Herbalife(HLF) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Herbalife's unaudited financial statements and management's analysis of its financial performance Item 1. Financial Statements This section presents Herbalife's unaudited condensed consolidated financial statements and detailed notes Unaudited Condensed Consolidated Balance Sheets This table presents the company's financial position, detailing assets, liabilities, and shareholders' deficit Unaudited Condensed Consolidated Balance Sheets (in millions) | ASSETS (in millions) | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $320.9 | $415.3 | | Receivables, net | 96.2 | 68.9 | | Inventories | 513.1 | 475.4 | | Prepaid expenses and other current assets| 172.7 | 184.1 | | Total current assets | 1,102.9 | 1,143.7 | | Property, plant, and equipment, net | 465.8 | 460.2 | | Operating lease right-of-use assets | 181.8 | 185.7 | | Marketing-related intangibles, net | 316.5 | 312.3 | | Goodwill | 101.0 | 87.7 | | Deferred income tax assets | 427.8 | 398.6 | | Other assets | 140.3 | 139.9 | | Total assets | $2,736.1 | $2,728.1 | | LIABILITIES (in millions) | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Accounts payable | $91.8 | $70.0 | | Royalty overrides | 328.8 | 334.1 | | Current portion of long-term debt | 168.0 | 283.5 | | Other current liabilities | 505.7 | 542.8 | | Total current liabilities | 1,094.3 | 1,230.4 | | Long-term debt, net | 1,973.5 | 1,976.6 | | Non-current operating lease liabilities | 165.4 | 169.5 | | Other non-current liabilities | 157.3 | 152.7 | | Total liabilities | 3,390.5 | 3,529.2 | | SHAREHOLDERS' DEFICIT (in millions) | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Total Herbalife shareholders' deficit | $(660.5) | $(801.1) | | Noncontrolling interest | 6.1 | — | | Total shareholders' deficit | $(654.4) | $(801.1) | | Total liabilities and shareholders' deficit | $2,736.1 | $2,728.1 | Unaudited Condensed Consolidated Statements of Income This table outlines the company's revenues, expenses, and net income over specified periods Unaudited Condensed Consolidated Statements of Income (in millions, except per share amounts) | (in millions, except per share amounts) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $1,259.1 | $1,281.1 | $2,480.8 | $2,545.4 | | Cost of sales | 276.9 | 283.1 | 542.1 | 568.1 | | Gross profit | 982.2 | 998.0 | 1,938.7 | 1,977.3 | | Royalty overrides | 406.5 | 415.3 | 808.3 | 830.5 | | Selling, general, and administrative expenses | 447.9 | 502.3 | 879.8 | 994.5 | | Other operating income | (4.8) | — | (4.8) | — | | Operating income | 132.6 | 80.4 | 255.4 | 152.3 | | Interest expense, net | 53.6 | 57.7 | 105.6 | 95.6 | | Other expense, net | — | 10.5 | — | 10.5 | | Income before income taxes | 79.0 | 12.2 | 149.8 | 46.2 | | Income taxes | 29.8 | 7.5 | 50.2 | 17.2 | | Net income | 49.2 | 4.7 | 99.6 | 29.0 | | Net income attributable to Herbalife | $49.3 | $4.7 | $99.7 | $29.0 | | Basic EPS | $0.48 | $0.05 | $0.98 | $0.29 | | Diluted EPS | $0.48 | $0.05 | $0.97 | $0.29 | Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) This table details net income and other comprehensive income components, reflecting total comprehensive income Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) (in millions) | (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $49.2 | $4.7 | $99.6 | $29.0 | | Other comprehensive income (loss): | | | | | | Foreign currency translation adjustment | 24.2 | (21.6) | 32.9 | (31.5) | | Unrealized (loss) gain on derivatives | (4.4) | 7.1 | (8.1) | 6.1 | | Total other comprehensive income (loss) | 19.8 | (14.5) | 24.8 | (25.4) | | Total comprehensive income (loss) | $69.0 | $(9.8) | $124.4 | $3.6 | | Total comprehensive income (loss) attributable to Herbalife | $69.1 | $(9.8) | $124.5 | $3.6 | Unaudited Condensed Consolidated Statements of Cash Flows This table summarizes cash inflows and outflows from operating, investing, and financing activities Unaudited Condensed Consolidated Statements of Cash Flows (in millions) | (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $96.2 | $116.3 | | Net cash used in investing activities | (69.4) | (69.0) | | Net cash used in financing activities | (132.4) | (240.2) | | Effect of exchange rate changes on cash | 11.1 | (13.3) | | Net change in cash, cash equivalents, and restricted cash | (94.5) | (206.2) | | Cash, cash equivalents, and restricted cash, beginning of period | 438.1 | 595.5 | | Cash, cash equivalents, and restricted cash, end of period | $343.6 | $389.3 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the financial statements 1. Organization This note describes Herbalife's global business model, product categories, and geographic operating regions - Herbalife Ltd. is a global nutrition company selling weight management, targeted nutrition, energy, sports, fitness, and outer nutrition products through a network of independent members[23] - The Company operates