's so important to us. Get recruiting up. Get customers and distributors. Get more of them into Herbalife with great products, with great business opportunity, and with great innovation in our company. Get closer to our distributors and their methods of operation. Deliver a robust suite of digital and data tools that will enhance distributors' business opportunity. And deploy our events specific to DMO training. We are creating the distributor training unique to Herbalife that Stefan will detail. This will be something unique to our company and that we're very, very excited about. Let's take a look at the other major markets. We're in China. We're back in action. We have reemerged past the pandemic, post the pandemic, and past the pandemic. There has been a large amount of time spent by Stefan, the China team, and myself to engage with our China leadership, both distributors and executives, to support our business there. You see good things on the horizon in China. India continues to grow. We have a great management team there, localization of product and business opportunity, and a highly energized distributor organization that continues to push the business forward. In Mexico, we're moving forward from supply chain challenges experienced in the latter part of 2023. We limited the shortfall by working diligently, engaging with the Mexican authorities. Like North America, we're obsessively focused on both top-line growth and margin expansion. This week, we announced an incredible new relationship with the Mexico Olympic Committee. This is very exciting. It builds our brand and standing in Mexico. Some of our products will be branded with the Olympic logo. We are the supplying product partner for athletes. We are providing our science and doctor support for the Mexican Olympic Committee and athletes. This is in addition to our partnerships with the National Olympic Committees of Israel, Vietnam, Greece, and Italy. These partnerships, along with our global athletic sponsorships, including Cristiano Ronaldo and Burak Kohli, enhance our brand universally and are in line with our healthy active lifestyle values. These are great for our distributors, our customers, and our brand. So before I turn it over to Stefan, let me reiterate our goals for 2024. Sales, sales, sales, sales. Getting our organization more effective and deployed to enhance our distributors' acquisition of customers and new distributors. margin, maniacal, about cost efficiency and proper alignment of resources. And finally, let me turn to the balance sheet. This year, we will refinance our senior credit facility, and we will use our excess cash to continue to pay down debt. Now, before I turn it over to Stefan, let me just do a quick introduction of him. When we brought Stefan in to work with this management team, our whole goal was to get closer to the market, to have a distributor voice mind and mindset inside our company. His deep well of experience and knowledge has helped us already massively. He's proved to be a transformative leader, and I'm proud that we promoted him to president this year. So, Mr. President, on to you. Thank you, Michael.

Well, it's been an exciting six months since I joined the company. Last quarter, we talked a little bit about the long-term vision of things for the company and really how we are going to be a sustainably growing company in the future. Michael's mentioned becoming the world's premier health, wellness, company, community, and platform. And so a little bit just to talk about that. We have tens of millions of customers. We've got millions of distributors that work every single day face-to-face with customers, adding value to their lives. They are teaching them better nutrition habits. They're involving them in healthier lifestyle habits. They're getting them on Herbalife products and helping them to get results. As a company, Many of those and most of those customers don't live on a platform with us. As a company, we can deliver a lot more value to them, and that's part of what the Herbalife One ecosystem is going to be about. As a company, delivering more value to customers and allowing those customers to be closer to the company, live in a platform and with a platform that delivers value to them, that they want to be a part of, and that they have many of their needs met and they're stacked on top of the distributor's values. what they bring every single day. And so long term, this is where we're going as a company. In the future, the vision is to have tens of millions of customers and support millions of distributors and deliver value to both of these parties. Shorter term, we have things to work on, as Michael said. When I first came in, the focus was getting close to the markets, with the specific attention on China, the US, and Mexico. We spent a lot of time working with the regional heads to better understand the business needs and the opportunities in front of us and developing the strategies that we need to move forward with locally. An example of this is China, like Michael just mentioned. The executive team has spent more time on the ground in China with our service provider leaders and local team last year than we did in the last three to four years. We appointed Stella Tsai as managing director. She's one of our top leaders who ran North Asia and has more than 20 years' experience, and she will report directly to me. The business is stabilizing, we have positive momentum and a clear plan for 2024 and we're excited. Another market of focus has been the US. Again, we spent a lot of time analyzing the business and all of the growth that happened over the last six to seven years, the post-pandemic market and the macro situation. As you know, nutrition clubs in the US are the most important part of our business. It's also what differentiates us from almost any other business in the MLM industry and also the nutritional supplements industry. It's an incredible business, and we're seeing lots of opportunities to leverage and build upon that foundation. I'm going to give some high-level numbers for the first time to illustrate this, but first I want to give a bit of background. If we go back 10 years ago in the U.S., our nutrition clubs were primarily service-based nutrition clubs. What does that mean? Meaning almost all of the clubs, they were offering different types of services. Distributors were doing wellness evaluations, teaching people about nutrition, personal coaching, offering different types of workouts, running weekly weight loss challenges. And all of this was to help people learn about the Herbalife Nutrition products, make lifestyle changes, and ultimately get results. In the U.S., for a few reasons, the club started shifting and moving to more of a food service offering, by the way, which opened an entire new vertical of business for us and created tremendous growth, especially during the pandemic, where food services were seen as essential. That model gained a lot of momentum and some of the other models and the service models kind of moved out of focus. I'll say that it's really mostly a US phenomenon. The rest of the clubs around the world, they've really remained primarily the same service focused clubs that we've had for so many years. But when you consider that just 10 years ago, we didn't have a food service business, the numbers are quite impressive. And so in 2023, we had 4.4 million unique customers in our US nutrition clubs. They generated around 55 million transactions, with an average transaction amount of $16.50. That's 900 million in retail business for our clubs. It's an incredibly strong foundation, and we believe we have lots of opportunities there. For example, our preferred customer conversion rates are as low as 1% in some clubs. Just to give you a bit of context, people that are walking in, if you have 100 people walking in to buy a healthy shake, an energy tea, some type of a food item that they're just basically consuming and then leaving, only 1% of them actually become Herbalife customers that get on the program, are ordering supplements, using them at home. It's a huge opportunity for us. We have other clubs that are doing more multi-service, that are still doing the types of services that the clubs were doing years ago, And the conversion rates for those clubs are north of 10%. So there's a big delta there and a big opportunity. We believe that the upside there can be very big. And our job is going to be helping the clubs, giving them the tools, the understanding, making accessible what they need to be able to offer all of the services that are out there that can add value to the clubs. We see some clubs, by the way, already there starting to do this that weren't doing it three to six months ago. An example of that would be clubs that are now participating in 21-day challenges, like the WeDo challenges. As Michael mentioned, we also just launched our GLP-1 companion packs, and it's already getting attention. We've got some distributor leaders that are actually reaching out to different providers of GLP-1s and who have patients that are looking for nutritional support and supplements. As that market continues to grow and more people are using GLP-1s, there'll be an even bigger opportunity for us. Michael also mentioned the CDC program. In March, we have over 100 distributor leaders who are starting a training program to become certified life coaches to be able to help people in their communities and clubs by delivering the CDC Diabetes Prevention Program. We believe by building off the strong foundation of nutrition clubs in the U.S. and offering additional services presents a huge opportunity for us. There's a lot more that I can say about that, but I'm going to leave it at this. Another area of focus is really how are we going to bring the most value possible to our distributors. In my experience as a distributor for 32 years, there were some things that helped me successfully to build my organization. One of them was focusing on leadership development and constantly upskilling the teams. Whatever they were missing, whatever they needed, at whatever level they were at, was being able to deliver them the things that would make a difference. One-on-one coaching made a big difference. Any time that I could get and my leaders could get spending time one-on-one with people, going over the business metrics, going over the models that they were operating, going over the plans and the goals for the future and how they were going to get there made a huge difference. The last thing was helping to ensure that as time progressed and markets shifted, that the leaders have the most effective DMOs in place to be able to maximize market opportunities. Those main areas of focus, as a company, as we move forward, are going to have us doing some things differently. One of them is that we're going to be putting into place, as Michael mentioned, we're going to be formalizing and standardizing an account management operating model, which is going to bring one-on-one support. We will have literally hundreds of people within the company, eventually thousands, that will be interacting with tens of thousands of distributor leaders in the market sharing with them metrics, standardized, formatted, done in a way that they can see what's happening in their businesses, the upside opportunities that they have, learning about the DMOs that are making the biggest difference and being connectors for them. This is something that will make a huge impact in the company, I believe, in the future. It's something that I personally did in my own business and was a huge part of why I and my teams became successful. That's one thing. The other thing is we're also going to be redesigning our training and events to deliver more value and better fit the needs of the distributors and the leaders. Just a bit of background. Historically, our training structure has been kind of generic, meaning that when we do monthly events or quarterly events, we bring people in from all different types of DMOs, all different types of demographics, and we train them on pretty generic things. the company's marketing plan, product trainings, we do recognition, you know, and we will touch on and show different DMOs, but we don't do in-depth training for DMOs. The impact is that people get a good vision for what's going on, but they don't have the details and the specifics of how to drive in their models and get the best results. And so there's a shift that's happening now. We are going to be moving from giving more details generic training, as we've been doing, to very specific DMO training. Over the past two months, we have things that have never happened in the history of the company. We have master classes and DMO-specific training that's happening at levels that, quite honestly, is impressive. We've had three DMO-specific trainings over the past two months, and we have one coming up this next week. In the United Kingdom, we had a Breakfast Budget Club master class. We had over 1,200 distributors from 32 countries there. This club is one of the best-performing DMOs actually in the entire region of Europe, and it is something that is an amazing fit for that region. So to have those numbers of people that are in an event specifically, entirely, for a day or two, learning all of the details, gives them the capacity to go back to their markets with enough knowledge to implement and make the DMO happen. We also had just very recently a marathon class last weekend in Belgium where we had 1,800 participants from 34 markets. Again, focused on one DMO and how to put this DMO into action specifically to go out and drive business. One of the top growing distributors in the whole European region also is using this specific way of going to market, marathons. Just last month, we had a We Do Transformation event in Las Vegas. We had almost 4,000 people in person and virtually. This is another model that's helping people to go out, whether they have a club or whether they're working through social media at home, and to be able to go out, talk to people, get them into a challenge, get them on Herbalife products, help them to get results, and to drive business. And so we are going to see more and more of this. as we go through this year, we are still going to have events where we give the vision and we help people to understand what the opportunity is with Herbalife. But we need to go more specific into trainings that people can take the knowledge, the information, and go and put it into action to drive top line sales. The last thing that I want to talk about that Michael referred to is something that, quite honestly, I've never seen in our industry. I think it's unprecedented. I don't think there's ever been a company that's done this in this way and with this individual that I believe is going to give huge value to our company. We are going to and have entered into an agreement with the leading expert in the multi-level marketing business, someone that has written a book, that has helped millions of people through the book, through courses, to learn what it is to become a professional distributor with a multi-level marketing company. This person has for over 15 years developed his skillset. He has trained more people in different companies. He has more knowledge about different companies in the industry. What are the things that's working today? What are the things that distributors have to navigate as they start from the very first day until they reach the highest levels within any company. We're very excited to have Eric Worre be a part of Herbalife and partnering with us in a very special multi-year contract. And he is going to be delivering for our distributor leaders content that some distributor leaders are paying tens of thousands of dollars for. Now, I just kind of want to put it into context. We have some of our top leaders. that are actually in programs with him and are getting tremendous value. As a company, to be able to take someone that's making that type of an impact and have him train not just a few distributors, but tens of thousands of distributors and potentially hundreds of thousands at different levels, we believe that this is a game changer. So I'm going to leave it at that. Let me turn it over to Alex.

