Q4 2023 Herbalife Ltd Earnings Call
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Yes.
Operator: www.herbalife.com Good afternoon, and thank you for joining the fourth quarter and four-year 2023 earnings conference call for Herbalife Ltd. During the company's opening remarks, all participants will be in a listen-only mode. Following the opening remarks, we will conduct a question and answer session.
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Operator: As a reminder, today's conference is being recorded. I would now like to turn the call over to Erin Baez, Vice President and Head of Investor Relations, to begin today's call. Thank you, Tawanda, and good afternoon, good evening, everyone.
Erin Baez: Joining us today are Michael Johnson, our chairman and chief executive officer, Stefan Graziani, our president, and Alex Amezquita, our chief financial officer. Before we begin today's call, I would like to direct you to the cautionary statement regarding forward-looking statements on page two of our presentation and in our earnings release issued earlier today, which are both available under the investor relations section of our website. The presentation and earnings release include a discussion of some of the more important factors that could cause actual results to differ from those expressed in any forward-looking statement within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.
Erin Baez: As is customary, the content of today's call and presentation will be governed by this language. In addition, during today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or non-recurring items that management believes impact the comparability of the periods referenced.
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Yeah.
Speaker Change: Good afternoon, and thank you for joining the fourth quarter and full year 2023 earnings conference call for Herbalife Ltd.
Erin Baez: Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP measures. And with that, I will now turn the call over to Chairman and CEO, Michael Johnson. Thank you, Erin, and Happy Valentine's Day.
Speaker Change: Joined the company's opening remarks, all participants will be in a listen only mode.
Speaker Change: Following the opening remarks, we will conduct a question and answer session.
As a reminder, today's conference is being recorded.
Speaker Change: I would now like to turn the call over to earn bet, Yes, Vice President and head of Investor Relations to begin today's call.
Michael O. Johnson: You know, you guys, when I returned to Herbalife in late 2022, we met in Cairo immediately. It was the 1st of November. And we set out a vision for Herbalife. And that vision is to be the world's premier health and wellness company, community, and platform. We're working on it, and we're working towards it, and the results are getting very good. 2023, though, was a very challenging year. We all know that.
Earn Bet: Thank you Glenda and good afternoon, good evening everyone.
Earn Bet: Joining us today are Michael Johnson, our chairman and Chief Executive Officer.
Earn Bet: Graziani, our president and L. S Pizza, our Chief Financial Officer.
Earn Bet: Before we begin today's call I would like to direct you to the cautionary statement regarding forward looking statements on page two of our presentation and in our earnings release issued earlier today, which are both available under the Investor Relations section of our website.
Michael O. Johnson: So we laid out a plan to have net sales growth by the fourth quarter, which we delivered. Our year-over-year net sales trend improved every quarter in 2023. We modernized our brand, we updated our look, and we modernized our digital ads. We enhanced our data management and transactional capabilities. We launched new websites in markets representing 70% of our sales. On the product front, we introduced 17 innovative products. Supported our distributors businesses, and we launched our first ever vegan line, and it was so successful the demand hired anticipated. We experienced out of stocks. Not proud of that, but it's been a great line with great. We had strong cash generation; our 2023 free cash flow exceeded 2022. We paid down debt ahead of schedule.
Earn Bet: The presentation and earnings release, including discussion.
Earn Bet: And some of the more important factors that could cause results to differ from those expressed in any forward looking statements within the meaning of section 27, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 1934 as amended.
As is customary the content of today's call and presentation will be governed by this language.
Earn Bet: In addition, during today's call we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or nonrecurring items management believes impact the comparability of the period referenced.
Earn Bet: Please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial measures and a reconciliation to the most directly comparable GAAP measure and with that I will now turn the call over to chairman and CEO, Michael Johnson, Thank you Erin and happy Valentine's day everybody.
Michael O. Johnson: In our transformation program, we took $115 million out of SG&A, which exceeded the $70 million we set out to achieve. We did this through an aggressive back-office consolidation. This helped us build out centers of excellence in Krakow, Guadalajara, Bangalore, and Kuala Lumpur. Additionally, we employed an aggressive distributor engagement plan. Between corporate and distributor events, we're back in action. Our retention is up. Those are the news points from 2023. Now, let's focus on where we're going in 2024. We know the road ahead.
You know you guys when I returned to Herbalife in late 2022, we met in Cairo immediately was the first of November and we've set out a vision for Herbalife night vision is to be the world's Premier health and wellness company can be a really good platform.
