Herbalife Nutrition Achieves Net Sales Growth of 12% in the Second Quarter with All-Time Record High Volume Points

 

 

 

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Regional Volume Point Metrics

^(a) During 2018, the Company adjusted volume point values for certain products in Mexico and South & Central America. Excluding these adjustments, the volume point increase would have been 11.6%.

Regional Net Sales and Foreign Exchange (“FX”) Impact

^(a) Venezuela was impacted by significant price increases and erosion in foreign currency exchange rates. Venezuela represents less than 1% of consolidated net sales. See Schedule A – “Reconciliation of Non-GAAP Financial Measures” for a discussion of why we believe adjusting for Venezuela is useful.

³ Supplemental tables that include Average Active Sales Leader and additional business metrics can be found at http://ir.Herbalife.com.

Following is the Company’s third quarter 2018 and full year 2018 guidance based on current business trends:

 

▪	With respect to guidance, the Company cannot accurately predict the impact to its share base from any future repurchases in 2018 and are therefore excluded from the guidance table above.

▪	Guidance is based on the average daily exchange rates during the first two weeks of July 2018.

▪	Adjusted1 diluted EPS guidance for the third quarter 2018 includes a projected currency headwind of approximately $0.04 per diluted share versus the third quarter of 2017.

▪	Full year 2018 adjusted1 diluted EPS guidance is approximately neutral on a constant currency basis compared to 2017, which is $0.13 lower than the benefit included in the full year 2018 guidance provided on May 3, 2018.

Herbalife Nutrition senior management will host an investor conference call to discuss its recent financial results and provide an update on current business trends on Wednesday, August 1, 2018, at 2:30 p.m. PT (5:30 p.m. ET).

The dial-in number for this conference call for domestic callers is (877) 317-1296, and (262) 320-2006 for international callers (conference ID: 5481939). Live audio of the conference call will be simultaneously webcast in the investor relations section of the Company's website at http://ir.Herbalife.com.

An audio replay will be available following the completion of the conference call in MP3 format or by dialing (855) 859-2056 for domestic callers or (404) 537-3406 for international callers (conference ID: 5481939). The webcast of the teleconference will be archived and available on Herbalife Nutrition's website.

Herbalife Nutrition is a global nutrition company whose purpose is to make the world healthier and happier.  The Company has been on a mission for nutrition - changing people's lives with great nutrition products & programs - since 1980. Together with our Herbalife Nutrition independent distributors, we are committed to providing solutions to the worldwide problems of poor nutrition and obesity, an aging population, and skyrocketing public healthcare costs, while supporting the rise in entrepreneurs of all ages.  Herbalife Nutrition offers high-quality, science-backed products, most of which are produced in Company-operated facilities, one-on-one coaching with an Herbalife Nutrition independent distributor, and a supportive community approach that inspires customers to embrace a healthier, more active lifestyle.

Herbalife Nutrition's targeted nutrition, weight-management, energy and fitness and personal care products are available exclusively to and through dedicated Herbalife Nutrition distributors in more than 90 countries.  

Through its corporate social responsibility efforts, Herbalife Nutrition supports the Herbalife Nutrition Foundation (HNF) and its Casa Herbalife Nutrition programs to help bring good nutrition to children in need. Herbalife Nutrition is also proud to sponsor more than 190 world-class athletes, teams and events around the globe, including Cristiano Ronaldo, the LA Galaxy, and numerous Olympic teams.

Herbalife Nutrition has over 8,000 employees worldwide, and its shares are traded on the New York Stock Exchange (NYSE: HLF) with net sales of approximately $4.4 billion in 2017. To learn more, visit Herbalife.com or IAmHerbalife.com.

Herbalife Nutrition also encourages investors to visit its investor relations website at ir.Herbalife.com as financial and other information is updated and new information is posted.