Thank you, Stefan. I'll begin my section with the key financial highlights. Our fourth quarter revenue was 1.2 billion. This is up 2.9% versus the fourth quarter of 2022, and it's the fourth consecutive quarter of improved year-over-year net sales trends. And while we know there is a lot more work to do in several of our key markets, delivering on the expectation of net sales growth in the fourth quarter is an important step as we move forward. For the year, we achieved 5.1 billion of net sales, which is down 2.7% versus 2022. Our current expectation is that we will improve our full year net sales trends to relatively flat versus 2023. For fourth quarter, we held gross profit margin flat versus Q3 at 76.3%. Compared to Q4 of 2022, gross profit margin was down 120 basis points. While the pricing actions we have taken over the past year provided an approximately 100 basis point benefit, we continue to face headwinds from input cost inflation and unfavorable manufacturing absorption rates on lower production volumes, which drove an approximately 210 basis point negative impact. As we look forward to full year 2024, we expect gross profit margin to be relatively flat to 2023 levels. We have seen input cost inflation stabilize and now trending at levels at or below our ability to price in 2024. Q4 adjusted diluted EPS was 28 cents. On a year-over-year basis, the fourth quarter was negatively impacted by higher input cost inflation, the non-repeat of $9 million of non-income tax items, and an increase in our technology spend as we continue to enable capability in our Herbalife One platform. Our 2023 adjusted effective tax rate was 25.3%, and we anticipate our full year 2024 adjusted effective tax rate to be slightly elevated versus full year 2023. Full year 2023 operating cash flows exceeded 2022, and 2023 free cash flow was up 26 million year over year to 223 million. During 2023, our cash flows significantly benefited from the working capital optimization. Our operations team executed well in right-sizing inventory now that the global supply chain has stabilized. Full year 2023 adjusted EBITDA was 571 million, which represents a margin of 11.3%. Our pricing actions over the past year resulted in an approximate 270 basis point benefit, which outpaced the approximate 220 basis point headwind from higher input costs. Currency continued to be a headwind throughout most of 2023, driving an unfavorable year-over-year impact of approximately 90 basis points. Unfavorable sales mix and increased promotional spend due to a further increase of in-person events also negatively impacted full-year margins. In 2023, we have been sharply focused on productivity initiatives to best manage margin while also investing in the modernization of Herbalife. Our transformation program, which is primarily focused on better effectiveness of our internal support functions, has significantly exceeded our original expectations. Based on the actions we have taken through the end of 2023, we are now expecting the program to produce at least $115 million of benefit in 2024, much higher than our expectations when we met a year ago today. In 2023, the program delivered approximately $70 million of cost benefit, with approximately $27 million realized in the fourth quarter. During the fourth quarter, we recognized an incremental $12 million of pretax expenses in SG&A related to the program, primarily related to employee retention and separation costs, bringing our total program-to-date pre-tax costs to $79 million.

These expenses are excluded from our adjusted results. Securing our balance sheet and managing our debt capital structure has also been a key focus area.

We continue to be on track to address our upcoming maturity of our 2024 convertible notes with cash liquidity, and we have initiated a process to refinance our senior credit facility. which matures in 2025. Moving to slide 10, reported net sales for the fourth quarter were 1.2 billion, up approximately 34 million, or 2.9% versus the fourth quarter of 22. On a constant currency basis, net sales were up 2.5% year over year on lower volume points. Adjusted EBITDA for the fourth quarter was 109 million, down approximately 22 million from Q4 of 22. Adjusted EBITDA margin for the fourth quarter fourth quarter was 9.0% and was impacted by higher input costs, unfavorable manufacturing absorption, and non-repeat of certain non-income tax-related benefits in Q4 of 22, partially offset by higher pricing and continued cost-saving initiatives. We had strong cash generation in the quarter. Free cash flow was up 50 million year over year, primarily due to favorable working capital changes in the fourth quarter versus the prior year. Cash on hand was up 80 million, from September 30th to $575 million at the end of the year. Moving to slide 11, we see the drivers of our year-over-year increase in net sales. While overall volume was down 2% year-over-year, it was more than offset by approximately 410 basis points of pricing in the period as a result of price increases implemented over the past year in a majority of our markets. The price increases were instituted to address region or market-specific conditions and we're generally in line with local CPI. Favorable country mix drove a 40 basis point benefit, primarily due to increased sales in China, partially offset by higher sales in India and lower sales in the U.S. relative to our overall net sales portfolio. Favorable currency movements, primarily for the Mexico peso versus U.S. dollar, resulted in an approximate 40 basis point FX tailwind year over year. Moving to the adjusted EBITDA margin bridge on slide 12, Q4 adjusted EBITDA was $109 million, with margin at 9.0%. Adjusted EBITDA margin benefited by approximately 130 basis points from the pricing increases we implemented year over year. However, elevated raw materials, labor, and manufacturing overhead costs continue to negatively impact the results, which drove an approximate 210 basis point margin headwind versus the fourth quarter of 2022. Within SG&A, we benefited from an approximately 80 basis point improvement in promotional spend, primarily driven by event cost optimization initiatives. Also within SG&A, salaries and bonus provided 10 basis point benefit, reflecting the cost savings achieved in the period as a result of our transformation program, partially offset by increased wages and bonus accruals in the current period, which were essentially zero in the fourth quarter of 22. Other includes an approximately 50 basis point headwind due to increased technology costs and the unfavorable impact of one-time items that are related to non-income tax items in the fourth quarter of 22 versus the fourth quarter of 23. Turning to our region results, four of our five regions reported net sales growth in the fourth quarter. In addition, China, Asia Pacific, and North America reported improvements in year-over-year net sales trends from the third quarter to the fourth quarter of 23. We are encouraged by China's results in the fourth quarter, reporting year-over-year double-digit growth on both the reported and local currency basis, up 16% and 17% respectively. This is the first time since the third quarter of 2020 that China has had quarterly year-over-year net sales growth. Michael and Stephane have spent a lot of time with the China leadership this year, and the turnaround plans are progressing well as reflected in the Q4 results. Asia Pacific was up 9%, led by India, which continues to outperform in the region. India's net sales were up 26%, which was partially driven by a difference in timing from a price increase in 22 versus 23. EMEA was up 1%, with year-over-year results generally mixed across the markets in the region. In Latin America, reported net sales were up 3%, with local currency net sales down 1%. The favorable FX impact was primarily due to the Mexican peso. Mexico's net sales were up 3% year over year on a reported basis, while down 8% on a local currency basis. The year over year volume declines in Mexico, which were primarily driven by the importation delays we experienced in the fourth quarter of this year, were partially offset by the price increases implemented in the market. As we stated during the third quarter earnings call, we began experiencing importation delays in Mexico in September as a result of the government delaying timely approval of importation permits. The hold was not unique to Herbalife and applied to all food supplements entering Mexico. This impacted products making up approximately 70% of our sales in Mexico. In November, the importation hold was lifted and permits began to be processed. We believe the supply chain should be stabilized with the full product portfolio back in stock by mid-March. Despite the tireless effort by our operations teams to minimize the impact from the importation hold, we believe there was an approximately 14 million loss of volume or approximately 11 million of net sales in the quarter. In North America, the year-over-year trends have improved from the third quarter to the fourth. However, the recovery has been slower than anticipated. Stefan provided color on this key market and we will look forward to continued improvement in 2024. Moving to slide 14, we have continued to use excess cash generation to reduce the total debt levels of the company. In 2023, we paid down $155 million of our senior credit facility in 2024 converts, which included the $60 million reduction in our revolver in the first quarter and the repurchase of approximately $66 million of our 2024 convertible notes in the third quarter. We ended the quarter with a 3.9 gross leverage ratio. Cash at the end of December remained strong at $575 million, up $67 million from the end of 2022. Consistent with what we told you in November, we intend to fully repay the $197 million of outstanding 2024 converts when they come due in March. We plan to utilize available cash on hand and funds available under the revolver, which remains fully undrawn to cover any difference. And as I previously stated, we initiated the process to refinance our 2018 Term Loan A and revolving credit facility, which matures in March of 2025. We aren't going to go into the details of the proposed refinancing on today's call. We will update you in due course. Looking at our capital spend for the year, there are two pieces to consider. Pure capital expenditures was $135 million. And as we strategically pivoted in 2023, to more SAS-based arrangements, we've also capitalized SAS implementation costs of approximately $35 million that are recognized in other assets and then amortized to the P&L over time. So in total for 2023, our total capital spend was approximately $170 million, whereas in 2022, it was approximately $165 million, including the capitalized SAS implementation costs. For 2024, We expect CapEx in the range of $145 to $195 million with capitalized SAS implementation costs to be relatively comparable with 2023. As of December, we have incurred approximately half of the approximate $400 million of expected implementation costs related to Herbalife 1. Based on the cost incurred as of December 31st for both CapEx and the capitalized SAS implementation costs, we expect to recognize an incremental $30 million

of non-cash amortization expenses in the P&L for 2024. This concludes our prepared remarks. Operator, please open the line for questions.

Thank you. Ladies and gentlemen, to ask the question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, press star 11 again. Please stand by while we compile the Q&A roster.

Our first question comes from the line of Chase and Bender with Citi.

Your line is open.

Great. Thanks for taking the question. I'd like to start on 4Q results and specifically on the SG&A line. Alex, can you help explain why SG&A dollars were up almost 7% in the quarter and why we haven't seen those $27 million of cost savings show up in the P&L? And just related to that, for the increased cost savings target of $115 million next year, when will that show up in the P&L? And do you expect that to get dropped to the bottom line? Or is your thinking here that that'll lead to get reinvested?

Hi, Jason. Great questions. So the savings are showing up in SG&A. It's being offset, as I mentioned, by the investments we're making in our digital technology, in our events, in our people, and other things to modernize Herbalife. That has been a big initiative in 2023, and we continue to be an investment period as we move through 2024. the benefit of the transformation program has been allowing us to continue to make those investments. And so there has been a significant increase in our technology spend and a significant spend in areas that are going to strategically move the company forward. So while you are correct in that the overall SG&A spend is higher in 23 versus 2022, it is being offset by all of those savings initiatives that we've mentioned.

Got it. And then just changing gears, could you maybe expand on your expectations for flat sales in 24 and specifically comment on what you're expecting from regions and on a price versus volume basis? And, you know, related to that, do you expect constant currency sales to be positive year over year? And similarly, do you expect EPS to be up year over year in 2024?

That's a lot of questions. So we'll break that down piece by piece. So our expectation for net sales growth being flat does not include, from a currency standpoint, we do expect there to be some headwind to currency in 2024. So that net sales expectation of flat includes currency rates as they are, which would bake in some level of a headwind in 2024. By the way, that FX currency does not only impact top line, but there is an impact across the P&L from top line all the way down to EPS. So that generally covers the currency question. What is in our expectations for 2024? We're not going to go region by region, but the big factor that I can point out is India has been a large contributor to our overall buoyancy in our top line. So in 2022, India provided almost 30% of net sales growth. In 2023, it was 18% of net sales growth. So as we go to 2024, you know, just thinking law of large numbers, we have a much more modest expectation for the overall contribution of growth from India. So as India's expectation of growth moderates and other markets are in recovery, it yields more of a flat growth expectation for 2024.

Got it. And then do you have any expectation for EPS in 2024?

So from a margin perspective, we have flat top line. So there's not an operating leverage expectation for 2024. Gross profit level will largely stay where it is. Although, as I mentioned, we have some input cost inflation stabilizing over 2020. CPI level price increases that we're able to take in 2024. So gross profit margin remaining relatively flat. And as I mentioned, we continue to be in an investment period for the modernization of Herbalife. So overall, I do see margin levels being probably a bit below where they are in 2023 as we continue to invest for future growth.

Got it. Appreciate the color. I'll pause there and pass it on.

