Q2 2020 Herbalife Nutrition Ltd Earnings Call
[music].
Good afternoon, and thank you for joining the second quarter 2020 earnings conference call for Herbalife Nutrition limited.
On the call today is dr., John I'm going to be the company's chairman and CEO John D. Among the companies President.
Alex and mosquitoes.
And he senior Vice President Finance strategy, and the Investor Relations and Eric. Meanwhile, The company's director Investor Relations I would now like to turn the call over to Eric when rail to read the company's Safe Harbor language.
Before we began as a reminder, during this conference call. We may make forward looking statements within the meaning of the federal Securities laws. These statements involve assumptions and are subject to known and unknown risks and answer.
Entities that could cause actual results to differ materially from those discussed or anticipated for a complete discussion of risks associated with these forward looking statements in our business. We encourage you to refer to todays earnings release, and our FCC filings, including our most recent annual report on form 10-K and quarterly.
Report on form 10-Q.
Our forward looking statements are based upon information currently available to us.
We do not undertake any obligation to update or really any revisions to any forward looking statement or to report for any future events or circumstances or to reflect the occurrence of unanticipated events. In addition, during this call certain financial performance measures, maybe you discussed the different from comparable measures contained in our financials.
Eight minutes prepared in accordance with U.S. generally accepted accounting principles referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe that these non-GAAP financial measures assist management and investors and evaluating our performance and preparing period to period results of operations in a more meaningful and consistent.
Manner as discussed in greater detail in the supplemental schedules to our earnings release a.
A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release submitted to the FCC. These reconciliations together with additional supplemental information are available at the Investor Relations section of our website Herbalife dotcom. Additionally, when management makes rep.
For instance volumes during this conference call. They are referring to volume points I will now turn the call over to our chairman and CEO, John I wouldn't Ob good afternoon, everyone.
I hope that you and your family are staying safe and healthy.
With today's release, we announced record breaking quarterly net sales results for the company.
We reported net sales of $1.3 billion, which grew 8.6%.
Reported earnings per share grew 52% other adjusted earnings per share grew 36% compared to the second quarter of 29 team.
As part of our pre release, a month ago, we announced that the second quarter of Twentytwenty was also the largest corridor in a 40 year history in terms of volume points with record results in both our North America and our EMEA regions.
Q2 also saw a record number of new members I preferred members joining the business.
As a sign of the confidence that we have in our business and our long term growth prospects, we announced last month that we made an offer to purchase $750 million of our common shares.
Alex will provide more details on this transaction later in the call.
As the numbers facts demonstrate.
Herbalife nutrition is performing at an exceptional level and we believe our distributors entrepreneurialism spirit combined with our quality line of nutrition products will lead to continued growth.
From a demand perspective, our business is backed by favorable consumer trends in an environment that has never been more responsive to what we bring to the table.
According to a recent studies from William on Who'd health is the new top global consumer priority.
We believe that individuals around the world how about heightened focus on consuming healthy nutrient dense foods on supplements.
Finally individuals who are seeking an economic opportunity are finding our business model to be attractive.
Our distributors are embracing technology to service their customers, which is helping to meet the increase in demand.
We are assisting our distributors as they rapidly adopt digital tools.
On the positive effects of this are evident in our results.
The investments we've made in technology have allowed our distributors and their customers to stay connected when face to face interactions are unable to take place.
Our ongoing technology strategy is focused on improving distributor scalability.
Increasing distributor to customer connectivity.
And enhancing the customer experience.
We are encouraged to see increased usage of our digital tools, such as H. and connect.
H. and my club.
And engage.
Let's dig a little deeper into our top four countries.
Starting with the U.S.
Where are year over year volume points, we're at an all time high and grew 38% for the quarter.
This growth is a testament to our entrepreneurialism distributors discovering innovative ways to run their businesses during the pandemic.
The percentage of our U.S. business going through distributors, who operate in nutrition club model, which represents the majority of our volume in the country remained relatively consistent with pre pandemic levels.
Although we've seen nutrition club operators continue to grow sales by individual prepared consumptions.
We have seemed to modify their businesses and shift a higher proportion of their sales to home delivery when face to face interactions that clubs have been unable to take place.