in five geographic regions: North America, Latin America, EMEA, Asia Pacific (excluding China), and China[23] 2. Significant Accounting Policies This note details the accounting principles and methods used in preparing the financial statements - The Company's unaudited condensed consolidated interim financial information is prepared in accordance with SEC's Regulation S-X and U.S. GAAP, with all necessary normal recurring adjustments[24] - Recently adopted pronouncements, ASU No. 2024-02 and ASU No. 2023-05, did not have a material impact on the Company's financial statements[25][26] - New accounting pronouncements, including ASU 2023-06, 2023-09, 2024-03, 2024-04, 2025-03, 2025-04, and 2025-05, are being evaluated for potential impact on future financial statements[27][28][29][30][31][32][33] - Revenue is generally recognized when product is delivered to Members, with specific recognition policies for China independent service providers and third-party importers[35] - Distributor allowances (discounts, rebates, wholesale commissions) are recorded as a reduction to net sales, while royalty overrides are classified as an operating expense[36][37][38] - The Company recognized approximately $4.8 million in government grant income from China during both the three and six months ended June 30, 2025, with no such income in the prior year[46] - A $10.5 million loss on extinguishment of debt related to the 2018 Credit Facility and partial redemption of 2025 Notes was recognized in other expense, net, during the three and six months ended June 30, 2024[47] - The Company acquired certain assets of Pruvit Ventures, Inc. and Pro2col Health LLC for $19 million in April 2025, primarily consisting of intangible assets and software, with potential contingent payments up to $25 million for Pruvit and $46 million for Pro2col[50][51][52][53] - In April 2025, Herbalife formed HBL Link Bioscience, LLC (51% owned) and acquired Link BioSciences Inc.'s assets for $6.5 million, which was accounted for as a business combination, resulting in $7.2 million in goodwill[54][55] 3. Inventories This note provides a breakdown of inventory components, including raw materials, work in process, and finished goods Inventories (in millions) | (in millions) | June 30, 2025 | December 31, 2024 | | :------------ | :------------ | :---------------- | | Raw materials | $73.3 | $74.0 | | Work in process | 10.7 | 8.1 | | Finished goods | 429.1 | 393.3 | | Total | $513.1 | $475.4 | 4. Long-Term Debt This note details the company's long-term debt obligations, including credit facilities and senior notes Long-Term Debt (in millions) | (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------------------- | :------------ | :---------------- | | Borrowings under senior secured credit facility | $353.0 | $359.9 | | 12.250% senior secured notes due 2029 | 771.0 | 768.2 | | 4.250% convertible senior notes due 2028| 272.7 | 271.9 | | 7.875% senior notes due 2025 | 147.3 | 261.8 | | 4.875% senior notes due 2029 | 595.8 | 595.4 | | Other | 1.7 | 2.9 | | Total | 2,141.5 | 2,260.1 | | Less: current portion | 168.0 | 283.5 | | Long-term portion | $1,973.5 | $1,976.6 | - The 2018 Credit Facility was refinanced and replaced in April 2024 by the 2024 Credit Facility, consisting of a $400.0 million Term Loan B and a $400.0 million revolving credit facility[63] - The 2024 Credit Facility requires compliance with financial covenants, including a maximum total leverage ratio (stepping down to 4.00:1.00 by September 30, 2025) and a minimum liquidity of $200.0 million; the Company was in compliance as of June 30, 2025[68] - The Company issued $800.0 million of 12.250% Senior Secured Notes due 2029 in April 2024, with proceeds used to repay existing debt[74] - The 2024 Convertible Notes matured on March 15, 2024, and the remaining $197.0 million outstanding principal was repaid in cash[79][80] - The Company redeemed $65.0 million and $50.0 million aggregate principal amount of the 2025 Notes in February and June 2025, respectively, reducing the outstanding principal to $147.3 million as of June 30, 2025[89][90] Annual Scheduled Principal Payments (in millions) | Annual Scheduled Principal Payments (in millions) | Amount | | :------------------------------------------------ | :----- | | 2025 | $157.6 | | 2026 | 20.7 | | 2027 | 20.5 | | 2028 | 297.7 | | 2029 | 1,710.0| | Total | $2,206.5 | 5. Contingencies This note discloses potential liabilities from tax matters, legal proceedings, and other uncertain events - The Company is involved in various tax matters, including delayed VAT refunds and a $23.2 million tax assessment in Mexico for 2019, which it is appealing[101][102] - In Brazil, the Company faces tax assessments totaling approximately $15.9 million related to withholding/contributions and significant ICMS indirect tax assessments (e.g., $29.3 million for 2013, $10.9 million for 2014 in São Paulo), for which it has provided