Thank you. Please stand by for our next question. Our next question comes from the line of William Ryder with Bank of America. Your line is open.

Hi, thanks for taking our question. This is Rob Bigby on for Bill. So I guess, can we just dive a little bit deeper into your expected uses of free cash flow in 2024? You know, you mentioned repaying some more debt, but if you could just provide some more color around that, that'd be appreciated. Thanks.

Yeah, it's actually pretty simple. Our excess cash flow is going to go down to repaying our total debt levels. So I mentioned we're in a refinancing. We have bonds that are due at the end of 2025, which become callable in the third quarter of this year. So as cash is generated, we will look down to take down our total debt levels with that excess cash.

Okay, great. Got it. Thank you. And then just one follow-up. Your CapEx guidance is pretty wide at $145 to $195 million.

What are some of the pieces that kind of move it from the lower end versus... So there's two components.

There's two significant components of that CapEx spend. One is in our technology spend. And we've mentioned Herbalife One and where we are in that process. So there is some variability on what types of applications, the prioritization of those applications, and whether or not it makes sense to accelerate or defer potentially some of those programs into 25 and 26. And that'll just be a business decision as we see those markets evolve. That creates one element of variability. And the second elements of variability is we've had a bunch of deferred CapEx that we haven't been able to put in place on our manufacturing facilities. And so we have some automation programs, we have some deferred CapEx that we have to evaluate whether or not those automation programs make sense to put in place now or does it make sense to defer those again until 2025. So those are the large components of that variability.

Got it. Great. Thank you. I'll pass it on.

Thank you. Please stand by for our next question. Our next question comes from the line of John Baumgartner with Missoula Securities. Your line is open.

Hi, good afternoon. Thanks for the question. Hi, John. First off, hey, good afternoon. Stefan, I wanted to come back to your commentary regarding distributor training. It's really encouraging that you're ramping the resources there. You made it very clear the need to raise capabilities. But having been in the Herbalife system for quite some time, why do you think such resources are now necessary? Is this a function of the nutrition space having become more crowded over the years across channels, new competitors coming in, in bricks and mortar, where these folks now need a sharper skill set versus history? Or is it just more of a function of differences in the backgrounds of these folks coming into the system relative to five, ten years ago?

Yeah, you know, John, there's probably a couple of different things. Good to talk to you, by the way. I think if you take the overall base of people that come in, and let's just take the nutrition clubs in the United States just as an example because I talked about that. When people come in, they come in for a specific model, right? So they come in, someone says, look, open up your own nutrition club. Here's what you're going to do. You need to have this as your menu. This is how you set up your club. This is what you're going to be doing. And they might have come from any background. They might have had zero business background, zero marketing background. They just come in. Maybe they were a housewife. Maybe they were a college student, but didn't have the experience of running a business. And so people get into a very specific model. They learn specific skills. But as you know, the market changes, right? So there's different aspects that start to be aspects that potentially, for example, They're using social media and they post and the algorithms actually are working quite well. And what happens is the algorithm changes. But they're not social media experts. So they don't know how to deal with the advertising or social media marketing. So the skills that are needed as you progress in a business and as new models come, what ends up happening is that people have gaps. And so really having the DMO training specific allowing them just for example to bring in the we do as a nutrition club owner they're not used to offering these different services so there is a level of that so the training you know I would say overall it does change over time there is a need for it but there's also from an industry standpoint so for example you've been to two events extravaganza it brings a certain value there's the bigger picture there's recognition People have an understanding of, you know, product training and things like that. But it's not specific to the skills that they're going to need to run their clubs, for example. So really what we're doing is identifying gaps in the training. And on the DMO side, that's one of it. But also why we're so excited about Eric Worre is because it really is about the leadership training. Someone that starts as a distributor, simply getting their customers to building a team, managing a team, innovating through their different models, working with different people at different levels. So it's the gaps that we're trying to close right now. And, you know, it's just part of, I think, just the natural progression of business in the world that we live in today.

Okay, thanks for that. And then, you know, to follow up your comments on the preferred conversion rates in the US nutrition clubs, I think I heard the spread was like 1% to 10%. And I'm curious, I know it's very early days, and it's pretty wide network, but How do you think about where that spread should be? Is 10% at the high end too low? Can it be 20%, 30%? I'm just sort of curious what you would think is sort of achievable going forward as you implement these sort of resources.

Yeah, so it's really kind of model-based, right? By the way, we give 10%. There's over 10%, okay? It's not the majority of people. Obviously, it's a small subset of people. But when we actually break it down, It could be their demographics, where they're living. It could be, and most of the time, it is the models that they're doing and the services that they're offering. So if it's just food service, for example, the conversion we know is much lower. They're more focused. There may be higher volume clubs where they have more customers coming in and out, and they're just doing everything that they can to make sure the customers get the service that they need to buy the food item that they're trying to purchase and be on their way. Other clubs... They have better conversion. People are coming in. What they're coming in for could be a variety of things. They might be coming in. Some of these clubs have workouts that are happening a couple of times a week. Some of the clubs, people are doing wellness evaluations. Some of the clubs, they're running challenges where they'll have weekly meetings and they'll have groups of people that are coming in. Those types of clubs have higher conversion. So we believe long-term that the more people focus on multi-services, the higher the conversion is going to go. Now, by the way, I don't want to talk about the tech stack because this is the bigger picture of things for the future. But having technology that allows someone to, for example, simply scan a QR code on a shake and it says maybe, would you like to have more information about what's in this shake? That brings them to a platform that says, hey, here's what's in the shake. And would you like to join a platform where you can get recipes, where you can learn about nutrition, where you can track your nutrition? daily steps on a day, how you slept last night, everything that's wearable, everything that's connected today, that it actually is a place for them to live on a platform that adds value to them, that's connected to their distributor, that's connected to the company, that's connected to the club that they're connected to. And so this is the opportunity for us in the future. Part of it's tech-based, and part of it is really upskilling and allowing our distributors to have access to the information they need to be able to go out and add these additional services into their businesses to be able to get the conversion up.

And that scan that you're referencing, is the idea to be on a product label or elsewhere, like advertising? Where would that scan actually be for consumers?

The sky's the limit, John, right? I mean, in today's world of marketing, I mean, it is so wide and so large. So it could be on a shake. When someone buys a shake at a club, it could print out based on the ingredients that are in there, scan this, you're good to know. By the way, you could have something that someone walks up to a club and it says, you know, take our questionnaire, right, or answer five questions and, you know, be able to refer a friend or, you know, be able to win something as a prize. Marketing today, social media marketing, it's so vast and it's so broad and there's so much opportunity there. What's beautiful about this is if the technology is there, it's unlimited what you can do. And our distributors are amazing. They are creative. They are always pushing the envelope. And as a company, it's our job to make sure that we're supporting them in everything that they need to be able to take their businesses wherever they want to go.

Thanks, Yvonne. Very helpful. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Linda Bolton Weiser with DA Davidson. Your line is open.

Yes, hello. So I was wondering, Stefan, when you were talking about the account management operating model, I'm just curious about, like, those people that will be doing that. Will those be corporate employees? And if so, does that kind of add over time, like, something to your cost structure to implement that type of model?

Yeah, so Linda, we have already corporate employees that do interface with distributors. And so it's part of what's already happening there. As we add, and we're actually going to be having more and more of them, it's really about how we're designing and we're going to reallocate resources to this area. Quite honestly, the distributors that are out there, we look at any market, right there's different ways that they have access to information we're finding actually that having company employees that are on the ground that are visiting the clubs or visiting distributor leaders and that are sharing information with them that's relevant because again going back to John's question why do we need the training why do we need this type of connectivity is because some people come into the business they get a result on the products they're inspired but they don't have a background in business. They don't know how to read the numbers, or they don't know how to specifically sometimes plan, and they just don't have the background. So this is something that we are going to be formatting, developing with our leadership to be able to understand where can we give the most value to the distributors. We already have in some regions what we would call regionals that are actually on the ground in the field meeting distributor leaderships. part of what they're doing is what they're going to be doing in the future, but we're really going to standardize and format this. And by the way, then if we think about AI and the information and the data and how things can be automated and we can take a program and know what delivering the value is, but then we can also automate the program to deliver the value to more people. So, you know, this is just the beginning of something that's going to be very, very big for us in the future and that we're very excited about. Um,

And, you know, as mentioned, we'll reallocate and we'll automate.

Great. And then I was wondering if you could talk a little bit more about China and what exactly was done there to kind of bring about this turnaround. I'm wondering how much of it is just the general market there becoming more open or is it specific actions that you took? And just remind us, too, Is China less of a nutrition club market? I don't think that was as much the focus there. Is that the case?

Well, it's quite interesting. So to answer your question, it's kind of both. Obviously, coming out of the pandemic, they were the last ones. They were the longest in the lockdowns. They were the last ones to come out. And so the distributors or the service providers that we have there, quite honestly, they had a very difficult time. And in terms of clubs, they actually started to adopt and implement nutrition clubs right before the pandemic. And so I don't know if you just kind of visualize and imagine, imagine, you know, thousands of service providers that opened up clubs, took locations just before the pandemic. And then all of a sudden they didn't even have a chance to get off the ground. So it was really disruptive. And I would say, what is kind of leading the turnaround? A couple of things. One, Number one, getting closer to the leadership there and supporting the service provider leaders and then actually understanding after a couple of years that the company is there to support them. And so this started at the early level last year with Michael and myself meeting with them in March. We went together also in April. I went another two times there and met personally with service provider leaders and local staff and I would say that everything is coming together. They also had a back-to-growth plan that really kind of lined up and organized things for the year. So we have positive numbers. Things are looking very good there. Again, they're coming off a two-year very strong disruption. It's going to take a bit of time to build momentum there, but we do have positive momentum happening.

And so, again, we're feeling very, very good about this.

Great. And I was just wondering, why was the price mix all of a sudden seemingly in China? It looked like it was down about 11% or so. It looked a bit like an anomaly. Was there something that caused that in the numbers?

Say that? The price mix?

Say that again, Linda? Yeah, for China.

yeah sorry for china i thought it looked like um the price mix like it looked like the volume point growth was really strong but the price mix was yeah i thought volume points were up 28 and price mix was down 11 is that is that wrong or let's see i'll have to come back to you yeah i have to come back to you i have i have

I'll have to come back to you on that, Linda.

Okay, yeah, we can do that offline. And then just another, I guess, financial one for you, Alex. On the free cash flow for 2024, I guess I'd be picturing it to be maybe down somewhat because what would be the working capital benefits? Are you expecting some more of those in 2024?

So the working capital benefit in 2023, which largely right-sizing the inventory, that isn't a benefit that we're expecting to see in 2024 because we're now at the right size level. So we're not going to have that contributor, which was a significant contribution to our 2023. We do expect one thing that we did do in 2023 is we had our cash flow conversion get back to our stronger levels where it was above 1x. You might notice that in 2022 it was below 1x. So we expect that cash flow conversion still to be strong in 2024. However, the working capital piece is not going to be a contributor to that 2024 benefit.

You mean conversion of EBITDA to cash flow or adjusted net income to cash flow?

We typically look at it from an adjusted net income basis.

Okay. Okay. And then just in terms of the GLP-1 stuff that you talked about, that's very clever that they're reaching out to, you know, prescription providers to look for clients. I'm just wondering if you're in the works for doing something more formalized, some sort of partnership where you can actually partner with a GLP-1 provider to get a funnel of kind of Is that something you're thinking about?