Additionally, U.S. distributors have seen more unique customers.
The monthly average number of unique customers in the U.S. increased year over year by more than 25% in the second quarter.
Moving on to China.
Well <unk> imports grew 18% compared to the second quarter of 29 team.
During the quarter, we made for the upgrades to our recently developed personal stores platform on we chat, including new features such as live streaming and optimization of our landing page.
Volume coming from our China service providers and sales representatives personal stores accounted for approximately 23% of total sales in the country.
Online meetings and trainings continue to be a focus in the region as the government continued to maintain strict controls over large in person social gatherings.
In the first half of the year, we've had over 2 million attend virtual training or seminars in China.
China's first virtual extravaganza took place in the second quarter with approximately 81000 attendees.
India volume decreased by 15% during the quarter.
But materially improved as the quarter progressed coming off the lows. All these 30% year over year decline in April to slight growth in the month of June.
Restrictions imposed in the market due to the lockdown resulted in the closures of many access points and disrupted national transportation impacting product delivery.
Toward the end of the corridor restrictions began to ease in non containment zones and by the end of June the majority of our product access locations in the market we're actually open.
In Mexico volume points were down 4% in the quarter.
And we're encouraged to see a return to growth in new members from Mexico This quarter.
The month of June representing the largest number of new members in a single month since August of Twentys 17.
I would also like to call out the EMEA region, which set a volume point record and grew 21% in the quarter.
The growth came from countries, such as Spain, which was up 20%, Turkey, which was up 27%, France, which grew 55% South Africa, which increased 88% and the UK, which grew an astonishing 90%.
Members in the region were able to adapt quickly to the new circumstances and transfer their businesses into a virtual environment.
Given the continuing impact of cobot 19 on our business and the rapidly evolving landscape in response to these pandemic conditions, we are not providing guidance at this time.
However, our year over year volume point growth rate improved each month during the second quarter and we are encouraged that this trend continued in July.
We remain confident in the long term prospects of our business based both on the increasing demand for products, we provide and on our focused growth strategy.
This confidence is further supported by our strong financial foundation and the substantial investments we've made in our business.
We have a proven track record of working through difficult situations and I fully believe in our ability to overcome current and future challenges.
In closing I want to thank everyone I'd Herbalife nutrition for their hard work and diligence during these extraordinary times.
I'll now turn the call over to Alex to review the financials.
Thank you John second quarter net sales of 1.3 billion, representing an increase of 8.6% on a reported basis compared to the second quarter. In 2019. This was a record for the company. Despite the 550 basis point currency headwind driven by the significant strengthening of the U.S. dollar at the end of Q1 adjusting for the changing.
Foreign exchange rates net sales for the quarter increased 14.1% year over year, excluding the impact from Venezuela.
We reported net income of approximately 115.1 million or 82 cents per diluted share adjusted earnings per diluted share were 95 cents, an increase of 36% compared to adjusted earnings per adjusted diluted share of 70 cents for the second quarter last year.
The impact of currency fluctuations represented a year over year headwind of approximately eight cents on results for the second quarter.
Note that have reported and adjusted results. This quarter include expenses related to the China growth program of approximately 2.3 million or one cents per share.
Reported gross margin for the second quarter of 79.7% decreased by approximately 65 basis points compared to the prior year period. The decrease was primarily driven by increased freight costs related to orders being shifted to home delivery versus member pickup as a result of covert 19.
Second quarter 2020 reported SGN, a as a percentage of net sales was 35.7% and adjusted SGN a as a percentage of net sales was 35.4%.
Adjusted SGN eight excluding China member payments was 26.3% approximately 200 basis points lower than a second quarter in 2019. The reduction in expense was largely driven by a decrease in member promotion and event costs.
As a result of delays cancellations and reformatting of promotional event due to the covert 19 pandemic.
However, we expect a significant portion of these reduced expenses to be spent in the third and fourth quarter.
Our second quarter reported effective tax rate was approximately 28.5% in our adjusted effective tax rate was 21.5%, which was lower than the prior year, primarily due to a favorable change in the company's geographic mix of income and a reduction in the income tax rate of certain foreign jurisdictions.