213.745.0420

Investor Contact:

Eric Monroe

Director, Investor Relations

213.745.0449

 

This release contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following:

 

 

▪	our relationship with, and our ability to influence the actions of, our Members;
▪	improper action by our employees or Members in violation of applicable law;
▪	adverse publicity associated with our products or network marketing organization, including our ability to comfort the marketplace and regulators regarding our compliance with applicable laws;
▪	changing consumer preferences and demands;
▪	the competitive nature of our business;
▪	regulatory matters governing our products, including potential governmental or regulatory actions concerning the safety or efficacy of our products and network marketing program, including the direct selling markets in which we operate;
▪	legal challenges to our network marketing program;
▪	the consent order entered into with the FTC, the effects thereof and any failure to comply therewith;
▪	risks associated with operating internationally and the effect of economic factors, including foreign exchange, inflation, disruptions or conflicts with our third-party importers, pricing and currency devaluation risks, especially in countries such as Venezuela;
▪	uncertainties relating to interpretation and enforcement of legislation in China governing direct selling and anti-pyramiding;
▪	our inability to obtain the necessary licenses to expand our direct selling business in China;
▪	adverse changes in the Chinese economy;
▪	our dependence on increased penetration of existing markets;
▪	any material disruption to our business caused by natural disasters, other catastrophic events, acts of war or terrorism, or cyber-security incidents;
▪	contractual limitations on our ability to expand our business;
▪	our reliance on our information technology infrastructure and outside manufacturers;
▪	the sufficiency of our trademarks and other intellectual property rights;
▪	product concentration;
▪	our reliance upon, or the loss or departure of any member of, our senior management team which could negatively impact our Member relations and operating results;

▪	U.S. and foreign laws and regulations applicable to our international operations;
▪	uncertainties relating to the United Kingdom’s vote to exit from the European Union;
▪	restrictions imposed by covenants in our credit facility;
▪	risks related to the convertible notes;
▪	uncertainties relating to the application of transfer pricing, duties, value added taxes, and other tax regulations, and changes thereto;
▪	changes in tax laws, treaties or regulations, or their interpretation;
▪	taxation relating to our Members;
▪	product liability claims;
▪	our incorporation under the laws of the Cayman Islands;
▪	whether we will purchase any of our shares in the open markets or otherwise; and
▪	share price volatility related to, among other things, speculative trading and certain traders shorting our common shares.

 

 

We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.

 

 

Herbalife Nutrition Ltd. and Subsidiaries
Condensed Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)
		Three Months Ended								Six Months Ended
		6/30/2018				6/30/2017				6/30/2018				6/30/2017
North America		$	262.5			$	218.4			$	493.7			$	448.2
EMEA			260.0				224.7				508.2				434.5
Asia Pacific			253.0				235.5				498.6				455.3
Mexico			118.2				115.6				232.2				220.4
China			286.8				242.7				499.0				458.2
South and Central America			105.0				110.0				230.7				232.4
Worldwide Net Sales			1,285.5				1,146.9				2,462.4				2,249.0
Cost of Sales			235.4				218.8				475.3				423.4
Gross Profit			1,050.1				928.1				1,987.1				1,825.6
Royalty Overrides			349.8				318.9				687.1				634.0
Selling, General and Administrative Expenses			510.2				443.2				970.3				881.8
Other Operating Income (1)			(1.7	)			(38.9	)			(17.9	)			(38.9	)
Operating Income			191.8				204.9				347.6				348.7
Interest Expense, net			44.3				37.9				84.2				68.1
Other Expense, net (2)			4.7				-				29.1				-
Income Before Income Taxes			142.8				167.0				234.3				280.6
Income Taxes (3)			48.4				29.4				57.8				57.8
Net Income		$	94.4			$	137.6			$	176.5			$	222.8
Weighted Average Shares Outstanding:
Basic			142.3				162.9				144.0				164.6
Diluted			151.9				170.6				153.0				172.1
Earnings Per Share:
Basic		$	0.66			$	0.84			$	1.23			$	1.35
Diluted		$	0.62			$	0.81			$	1.15			$	1.30
(1) Other Operating Income relates to certain China government grant income.
(2) Other Expense for the three months ended June 30, 2018 relates to the loss on revaluation of the Contingent Value Rights (CVR) issued in connection with the October 2017 modified Dutch auction tender offer. Other Expense for the six months ended June 30, 2018 loss on the extinguishment of a portion of the 2.0% convertible senior notes due 2019 repurchased in March 2018 and the loss on revaluation of the CVR.
(3) Includes the impact of excess tax benefit recognized under ASU 2016-09 of $10.9 million and $21.4 million for the three months ended June 30, 2018 and 2017, respectively; and $30.2 million and $25.7 million for the six months ended June 30, 2018 and 2017, respectively