Hi, Linda. It's Michael. I've been waiting for that question from you. So we have studied this really carefully, and we've looked at healthcare providers, telehealth. You know, we've gone back and forth on it. We think the best method to the marketplace for this is to work locally, is to work with the opportunity for our distributors to work with longevity clinics, work with doctors, work with different areas in their local marketplaces to provide a product that's complementary. We don't see ourselves in the near future offering a GLP-1 product. We believe that our strength is in the behavior modification, giving product to people that complements a GLP-1 user on their journey. As you know, you're on that personal journey. And so that opportunity for us is the beauty of this is to build a long-term customer who will use the GLP-1s on a temporary basis and to work with local opportunities, whether it's a healthcare provider, whether it is a telehealth company on a local basis through our distributors and not in a corporate relationship. We just think it works better that way. It fits our model perfectly. We've got some distributors who are employing some very engaging ideas. I don't want to talk too much further about that right now because they're in kind of the early phases of talking to folks and ways that they can help the GLP customer get on that long-term journey and just off that short-term journey that they're on now.

Okay, sounds good.

Thank you very much.

Thank you, Linda.

Please stand by for our next question. Our next question comes from the line of Jeff Van Sinderen with B Raleigh. Your line is open.

Hi, everyone. Just thinking about the considerable CapEx investments you've made and are going to continue to make, so far, where are the benefits from those showing up in the metrics you track?

So, Alex and I are going to double-team this one.

So, the initial investments in our digital were to rebuild our infrastructure, and those don't show up immediately in the benefits to the business that you can see in numbers. What we had to do, because we had an antique and we had to rebuild this thing completely from the ground up. So some of those investments, some of those early investments that we spent in the digital world were about rebuilding that infrastructure to get it right. So now we can add componentry to build a platform, to bring in some great providers of products for both the MLM marketplace, the direct selling marketplace, for sales acquisition, for customer acquisition, all the different tools that our distributors are going to be able to employ in the marketplace. And that's coming in very short order. Alex?

Yeah, that's correct. And just to emphasize that we're about halfway through the program, particularly on the technology spend. We'll continue to invest in 2024. Our brand sites did in 70% of markets that represent 70% of our net sales. They went live at the end of the year and the initial metrics that we're seeing are incredible. So significant improvement on all of the metrics that you look at in terms of engagement, in terms of all the things that you would want from someone to engage with your brand site. So we're seeing that that is obviously just the first step of something external that sits on top of the internal platform that Michael just mentioned. And there's more to come as 2024 rolls out. And when I mentioned earlier, around the breadth of CapEx. I think we got a question on what was the spread of CapEx related to. That's related to the prioritization of what capability externally now will we roll out? Where does that prioritization roll out? How will it affect the markets best? And those will be business decisions as the year progresses.

Okay, thanks. I'll tell Paul. And then understand you got into flat revenues for the year, but considering that you grew in Q4, what sort of quarterly progression might we anticipate this year? And then I guess to clarify, I think you said margins would be down for 24. So should we anticipate EBITDA and dollars down for the year?

So we're not giving quarterly guidance.

We have a relatively flat for the year. There could be some choppiness on a quarter-by-quarter basis, but we have relative flat growth for 2024. I think that's probably as granular as we can get at this point.

Okay. And then, I'm sorry, on EBITDA, any color there on what we might expect with margins down?

So on EBITDA, I think I mentioned before, relatively flat top line, no operating leverage, obviously, from that top line, gross profit margins relatively flat. And then this is going to continue to be an investment year for us as we position Herbalife 1, strategic initiatives to gain growth as we look for 2024 and beyond.

Okay. All right. So from that, I'm taking EBITDA down a little bit. And then I just had one other question on the nutrition clubs overall, because I think Stefan gave some metrics around those. I didn't catch them all. He said $9 million. I wasn't sure what that was for. But in the U.S., and I don't know if you have these metrics or want to provide them or not, but... What are the revenues from the U.S. clubs? Is that the $9 million? And then also, do we have a number for average revenue per club? I'm just curious about that. And then maybe margins that the club owners are making on those, if there's a way to look at that. There may not be, but curious there.

Yeah, Jeff, let me – so there was no nine. There was $900 million in sales, but let me just repeat them for you. So 4.4 million Nutrition Club customers in 2023, $55 million –

average transaction, 1650. That makes up actually it's right around 910 million retail club sales.

Okay. So those are the retail prices that customers paid to our club owners in their clubs. And so it's, it's to average it out. Doesn't really do it justice because you've got clubs that are in a small city of 5,000 people that, you know, they, operating they have how many ever customers they have their cost you know basis is whatever it is compared to other clubs that are operating in much bigger cities have higher costs so you know in some of the clubs there they do quite well they don't they're small it's low cost all they've got to do is a few thousand you know in revenue other clubs we have that are that are doing ten fifteen thousand dollars in revenue monthly so it's really really hard enough and of course we don't have their costs right we have what they purchased from the company. We've got the transactional data from what they're selling things for, but we don't track what their rents are, what they're paying in electricity and everything. So, yeah, hard for us to come up with that number.

Okay, understood. Thanks for taking all my questions. Thank you.

Please stand by for our next question. Our next question comes from the line of Hannah Lizell with Bank of America. Your line is open.

Hi, good afternoon, and thanks very much for the question. In general, we get a lot of questions in our coverage these days on Argentina, just given the hyperinflationary environment. Just wondering how exposed are you to Argentina? Are you able to take significant pricing to offset the inflation in that market? And separately on China, just any early expectations on results from Lunar New Year this quarter and how things are tracking in that region? Thank you.

Sure. Thanks for the question, Zanna. So regarding Argentina, we obviously have a business in Argentina. The hyperinflation is something that we keep up. We have regular price increases to keep up with that. There is still risk with that as you're trying to get cash in Argentina and PESA out, but our exposure is relatively limited as we continue to price with the hyperinflation of that market. As it relates to how 2024 is going, we'll update you in April. or actually in May, rather. We're not going to give any commentary about 2024 at this point.

Okay. Thank you. Please stand by for our next question.

Our next question comes from the line of Hal Holden with Barclays. Your line is open.

Thank you. Good afternoon. I was just watching videos of Eric Worre. I think We may hire him for our sales desk if you guys don't.

He's going to be busy, so I don't think probably he's going to have much time. He's all ours.

He looks very high energy, so I'm sure he can handle the busyness. The only question I had was, Alex, when you think about cash balances that you want to have on hand to run the company, I know a lot of it is international, but as you start thinking about what debt you would pay down through the course of this year, can you sort of tell us how much cash you would sort of keep on hand as a minimum amount or we should think about you're not going below?

So it cycles depending on where we are in our expansion or contraction. Obviously the past couple of years we've been in a bit of contraction. So typically that's around $500 million is I would call it a safe average in terms of working capital cash or I would say cash in the system. We have a couple of initiatives about establishing an in-house bank and other cash management efficiencies. So we're looking to see to get the net number down. But I think for today, a placeholder of $500 million is sufficient.

Great. Thank you very much.

Sure.

Please stand by for our next question. Our next question comes from the line of Doug Lang with Water Tower Research. Your line is open.

Oh, yes. Hi. Thanks for taking my question. I know it's getting late here. So I just wanted to follow up on the conversations about debt pay down and the capital allocation here. So have you articulated a target leverage ratio that you're shooting for? And then is there some point where a stock buyback makes sense?

So our policy around three times total debt is still our target. That is an investment grade target. We are our excess cash flow right now. We ended 2023 at 3.9 times. So our excess cash flow is going to continue to pay that debt down until at least we get to the three times target. And we have plans to get there with the continual pay down of the free cash flow generation. So we expect strong cash flow generation in 2024. following up 2023, and that's where we're going to put it.

And stock buyback, is that on the table?

Well, we need to get the three times target before we can ever consider that. But again, Doug, our focus right now is getting our debt levels significantly lower than where they are today.

Okay, I understand. Just one last thing on guidance. Is there a reason why you haven't started back up with guidance on your balance sheets getting deleveraged, your sales have turned positive? It just seems like things are starting to shift in a favorable direction, so I think we'd be anxious to see formal guidance reinstated.

Thanks, Doug. Thanks for that feedback. Obviously, we've given you a top line, some top line guidance. We've given you some profitability guidance in a bit of a different format than we have historically, but hopefully that gives you enough to kind of pencil out a forecast for the life.

Fair enough. Thanks, Alex. You're welcome.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Michael Johnson for closing remarks.

Let's get you all home for Valentine's Day. That's pretty important. Our company is metric focused as we should be. There's no doubt about it. We need to improve on some of our metrics. We've got a lot of energy behind what we are doing, but it wouldn't be me if I didn't tell you a little personal story to close our call today because, frankly, that's what I do. HITECH is vital in today's business, and the reality is we're in a high-touch business. And recently, I had the opportunity to follow my team all the way to the national championship. We chased Michigan from Ann Arbor to Houston, and I did it with a childhood friend of mine, one of my best friends and still today. someone who I ski raced with and raced bikes with, and he was an incredible athlete in his youth. But like many of us, not me necessarily, but he gained too much weight. And when he was young, he was this incredible athlete, but he let himself go. He purchased Herbalife products years ago, and he never really met the success that he wanted to meet. And he did not modify his lifestyle. So he founded Herbalife Distributor in our small town in southern Michigan where we grew up, a world team member who was in our hometown. And like many, he thought about GLP once because he wanted to have a quick transformation in his body. But the real transformation came when he started to work with a distributor at a nutrition club in our hometown. He lost weight by being held accountable. Early in his journey, that weight started to come off. By this and this wonderful Herbalife distributor, through weekly visits, he was held accountable to be measured, to discuss calorie intake, nutrition training, proper use of Herbalife product. His distributor is what we call a transformational distributor. For 13 years in southern Michigan, he's helped people get active and healthy, and he's built a successful business doing it. This is what makes us so special and unique and opportunistic. This is why all of us sitting around this table here today and all the distributors listening in from around the world know that Herbalife is an incredibly unique company. Weight loss is back in the discussion. Our vision of being the world's premier health and wellness company, community, and platform has never, ever been more relevant. We're excited about 2024. I hope that came across today. Our challenges are overshadowed by our opportunities. So as we say to everybody at Herbalife, LGH. Let's go, Herbalife. Thank you, guys.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. you Thank you. Thank you. Thank you. Thank you. Good afternoon, and thank you for joining the fourth quarter and four-year 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 is being recorded. I would now like to turn the call over to Aaron Baez, Vice President and Head of Investor Relations, to begin today's call.