During the first half of the year, we generated 385 million in cash flow from operations. This is a significant increase over 2019 as many of the timing accounts that negatively impacted cash flow in the first half of 2019 have now reversed. We currently have 1.7 billion of cash on hand at our previously announced modified Dutch auction.
Action self tender offer to purchase up to 750 million of shares is scheduled to expire on August 11, unless the offer is extended we continue to believe the repurchase of common shares is consistent with the company's long term goal of maximizing shareholder value and this tender offer provides a mechanism to return capital to shareholders, who seek liquidity.
Current market conditions and to allow shareholders, who do not participate in the tender offer to share in a larger portion of the company's future potential.
If fully subscribed this offer will reduce our outstanding equity by approximately 10% to 12%. This concludes our prepared remarks operator, please open up the line for questions.
Thank you, ladies and gentlemen, if you would like to ask a question you will need to press star one on your telephone to withdraw your question press the pound King Please stand by while we compile the Q any roster.
Our first question will come from Wendy Nicholson with Citi. Please go ahead.
Hi, I'm just two questions if I can purchase on the tender offer given if the stock is about the offer range. What's your plan is there that expectation that you will bump up that tend to range or.
Comment on that would that be first and then secondly, thinking about that business, meaning momentum is fantastic on and I think you've done a great job, explaining how important things like the 10th and partnership.
Hi, Ben for you, but I guess my question is you know we sort of seen now a couple of other direct sellers.
Also report strong numbers and it does feel like at least in the U.S. market there has been.
Just momentum in the industry and maybe it's because people are at home and feeling entrepreneurial and looking for extra income.
My question is you know do you think theres something to that from sort of a high level industry perspective, or or do you really think this is all very much herbalife sit back on and the result of the initiatives that you undertaken to grow your best.
Sorry for the long question, but that's what I'm interested and thank you.
Thank you Wendy and thanks for the good question I'll start this down so I'll start with the with the tender offer first so obviously the tender offer does not expire until next week August 11, and so we don't have a crystal ball in terms of what that stock price might be at the end of this tender. So at this point, there's really not much.
Well I can comment on what we might do until we see where we are.
The offer that is out there is the offer that is out there and we'll we'll see how the governance the coming days.
Yes.
This is John I'll say I'll take the next to the second question. So I can speak specifically to our boy I mean, you know I read that releases about the company.
But herbalife.
Uh Huh stop numbers.
Now.
Yeah, you made that April was down 1% volume we finished the quarter.
<unk>, which means incredibly strong may and June and out.
Said in his remarks.
Great.
Sequentially may was that enable but you might even better.
Into July so there was a lot of met them and I think when you kind of run the numbers it might even be stronger than what we're seeing in either she show I think there is some truth that globally.
The industry is doing well for whatever reasons, you want to strive to its really hard to know.
But I think we're actually exceeding those.
Industry statistics, and we're doing it pretty much globally I know there where there were three of six regions did not increase.
In the quarter, but that that really was mostly on a week beginning of the quarter at the end of the quarter. We spent a lot of strength and matter of fact.
Every region in the month of June.
Members were up double digits, and Mexico was 30%.
For the new member so that really is.
I think sets us up at least for that for the near term sets us up well I mean, obviously long term the type of growth we're seeing now.
It's got to flatten a little bit.
I think does give us in a new foundation.
John This is John I Couldnt Ob.
I would just add to that answered or rather I would urge everyone to kind of look back at our Q4 2019, and our Q1 Twentytwenty results and you see I believe that ours is the company that the strategy is working it's been working since even before.
The the more recent I'm kind of external issues that if that hit the entire marketplace I.
Now we're confident in our strategy and we think that it under lies.
All of the numbers that you're seeing in Q2 and beyond.
And just if I can follow up on that I think maybe this is the point of clarification. The 2.3 million dollar that you called out.
I think as incremental investment in China.
Is that sort of and they and they sort of constant on.
Whatever fine tuning Oh, your investment spending in that market and I guess the question is to keep the momentum going you know how much more spending do you think you're going to need to do to continue to bolster those digital to all think keep them you know offering something new in compelling said the distributors.