 

 

Herbalife Nutrition Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)
		Jun 30,				Dec 31,
		2018				2017
ASSETS
Current Assets:
Cash and cash equivalents		$	839.4			$	1,278.8
Receivables, net			100.0				93.3
Inventories			315.1				341.2
Prepaid expenses and other current assets			181.8				147.0
Total Current Assets			1,436.3				1,860.3
Property, plant and equipment, net			355.9				377.5
Marketing related intangibles and other intangible assets, net			310.1				310.1
Goodwill			93.5				96.9
Other assets			225.7				250.3
Total Assets		$	2,421.5			$	2,895.1
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable		$	83.9			$	67.8
Royalty overrides			255.7				277.7
Current portion of long-term debt			744.3				102.4
Other current liabilities			486.3				458.9
Total Current Liabilities			1,570.2				906.8
Non-current liabilities
Long-term debt, net of current portion			1,456.4				2,165.7
Other non-current liabilities			174.3				157.3
Total Liabilities			3,200.9				3,229.8
Commitments and Contingencies
Shareholders' deficit:
Common shares			0.1				0.1
Paid-in capital in excess of par value			389.4				407.3
Accumulated other comprehensive loss			(193.6	)			(165.4	)
Accumulated deficit			(646.4	)			(248.1	)
Treasury stock			(328.9	)			(328.6	)
Total Shareholders' Deficit			(779.4	)			(334.7	)
Total Liabilities and Shareholders' Deficit		$	2,421.5			$	2,895.1

Herbalife Nutrition Ltd. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
		Six Months Ended
		6/30/2018				6/30/2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	176.5			$	222.8
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization			50.8				48.6
Share-based compensation expenses			20.2				22.7
Non-cash interest expense			34.4				29.5
Deferred income taxes			2.0				0.7
Inventory write-downs			13.2				11.2
Foreign exchange transaction loss			3.9				0.9
Other			29.9				(3.3	)
Changes in operating assets and liabilities:
Receivables			(21.8	)			(17.8	)
Inventories			(2.0	)			5.2
Prepaid expenses and other current assets			(29.9	)			6.0
Accounts payable			23.8				10.3
Royalty overrides			(7.9	)			(23.3	)
Other current liabilities			46.5				(48.7	)
Other			5.3				12.3
NET CASH PROVIDED BY OPERATING ACTIVITIES			344.9				277.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment			(33.0	)			(45.9	)
Other			-				0.3
NET CASH USED IN INVESTING ACTIVITIES			(33.0	)			(45.6	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from senior secured credit facility, net of discount			-				1,274.0
Principal payments on senior secured credit facility and other debt			(49.0	)			(441.3	)
Proceeds from convertible senior notes			550.0				-
Repurchase of convertible senior notes			(582.5	)			-
Debt issuance costs			(12.5	)			(22.6	)
Share repurchases			(685.6	)			(273.6	)
Proceeds from settlement of capped call transactions			55.9				-
Other			1.1				1.0
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES			(722.6	)			537.5
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH			(29.7	)			13.4
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH			(440.4	)			782.4
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD			1,295.5				857.0
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD		$	855.1			$	1,639.4

 

SCHEDULE A: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Unaudited and unreviewed), (All tables provide Dollars in millions, except per Share Data)