Thank you, Tawanda, and good afternoon, good evening, everyone. Joining us today are Michael Johnson, our chairman and chief executive officer, Stefan Graziani, our president, and Alex Amaskita, 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 the comparability of the periods referenced. Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial 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 happy Valentine's Day, everybody. You know, you guys, when I returned to Herbalife in late 2022, we met in Cairo immediately. It was the 1st of November, and we set out a vision for Herbalife. And that vision is to be the world's premier health and wellness company, community, and platform. We're working on it, and we're working towards it. And the results are getting very exciting. 2023, though, was a very challenging year. We all know that. So we laid out a plan to have net sales growth by the fourth quarter, which we delivered. Our year-over-year net sales trend improved every quarter in 2023. We modernized our brand. We updated our look, and we modernized our digital atmosphere. We enhanced our data management and transactional capabilities. We launched new websites in markets representing 70% of our sales. On the product front, we introduced 17 innovative products that supported our distributors' businesses, and we launched our first-ever vegan line. And it was so successful, the demand higher anticipated, we experienced out-of-stocks. Not proud of that, but it's been a great line with great success. We had strong cash generation. Our 2023 free cash flow exceeded 2022. We paid down debt ahead of schedule. Our transformation program, we took out $115 million out of SG&A, which exceeded the $70 million we set out to achieve. We did this through an aggressive back office consolidation. This helped us build out centers of excellence in Krakow, Guadalajara, Bangalore, and Kuala Lumpur. We employed an aggressive distributor engagement plan. Between corporate and distributor events, we're back in action. Our retention is up. Those are the news points from 2023. So now let's focus on where we're going in 2024. We know the road ahead. Our top line sales and recruiting of new distributors and customers is our number one focus. Bringing Steph on in to work with an incredible team of executives here is helping Herbalife get closer to the market dive into analytics and data to support distributor businesses for insights and opportunity. It's allowing us to maximize sales and business opportunity through customer and distributor acquisition, productivity, and retention. We are deploying account management teams more aggressively in the field to work closely with distributors to support their distributor methods of operations in more aggressive manners. We are investing and positioning ourselves for growth through 2024. Based on our line of sight today, we are forecasting this year to be relatively flat. With that said, stay tuned. USA is our major focus. We get it. It's our home court. It's important to all of our stakeholders, to you, our investors, to our employees, and our distributors. We are in this to succeed, to get growth back into North America. We need to drive top-line growth here in the USA to get deeper and closer to the market, which is what we are doing. Great product for the market. Already mentioned the vegan line, which is an exciting product for us, opening up new customers, new distributors, and new opportunity. In the GLP world, we've just launched Nutrition Companion Product Combos. It is positioned to meet market demand. It's ready to support our distributors and respond to any demands they have from their customers in the marketplace. Distributors are looking at unique ways to work with their local markets alongside GLP-1 providers. There's going to be more news about this as the year unfolds. We are ready to support them in their innovation, and they bring it to us, and they enhance their markets locally. We have studied this market very, very closely. We're also excited about the CDC Diabetes Prevention Program, which allows our distributors to be more deeply trained in offering their customers a lifestyle change enhanced by weight loss and behavioral modifications. So let's summarize North America. I'm spending a lot of time there because it's so important to us. Get recruiting up. Get customers and distributors. Get more of them into Herbalife with great products, with great business opportunity, and with great innovation in our company. Get closer to our distributors and their methods of operation. Deliver a robust suite of digital and data tools that will enhance distributors' business opportunity. And deploy our events specific to DMO training. We are creating the distributor training unique to Herbalife that Stefan will detail. This will be something unique to our company and that we're very, very excited about. Let's take a look at the other major markets. We're in China. We're back in action. We have reemerged past the pandemic, post the pandemic, and past the pandemic. There has been a large amount of time spent by Stefan, the China team, and myself to engage with our China leadership, both distributors and executives, to support our business there. You see good things on the horizon in China. India continues to grow. We have a great management team there, localization of product and business opportunity, and a highly energized distributor organization that continues to push the business forward. In Mexico, we're moving forward from supply chain challenges experienced in the latter part of 2023. We limited the shortfall by working diligently, engaging with the Mexican authorities. Like North America, we're obsessively focused on both top-line growth and margin expansion. This week we announced an incredible new relationship with the Mexico Olympic Committee. This is very exciting. It builds our brand and standing in Mexico. Some of our products will be branded with the Olympic logo. We are the supply and product partner for athletes. We are providing our science and doctor support for the Mexican Olympic Committee and athletes. This is in addition to our partnerships with the National Olympic Committees of Israel, Vietnam, Greece, and Italy. These partnerships, along with our global athletic sponsorships, including Cristiano Ronaldo and Burak Kohli, enhance our brand universally and are in line with our healthy active lifestyle values. These are great for our distributors, our customers, and our brand. So before I turn it over to Stefan, let me reiterate our goals for 2024. Sales, sales, sales, sales. Getting our organization more effective and deployed to enhance our distributors' acquisition of customers and new distributors. margin maniacal about cost efficiency and proper alignment of resources and finally let me turn to the balance sheet this year we will refinance our senior credit facility and we will use our excess cash to continue to pay down debt now before i turn it over to stefan let me just do a quick introduction of him when we brought stefan in to work with this management team our whole goal was to get closer to the market to have a distributor voice mind and mindset inside our company His deep well of experience and knowledge has helped us already massively. He's proved to be a transformative leader, and I'm proud that we promoted him to president this year. So, Mr. President, on to you. Thank you, Michael.

Well, it's been an exciting six months since I joined the company. Last quarter, we talked a little bit about the long-term vision of things for the company and really how we are going to be a sustainably growing company in the future. Michael's mentioned becoming the world's premier health, wellness, company, community, and platform. And so a little bit just to talk about that. We have tens of millions of customers. We've got millions of distributors that work every single day face to face with customers, adding value to their lives. They are teaching them better nutrition habits. They're involving them in healthier lifestyle habits. They're getting them on Herbalife products and helping them to get results. As a company, many of those and most of those customers don't live on a platform with us as a company we can deliver a lot more value to them and that's part of what the Herbalife One ecosystem is going to be about as a company delivering more value to customers and allowing those customers to be closer to the company live in a platform and with a platform that delivers value to them that they want to be a part of and that they have many of their needs met and they're stacked on top of the distributors value what they bring every single day. And so long term, this is where we're going as a company. In the future, the vision is to have tens of millions of customers and support millions of distributors and deliver value to both of these parties. Shorter term, we have things to work on, as Michael said. When I first came in, the focus was getting close to the markets, with a specific attention on China, the US, and Mexico. We spent a lot of time working with the regional heads to better understand the business needs and the opportunities in front of us and developing the strategies that we need to move forward with locally. An example of this is China, like Michael just mentioned. The executive team has spent more time on the ground in China with our service provider leaders and local team last year than we did in the last three to four years. We appointed Stella Tsai as managing director. She's one of our top leaders who ran North Asia and has more than 20 years' experience, and she will report directly to me. business is stabilizing we have positive momentum and a clear plan for 2024 and we're excited another market of focus has been the u.s again we spent a lot of time analyzing the business and all of the growth that happened over the last six to seven years the post pandemic market and the macro situation as you know nutrition clubs in the u.s are the most important part of our business it's also what differentiates differentiates us from almost any other business in the mlm industry and also the nutritional supplements industry. It's an incredible business, and we're seeing lots of opportunities to leverage and build upon that foundation. I'm going to give some high-level members for the first time to illustrate this, but first I want to give a bit of background. If we go back 10 years ago in the U.S., our nutrition clubs were primarily service-based nutrition clubs. What does that mean? Meaning almost all of the clubs, they were offering different types of services. Distributors were doing wellness evaluations, teaching people about nutrition, personal coaching, offering different types of workouts, running weekly weight loss challenges. And all of this was to help people learn about the Herbalife Nutrition product, make lifestyle changes, and ultimately get results. In the U.S., for a few reasons, the club started shifting and moving to more of a food service offering, by the way, which opened an entire new vertical of business for us and created tremendous growth, especially during the pandemic, where food services were seen as essential. That model gained a lot of momentum and some of the other models and service, the service models kind of moved out of focus. I'll say that it's really mostly a US phenomenon. The rest of the clubs around the world, they really remain primarily the same service focused clubs that we've had for so many years. But when you consider that just 10 years ago we didn't have a food service business, the numbers are quite impressive. And so in 2023, we had 4.4 million unique customers in our US nutrition clubs. They generated around 55 million transactions, with an average transaction amount of $16.50. That's 900 million in retail business for our clubs. It's an incredibly strong foundation, and we believe we have lots of opportunities there. For example, our preferred customer conversion rates are as low as 1% in some clubs. Just to give you a bit of context, People that are walking in, if you have 100 people walking in to buy a healthy shake, an energy tea, some type of a food item that they're just basically consuming and then leaving, only 1% of them actually become Herbalife customers that get on the program, are ordering supplements, using them at home. It's a huge opportunity for us. We have other clubs that are doing more multi-service, that are still doing the types of services that the clubs were doing years ago, and the conversion rates for those clubs are north of 10%. So there's a big delta there and a big opportunity. We believe that the upside there can be very big, and our job is going to be helping the clubs, giving them the tools, the understanding, making accessible what they need to be able to offer all of the services that are out there that can add value to the clubs. We see some clubs, by the way, already that are starting to do this that weren't doing it three to six months ago. An example of that would be clubs that are now participating in 21-day challenges, like the WeDo challenges. As Michael mentioned, we also just launched our GLP-1 companion packs, and it's already getting attention. We've got some distributor leaders that are actually reaching out to different providers of GLP-1s and who have patients that are looking for nutritional support and supplements. As that market continues to grow and more people are using GLP-1s, there'll be an even bigger opportunity for us. Michael also mentioned the CDC program. In March, we have over 100 distributor leaders who are starting a training program to become certified life coaches to be able to help people in their communities and clubs by delivering the CDC Diabetes Prevention Program. We believe by building off the strong foundation of nutrition clubs in the U.S. and offering additional services presents a huge opportunity for us. There's a lot more that I can say about that, but I'm going to leave it at this. Another area of focus is really how are we going to bring the most value possible to our distributors. In my experience as a distributor for 32 years, there were some things that helped me successfully to build my organization. One of them was focusing on leadership development and constantly upskilling the teams. Whatever they were missing, whatever they needed, at whatever level they were at, was being able to deliver them the things that would make a difference. One-on-one coaching made a big difference. Any time that I could get and my leaders could get spending time one-on-one with people, going over the business metrics, going over the models that they were operating, going over the plans and the goals for the future and how they were going to get there made a huge difference. The last thing was helping to ensure that as time progressed and markets shifted, that the leaders have the most effective DMOs in place to be able to maximize market opportunities. Those main areas of focus, as a company, as we move forward, are going to have us doing some things differently. One of them is that we're going to be putting into place, as Michael mentioned, we're going to be formalizing and standardizing an account management operating model, which is going to bring one-on-one support in a way that we will have literally hundreds of people within the company, eventually thousands, that will be interacting with tens of thousands of distributor leaders in the market sharing with them metrics, standardized, formatted, done in a way that they can see what's happening in their businesses, the upside opportunities that they have, learning about the DMOs that are making the biggest difference and being connectors for them. This is something that will make a huge impact in the company, I believe, in the future. It's something that I personally did in my own business and was a huge part of why I and my teams became successful. That's one thing. The other thing is we're also going to be redesigning our training and events to deliver more value and better system needs of the distributors and the leaders. Just a bit of background. Historically, our training structure has been kind of generic, meaning that when we do monthly events or quarterly events, we bring people in from all different types of DMOs, all different types of demographics, and we train them on pretty generic things. the company's marketing plan, product trainings, we do recognition, you know, and we will touch on and show different DMOs, but we don't do in-depth training for DMOs. The impact is that people get a good vision for what's going on, but they don't have the details and the specifics of how to drive in their models and get the best results. And so there's a shift that's happening now. We are going to be moving from giving more data generic training, as we've been doing, to very specific DMO training. Over the past two months, we have things that have never happened in the history of the company. We have master classes and DMO-specific training that's happening at levels that, quite honestly, is impressive. We've had three DMO-specific trainings over the past two months, and we have one coming up this next week. In the United Kingdom, we had a breakfast budget club master class. We had over 1200 distributors from 32 countries there. This club is one of the best performing DMOs actually in the entire region of Europe. And it is something that is an amazing fit for that region. So to have those numbers of people that are in an event specifically entirely for a day or two learning all of the details gives them the capacity to go back to their markets with enough knowledge to implement and make the DMO happen. We also had just very recently a marathon class last weekend in Belgium where we had 1,800 participants from 34 markets. Again, focused on one DMO and how to put this DMO into action specifically to go out and drive business. One of the top growing distributors in the whole European region also is using this specific way of going to market, marathons. Just last month, we had a We Do Transformation event in Las Vegas. We had almost 4,000 people in person and virtually. This is another model that's helping people to go out, whether they have a club or whether they're working through social media at home, and to be able to go out, talk to people, get them into a challenge, get them on Herbalife products, help them to get results, and to drive business. And so we are going to see more and more of this. as we go through this year, we are still going to have events where we give the vision and we help people to understand what the opportunity is with Herbalife. But we need to go more specific into trainings that people can take the knowledge, the information, and go and put it into action to drive top line sales. The last thing that I want to talk about that Michael referred to is something that quite honestly I've never seen in our industry. I think it's unprecedented. I don't think there's ever been a company that's done this in this way and with this individual that I believe is going to give huge value to our company. We are going to and have entered into an agreement with the leading expert in the multi-level marketing business. Someone that has written a book, that has helped millions of people through the book, through courses, to learn what it is to become a professional distributor with a multi-level marketing company. This person has for over 15 years developed his skillset. He has trained more people in different companies. He has more knowledge about different companies in the industry. What are the things that's working today? What are the things that distributors have to navigate as they start from the very first day until they reach the highest levels within any company. We're very excited to have Eric Worre be a part of Herbalife and partnering with us in a very special multi-year contract. And he is going to be delivering for our distributor leaders content that some distributor leaders are paying tens of thousands of dollars for. Now, I just kind of want to put it into context. We have some of our top leaders. that are actually in programs with him and are getting tremendous value. As a company, to be able to take someone that's making that type of an impact and have him train not just a few distributors, but tens of thousands of distributors and potentially hundreds of thousands at different levels, we believe that this is a game changer. So I'm going to leave it at that. Let me turn it over to Alex.

