Herbalife(US:HLF)2023-10-31 16:00PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended September 30, 2023 Item 1. Financial Statements This section presents Herbalife Ltd.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes, for the period ended September 30, 2023 Condensed Consolidated Balance Sheets Total assets slightly decreased to $2,724.7 million as of September 30, 2023, while total liabilities and shareholders' deficit improved Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $2,724.7 | $2,732.0 | | Cash and cash equivalents | $495.7 | $508.0 | | Inventories | $496.8 | $580.7 | | Total Liabilities | $3,828.2 | $3,997.9 | | Current portion of long-term debt | $232.6 | $29.5 | | Long-term debt, net | $2,319.0 | $2,662.5 | | Total Shareholders' Deficit | $(1,103.5) | $(1,265.9) | Condensed Consolidated Statements of Income Q3 2023 net sales slightly decreased to $1,281.3 million, while net income significantly declined to $42.8 million year-over-year Q3 2023 vs Q3 2022 Income Statement (in millions, except EPS) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net Sales | $1,281.3 | $1,295.1 | | Gross Profit | $978.1 | $1,010.0 | | Operating Income | $106.7 | $147.4 | | Net Income | $42.8 | $82.2 | | Diluted EPS | $0.43 | $0.83 | Nine Months 2023 vs 2022 Income Statement (in millions, except EPS) | Metric | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Net Sales | $3,847.4 | $4,023.6 | | Gross Profit | $2,944.0 | $3,115.6 | | Operating Income | $300.6 | $456.3 | | Net Income | $132.0 | $266.9 | | Diluted EPS | $1.32 | $2.68 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased to $261.4 million for the nine months ended September 30, 2023 Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $261.4 | $298.9 | | Net Cash used in Investing Activities | $(99.6) | $(113.4) | | Net Cash used in Financing Activities | $(156.6) | $(215.2) | | Net Change in Cash | $(0.3) | $(69.7) | Notes to Condensed Consolidated Financial Statements Detailed notes cover accounting policies, debt, contingencies, segment performance, and the financial impact of the Transformation Program - The company operates in five geographic regions: North America, Latin America, EMEA, Asia Pacific (excluding China), and China is treated as a separate reporting segment21104 - Total long-term debt, including the current portion, was $2,551.6 million as of September 30, 2023, a decrease from $2,692.0 million at year-end 202244 - In October 2023, the company reached an $8.6 million settlement with the Korea Customs Service for assessments from 2011 through 2017, with a loss recognized in SG&A for Q3 202394 - The company's Transformation Program has incurred total pre-tax expenses of $67.0 million through September 30, 2023, with an expected total of at least $75.0 million, and is expected to be completed in 2024178 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 financial results, highlighting decreased net sales and net income, regional performance, and liquidity Summary Financial Results Q3 2023 net sales decreased by 1.1% to $1,281.3 million, with net income falling 47.9% to $42.8 million Financial Performance Summary (in millions) | Period | Net Sales | % Change (USD) | % Change (Local Currency) | Net Income | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | | Q3 2023 | $1,281.3 | (1.1%) | (1.5%) | $42.8 | (47.9%) | | 9M 2023 | $3,847.4 | (4.4%) | (2.8%) | $132.0 | (50.5%) | - Q3 2023 net income included unfavorable pre-tax impacts of $12.1 million for the Digital Technology Program, $8.6 million for the Korea customs settlement, and $4.6 million for the Transformation Program210 Sales by Geographic Region Q3 2023 net sales varied by region, with North America and China declining, while Latin America, EMEA, and Asia Pacific grew Net Sales by Geographic Region - Q3 2023 (in millions) | Region | Net Sales | % Change (USD) | % Change (Local Currency) | | :--- | :--- | :--- | :--- | | North America | $277.8 | (12.5%) | (12.5%) | | Latin America | $212.0 | 13.0% | 3.8% | | EMEA | $261.0 | 5.4% | 3.3% | | Asia Pacific | $441.0 | 2.2% | 4.9% | | China | $89.5 | (19.1%) | (14.3%) | Liquidity and Capital Resources Operating cash flow for the nine months ended September 30, 2023, was $261.4 million, with sufficient liquidity to meet obligations - Net cash from operating activities decreased to $261.4 million for the nine months ended Sep 30, 2023, compared to $298.9 million for the same period in 2022262 - Capital expenditures are expected to be $120 million to $160 million for the full year 2023, driven by investments in the Herbalife One digital platform263 - The company's $1.5 billion share repurchase program, expiring in February 2024, had approximately $985.5 million of remaining authorized capacity as of September 30, 2023, with no shares repurchased in Q3 2023289290 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency exchange rates and interest rates using derivative financial instruments - The company is subject to foreign exchange risk as it transacts business globally and uses foreign currency derivatives to reduce exposure to currency fluctuations on a short-term basis314 - As of September 30, 2023, the company had outstanding foreign currency forward contracts with a total notional amount of $329.2 million320 - The company is exposed to interest rate risk on its variable-rate 2018 Credit Facility, where a hypothetical 1% change in interest rates would affect annual interest expense by approximately $8.9 million323 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective329 - No changes occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting330 PART II. OTHER INFORMATION This section provides other information, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 5 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 5, Contingencies, in Part I, Item 1 of the financial statements339 Item 1A. Risk Factors No material changes to risk factors have occurred since the 2022 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the 2022 10-K340 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred, and no common shares were repurchased in Q3 2023 - As of September 30, 2023, the remaining authorized capacity under the company's $1.5 billion share repurchase program was approximately $985.5 million342 - The company did not repurchase any of its common shares during the three months ended September 30, 2023342 Item 5. Other Information A Rule 10b5-1 trading plan for EVP, Chief of Staff Ibelis Montesino was terminated on September 6, 2023 - A Rule 10b5-1 trading plan for Section 16 officer Ibelis Montesino was terminated on September 6, 2023344345 Item 6. Exhibits This section provides an index of all exhibits filed with the Form 10-Q, including certifications and corporate documents