Right. So when you just as a reminder, that that $2.3 million that you've highlighted is a investment that comes out of our China growth in impact investment program that is monies that we receive from the Chinese government effectively that we commit to reinvest back into China.
In some way shape or form.
Last year, we spent a lot about money into our branding or some of it went into our technology.
So it's just some some form an investment that we make into China.
I want to call that out I would say that that's sort of a separate.
Part of investment that we made but we think about technology and overall infrastructure.
So like the Tencent investments, that's part of what I would call part more part of our run rate investments that we're making into China. So so cut into two separate we got sort of run rate investments.
Those are things like our 10 cents on the partnership and then there are investments we have a $105 million remaining in the China growth.
Fund.
Or for other sorts of onetime investments that we make as we received money for the Chinese government. We will then invest those monies back into into China.
Perfect. That's very helpful. Thank you so much I really appreciate it.
Sure.
Thank you. Our next question will come from Hale Holden with Barclays. Please go ahead.
Thanks for taking my call I guess.
Some of the volume numbers that you posted were just extraordinary.
I was wondering if you could just give us some context on on.
Maybe just a specific regions the Americas and then in the UK number you gave what.
What do you think is R&D that benefit and then you Dr. I heard your comment that it's going to flatten out.
Well from new baseline, but.
You are assuming that the current environment stays how it.
I think I got to seasonal I think again.
Yes, so by the way.
When we're talking about flattening out what we're saying is some of these growth rates I mean.
And indirect selling and general growth can be spike.
Any currency of stuff its way up and this is there anything and so we don't know when it'll come to a more normalized growth.
Inevitably will then I think that was the point as far as what's driving the growth. It's definitely distributor activity that activity is being driven by engagement and it's hard to quantify specifically.
If that's because people are home more or if you know just people are looking for good nutrition, which is something that's really important. These days. This this is really lot does not one thing and it's just building on itself and so.
That's what we're seeing I I can't even beyond if we'd be more specific than that because it's not one thing.
I would you have in other words.
Outside we decided there are two john's in the room and as John a and as John D and I think your comment the comments related to flattening in the future came from John D.
Yes, sorry.
[music].
He asked me if I put it another rate.
Presumably the higher volume points need new your distributors, you're doing better financially and they're more engaged on a go forward basis. So.
How do you guys you sure, but this momentum and continues when we moved to a more normalized.
Errors.
Yes. So so this is a.
I would note that a couple of things first of all.
I do think that on the consumer side that.
People's behaviors have changed acutely in response to the pandemic, but I would wager too that there that these many of those behavior changes, we'll have some persistent right that there are going to be consumers out there that that commit themselves to living healthier more healthy active.
Balanced lifestyles in the future right. So that's number one on the distributor behavior side.
Yes, I think our distributors working extraordinarily hard over the course of this quarter.
Yes, as a result, I think they're seeing they'll see that in the in the in their rewards.
Ours is a business that is built on momentum and what we called the marketing plan the ability to achieve to set goals and to achieve those goals and to be there incremental those good bill build on themselves as the hit a certain level in the marketing plan. They then kind of subs.
Gripen aspire to hitting the next the next level. So we do expect the momentum the energy that is being generated within our distributor base will continue on into the future to my colleague. John. These comment. This is a business that that kind of has stair steps as it grows.
At least traditionally as we've looked to the path that's kind of the pattern that we've seen that accelerated sports in growth followed by.
More moderated growth followed by an acceleration again in the future. So that's kind of the way it works or at least it has around the world and the path I think we should expect to see the same as we go forward.
Great. Thank you very much.
Thank you. Our next question will come from Steph Wissink with Jefferies. Please go ahead.
Thank you good evening, everyone I said, a couple of housekeeping questions and then I'd like to unpack your category performance at the first question. Alex is for you you mentioned some of the savings that you would we spend those in the back half of the year I'm wondering if you can just help us think through do you see any rate in the back half I bet you read cover.
Some of those saving.
And then secondly, and I think John Desimone had mentioned that that July month with another month by month over month momentum should we anticipate it is better than June or it has maintained humans run rate exit.
Hi, Thanks for the questions I'll actually take Baltic both of those are both of those questions. So so the first on the expense so.