Thank you, Stefan. I'll begin my section with the key financial highlights. Our fourth quarter revenue was 1.2 billion. This is up 2.9% versus the fourth quarter of 2022, and it's the fourth consecutive quarter of improved year-over-year net sales trends. And while we know there is a lot more work to do in several of our key markets, delivering on the expectation of net sales growth in the fourth quarter is an important step as we move forward. For the year, we achieved 5.1 billion of net sales, which is down 2.7% versus 2022. Our current expectation is that we will improve our full year net sales trends to relatively flat versus 2023. For fourth quarter, we held gross profit margin flat versus Q3 at 76.3%. Compared to Q4 of 2022, gross profit margin was down 120 basis points. While the pricing actions we have taken over the past year provided an approximately 100 basis point benefit, we continue to face headwinds from input cost inflation and unfavorable manufacturing absorption rates on lower production volumes, which drove an approximately 210 basis point negative impact. As we look forward to full year 2024, we expect gross profit margin to be relatively flat to 2023 levels. We have seen input cost inflation stabilize and now trending at levels at or below our ability to price in 2024. Q4 adjusted diluted EPS was 28 cents. On a year-over-year basis, the fourth quarter was negatively impacted by higher input cost inflation, the non-repeat of $9 million of non-income tax items, and an increase in our technology spend as we continue to enable capability in our Herbalife One platform. Our 2023 adjusted effective tax rate was 25.3%, and we anticipate our full year 2024 adjusted effective tax rate to be slightly elevated versus full year 2023. Full year 2023 operating cash flows exceeded 2022, and 2023 free cash flow was up 26 million year over year to 223 million. During 2023, our cash flow significantly benefited from the working capital optimization. Our operations team executed well in right-sizing inventory now that the global supply chain has stabilized. Full year 2023 adjusted EBITDA was 571 million, which represents a margin of 11.3%. Our pricing actions over the past year resulted in an approximate 270 basis point benefit, which outpaced the approximate 220 basis point headwind from higher input costs. Currency continued to be a headwind throughout most of 2023, driving an unfavorable year-over-year impact of approximately 90 basis points. Unfavorable sales mix and increased promotional spend due to a further increase of in-person events also negatively impacted full-year margins. In 2023, we have been sharply focused on productivity initiatives to best manage margin while also investing in the modernization of Herbalife. Our transformation program, which is primarily focused on better effectiveness of our internal support functions, has significantly exceeded our original expectations. Based on the actions we have taken through the end of 2023, we are now expecting the program to produce at least $115 million of benefit in 2024, much higher than our expectations when we met a year ago today. In 2023, the program delivered approximately $70 million of cost benefit, with approximately $27 million realized in the fourth quarter. During the fourth quarter, we recognized an incremental $12 million of pretax expenses in SG&A related to the program, primarily related to employee retention and separation costs, bringing our total program-to-date pre-tax costs to $79 million.

These expenses are excluded from our adjusted results. Securing our balance sheet and managing our debt capital structure has also been a key focus area.

We continue to be on track to address our upcoming maturity of our 2024 convertible notes with cash liquidity, and we have initiated a process to refinance our senior credit facility. which matures in 2025. Moving to slide 10, reported net sales for the fourth quarter were at 1.2 billion, up approximately 34 million, or 2.9% versus the fourth quarter of 22. On a constant currency basis, net sales were up 2.5% year over year on lower volume points. Adjusted EBITDA for the fourth quarter was 109 million, down approximately 22 million from Q4 of 22. Adjusted EBITDA margin for the fourth quarter fourth quarter was 9.0% and was impacted by higher input costs, unfavorable manufacturing absorption, and non-repeat of certain non-income tax-related benefits in Q4 of 22, partially offset by higher pricing and continued cost-saving initiatives. We had strong cash generation in the quarter. Free cash flow was up 50 million year over year, primarily due to favorable working capital changes in the fourth quarter versus the prior year. Cash on hand was up 80 million, from September 30th to $575 million at the end of the year. Moving to slide 11, we see the drivers of our year-over-year increase in net sales. While overall volume was down 2% year-over-year, it was more than offset by approximately 410 basis points of pricing in the period as a result of price increases implemented over the past year in a majority of our markets. The price increases were instituted to address region or market-specific conditions And we're generally in line with local CPI. Favorable country mix drove a 40 basis point benefit, primarily due to increased sales in China, partially offset by higher sales in India and lower sales in the U.S. relative to our overall net sales portfolio. Favorable currency movements, primarily for the Mexico peso versus U.S. dollar, resulted in an approximate 40 basis point FX tailwind year over year. Moving to the adjusted EBITDA margin bridge on slide 12, Q4 adjusted EBITDA was $109 million, with margin at 9.0%. Adjusted EBITDA margin benefited by approximately 130 basis points from the pricing increases we implemented year over year. However, elevated raw materials, labor, and manufacturing overhead costs continue to negatively impact the results, which drove an approximate 210 basis point margin headwind versus the fourth quarter of 2022. Within SG&A, we benefited from an approximately 80 basis point improvement in promotional spend, primarily driven by event cost optimization initiatives. Also within SG&A, salaries and bonus provided 10 basis point benefit, reflecting the cost savings achieved in the period as a result of our transformation program, partially offset by increased wages and bonus accruals in the current period, which were essentially zero in the fourth quarter of 22. Other includes an approximately 50 basis point headwind due to increased technology costs and the unfavorable impact of one-time items that are related to non-income tax items in the fourth quarter of 22 versus the fourth quarter of 23. Turning to our region results, four of our five regions reported net sales growth in the fourth quarter. In addition, China, Asia Pacific, and North America reported improvements in year-over-year net sales trends from the third quarter to the fourth quarter of 23. We are encouraged by China's results in the fourth quarter, reporting year-over-year double-digit growth on both the reported and local currency basis, up 16% and 17% respectively. This is the first time since the third quarter of 2020 that China has had quarterly year-over-year net sales growth. Michael and Stephane have spent a lot of time with the China leadership this year, and the turnaround plans are progressing well as reflected in the Q4 results. Asia Pacific was up 9%, led by India, which continues to outperform in the region. India's net sales were up 26%, which was partially driven by a difference in timing from a price increase in 22 versus 23. EMEA was up 1%, with year-over-year results generally mixed across the markets in the region. In Latin America, reported net sales were up 3%, with local currency net sales down 1%. The favorable FX impact was primarily due to the Mexican peso. Mexico's net sales were up 3% year over year on a reported basis, while down 8% on a local currency basis. The year over year volume declines in Mexico, which were primarily driven by the importation delays we experienced in the fourth quarter of this year, were partially offset by the price increases implemented in the market. As we stated during the third quarter earnings call, we began experiencing importation delays in Mexico in September as a result of the government delaying timely approval of importation permits. The hold was not unique to Herbalife and applied to all food supplements entering Mexico. This impacted products making up approximately 70% of our sales in Mexico. In November, the importation hold was lifted and permits began to be processed. We believe the supply chain should be stabilized with the full product portfolio back in stock by mid-March. Despite the tireless effort by our operations teams to minimize the impact from the importation hold, we believe there was an approximately 14 million loss of volume or approximately 11 million of net sales in the quarter. In North America, the year-over-year trends have improved from the third quarter to the fourth. However, the recovery has been slower than anticipated. Stefan provided color on this key market and we will look forward to continued improvement in 2024. Moving to slide 14, we have continued to use excess cash generation to reduce the total debt levels of the company. In 2023, we paid down $155 million of our senior credit facility in 2024 converts, which included the $60 million reduction in our revolver in the first quarter and the repurchase of approximately $66 million of our 2024 convertible notes in the third quarter. we ended the quarter with a 3.9 gross leverage ratio. Cash at the end of December remained strong at $575 million, up $67 million from the end of 2022. Consistent with what we told you in November, we intend to fully repay the $197 million of outstanding 2024 converts when they come due in March. We plan to utilize available cash on hand and funds available under the revolver, which remains fully undrawn to cover any difference. And as I previously stated, we initiated the process to refinance our 2018 Term Loan A and revolving credit facility, which matures in March of 2025. We aren't going to go into the details of the proposed refinancing on today's call. We will update you in due course. Looking at our capital spend for the year, there are two pieces to consider. Pure capital expenditures was $135 million. And as we strategically pivoted in 2023, to more SAS-based arrangements, we've also capitalized SAS implementation costs of approximately $35 million that are recognized in other assets and then amortized to the P&L over time. So in total for 2023, our total capital spend was approximately $170 million, whereas in 2022, it was approximately $165 million, including the capitalized SAS implementation costs. For 2024, we expect CapEx in the range of $145 to $195 million with capitalized SAS implementation costs to be relatively comparable with 2023. As of December, we have incurred approximately half of the approximate $400 million of expected implementation costs related to Herbalife 1. Based on the cost incurred as of December 31st for both CapEx and the capitalized SAS implementation costs, we expect to recognize an incremental $30 million

of non-cash amortization expenses in the P&L for 2024. This concludes our prepared remarks. Operator, please open the line for questions.

Thank you. Ladies and gentlemen, to ask the question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Chase and Bender with Citi. Your line is open.

Great. Thanks for taking the question. I'd like to start on 4Q results and specifically on the SG&A line. Alex, can you help explain why SG&A dollars were up almost 7% in the quarter and why we haven't seen those $27 million of cost savings show up in the P&L? And just related to that, for the increased cost savings target of $115 million next year, when will that show up in the P&L? And do you expect that to get dropped to the bottom line? Or is your thinking here that that'll lead to get reinvested?

Hi, Jason. Great questions. So the savings are showing up in SG&A. It's being offset, as I mentioned, by the investments we're making in our digital technology, in our events, in our people, and other things to modernize Herbalife. That has been a big initiative in 2023, and we continue to be an investment period as we move through 2024. the benefit of the transformation program has been allowing us to continue to make those investments. And so there has been a significant increase in our technology spend and a significant spend in areas that are going to strategically move the company forward. So while you are correct in that the overall SG&A spend is higher in 23 versus 2022, it is being offset by all of those savings initiatives that we've mentioned.