surety bonds and is litigating[103][104][105] - In India, the Company has received VAT and Service Tax assessments of approximately $12.0 million and income tax assessments totaling approximately $101.3 million for fiscal years 2017, 2018, 2020, 2021, and 2022, which it is litigating[106] - A lawsuit against a former technology services vendor resulted in a $1.5 million judgment in favor of Herbalife on a fraudulent concealment claim[108] - A class action lawsuit was filed in October 2024 alleging misclassification of distributors as independent contractors, which the Company intends to vigorously defend[109] 6. Segment Information This note provides financial data by geographic operating segments, including net sales and contribution margins - The Company operates in 95 markets, organized into five geographic regions: North America, Latin America, EMEA, Asia Pacific, and China. All regions except China are aggregated into the 'Primary Reporting Segment'[110][111] Net Sales and Contribution Margin by Segment (in millions) | (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales: | | | | | | Primary Reporting Segment | $1,179.1 | $1,199.4 | $2,336.0 | $2,388.5 | | China | 80.0 | 81.7 | 144.8 | 156.9 | | Total net sales | $1,259.1 | $1,281.1 | $2,480.8 | $2,545.4 | | Contribution margin: | | | | | | Primary Reporting Segment | $507.7 | $513.7 | $1,007.5 | $1,014.9 | | China | 28.6 | 27.9 | 51.9 | 54.0 | | Total contribution margin | $536.3 | $541.6 | $1,059.4 | $1,068.9 | Net Sales by Geographic Area (in millions) | Net sales by geographic area (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $265.3 | $275.3 | $513.0 | $534.0 | | India | 203.6 | 204.6 | 412.9 | 408.1 | | Mexico | 137.2 | 142.7 | 263.7 | 283.6 | | China | 80.0 | 81.7 | 144.8 | 156.9 | | Vietnam | 60.2 | 62.9 | 135.6 | 138.5 | | Others | 512.8 | 513.9 | 1,010.8 | 1,024.3 | | Total net sales | $1,259.1 | $1,281.1 | $2,480.8 | $2,545.4 | 7. Share-Based Compensation This note details expenses and activity related to stock appreciation rights and restricted stock units - Share-based compensation expense was $10.4 million for Q2 2025 (down from $11.8 million in Q2 2024) and $22.0 million for H1 2025 (down from $23.7 million in H1 2024)[117] SARs Activity (in thousands) | SARs Activity (in thousands) | Outstanding as of Dec 31, 2024 | Granted | Exercised | Forfeited/expired | Outstanding as of Jun 30, 2025 | | :--------------------------- | :----------------------------- | :------ | :-------- | :---------------- | :----------------------------- | | Number of Awards | 11,002 | 2,646 | — | (467) | 13,181 | | Weighted Average Exercise Price Per Award | $12.12 | $7.72 | — | $16.27 | $11.09 | Restricted Stock Units Activity (in thousands) | Restricted Stock Units Activity (in thousands) | Outstanding and nonvested as of Dec 31, 2024 | Granted | Vested | Forfeited | Outstanding and nonvested as of Jun 30, 2025 | | :--------------------------------------------- | :------------------------------------------- | :------ | :----- | :-------- | :------------------------------------------- | | Number of Shares | 6,289 | 1,779 | (2,725)| (388) | 4,955 | | Weighted Average Grant Date Fair Value Per Share | $12.56 | $8.10 | $15.14 | $10.85 | $9.68 | 8. Income Taxes This note provides details on income tax expense, effective tax rates, and unrecognized tax benefits Income Tax Data (in millions) | Income Tax Data (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income taxes | $29.8 | $7.5 | $50.2 | $17.2 | | Effective income tax rate | 37.7% | 61.5% | 33.5% | 37.2% | - The decrease in the effective tax rate for Q2 2025 was primarily due to changes in geographic income mix and a decrease in tax expense from discrete events[124] - Total unrecognized tax benefits, including interest and penalties, amounted to $50.6 million as of June 30, 2025, with a possible decrease of up to $8.4 million within the next twelve months due to statute of limitations expiration and audit settlements[125][126] - The recently signed One Big Beautiful Bill Act (OBBBA) is not expected to have a material financial impact on the Company's consolidated financial statements, based on preliminary analysis[127] 9. Derivative Instruments and Hedging Activities This note describes the company's use of foreign currency derivatives for risk management and hedging - The Company uses foreign currency derivatives, including forward and option contracts, as freestanding derivatives (no hedge accounting) and cash flow hedges to mitigate foreign currency exchange risk[128][129][130] - As of June 30, 2025, the aggregate notional amounts of all foreign currency contracts outstanding (including cash flow hedges and freestanding derivatives) were approximately $846.7 million[131] Derivative Instruments and Hedging Activities (in millions) | (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Amount of (Loss) Gain Recognized in Other Comprehensive Income (Loss) | | | | | | Foreign exchange currency contracts relating to inventory and intercompany management fee hedges | $6.6 | $(2.0) | $(2.1) | $4.8 | | Amount of (Loss) Gain Recognized in Income (Derivatives not designated as hedging instruments) | | | | | | Foreign exchange currency contracts | $3.8 | $(9.4) | $(11.4) | $3.1 | 10. Shareholders' Deficit This note details changes in shareholders' deficit, including net income, share repurchases, and other adjustments Changes in Herbalife Shareholders' Deficit (Three Months, in millions) | Changes in Herbalife Shareholders' Deficit (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------------------------- | :------------------------------- | :------------------------------- | | Balance as of March 31 | $(736.0) | $(1,036.6) | | Issuance of common shares | 0.6 | 0.8 | | Additional capital from share-based compensation | 10.4 | 11.8 | | Repurchases of common shares | (4.6) | (3.4) | | Net income (loss) | 49.3 | 4.7 | | Foreign currency translation adjustment | 24.2 | (21.6) | | Unrealized (loss) gain on derivatives | (4.4) | 7.1 | | Acquisition | — | — | | Balance as of June 30 | $(660.5) | $(1,037.2) | Changes in Herbalife Shareholders' Deficit (Six Months, in millions) | Changes in Herbalife Shareholders' Deficit (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------------- | :----------------------------- | :----------------------------- | | Balance as of December 31 | $(801.1) | $(1,060.3) | | Issuance of common shares | 0.9 | 1.5 | | Additional capital from share-based compensation | 22.0 | 23.7 | | Repurchases of common shares | (6.8) | (5.7) | | Net income (loss) | 99.7 | 29.0 | | Foreign currency translation adjustment | 32.9 | (31.5) | | Unrealized (loss) gain on derivatives | (8.1) | 6.1 | | Acquisition | — | — | | Balance as of June 30 | $(660.5) | $(1,037.2) | - The Company has not declared or paid cash dividends since 2014[138] - No common shares were repurchased through open-market purchases during the six months ended June 30, 2025 and 2024. Share repurchases of $6.8 million (2025) and $5.7 million (2024) were due to shares withheld for tax purposes related to share-based compensation plans[140][143] 11. Earnings Per Share This note provides the calculation of basic and diluted earnings per share, including weighted-average shares Earnings Per Share Computations (in millions) | (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Weighted-average shares used in basic computations | 102.7 | 100.6 | 102.2 | 100.1 | | Dilutive effect of exercise of equity grants outstanding | 0.6 | 1.1 | 0.6 | 1.1 | | Weighted-average shares used in diluted computations | 103.3 | 101.7 | 102.8 | 101.2 | - The 2028 Convertible Notes were excluded from diluted EPS computation for both periods as their effect would be anti-dilutive[151] 12. Fair Value Measurements This note describes the fair value hierarchy and measurement of financial instruments, particularly derivatives - The Company uses a fair value hierarchy (Level 1, 2, 3 inputs) for financial and non-financial assets and liabilities. Derivatives are measured at fair value using Level 2 inputs[152][153][154] Fair Value of Derivatives (in millions) | Fair Value of Derivatives (in millions) | June 30, 2025 | December 31, 2024 | Balance Sheet Location | | :-------------------------------------- | :------------ | :---------------- | :--------------------- | | ASSETS: | | | | | Derivatives designated as hedging instruments: Foreign exchange currency contracts | $0.2 | $4.1 | Prepaid expenses and other current assets | | Derivatives not designated as hedging instruments: Foreign exchange currency contracts | 4.3 | 4.0 | Prepaid expenses and other current assets | | Total Assets | $4.5 | $8.1 | | | LIABILITIES: | | | | | Derivatives designated as hedging instruments: Foreign exchange currency contracts | $2.3 | $— | Other current liabilities | | Derivatives not designated as hedging instruments: Foreign exchange currency contracts | 5.3 | 4.2 | Other current liabilities | | Total Liabilities | $7.6 | $4.2 | | - Cash and cash equivalents are valued based on Level 1 inputs (quoted prices in active markets)[155] 13. Restructuring Activities This note outlines the costs and progress of the Transformation, Restructuring, and Technology Realignment Programs - The global Transformation Program, initiated in 2021, was completed as of December 31, 2024, incurring $92.5 million in pre-tax expenses through June 30, 2025[158][159] - The Restructuring Program, initiated in Q1 2024 to streamline organizational structure, was substantially completed by December 31, 2024, with $73.1 million in pre-tax expenses incurred through June 30, 2025[159][160] - The Technology Realignment Program, initiated in April 2025, incurred $3.6 million in pre-tax expenses for Q2 2025, with the first phase expected to complete in 2025 and deliver $9 million in annual savings starting 2026[161][162] 