In my remarks, I mentioned that our adjusted EPS DNA, excluding member payments improved by about 200 basis points over over last quarter 2019, or Q2 2019.
<unk> expenses that we anticipate being delayed to the back half of the year. If those expenses occurred this quarter that would be about 100 basis points of that 200 basis points. So hopefully that gives you. Some some idea of of magnitude relating to the second question with respect to do.
July yes in fact that is what we're saying, we're saying the growth rate that we saw in July is in excess of digital <unk> of the growth rate that we are that we had in June.
Excellent. Thank you and then I want to unpack your category performance it looks like your sports fitness business.
And in even your targeted nutrition business were both extremely strong both up in the mid teen I'm can you talk a little bit about what you're seeing within those businesses are you gaining new customers.
Customers entering the brand in those two areas and then traveling across the category portfolio, maybe give us some perspective on what you're seeing kind of within your category performance.
Yes, I mean, obviously sports nutrition and targeting nutrition are are on a relative basis to our weight management board of the portfolio smaller piece of the portfolio. So when you see overall our company growing up the growth rates that you are seeing when you have that amount of growth on the smaller base. It's just I think if you look at our sports nutrition category generally.
After over quarter, you're seeing that double digit growth.
Even when we're experiencing more moderate levels of growth. So I just think this is.
Attracted categories, obviously sports nutrition is a big opportunity, we talked about sports nutrition and targeting nutrition as being the big opportunities for us to penetrate with or without having market leading position in a weight management side and so this is this is just very much on trend with the strategy.
The second pillar of our strategy technology being not the other.
Great. Thank you very much.
Thank you. Our next question will come from Doug Lane with Lane Research. Please go ahead.
Hi, good afternoon everybody.
Just to start Alex when you called out the $6.1 million at Cobiz expenses, what exactly are those kind of expenses.
So those are expenses that we have to do that we have to perform today above and beyond what what nor what normal operations are so for example, sanitation for example compensation for employees going above and beyond what they would have to do.
In a non pandemic situation expenses like you might have just seen our recent press release, where we had to cancel the ER the L.A. triathlon, the herbalife nutrition L.A. trap won.
And we had some cost that were sunk into that that now you know there's no. There's no return on investment. So we had to Ah. So those are just sunk expenses. So it's those types of things that we're experiencing.
Is it directly rate relates to covert 19.
Impact.
Okay got it. Thank you and then just a follow up on the padded questions I think in the last call. We were talking about some of your immunity products.
Particularly strong community essential things like that is that still the case or is that the strong volume really broad based at this point.
I would say the strong volume is broad based again, it's a little bit of the of the answer that I just gave to stuff clearly.
Targeting nutrition is growing.
At a double digit rate and so part of that portfolio does include our immunity products. So were you know we're encouraged to see that growth in those areas those new market areas for us, but ah, but the growth. If you look across the portfolio I would say is broad based.
Okay Fair enough and then lastly, I'd Dr. Larry I appreciate your comments on the momentum of the business, which seems to be pretty common across direct selling where you see.
On a build and then it eases a little bit particular regions and that that that I totally get sold the question I have is with your Asia Pacific region, which has been growing double digits for the last two years plus the more of a center about negative this quarter and I know you talked about India being down 15%, but there's got to be something more than just India.
Are there I.
In India is a bottom is just just to be very clear when you look at.
Our global business and the impact of the pandemic has had on it.
By any account a pack has been.
Under that umbrella longer than any other region in our business. It started there.
And places like Korea.
India, Indonesia, and a few other locations have been particularly impacted by their governments responses to to the to the to the pandemic.
India, especially I think so let me hand, this off the John D. and he'll he'll jump in with a little more detail, but I, but I would just kind of point to the fact that it is principally cobot related and with India in the portfolio.
And just kind of the profile it out a little bit you know as we said in the May call that age was it was it specifically hard because if somebody infrastructure challenges in many of those countries not just India, but Indonesia Korea and so in June the ended the month.
He's you're actually had growth again.
So it was really much of a much more about you can see that April when we leased.
Volume was down almost 14% Asia finished only down 5%.
So it definitely had.
