Herbalife(HLF) - 2024 Q2 - Quarterly Results

Herbalife Second Quarter 2024 Financial Results Financial and Operational Highlights Herbalife reported a Q2 2024 net sales decline of 2.5% to $1.3 billion, raised its full-year adjusted EBITDA guidance, and reduced its net sales outlook Q2 2024 Key Financial Metrics | Metric | Q2 2024 Value | YoY Change | Note | | :--- | :--- | :--- | :--- | | Net Sales | $1.3 billion | -2.5% | +0.2% on constant currency basis | | Net Income | $4.7 million | - | - | | Adjusted Net Income | $54.8 million | - | - | | Adjusted EBITDA | $180.0 million | - | Exceeded guidance; margin up 120 bps | | Diluted EPS | $0.05 | - | Includes $0.33 headwind from restructuring | | Adjusted Diluted EPS | $0.54 | - | - | | Operating Cash Flow | $102.5 million | - | - | - The company raised its full-year 2024 adjusted EBITDA guidance, reduced its net sales guidance, and reaffirmed its capital expenditures forecast[2] - The total leverage ratio was reduced to 3.5x as of June 30, 2024[2] - CEO Michael Johnson highlighted that Q2 Adjusted EBITDA was the highest in seven quarters and noted that the increase in new distributors is building a foundation for future sales growth[2] Management Commentary Management detailed financial performance, margin improvements from pricing, an ongoing restructuring program, and significant corporate actions including debt refinancing and an asset sale - Gross profit margin improved to 77.9% in Q2 2024 from 77.0% in Q2 2023, benefiting from approximately 160 basis points of pricing, which was partially offset by 60 basis points of input cost inflation[3] - The Restructuring Program is expected to deliver annual savings of at least $80 million beginning in 2025, with at least $50 million now expected in 2024 (up from $40 million)[6] - In April, the company completed a $1.6 billion debt refinancing to repay amounts under its 2018 Credit Facility and redeem a portion of its 2025 Notes, resulting in a $10.5 million loss on extinguishment of debt[7] - The company completed a sale and leaseback of its Torrance, California office building in July, generating net proceeds of approximately $38 million[8] - The CFO reiterated the company's focus on expanding margins and reducing the total leverage ratio to 3.0x by the end of 2025[8] Business and Distributor Momentum The company saw a significant 12% year-over-year increase in new distributors, reversing a multi-quarter decline, driven by record attendance at global training events - The number of new distributors worldwide increased 12% year-over-year and 26% sequentially in Q2 2024, breaking a trend of 12 consecutive quarters of year-over-year declines[9] - Extravaganza training events attracted approximately 83,300 attendees globally, with the Asia Pacific event setting a new attendance record of 24,000 attendees and India's first multi-city event setting a record with 35,700 attendees[8][9] Regional Performance Analysis Regional performance varied, with constant currency sales growth in Latin America, EMEA, and Asia Pacific offset by declines in North America and China Q2 2024 Net Sales Growth by Region (YoY) | Region | Reported Growth | Constant Currency Growth | | :--- | :--- | :--- | | North America | (6.7)% | (6.7)% | | Latin America | 2.3% | 4.7% | | EMEA | (0.6)% | 3.5% | | Asia Pacific | (2.1)% | 1.6% | | China | (7.2)% | (4.0)% | | Worldwide | (2.5)% | 0.2% | Q2 2024 Volume Point Change by Region (YoY) | Region | YoY % Change | | :--- | :--- | | North America | (13.1)% | | Latin America | (2.1)% | | EMEA | (9.7)% | | Asia Pacific | (1.9)% | | China | (1.8)% | | Worldwide | (6.0)% | - Most markets in Latin America implemented a 5% price reduction and Volume Point adjustments to improve product competitiveness and stimulate growth[13] Financial Guidance The company provided Q3 2024 guidance and revised its full-year outlook, lowering net sales expectations while raising the adjusted EBITDA forecast Third Quarter 2024 Guidance | Metric | Q3 2024 Guidance | | :--- | :--- | | Net Sales (YoY) | (4.5)% to 0% | | Adjusted EBITDA | $125M – $155M | | Capital Expenditures | $35M – $45M | Full-Year 2024 Guidance (Revised) | Metric | Revised FY24 Guidance | Previous FY24 Guidance | | :--- | :--- | :--- | | Net Sales (YoY) | (3.5)% to +1.5% | 0% to +5% | | Adjusted EBITDA | $560M – $600M | $550M – $590M | | Capital Expenditures | $120M – $150M | $120M – $150M (Reaffirmed) | Condensed Consolidated Financial Statements (Unaudited) The unaudited statements show a sharp decline in quarterly net income, a continued shareholders' deficit, and lower year-to-date operating cash flow Condensed Consolidated Statements of Income Q2 2024 vs Q2 2023 Income Statement Highlights (in millions) | Line Item | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Worldwide Net sales | $1,281.1 | $1,314.0 | | Gross profit | $998.0 | $1,012.4 | | Operating income | $80.4 | $123.4 | | Net income | $4.7 | $59.9 | | Diluted EPS | $0.05 | $0.60 | Condensed Consolidated Balance Sheets Balance Sheet Highlights (in millions) | Line Item | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $374.0 | $575.2 | | Total Assets | $2,602.2 | $2,809.4 | | Long-term debt, net | $2,321.0 | $2,252.9 | | Total Liabilities | $3,639.4 | $3,869.7 | | Total Shareholders' Deficit | $(1,037.2) | $(1,060.3) | Condensed Consolidated Statements of Cash Flows Six Months Ended June 30 Cash Flow Highlights (in millions) | Line Item | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $116.3 | $181.8 | | Net cash used in investing activities | $(69.0) | $(68.5) | | Net cash used in financing activities | $(240.2) | $(85.3) | Schedule A: Reconciliation of Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP metrics, detailing adjustments for items like restructuring costs to arrive at adjusted net income and adjusted EBITDA Q2 2024 Reconciliation of Net Income to Adjusted Net Income (in millions) | Description | Amount | | :--- | :--- | | Net income (GAAP) | $4.7 | | Expenses related to Restructuring Program | $48.8 | | Expenses related to Transformation Program | $3.5 | | Digital technology program costs | $6.0 | | Loss on extinguishment of debt | $10.5 | | Income tax adjustments for above items | $(18.7) | | Adjusted net income (Non-GAAP) | $54.8 | Q2 2024 Reconciliation of Net Income to Adjusted EBITDA (in millions) | Description | Amount | | :--- | :--- | | Net income (GAAP) | $4.7 | | Interest expense, net | $57.7 | | Income taxes | $7.5 | | Depreciation and amortization | $32.6 | | EBITDA | $102.5 | | Adjustments (Restructuring, Digital Tech, etc.) | $77.5 | | Adjusted EBITDA (Non-GAAP) | $180.0 | - The Credit Agreement Total Leverage Ratio was calculated at 3.5x based on a TTM Credit Agreement EBITDA of $691.6 million and total debt of $2,422.5 million as of June 30, 2024[37]