Herbalife (HLF) Conference Summary - June 04, 2025 Company Overview - Herbalife is a global health and wellness company and the largest publicly traded direct seller in the world with approximately $5 billion in net revenue [8] - The company operates in over 90 countries and has more than 2 million distributors globally [9] - Herbalife is recognized as the number one protein shake, weight management brand, and active lifestyle nutrition brand in the world [9] Key Business Model Insights - Herbalife's nutrition clubs, which originated in Mexico, have expanded globally with around 65,000 locations, surpassing the number of Subway and Starbucks outlets [12] - Nutrition clubs allow consumers to purchase individual servings of Herbalife products, fostering frequent interactions between distributors and customers, which enhances community engagement [16][18] - Approximately 40% of sales in the U.S. come from these nutrition clubs, with two-thirds of U.S. sales attributed to club owners who also sell take-home products [19] Regulatory and Business Model Changes - Following a 2016 settlement with the U.S. Federal Trade Commission (FTC), Herbalife changed its commission structure to only pay distributors after products are sold to end users, enhancing data collection capabilities [24][26] - The settlement led to the introduction of preferred customers, allowing distributors to register customers who buy directly from Herbalife, which was not previously possible [28] Pandemic Impact and Recovery - During the pandemic, Herbalife saw an increase in distributor sign-ups and club operations as their products were classified as essential [30] - Post-pandemic, the company faced challenges as many new distributors left after COVID-19 restrictions eased, leading to a need to rebuild the distributor base [32][33] - By late 2023, Herbalife began to stabilize and grow its distributor base again, with consistent growth observed in 2024 [33] Leadership and Strategic Direction - The return of former CEO and the appointment of a top distributor as CEO has brought stability and strategic focus to the company [35][40] - The new leadership is focused on leveraging the distributor base to introduce innovative product ideas and enhance growth [43] Recent Acquisitions and Innovations - Herbalife announced acquisitions aimed at enhancing its product offerings, including a health and wellness app (Protocol) and a personalized nutrition company (Link Bioscience) [42][44] - The acquisitions are intended to provide personalized nutrition solutions based on consumer data, which is expected to be a significant growth area [46][48] Financial Performance and Capital Allocation - Herbalife generates substantial cash flow and has a negative working capital position, allowing for strategic capital allocation [56] - The company has focused on paying down debt, achieving a leverage ratio of 2.97, with plans to reduce it further [58] - Over $6 billion in stock has been repurchased since the CFO's return, with a focus on returning value to shareholders [57] Market Outlook and Investment Thesis - The stock is considered undervalued, with opportunities for margin improvement, sales growth, and increased enterprise value [66] - The company is positioned to leverage unique consumer data and enhance its direct selling model through technology and community engagement [66] Conclusion - Herbalife's strategic initiatives, including the expansion of nutrition clubs, regulatory adaptations, and recent acquisitions, position the company for future growth and recovery in the direct selling market [66]

Financial Data and Key Metrics Changes - The company's net sales for Q1 2025 were $1.2 billion, down 3.4% compared to Q1 2024, which was just above the midpoint of the guidance range [9][28] - On a constant currency basis, net sales grew by 1.4% year over year, marking the second consecutive quarter of growth excluding foreign exchange headwinds [10][28] - Adjusted EBITDA for Q1 was $165 million, exceeding guidance, with adjusted EBITDA margins at 13.5%, up 260 basis points year over year [29][38] - The total leverage ratio was reduced to three times as of March 31, achieving the target set for the end of 2025 nine months ahead of schedule [10][33] Business Line Data and Key Metrics Changes - The number of new distributors joining Herbalife worldwide increased by 16% year over year, marking the fourth consecutive quarter of new distributor growth [11] - The company reported a gross profit margin improvement to 78.3%, up 80 basis points compared to Q1 2024, primarily due to pricing actions and reduced input costs [29] Market Data and Key Metrics Changes - In Latin America, net sales were down 4% on a reported basis but up 11% on a local currency basis, driven by favorable pricing and a 4% increase in volumes [35] - North America saw a 4% decline in net sales year over year, primarily due to an 8% reduction in volumes [37] - China experienced a 14% decline in net sales year over year on a reported basis, driven by a 14% decrease in volumes [37] Company Strategy and Development Direction - The company aims to lead in the health and wellness economy by leveraging its network of 2.1 million distributors and enhancing its product offerings through technology and personalization [7][8] - Recent acquisitions of Protocol Health, Pruvit Ventures, and Link Biosciences are intended to strengthen the company's position in the market and enhance its product portfolio [12][21] - The focus will be on innovation, operational excellence, and sustainable growth, with an emphasis on AI-powered solutions and personalized health programs [9][22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's ability to adapt to changing consumer expectations and the gig economy, viewing these changes as opportunities for growth [6][9] - The company expects FX to remain a significant headwind for the remainder of 2025, impacting both net sales and adjusted EBITDA [43][45] - The outlook for Q2 2025 includes expectations for net sales to be in the range of down 3.5% to up 0.5% year over year, with a constant currency basis expecting a range of down 0.5% to up 3.5% [44] Other Important Information - The company plans to launch a beta version of the Protocol platform in July 2025, with a commercial release planned for Q4 2025 [17][18] - The total cash consideration paid for recent acquisitions was $25.5 million, with contingent payments of up to $5 million based on successful launches [42] Q&A Session Summary Question: Can you expand on the monetization strategy of Protocol and its impact on conversion rates at U.S. Nutrition clubs? - Management acknowledged that it is early to discuss ROI but emphasized the potential for the digital platform to enhance product consumption and distributor engagement [49][50] Question: What is driving the sequential decline in distributor numbers and volumes in North America? - Management noted that the U.S. market started strong but faced challenges in February, with expectations for improvement in Q2 [60][62] Question: Why was the midpoint of the constant currency sales guidance for 2025 reduced? - Management explained that the reduction reflects the Q1 trend and some weakness in Asia Pacific, particularly in China, while still expecting overall growth [64][66] Question: What are the intentions for Link Biosciences and its target audience? - Management indicated that Link Biosciences will cater to both athletes and a broader audience seeking customized health solutions, positioning the company ahead of competitors [70][74] Question: How does the current economic environment impact the business? - Management suggested that direct sellers historically perform well in cyclical environments where consumers seek additional income [87]