Some momentum that built during the quarter or maybe meant that might be the wrong word it's probably more it was a solution oriented set of programs that will put together an easy to overcome some of the challenges and so I think that was very successful in India itself was actually flattish.
Exiting core.
That's good color thanks, John.
Thank you. Our next question will come from Ivan Sciences sequence financial. Please go ahead.
Hi, Thank you for taking my call and congratulations on another great quarter.
Thank you I've Nike.
Right. So what were there any specific standout products in the quarter and I'm also.
Any products that surprised you as far as the demand or lack of demand.
And whether any products that you ran low on her ran out of them have shortages that if you have more you would've done better.
Well so.
There was no major surprises you know we had some product launches I did pretty much as expected, but I will say there were some product product shortages.
Because.
Demand was higher than expected from the lead time that we need to build product, especially for some of the product is not me not made by us and some of those manufacturers have their own issues because of no closures and things like that so.
For the into the quarter, we definitely had some out of stocks I think we recovered it pretty quickly whether that ended up being lost sales are not I'd, rather not say I think.
That was redirected to other products temporarily.
Or it was caught up later in the quarter.
I'm not sure, but there was definitely come out of stock issues, which is not unexpected when you have.
Such dramatic shifting trends.
Any products that you thought we're going to sell well but didn't.
No no surprise, it's no surprise, it's not that I'm aware.
On to your point your other question about whether or not there is one that did more better than expected it across the board and we think group across all categories.
That's a surprise.
That's the fact of across all all our categories. It seems.
Really good growth.
Then as far as lets say tools that youre.
Agents are using since more.
Most everybody has had to go to more online rather than in person meetings, what kind of process have you learned from that and thoughts of putting a new platforms in place to support sellers going forward.
Yes. This is John D. Let me hit what I think is one of the more important takeaways from.
The <unk>.
Movement toward more technology that was really forced upon everybody.
I'm certainly does it the virtual world now and our distributors have embraced that but I think the bigger takeaway.
Is that out of the need for more technology there was a.
I think it was more demand for segmentation as you know we should be segment business in a small number of markets and now we have plans that by the end of next year volume.
Or 80% of the volume, maybe even 90% of our volume will come from August for this segment. So that's a big advantage that's coming out what I think is just the increased use of technology, there's lots of different kinds of technology as market segment don't have access to that the different technologies that are out there.
When you say more segmented <unk> markets, you mean as far as far as product lines that sell well or.
No. It's it's a it's a preferred member I'm, sorry to there's little history. Okay.
Some terms that are maybe its outdated, but it was a point in time with everybody who signed up was yes, a distributor and then we segmented to have.
Just customers be able to sign up as just customers are not see the business.
That was no I'm familiar with that.
So that having having the option to sign up is just a customer it's something that will be in markets that represent 80% to 90% of her volume going into next year lot of technology that goes into programming getting executed that's why it takes to either next year, but that's a big step forward.
And as far as increases in new distributors what areas.
Have you seen driving that and what products to new distributors tend to lead off with or or focus on.
Yes, I think the most important part of the new distributor equation that we're seeing is our distributors are getting younger we're getting a lot more millennials engine theaters.
And we saw that movement, starting but it's even bigger now even in Mexico, now them or majority of new members, joining or a millennials are younger.
That was a market that that was not quite there are a year ago. So that's a big advantage and so that's the demographics, we see coming in.
I'm not familiar with felt my head whether their product portfolio purchases is different than the average certainly nothing stands out in my mind, but I'm just not that familiar with it I'm track it that way.
But that's really the single biggest advantage of.
What I would say that demographic.
Right.
What do you think is driving that.
Well I mean again, it's kind of think goes back to the question was asked earlier, which is what's driving the business and there is no. One thing I think there's lot of momentum I think the awareness of the importance of good nutrition has never been better.
So I think our product line more than anything is probably.
What's what's driving it or at least whats, helping distributors get confident and and drive the business people, we have solutions to real issues rather be city.
So healthy active lifestyle and basic nutrition, so that I think thats, probably the most important thing.
Do you think though younger people are coming on as distributors are younger people are coming on as customers are younger people. If they are coming on as distributors are coming because.