In addition to its reported results and guidance calculated in accordance with GAAP, the Company has included in this release adjusted net income and adjusted diluted EPS, performance measures that the Securities and Exchange Commission defines as “non-GAAP financial measures.”  Management believes that such non-GAAP financial measures, when read in conjunction with the Company’s reported or forecasted results, in each case calculated in accordance with GAAP, can provide useful supplemental information for investors because they facilitate a period to period comparative assessment of the Company’s operating performance relative to its performance based on reported or forecasted results under GAAP, while isolating the effects of some items that vary from period to period without any correlation to core operating performance and eliminate certain charges that management believes do not reflect the Company’s operations and underlying operational performance.  The Company’s definition of adjusted net income and adjusted diluted earnings per share may not be comparable to similarly titled measures used by other companies because other companies may not calculate them in the same manner as the Company does and should not be viewed in isolation from nor as alternatives to net income or diluted EPS calculated in accordance with GAAP.

The impact of foreign currency fluctuations in Venezuela and the price increases we implement as a result of the highly inflationary economy in that market can each, when considered in isolation, have a disproportionately large impact to our consolidated results despite the offsetting nature of these drivers and that net sales in Venezuela, which represent less than 1% of our consolidated net sales, are not material to our consolidated results. Therefore, in certain instances, we believe it is helpful to provide additional information with respect to these factors as reported and excluding the impact of Venezuela to illustrate the disproportionate nature of Venezuela’s individual pricing and foreign exchange impact to our consolidated results. However, excluding the impact of Venezuela from these measures is not in accordance with U.S. GAAP and should not be considered in isolation or as an alternative to the presentation and discussion thereof calculated in accordance with U.S. GAAP.

The following is a reconciliation of net income, presented and reported in accordance with U.S. generally accepted accounting principles, to net income adjusted for certain items:
	Three Months Ended								Six Months Ended
	6/30/2018				6/30/2017				6/30/2018				6/30/2017
	(in million)
Net income, as reported		$	94.4			$	137.6			$	176.5			$	222.8
Expenses incurred responding to attacks on the Company's business model (1) (2)			-				1.6				-				3.1
Expenses related to regulatory inquiries (1) (2)			2.0				2.9				4.3				6.7
Non-cash interest expense and amortization of non-cash issuance costs (1) (2) (3)			15.6				11.8				28.1				23.5
China grant income (1) (2)			(1.7	)			(38.9	)			(17.9	)			(38.9	)
FTC Consent Order implementation (1) (2) (4)			-				5.2				-				13.7
Contingent Value Rights revaluation (1) (2)			4.7				-				16.0				-
Loss on extinguishment of convertible debt (1) (2) (5)			-				-				13.1				-
Venezuela devaluation (1) (2)			-				-				4.7				-
Income tax adjustments for above items (1) (2)			4.6				8.9				1.3				5.4
Net income, as adjusted (6)		$	119.5			$	129.1			$	226.0			$	236.3

The following table is a reconciliation of diluted shares outstanding, as presented and reported in accordance with GAAP, to adjusted diluted shares outstanding, adjusted to include the impact of outstanding capped call transactions. The Company's outstanding capped call transactions are anti-dilutive and not included in GAAP earnings per share but are expected to mitigate the dilutive effect of the Company's convertible notes due 2019, if the trading price of the Company's stock exceeds the conversion price, up to a certain level. Therefore, the Company has adjusted the diluted shares outstanding to include the impact of the capped calls, based on the average share price for the period that the capped calls are anti-dilutive.
		Three Months Ended								Six Months Ended
		6/30/2018				6/30/2017				6/30/2018				6/30/2017
		(in millions)
Diluted shares outstanding, as reported			151.9				170.6				153.0				172.1
Impact of capped call transactions			(2.8	)			-				(1.9	)			-
Diluted shares outstanding, as adjusted			149.1				170.6				151.1				172.1

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