14. Detail of Certain Balance Sheet Accounts This note provides further breakdown of specific balance sheet accounts, including other current and non-current liabilities - Other assets included deferred compensation plan assets of $50.1 million as of June 30, 2025[163] Other Current Liabilities (in millions) | Other Current Liabilities (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------------------- | :------------ | :---------------- | | Accrued compensation | $113.6 | $148.1 | | Accrued service fees to China independent service providers | 25.8 | 25.8 | | Accrued advertising, events, and promotion expenses | 44.9 | 52.0 | | Accrued interest | 28.7 | 31.8 | | Current operating lease liabilities | 38.9 | 39.7 | | Advance sales deposits | 81.8 | 75.0 | | Income taxes payable | 17.5 | 12.6 | | Other accrued liabilities | 154.5 | 157.8 | | Total | $505.7 | $542.8 | - Other non-current liabilities included deferred compensation plan liabilities of $68.7 million and deferred income tax liabilities of $17.8 million as of June 30, 2025[165] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Herbalife's financial condition, operations, and liquidity, analyzing key performance indicators Overview This section provides a general description of Herbalife's business, products, and global operating regions - Herbalife is a global nutrition company selling weight management, targeted nutrition, energy, sports, fitness, and outer nutrition products through independent Members, including sales leaders and independent service providers in China[167] - The Company's products are grouped into four principal categories: weight management, targeted nutrition, energy/sports/fitness, and outer nutrition[168] - Herbalife sells products in five geographic regions: North America, Latin America, EMEA, Asia Pacific (excluding China), and China[171] Certain Factors Impacting Results This section discusses external factors like inflation, foreign exchange, and geopolitical conflicts affecting financial results - Global inflationary pressures, foreign exchange rate fluctuations, and geopolitical conflicts (e.g., wars in Ukraine and the Middle East) continue to impact the Company's financial condition and results[172][173] - The Company instituted pricing actions in certain markets during the six months ended June 30, 2025, and in 2024, to address inflationary pressures[172] Volume Points by Geographic Region This section explains the discontinuation of Volume Points disclosure due to changes in usefulness assessment - Management has decided to no longer disclose Volume Points by Geographic Region due to recent changes in Volume Point values and an assessment of its continued usefulness[175] Presentation This section defines key financial metrics and non-GAAP measures used in the management discussion and analysis - Net sales represent product sales to Members, net of distributor allowances, and include shipping and handling revenues[176][178] - Royalty overrides are compensation to Members for developing, retaining, and managing sales organizations, recorded as an operating expense[182] - In China, independent service providers receive service fees for marketing and sales support, with the majority included in selling, general, and administrative expenses[183] - Contribution margins are defined as net sales less cost of sales, Royalty overrides, and service fees to China independent service providers[184] - The Company uses 'net sales in local currency' as a non-GAAP measure to assess underlying business performance, excluding foreign currency fluctuations[180] Summary Financial Results This section provides a high-level overview of net sales, net income, and diluted EPS performance Summary Financial Results (in millions) | Financial Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :----------------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Net sales | $1,259.1 | $1,281.1 | (1.7)% | $2,480.8 | $2,545.4 | (2.5)% | | Net sales (local currency) | Flat | N/A | N/A | 0.7% increase | N/A | N/A | | Net income attributable to Herbalife | $49.3 | $4.7 | 948.9% | $99.7 | $29.0 | 243.8% | | Diluted EPS | $0.48 | $0.05 | 860.0% | $0.97 | $0.29 | 234.5% | - The decrease in net sales for Q2 2025 was driven by a 3.1% decrease in sales volume and a 1.7% unfavorable foreign currency impact, partially offset by a 3.0% favorable impact from price increases[188] - The increase in net income for Q2 2025 was mainly due to $54.4 million lower selling, general, and administrative expenses, a $10.5 million loss on debt extinguishment in 2024, and $8.8 million lower royalty overrides, partially offset by lower gross profit and higher income taxes[190] - Net income for H1 2025 included $12.9 million favorable deferred income tax impacts from corporate entity structure changes, partially offset by unfavorable impacts from Restructuring Program, Technology Realignment Program, and Digital Technology