Got it. And then just changing gears, could you maybe expand on your expectations for flat sales in 24 and specifically comment on what you're expecting from regions and on a price versus volume basis? And, you know, related to that, do you expect constant currency sales to be positive year over year? And similarly, do you expect EPS to be up year over year in 2024?

That's a lot of questions. So we'll break that down piece by piece. So our expectation for net sales growth being flat does not include, from a currency standpoint, we do expect there to be some headwind to currency in 2024. So that net sales expectation of flat includes currency rates as they are, which would bake in some level of a headwind in 2024. By the way, that's FX currency does not only impact top line, but there is an impact across the P&L from top line all the way down to EPS. So that generally covers the currency question. What is in our expectations for 2024? We're not going to go region by region, but the big factor that I can point out is India has been a large contributor to our overall buoyancy in our top line. So in 2022, India provided almost 30% of net sales growth. In 2023, it was 18% of net sales growth. So as we go to 2024, just thinking law of large numbers, we have a much more modest expectation for the overall contribution of growth from India. So as India's expectation of growth moderates and other markets are in recovery, it yields more of a flat growth expectation for 2024.

Got it. And then do you have any expectation for EPS in 2024?

So from a margin perspective, we have flat top line. So there's not an operating leverage expectation for 2024. Gross profit level will largely stay where it is. Although, as I mentioned, we have some input cost inflation stabilizing over CPI level price increases that we're able to take in 2024. So gross profit margin remaining relatively flat. And as I mentioned, we continue to be in an investment period for the modernization of Herbalife. So overall, I do see margin levels being probably a bit below where they are in 2023 as we continue to invest for future growth.

Got it. Appreciate the color. I'll pause there and pass it on.

Thank you. Please stand by for our next question. Our next question comes from the line of William Ryder with Bank of America. Your line is open.

Hi, thanks for taking our question. This is Rob Bigby on for Bill. So I guess, can we just dive a little bit deeper into your expected uses of free cash flow in 2024? You know, you mentioned repaying some more debt, but if you could just provide some more color around that, that'd be appreciated. Thanks.

Yeah, it's actually pretty simple. Our excess cash flow is going to go down to repaying our total debt levels. So I mentioned we're in a refinancing. We have bonds that are due at the end of 2025, which become callable in the third quarter of this year. So as cash is generated, we will look down to take down our total debt levels with that excess cash.

Okay, great. Got it. Thank you. And then just one follow-up. Your CapEx guidance is pretty wide at $145 to $195 million.

What are some of the pieces that kind of move it from the lower end versus... So there's two components.

There's two significant components of that CapEx spend. One is in our technology spend. And we've mentioned Herbalife One and where we are in that process. So there is some variability on what types of applications, the prioritization of those applications, and whether or not it makes sense to accelerate or defer potentially some of those programs into 25 and 26. And that'll just be a business decision as we see those markets evolve. That creates one element of variability. And the second elements of variability is we've had a bunch of deferred CapEx that we haven't been able to put in place on our manufacturing facilities. And so we have some automation programs, we have some deferred CapEx that we have to evaluate whether or not those automation programs make sense to put into place now or does it make sense to defer those again until 2025. So those are the large components of that variability.

Got it. Great. Thank you. I'll pass it on.

Thank you. Please stand by for our next question. Our next question comes from the line of John Baumgartner with Missoula Securities. Your line is open.

Hi, good afternoon. Thanks for the question. Hi, John. First off, hey, good afternoon. Stefan, I wanted to come back to your commentary regarding distributor training. You know, it's really encouraging that you're ramping the resources there. You made it very clear the need to raise capabilities But having been in the Herbalife system for quite some time, why do you think such resources are now necessary? Is this a function of the nutrition space having become more crowded over the years across channels, new competitors coming in, in bricks and mortar, where these folks now need a sharper skill set versus history? Or is it just more of a function of differences in the backgrounds of these folks coming into the system relative to five, ten years ago?

Yeah, you know, John, there's probably a couple of different things. Good to talk to you, by the way. I think if you take the overall base of people that come in, and let's just take the nutrition clubs in the United States just as an example because I talked about that. When people come in, they come in for a specific model, right? So they come in, someone says, look, open up your own nutrition club. Here's what you're going to do. You need to have this as your menu. This is how you set up your club. This is what you're going to be doing. And they might have come from any background. They might have had zero business background, zero marketing background. They just come in. Maybe they were a housewife. Maybe they were a college student, but didn't have the experience of running a business. And so people get into a very specific model. They learn specific skills. But as you know, the market changes, right? So there's different aspects that start to be aspects that potentially, for example, They're using social media and they post and the algorithms actually are working quite well. And what happens is the algorithm changes. But they're not social media experts. So they don't know how to deal with the advertising or social media marketing. So the skills that are needed as you progress in a business and as new models come, what ends up happening is that people have gaps. And so really having the DMO training specific and allowing them just, for example, to bring in the we do as a nutrition club owner, they're not used to offering these different services. So there is a level of that. So the training, I would say overall, it does change over time. There is a need for it, but there's also from an industry standpoint. So for example, you've been to events, the extravaganza, it brings a certain value. There's the bigger picture, there's recognition, People have an understanding of product training and things like that, but it's not specific to the skills that they're going to need to run their clubs, for example. So really what we're doing is identifying gaps in the training, and on the DMO side, that's one of it. But also why we're so excited about Eric Worre is because it really is about the leadership training. Someone that starts as a distributor, simply getting their customers to building a team, managing a team, innovating through their different models, working with different people at different levels. So it's the gaps that we're trying to close right now. And, you know, it's just part of, I think, just the natural progression of business in the world that we live in today.

Okay, thanks for that. And then, you know, to follow up your comments on the preferred conversion rates in the US nutrition clubs, I think I heard the spread was like 1% to 10%. And I'm curious, I know it's very early days, and it's pretty wide network, but How do you think about where that spread should be? Is 10% at the high end too low? Can it be 20%, 30%? I'm just sort of curious what you would think is sort of achievable going forward as you implement these sort of resources.

Yeah, so it's really kind of model-based, right? By the way, we give 10%. There's over 10%, okay? It's not the majority of people. Obviously, it's a small subset of people. But when we actually break it down, It could be their demographics, where they're living. It could be, and most of the time, it is the models that they're doing and the services that they're offering. So if it's just food service, for example, the conversion we know is much lower. They're more focused. There may be higher volume clubs where they have more customers coming in and out, and they're just doing everything that they can to make sure the customers get the service that they need to buy the food item that they're trying to purchase and be on their way. Other clubs... They have better conversion. People are coming in. What they're coming in for could be a variety of things. They might be coming in. Some of these clubs have workouts that are happening a couple of times a week. Some of the clubs, people are doing wellness evaluations. Some of the clubs, they're running challenges where they'll have weekly meetings and they'll have groups of people that are coming in. Those types of clubs have higher conversion. So we believe long-term that the more people focus on multi-services, the higher the conversion is going to go. Now, by the way, I don't want to talk about the tech stack because this is the bigger picture of things for the future. But having technology that allows someone to, for example, simply scan a QR code on a shake and it says maybe, would you like to have more information about what's in this shake? This brings them to a platform that says, hey, here's what's in the shake. And would you like to join a platform where you can get recipes, where you can learn about nutrition, where you can track your diet? daily steps on a day, how you slept last night, everything that's wearable, everything that's connected today, that it actually is a place for them to live on a platform that adds value to them, that's connected to their distributor, that's connected to the company, that's connected to the club that they're connected to. And so this is the opportunity for us in the future. Part of it's tech-based, and part of it is really upskilling and allowing our distributors to have access to the information they need to be able to go out and add these additional services into their businesses to be able to get the conversion up.

And that scan that you're referencing, is the idea to be on a product label or elsewhere, like advertising? Where would that scan actually be for consumers?

The sky's the limit, John, right? I mean, in today's world of marketing, I mean, it is so wide and so large. So it could be on a shake. When someone buys a shake at a club, it could print out based on the ingredients that are in there. Scan this, you're good to know. By the way, you could have something that someone walks up to a club and it says, you know, take our questionnaire, right? Answer five questions and, you know, be able to refer a friend or, you know, be able to win something as a prize. Marketing today, social media marketing, it's so vast and it's so broad and there's so much opportunity there. So, What's beautiful about this is if the technology is there, it's unlimited what you can do. And our distributors are amazing. They are creative. They are always pushing the envelope. And as a company, it's our job to make sure that we're supporting them in everything that they need to be able to take their businesses wherever they want to go.

Thanks, Yvonne. Very helpful. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Linda Bolton Weiser with DA Davidson. Your line is open.

Yes, hello. So I was wondering, Stefan, when you were talking about the account management operating model, I'm just curious about like those people that will be doing that. Will those be corporate employees? And if so, does that kind of add over time? something to your cost structure to implement that type of model?

Yeah, so Linda, we have already corporate employees that do interface with distributors. And so it's part of what's already happening there. As we add, and we're actually going to be having more and more of them, it's really about how we're designing and we're going to reallocate resources to this area. Quite honestly, the distributors that are out there, we look at any market right there's different ways that they have access to information we're finding actually that having company employees that are on the ground that are visiting the clubs or visiting distributor leaders and that are sharing information with them that's relevant because again going back to John's question why do we need the training why do we need this type of connectivity is because some people come into the business they get a result on the products they're inspired but they don't have a background in business. They don't know how to read the numbers, or they don't know how to specifically sometimes plan, and they just don't have the background. So this is something that we are going to be formatting, developing with our leadership to be able to understand where can we give the most value to the distributors. We already have in some regions what we would call regionals that are actually on the ground in the field meeting distributor leaderships. part of what they're doing is what they're going to be doing in the future, but we're really going to standardize and format this. And by the way, then if we think about AI and the information and the data and how things can be automated and we can take a program and know what delivering the value is, but then we can also automate the program to deliver the value to more people. So, you know, this is just the beginning of something that's going to be very, very big for us in the future and that we're very excited about. Um, And, you know, as mentioned, we'll reallocate and we'll automate.

Great. And then I was wondering if you could talk a little bit more about China and what exactly was done there to kind of bring about this turnaround. I'm wondering how much of it is just the general market there becoming more open or is it specific actions that you took? And just remind us, too, Is China less of a nutrition club market? I don't think that was as much the focus there. Is that the case?

Well, it's quite interesting. So to answer your question, it's kind of both. It's obviously coming out of the pandemic, they were the last ones. They were the longest in the lockdowns. They were the last ones to come out. And so the distributors or the service providers that we have there, quite honestly, they had a very difficult time. And in terms of clubs, they actually started to adopt and implement nutrition clubs right before the pandemic. And so I don't know if you just kind of visualize and imagine, imagine, you know, thousands of service providers that opened up clubs, took locations just before the pandemic. And then all of a sudden they didn't even have a chance to get off the ground. So it was really disruptive. And I would say, what is kind of leading the turnaround? A couple of things. One, Number one, getting closer to the leadership there and supporting the service provider leaders and then actually understanding after a couple of years that the company is there to support them. And so this started at the early level last year with Michael and myself meeting with them in March. We went together also in April. I went another two times there and met personally with service provider leaders and local staff and I would say that everything is coming together. They also had a back-to-growth plan that really kind of lined up and organized things for the year. So we have positive numbers. Things are looking very good there. Again, they're coming off a two-year very strong disruption. It's going to take a bit of time to build momentum there, but we do have positive momentum happening.

And so, again, we're feeling very, very good about this.

Great. And I was just wondering, why was the price mix all of a sudden seemingly in China? It looked like it was down about 11% or so. It looked a bit like an anomaly. Was there something that caused that in the numbers?

Say that, the price mix?