There's there are more entrepreneurial and looking for the business opportunity.
Well I think across the board were getting younger both on the customer side and distributor side I don't want to what that with the goal is I mean, a lot of and I mean as customers first.
And then move over to the distributor side I do think.
This opportunities attractive I think there's a lot of momentum and excitement.
And so that's that's part of it but.
As a whole host.
But again products. The few you know just curious maybe the engine of the company for the product for the fuel.
Yes.
Thank you very much and congratulations again.
Thank you Evan.
Thank you. Our next question will come from carry Martin Johnson with Jefferies. Please go ahead.
Good evening, just terms the unique customer increase than you had in North America the 25%.
Touched on the technology, but could you talk to us how are the distributors, reaching that connectivity. So that they can actually retain these customers who perhaps.
Tried your products here in the pandemic for the first time, how do you keep that a that customer in house going forward.
Look I technology segment, I mean, it I'll give you a multi layer answers so versus segmentation, which allows customers to sign up which gives informational access to distributors to be able to stay in contact with them Dennis the tools built around.
Segmentation help automate somebody.
Opportunities to keep engagement.
And then of course, there is the receding tools that are made available certainly the U.S. The there outside the U.S. now and going to being a lot more market, where there's a lot more transaction field level of transactions that are captured in a database that can be used.
Keep that interaction.
More frequent.
It's a can it's it's more about commuting connectivity and it'll be a little bit more and it's the information will be more available with these tools.
Okay, and when you talked about yes.
The second half we have the under basis point shift.
I'm being higher.
That kind of a return to some of your in person sessions or how do we think about what the pandemic lock down it is going to do on that side of the equation or is that something that we should look at for next year.
Yes, it's it's not necessarily returned to in person I think primarily that is just the shift from what was going to be in person.
In Q1, Q2, moving to a virtual events or virtual.
Ah different types of promotions that are just largely hitting in Q3 in Q4, what what needs to happen effectively at their needs to be an absorption by the distributor base in a particular market of okay. If we can't go with plan Hey, we want to go with plan B and C and so it just takes some time to develop what those new promotions and what those new.
[music] events.
Might be and so what was going to happen in in the second quarter is now just happening later in the year as those plans are being developed.
Okay, and just lastly, the higher freight costs, you reference as you shift to more residences.
It is that something that overtime you.
Negotiate those costs down or is that just a a new a new part of the business that we just have to absorb.
It's not necessarily a new part in of itself I mean, what we're seeing in this is a little bit and John A's comments. So for example in the U.S., where you had a nutrition club distributors or or distributors I don't know nutrition club. The effectively represented about the same amount of volume in the quarter, but they.
Shifted the wave that they receive product and got product to their customers from from in person or from a two more of a.
Direct ship to home, so you're using home delivery in that vehicle to get products from effectively our warehouse to.
To the customers so.
What is what we don't know yet is as as things evolve as these conditions the ball.
How are we going to offset how are we going to think about is this the new ways. It's the new shift in our in shipping or do we returned back to effectively how our supply chain. It was designed to be optimal. So we're going to have to just this is something that we're going to have to see how that develops and ER and.
And react.
Accordingly.
Thank you very much guys appreciate it.
Ladies and gentlemen, thank you for participating in today's question answer session I would now like to turn the call back over to Dr., John I would now be for any closing remarks.
Thank you I'll keep this short first thank you all for for for the work that you do following us and for your questions today.
I'll, just kind of point out the obvious here for a quick moment and that is.
Ours is a company that's been a this had a strategy that's been a place for quite a few years now at least over the last 24 month I would ask you to take a look at the trajectory of our business you'll begin to note that the business and the strategy, we're working even before the pandemic.
Its true I think appropriate to state that during the pandemic that strategies impact would appear to have accelerated.
That strategy continues to work, we continue to drive it and even after the pandemic, we feel really confident that our strategy is going to deliver on our goal.
With that I would just point out one last thing which is their offer a number of I think it's worth its worth noting that our distributors around the world have worked hard work extraordinarily hard so over the last quarter over the last.
Two quarters actually over the last four quarters and their work is directly related to the results that were talking about today, so with that I'll just say thank you.
They safe and see you soon.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].