Earn Bet: We're working on it and we're working towards it.
Earn Bet: Folks are getting very exciting 2023, so it was a very challenging year. We all know that so we laid out a plan to have net sales growth by the fourth quarter, which we delivered our year over year net sales trend improved every quarter in 2023.
Michael O. Johnson: Our top line sales and recruiting of new distributors and customers is our number one focus. Bringing Steph on in to work with an incredible team of executives here is helping Herbalife get closer to the market, dive into analytics and data to support distributor businesses for insights and opportunity, allowing us to maximize sales and business opportunities through customer and distributor acquisition, productivity, and retention. We are deploying account management teams more aggressively in the field to work closely with distributors to support their distributor methods of operations in more aggressive ways. We are investing and positioning ourselves for growth through 2024. Based on our line of sight today, we are forecasting this year to be relatively flat.
Earn Bet: We modernized our brand we updated our look and we've modernized our digital atmosphere, we enhanced our data management and transactional capabilities, we launched new websites in markets, representing 70% of ourselves on.
Earn Bet: On the product front, we introduced 17 innovative products that supported our distributors' businesses and we launched our first ever being in line and it was so successful to demand higher than anticipated.
Earn Bet: Experienced auto stocks not proud of that but it's been a great line with great success, we had strong cash generation of our 2023 free cash flow exceeded 2022, we paid down debt ahead of schedule. Our transformation program, we took out $115 million.
Michael O. Johnson: With that said, stay tuned. USA is our major focus. We understand it. It's our home court.
Michael O. Johnson: It's important to all of our stakeholders, to you, our investors, to our employees, and our distributors. We are in this to succeed, to get growth back into North America. We need to drive top-line growth here in the USA, to get deeper and closer to the market, which is what we are doing. To create products for the market.
Earn Bet: SG&A, which exceeded the $70 million, we set out to achieve.
Earn Bet: We did this through an aggressive back office consolidations. This helped us build out centers of excellence in Krakow, Guadalajara, Bangalore, Kuala Lumpur, we employed an aggressive distributor engagement plan.
Michael O. Johnson: I already mentioned the vegan line, which is an exciting product for us, opening up new customers, new distributors, and new opportunities. In the GLP world, we've just launched a nutrition companion product combo that is positioned to meet market demand. It is ready to support our distributors and respond to any demands they have from their customers in the market. Distributors are looking for unique ways to work with their local markets alongside GLP-1 providers. There's going to be more news about this as the year unfolds.
Earn Bet: Between corporate and distributor events, we're back in action our retention is up.
Those are the news points from 2023, so now let's focus on where we're going into 2024, we know the road ahead or.
Earn Bet: Our top line sales and recruiting of new distributors and customers is our number one focus bringing Stefan and work with an incredible team of executive here is helping herbalife get closer to the market dive into analytics and data to support distributor businesses for insights and opportunity, so, allowing us to maximize sales and business opportunities.
Michael O. Johnson: We are ready to support them in their innovation, and they bring it to us, and they enhance their markets locally. We have studied this market very, very closely. We're also excited about the CDC Diabetes Prevention Program, which allows our distributors to be more deeply trained in offering their customers a lifestyle change enhanced by weight loss and behavioral modification. So let's summarize North America.
<unk> customer and distributor acquisition productivity and retention.
Earn Bet: We are deploying and account management teams more aggressively in the field to work closely with distributors to support their distributor methods of operations and more aggressive manners.
Michael O. Johnson: I'm spending a lot of time there because it's so important to us. Get recruiting up, get customers and distributors, get more of them into Herbalife, with great products, with great business opportunities, and with great innovation in our company. Get closer to our distributors and their methods of operation. Deliver a robust suite of digital and data tools that will enhance distributors' business opportunities. And deploy our events specific to DMO trainings.
Earn Bet: We are investing and positioning ourselves for growth through 2024.
Earn Bet: Just on our line of sight today, we're forecasting this year to be relatively flat with that said stay tuned.
Earn Bet: USA as our major focus we get it its our home court.
Earn Bet: To all of our stakeholders to you our investors to our employees.
Earn Bet: And our distributors we are in this to succeed to get growth back into North America, we need the top we need to drive top line growth here in the USA to get deeper and closer to the market, which is what we are doing great products through the market already mentioned the <unk> line, which is an exciting product for us opening up new customers new distributor.