Program expenses[192] Results of Operations This section analyzes the company's operational performance, including gross profit, royalty overrides, and SG&A expenses Results of Operations (% of Net Sales) | Operations (% of Net Sales) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | 100.0% | 100.0% | 100.0% | 100.0% | | Cost of sales | 22.0% | 22.1% | 21.9% | 22.3% | | Gross profit | 78.0% | 77.9% | 78.1% | 77.7% | | Royalty overrides | 32.3% | 32.4% | 32.5% | 32.6% | | Selling, general, and administrative expenses | 35.6% | 39.2% | 35.5% | 39.1% | | Other operating income | (0.4)% | —% | (0.2)% | —% | | Operating income | 10.5% | 6.3% | 10.3% | 6.0% | | Interest expense, net | 4.2% | 4.5% | 4.3% | 3.8% | | Other expense, net | —% | 0.8% | —% | 0.4% | | Income before income taxes | 6.3% | 1.0% | 6.0% | 1.8% | | Income taxes | 2.4% | 0.6% | 2.0% | 0.7% | | Net income | 3.9% | 0.4% | 4.0% | 1.1% | Reporting Segment Results This section details the financial performance of the Primary Reporting Segment and China, including net sales and contribution margin - The Primary Reporting Segment's net sales decreased 1.7% for Q2 2025 and 2.2% for H1 2025, but increased 0.1% and 1.2% in local currency, respectively, driven by sales volume decreases and unfavorable foreign currency, partially offset by price increases[199] - Primary Reporting Segment contribution margin decreased 1.2% for Q2 2025 and 0.7% for H1 2025, primarily due to unfavorable foreign currency fluctuations and sales volume decreases, partially offset by price increases[202] - China's contribution margin increased 2.5% for Q2 2025 due to favorable sales mix and foreign currency, despite sales volume decreases. For H1 2025, it decreased 3.9% due to sales volume decreases, partially offset by favorable sales mix and cost changes[203] Sales by Geographic Region This section breaks down net sales performance across North America, Latin America, EMEA, Asia Pacific, and China Net Sales by Geographic Region (in millions) | Net Sales by Geographic Region (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :----------------------------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | North America | $272.4 | $283.2 | (3.8)% | $526.8 | $549.0 | (4.0)% | | Latin America | 210.2 | 211.7 | (0.7)% | 416.9 | 425.9 | (2.1)% | | EMEA | 287.9 | 287.8 | —% | 561.2 | 565.7 | (0.8)% | | Asia Pacific | 408.6 | 416.7 | (1.9)% | 831.1 | 847.9 | (2.0)% | | China | 80.0 | 81.7 | (2.1)% | 144.8 | 156.9 | (7.7)% | | Worldwide | $1,259.1 | $1,281.1 | (1.7)% | $2,480.8 | $2,545.4 | (2.5)% | - North America net sales decreased 3.8% (Q2 2025) and 4.0% (H1 2025) due to sales volume decreases, partially offset by price increases. The beta version of the new Pro2col digital platform was unveiled in July 2025, with commercial release planned for Q4 2025[209][212] - Latin America net sales decreased 0.7% (Q2 2025) and 2.1% (H1 2025), but increased 9.5% and 10.1% in local currency, respectively, driven by sales volume increases and price increases, despite unfavorable foreign currency impacts[213] - EMEA net sales were flat (Q2 2025) and decreased 0.8% (H1 2025), but increased 1.1% in local currency for H1 2025. Sales in Russia were suspended, leading to no sales in H1 2025, while Russian Members purchasing from neighboring markets like Kazakhstan impacted local currency sales there[217][218] - Asia Pacific net sales decreased 1.9% (Q2 2025) and 2.0% (H1 2025), with India's sales volume decreasing 0.7% (Q2 2025) but increasing 1.8% (H1 2025). Vietnam's direct selling license was renewed until January 2030[220][221][222] - China net sales decreased 2.1% (Q2 2025) and 7.7% (H1 2025), primarily due to sales volume decreases, partially offset by favorable sales mix. The Company continues to enhance digital capabilities and customer loyalty programs in China[224][225] Sales by Product Category This section presents net sales categorized by weight management, targeted nutrition, energy/sports/fitness, and outer nutrition Net Sales by Product Category (in millions) | Net Sales by Product Category (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :---------------------------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Weight Management | $690.9 | $710.7 | (2.8)% | $1,362.1 | $1,415.4 | (3.8)% | | Targeted Nutrition | 374.2 | 378.5 | (1.1)% | 740.5 | 756.3 | (2.1)% | | Energy, Sports, and Fitness | 154.6 | 148.1 | 4.4% | 299.0 | 287.9 | 3.9% | | Outer Nutrition | 19.0 | 20.5 | (7.3)% | 38.6 | 40.9 | (5.6)% | | Literature, Promotional, and Other | 20.4 | 23.3 | (12.4)% | 40.6 | 44.9 | (9.6)% | | Total | $1,259.1 | $1,281.1 | (1.7)% | $2,480.8 | $2,545.4 | (2.5)% | Gross Profit This section analyzes changes in gross profit and its percentage of net sales, highlighting contributing factors - Gross profit as a percentage of net sales increased by 11 basis points to 78.0% for Q2 2025 and by 47 basis points to 78.1% for H1 2025, primarily