Say that again, Linda? Yeah, for China.

yeah sorry for china i thought it looked like um the price mix like it looked like the volume point growth was really strong but the price mix was yeah i thought volume points were up 28 and price mix was down 11 is that is that wrong or let's see i'll have to come back to you yeah i have to come back to you i have i have

I'll have to come back to you on that, Linda.

Okay, yeah, we can do that offline. And then just another, I guess, financial one for you, Alex. On the free cash flow for 2024, I guess I'd be picturing it to be maybe down somewhat because what would be the working capital benefits? Are you expecting some more of those in 2024?

So the working capital benefit in 2023, which largely right-sizing the inventory, that isn't a benefit that we're expecting to see in 2024 because we're now at the right size level. So we're not going to have that contributor, which was a significant contribution to our 2023. We do expect one thing that we did do in 2023 is we had our cash flow conversion get back to our stronger levels where it was above 1x. You might notice that in 2022 it was below 1x. So we expect that cash flow conversion still to be strong in 2024. However, the working capital piece is not going to be a contributor to that 2024 benefit.

You mean conversion of EBITDA to cash flow or adjusted net income to cash flow?

We typically look at it from an adjusted net income basis.

Okay. Okay. And then just in terms of the GLP-1 stuff that you talked about, that's very clever that they're reaching out to prescription providers to look for clients. I'm just wondering if you're in the works for doing something more formalized, some sort of partnership where you can actually partner with a GLP-1 provider to get a funnel of kind of Is that something you're thinking about?

Hi, Linda. It's Michael. I've been waiting for that question from you. So we have studied this really carefully, and we've looked at healthcare providers, telehealth. You know, we've gone back and forth on it. We think the best method to the marketplace for this is to work locally, is to work with the opportunity for our distributors to work with longevity clinics work with doctors, work with different areas in their local marketplaces to provide a product that's complementary. We don't see ourselves in the near future offering a GLP-1 product. We believe that our strength is in the behavior modification, giving product to people that complements a GLP-1 user on their journey. As you know, you're on that personal journey. And so that opportunity for us is the beauty of this is to build a long-term customer who will use the GLP-1s on a temporary basis and to work with local opportunities, whether it's a healthcare provider, whether it is a telehealth company on a local basis through our distributors and not in a corporate relationship. We just think it works better that way. It fits our model perfectly. We've got some distributors who are employing some very engaging ideas. I don't want to talk too much further about that right now because they're in kind of the early phases of talking to folks and ways that they can help the GLP customer get on that long-term journey and just off that short-term journey that they're on now.

Okay, sounds good.

Thank you very much.

Thank you, Linda.

Please stand by for our next question. Our next question comes from the line of Jeff Van Sinderen with B Raleigh. Your line is open.

Hi, everyone. Just thinking about the considerable CapEx investments you've made and are going to continue to make, so far, where are the benefits from those showing up in the metrics you track?

So, Alex and I are going to double-team this one.

So, the initial investments in our digital were to rebuild our infrastructure, and those don't show up immediately in the benefits to the business that you can see in numbers. What we had to do because we had an antique and we had to rebuild this thing completely from the ground up. So some of those investments, some of those early investments that we spent in the digital world were about rebuilding that infrastructure to get it right. So now we can add componentry to build a platform, to bring in some great providers of products for both the MLM marketplace, the direct selling marketplace for sales acquisition, for customer acquisition, all the different tools that our distributors are going to be able to employ in the marketplace. And that's coming in very short order.

Alex? Yeah, that's correct. And just to emphasize that we're about halfway through the program, particularly on the technology spend. We'll continue to invest in 2024. Our brand sites did in 70% of markets that represent 70% of our net sales. They went live at the end of the year and the initial metrics that we're seeing are incredible. So significant improvement on all of the metrics that you look at in terms of engagement, in terms of all the things that you would want from someone to engage with your brand site. So we're seeing that that is obviously just the first step of something external that sits on top of the internal platform that Michael just mentioned. And there's more to come as 2024 rolls out. And when I mentioned earlier, around the breadth of CapEx. I think we got a question on what was the spread of CapEx related to. That's related to the prioritization of what capability externally now will we roll out? Where does that prioritization roll out? How will it affect the markets best? And those will be business decisions as the year progresses.

Okay, thanks. I'll tell Paul. And then understand you got into flat revenues for the year, but considering that you grew in Q4, what sort of quarterly progression might we anticipate this year? And then I guess to clarify, I think you said margins would be down for 24. So should we anticipate EBITDA and dollars down for the year?

So we're not giving quarterly guidance. We have a relatively flat for the year. There could be some choppiness on a quarter-by-quarter basis, but we have relative flat growth for 2024. I think that's probably as granular as we can get at this point.

Okay. And then, I'm sorry, on EBITDA, any color there on what we might expect with margins down?

I think I mentioned before, relatively flat top line, no operating leverage, obviously, from that top line, gross profit margins relatively flat. And then this is going to continue to be an investment year for us as we position Herbalife 1, strategic initiatives to gain growth as we look for 2024 and beyond.

Okay. All right. So from that, I'm taking EBITDA down a little bit. And then I just had one other question on the nutrition clubs overall, because I think Stefan gave some metrics around those. I didn't catch them all. He said $9 million. I wasn't sure what that was for. But in the U.S., and I don't know if you have these metrics or want to provide them or not, but What are the revenues from the U.S. clubs? Is that the $9 million? And then also, do we have a number for average revenue per club? I'm just curious about that. And then maybe margins that the club owners are making on those, if there's a way to look at that. There may not be, but curious there.

Yeah, Jeff, let me – so there was no nine. There was $900 million in sales, but let me just repeat that for you. So 4.4 million Nutrition Club customers in 2023, $55 million –

transactions, average transaction $1,650. That makes up, actually, it's right around $910 million retail club sales, okay?

So those are the retail prices that customers paid to our club owners in their clubs. And so it's, to average it out doesn't really do it justice because you've got clubs that are in a small city of 5,000 people that, you know, they operating they have how many ever customers they have their cost you know basis is whatever it is compared to other clubs that are operating in much bigger cities have higher costs so you know in some of the clubs there they do quite well they don't they're small it's low cost all they've got to do is a few thousand you know in revenue other clubs we have that are that are doing ten fifteen thousand dollars in revenue monthly so it's really really hard enough and of course we don't have their costs right we have what they purchased from the company. We've got the transactional data from what they're selling things for, but we don't track what their rents are, what they're paying in electricity and everything. So, yeah, hard for us to come up with that number.

Okay, understood. Thanks for taking all my questions. Thank you.

Please stand by for our next question. Our next question comes from the line of Panna Lizell with Bank of America. Your line is open.

Hi, good afternoon, and thanks very much for the question. In general, we get a lot of questions in our coverage these days on Argentina, just given the hyperinflationary environment. Just wondering how exposed are you to Argentina? Are you able to take significant pricing to offset the inflation in that market? And separately on China, just any early expectations on results from Lunar New Year this quarter and how things are tracking in that region? Thank you.

Sure. Thanks for the questions, Anna. So regarding Argentina, we obviously have a business in Argentina. The hyperinflation is something that we keep up. We have regular price increases to keep up with that. There is still risk with that as you're trying to get cash in Argentina and PESA out, but our exposure is relatively limited as we continue to price with the hyperinflation of that market. As it relates to how 2024 is going, we'll update you in April. or actually in May, rather. We're not going to give any commentary about 2024 at this point.

Okay. Thank you. Please stand by for our next question.

Our next question comes from the line of Hal Holden with Barclays. Your line is open.

Thank you. Good afternoon. I was just watching videos of Eric Worre. I think We may hire him for our sales desk if you guys don't.

He's going to be busy, so I don't think probably he's going to have much time.

He's all ours. He looks very high energy, so I'm sure he can handle the busyness. The only question I had was, Alex, when you think about cash balances that you want to have on hand around the company, I know a lot of it is international, but as you start thinking about what debt you would pay down through the course of this year, can you sort of tell us how much cash you would sort of keep on hand as a minimum amount or we should think about you're not going below?

So it cycles depending on where we are in our expansion or contraction. Obviously the past couple of years we've been in a bit of contraction. So typically that's around $500 million is I would call it a safe average in terms of working capital cash or I would say cash in the system. We have a couple of initiatives about establishing an in-house bank and other cash management efficiencies. So we're looking to see to get the net number down. But I think for today, a placeholder of $500 million is sufficient.

Great. Thank you very much.

Sure.

Please stand by for our next question. Our next question comes from the line of Doug Lang with Water Tower Research. Your line is open.

Oh, yes. Hi. Thanks for taking my question. I know it's getting late here. So I just wanted to follow up on the conversations about debt pay down and the capital allocation here. So have you articulated a target leverage ratio that you're shooting for? And then is there some point where a stock buyback makes sense?

So our policy around three times total debt is still our target. That is an investment grade target. We are our excess cash flow right now. We ended 2023 at 3.9 times. So our excess cash flow is going to continue to pay that debt down until at least we get to the three times target. And we have plans to get there with the continual pay down of the free cash flow generation. So we expect strong cash flow generation in 2024. following up 2023, and that's where we're going to put it.

And stock buyback, is that on the table?

Well, we need to get the three times target before we can ever consider that. But again, Doug, our focus right now is getting our debt levels significantly lower than where they are today.

Okay, I understand. Just one last thing on guidance. Is there a reason why you haven't started back up with guidance on your balance sheets getting deleveraged, your sales have turned positive? It just seems like things are starting to shift in a favorable direction, so I think we'd be anxious to see formal guidance reinstated.

Thanks, Doug. Thanks for that feedback. Obviously, we've given you a top line, some top line guidance. We've given you some profitability guidance in a bit of a different format than we have historically, but hopefully that gives you enough to kind of pencil out a forecast for the life.

Fair enough. Thanks, Alex. You're welcome.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Michael Johnson for closing remarks.

Let's get you all home for Valentine's Day. That's pretty important. Our company is metric focused as we should be. There's no doubt about it. We need to improve on some of our metrics. We've got a lot of energy behind what we are doing, but it wouldn't be me if I didn't tell you a little personal story to close our call today because, frankly, that's what I do. HITECH is vital in today's business, and the reality is we're in a high-touch business. And recently, I had the opportunity to follow my team all the way to the national championship. We chased Michigan from Ann Arbor to Houston, and I did it with a childhood friend of mine, one of my best friends and still today. someone who I ski raced with and raced bikes with, and he was an incredible athlete in his youth. But like many of us, not me necessarily, but he gained too much weight. And when he was young, he was this incredible athlete, but he let himself go. He purchased Herbalife products years ago, and he never really met the success that he wanted to meet. And he did not modify his lifestyle. So he founded Herbalife Distributor in our small town in southern Michigan where we grew up, a world team member who was in our hometown. And like many, he thought about GLP once because he wanted to have a quick transformation in his body. But the real transformation came when he started to work with the distributor at a nutrition club in our hometown. He lost weight by being held accountable. Early in his journey, that weight started to come off. By this and this wonderful Herbalife distributor, through weekly visits, he was held accountable to be measured, to discuss calorie intake, nutrition training, proper use of Herbalife product. His distributor is what we call a transformational distributor. For 13 years in southern Michigan, he's helped people get active and healthy, and he's built a successful business doing it. This is what makes us so special and unique and opportunistic. This is why all of us sitting around this table here today and all the distributors listening in from around the world know that Herbalife is an incredibly unique company. Weight loss, it's back in the discussion. Our vision of being the world's premier health and wellness company, community, and platform has never, ever been more relevant. We're excited about 2024. I hope that came across today. Our challenges, they're overshadowed by our opportunities. So as we say to everybody at Herbalife, LGH. Let's go, Herbalife. Thank you, guys.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.