Michael O. Johnson: We are creating distributor training unique to Herbalife that Stefan will detail. This will be something unique to our company and we're very, very excited. Let's take a look at the other major markets. We're in China, and we're back in action. We have reemerged past the pandemic, post the pandemic, and past the pandemic.
Earn Bet: There's a new opportunity in the <unk> World, We've just launched nutrition companion product combos.
Michael O. Johnson: There has been a large amount of time spent by Stefan, the China team, and myself to engage with our Chinese leadership, both distributors and executives, to support our business there, and see good things on the horizon in China. India continues to grow. We have a great management team there, localization of product and business opportunities, and a highly energized distributor organization that continues to push the business forward. In Mexico, we're moving forward from supply chain challenges experienced in the latter part of 2023. We limited the shortfall by working diligently and engaging with the Mexican authorities.
Earn Bet: <unk> to meet market demand gets ready to support our distributors and respond to any demand as they have from their customers in the marketplace.
Earn Bet: Distributors are looking at unique ways to work with their local markets alongside G. L. P. One providers, there's going to be more news about this is the year.
Earn Bet: <unk>, we are ready to support them in their innovation and they bring it to us and they enhance their markets locally. We have studied this market very very closely.
Earn Bet: We're also excited about the CVC diabetes prevention program, which allows our distributors to be more deeply trained in operating their customers a lifestyle change enhanced by weight loss and behavioral modification.
Michael O. Johnson: And like North America, we're obsessively focused on both top line growth and margin expansion. This week, we announced an incredible new relationship with the Mexico Olympic Committee. This is very exciting.
Earn Bet: So, let's summarize North America, I'm spending a lot of time, there because it's so important to get recruiting give customers and distributors get more of them into herbalife with great products with great business opportunity and with great <unk>.
Michael O. Johnson: It builds our brand and standing in Mexico. Some of our products will be branded with the Olympic logo. We are the supplying product partner for athletes. We are providing our science and doctor support for the Mexican Olympic Committee and athletes. This is in addition to our partnerships with the National Olympic Committees of Israel, Vietnam, Greece, and Italy.
Earn Bet: Patient in our company get closer to our distributors and their methods of operation to deliver a robust suite of digital and data tools that will enhance distributors business opportunity and deploy our events specific to DMR trades, we are creating the distributor training unique to herbalife that Stefan will detail this will be something unique.
Earn Bet: To our company and that we're very very excited about.
Earn Bet: Let's take a look at the other major markets, where in China. We're back in action, we have reemerged past the pandemic post the pandemic can pass the pandemic. There has been a large amount of time spent by Stefan the China team and myself to engage with our China leadership, both distributors and executives to support our business there.
Michael O. Johnson: These partnerships, along with our global athletic sponsorships, including Cristiano Ronaldo and Burak Kohli, enhance our brand universally and are in line with our healthy, active lifestyle values. These are great for our distributors, our customers, and our brand. So before I turn it over to Stefan, let me reiterate our goals for 2024: sales, sales, sales, sales, getting our organization more effective and deployed to enhance our distributors, acquisition of customers, and new distributors. Margin is maniacal about cost efficiency and proper alignment of resources. And finally, let me turn to the balance sheet. This year, we will refinance our senior credit facility, and we will use our excess cash to continue to pay down debt. Now, before I turn it over to Stefan, let me just do a quick introduction to him.
Earn Bet: Good things on the Horizon in China, India continues to grow we have a great management team there localization of product and business opportunity and a highly energized distributor organization that continues to push the business forward and.
Earn Bet: In Mexico, we're moving forward from supply chain challenges experienced in the latter part of 2023, we limited the shortfall by working diligently engaging with the Mexican authorities like North America, we're excessively focused on both topline growth and margin expansion.
This week, we announced an incredible relationship with the Mexico Olympic Committee. This is very exciting it builds our brand and standing in Mexico. Some of our products will be branded with the Olympic logo, where the supply and product partner for layout fleets, we are providing our science and doctor support for the Mexican Olympic Committee and.
Michael O. Johnson: When we brought Stefan in to work with this management team, our whole goal was to get closer to the market, to have a distributor's mind and mindset inside our company. His deep well of experience and knowledge has already helped us massively. He's proved to be a transformative leader, and I'm proud that we promoted him to president this year.