due to favorable price increases and lower inventory write-downs, partially offset by unfavorable foreign currency fluctuations and cost changes[227][228][229] Royalty Overrides This section discusses the trends and factors influencing royalty overrides as a percentage of net sales - Royalty overrides as a percentage of net sales slightly decreased to 32.3% for Q2 2025 (from 32.4%) and to 32.5% for H1 2025 (from 32.6%), mainly due to favorable changes in the mix of products and countries[231][232] Selling, General, and Administrative Expenses This section examines the drivers behind changes in selling, general, and administrative expenses - Selling, general, and administrative (SG&A) expenses decreased by $54.4 million to $447.9 million for Q2 2025 and by $114.7 million to $879.8 million for H1 2025[233][234][235] - The decrease in SG&A was primarily driven by lower labor and benefits costs (including employee retention/separation costs and bonus accruals) and lower professional fees related to the Digital Transformation Program[234][235] Other Operating Income This section details the sources and amounts of other operating income, such as government grants - Other operating income of $4.8 million for both Q2 and H1 2025 consisted entirely of government grant income from China, with no such income in the prior year periods[237][238] Interest Expense, Net This section analyzes the components and changes in net interest expense, including interest income and expense Interest Expense, Net (in millions) | (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest expense | $55.4 | $60.4 | $110.0 | $102.0 | | Interest income | (1.8) | (2.7) | (4.4) | (6.4) | | Interest expense, net | $53.6 | $57.7 | $105.6 | $95.6 | - The decrease in net interest expense for Q2 2025 was due to lower overall weighted-average borrowings. The increase for H1 2025 was due to a higher weighted-average interest rate from the April 2024 debt refinancing, partially offset by lower borrowings[239] Other Expense, Net This section explains significant non-operating expenses, such as losses on debt extinguishment - Other expense, net, for Q2 and H1 2024 included a $10.5 million loss on the extinguishment of the 2018 Credit Facility and partial redemption of the 2025 Notes[240] Income Taxes This section discusses income tax expense and effective tax rates, including factors influencing changes - Income taxes were $29.8 million (Q2 2025) and $50.2 million (H1 2025), with effective tax rates of 37.7% and 33.5%, respectively. The decrease in effective tax rates compared to 2024 was primarily due to changes in geographic income mix and discrete tax events[241] Liquidity and Capital Resources This section assesses the company's cash flow, debt, and working capital, and its ability to meet financial obligations - Operating cash flow for H1 2025 was $96.2 million, a decrease from $116.3 million in H1 2024, primarily due to unfavorable changes in operating assets and liabilities, partially offset by higher net income[244] - Capital expenditures for H1 2025 were $39.8 million, mainly for management information systems and the multi-year Digital Technology Program (Herbalife One), with full-year 2025 capital expenditures expected to be $75 million to $95 million[245] - The Company incurred $25.5 million for asset acquisitions of Pruvit and Pro2col LLC, and a business acquisition of Link BioSciences Inc. in 2025[246] - The Transformation Program was completed as of December 31, 2024, incurring $92.5 million in pre-tax expenses. The Restructuring Program was substantially completed by December 31, 2024, with $73.1 million in pre-tax expenses incurred[248][249] - The 2024 Credit Facility had $380.0 million outstanding under the Term Loan B as of June 30, 2025, and $355 million in remaining available borrowing capacity under the Revolving Credit Facility[261] - As of June 30, 2025, the outstanding principal on the 2029 Secured Notes was $800.0 million, the 2028 Convertible Notes was $277.5 million, the 2025 Notes was $147.3 million, and the 2029 Notes was $600.0 million[263][268][269][270] - Working capital increased by $95.3 million to $8.6 million as of June 30, 2025, primarily due to decreases in current portion of long-term debt and other current liabilities[277] Critical Accounting Policies and Estimates This section highlights key accounting policies and estimates requiring significant management judgment - Key accounting policies and estimates include revenue recognition, allowance for product returns, inventory valuation, goodwill and purchased intangible asset valuations, deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies, and other loss contingencies[281] - Goodwill and marketing-related intangible assets are tested annually for impairment using quantitative methods, primarily an income approach, which involves significant estimates and assumptions[286][287][288] - As of June 30, 2025, goodwill increased by $13.3 million to $101.0 million, primarily due to the Link BioSciences Inc. acquisition and foreign currency translation adjustments[289] - The Company evaluates the realizability of deferred income tax assets and accounts for uncertain tax positions based on the 'more likely than not' threshold[292][293] New Accounting Pronouncements This section refers to disclosures regarding recently adopted and future accounting pronouncements - Refer to Note 2, Significant Accounting Policies, for information on new accounting pronouncements[296] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details Herbalife's exposure to foreign exchange and interest rate risks, and strategies to manage them Foreign Exchange Risk This section describes the company's exposure to foreign currency fluctuations and its hedging strategies - The Company uses foreign exchange derivatives (forward and option contracts) to hedge foreign currency-denominated intercompany transactions, forecasted inventory purchases, and intercompany management fees, with a short-term hedging strategy due to market volatility[301][303] - As of June 30, 2025, the aggregate notional amounts of all foreign currency contracts outstanding were approximately $846.7 million[305] Foreign Currency Forward Contracts (as of June 30, 2025) | Foreign Currency Forward Contracts (as of June 30, 2025) | Notional Amount (in millions) | Fair Value Gain (Loss) (in millions) | | :------------------------------------------------------- | :---------------------------- | :----------------------------------- | | Buy Euro sell Mexican peso | $134.6 | $(1.1) | | Buy Euro sell U.S. dollar | 97.1 | 1.3 | | Buy U.S. dollar sell Euro | 235.3 | (4.7) | | Buy Swiss franc sell U.S. dollar | 38.2 | 0.9 | | Buy British pound sell Euro | 20.5 | — | | Total forward contracts | $846.7 | $(3.1) | Interest Rate Risk This section analyzes the impact of interest rate changes on the company's variable and fixed-rate debt - The 2024 Credit Facility bears variable interest rates (weighted-average 11.49% as of June 30, 2025). A 1% change in interest rates would impact annual interest expense by approximately $3.8 million[307][308] - The 2029 Secured Notes (12.250% fixed rate) had a fair value of approximately $877.2 million (carrying value $771.0 million) as of June 30, 2025. A 1% change in interest rates would change its fair value by approximately $6.4 million (decrease) or $6.5 million (increase)[309] - The 2028 Convertible Notes (4.25% fixed rate) had a fair value of approximately $253.6 million (carrying value $272.7 million) as of June 30, 2025[310] - The 2025 Notes (7.875% fixed rate) had a fair value of approximately $147.8 million (carrying value $147.3 million) as of June 30, 2025. A 1% change in interest rates would change its fair value by approximately $0.2 million (decrease) or $0.2 million (increase)[311] - The 2029 Notes (4.875% fixed rate) had a fair value of approximately $511.3 million (carrying value $595.8 million) as of June 30, 2025. A 1% change in interest rates would change its fair value by approximately $16.6 million (decrease) or $17.3 million (increase)[312] Item 4. Controls and Procedures This section reports on the effectiveness of disclosure controls and procedures and changes in internal control Evaluation of Disclosure Controls and Procedures This section confirms management's assessment of the effectiveness of disclosure controls and procedures - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[313] Changes in Internal Control over Financial Reporting This section reports on any material changes in internal control over financial reporting during the period - There were no changes in internal control over financial reporting during the quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[314] PART II. OTHER INFORMATION This section includes forward-looking statements, legal proceedings, risk factors, and other required disclosures FORWARD-LOOKING STATEMENTS This section cautions on forward-looking statements, detailing factors that could cause actual results to differ materially - Forward-looking statements are subject to inherent risks and uncertainties, many beyond the Company's control, which could cause actual results to differ materially from expectations[318] - Key risk factors include global economic conditions (inflation, foreign exchange, tariffs), ability to attract and retain Members, regulatory compliance, adverse publicity, competition, legal and regulatory matters (including FTC Consent Order), international operations, strategic initiatives, technology effectiveness, supply chain disruptions, IT infrastructure reliance, data privacy, contractual limitations, intellectual property, product concentration, management reliance, acquisition integration, debt restrictions, tax laws, and share price volatility[318][320] Item 1. Legal Proceedings This section refers to Note 5 for detailed informa