Earn Bet: This is in addition to our partnerships with the National Olympic Committees of Israel, Vietnam, Greece, and Italy. These partnerships along with our global Athletic sponsorships, including Christiane Ronaldo Bureau, coli enhance our brand universally and are in line with our healthy active lifestyle values. These are great prior distributors or customers.
Stefan Graziani: So, Mr. President, on to you. Thank you, Michael. Well, it's been an exciting six months since I joined the company. Last quarter, we talked a little bit about the long-term vision of things for the company and really how we are going to be a sustainably growing company in the future. Michael mentioned becoming the world's premier health and wellness company, community, and platform. And so, a little bit just to talk about that. We have tens of millions of them.
Earn Bet: <unk> and our brands.
Speaker Change: So before I turn it over to Stephane, Let me reiterate our goals for 2024 sales sales sales sales getting our organization more effective and deployed to enhance our distributors acquisition of customers and new distributors margin maniacal about cost efficiency and proper alignment of resources and finally, let me.
Stefan Graziani: We've got millions of distributors that work every single day face-to-face with customers, adding value to their lives. They are teaching them better nutrition habits, they're involving them in healthier lifestyle habits, they're getting them on Herbalife products and helping them to get results as a company. Many of those and most of those customers don't live on a platform, company; we can deliver a lot more value to them. And that's part of what the Herbalife One ecosystem is going to be about. As a company delivering more value to customers and allowing those customers to be closer to the company, live on a platform and with a platform that delivers value to them that they want to be a part of, and that they have many of their needs met, and they're stacked on top of the distributors' value, what they bring every single day.
Speaker Change: Turning to the balance sheet. This year, we will refinance our senior credit facility.
Speaker Change: We will use our excess cash to continue to pay down debt.
Speaker Change: Now before I turn it over to Stephane, Let me just do a quick introduction of him. When we brought Stefan then to work with this management team our whole goal was to get closer to the market to have a distributor voice mined and mindset insider company. His deep level of experience and knowledge has helped us already massively he has proved to be a transformative leader.
Speaker Change: And I am proud that we promoted him to president this year so Mr. President Gilles Thank you Michael.
Stephane: Well, it's been an exciting six months since I joined the company last quarter, we talked a little bit about the long term vision of things for the company and really how we are going to be a sustainably growing company in the future Micros mentioned, becoming the world's Premier health and wellness company community and platform.
Stefan Graziani: And so long term, this is where we're going as a company. In the future, the vision is to have tens of millions of customers and support millions of distributors and deliver value to both of these parties. Shorter term, we have things to work on, as Michael said. When I first came in, the focus was getting close to the market, with specific attention on China, the U.S., and Mexico.
Stephane: And so a little bit just to talk about that we have tens of millions of customers.
Stephane: We've got millions of distributors didn't work every single day face to face with customers, adding value to their lives.
Stephane: They are teaching them better nutrition habits, they are involving devin healthier lifestyle habits, they're getting them on herbalife products and helping them to get results as a company.
Stefan Graziani: We've spent a lot of time working with the regional heads to better understand the business needs and the opportunities in front of us in developing the strategies that we need to move forward with locally. For example, if this is China, as Michael just mentioned... The executive team spent more time on the ground in China with our service provider leaders and local team last year than we did in the last three to four years. We have appointed Stella Tsai as Managing Director.
Stephane: Many of those and most of those customers don't live on our platform with us as a company, we can deliver a lot more value to them and thats part of what the Herbalife one ecosystem is going to be about.
Stephane: As a company delivering more value to customers and allowing those customers to be closer to the company lift in our platform and with the platform that delivers value to them that they want to be a part of and that they have many of their needs met and they are stacked on top of the distributors value, but they bring every single day and so.
Stefan Graziani: She's one of our top leaders who ran North Asia and has more than 20 years of experience, and she will report directly to me. The business is stabilizing. We have positive momentum and a clear plan for 2024, and we're excited. Another market of focus has been the US. Again, we spent a lot of time analyzing the business and all of the growth that happened over the last six to seven years in the post-pandemic market and the macro situation.
Stephane: Long term this is where we're going as a company and the future division is to have tens of millions of customers and support millions of distributors and deliver value to both of these parties.
Stephane: Shorter term, we have things to work on as Michael said when I first came in the focus was getting close to the markets with a specific attention on China. The U S and Mexico. We spent a lot of time working with the regional heads to better understand the business needs and the opportunities in front of us in developing the strategy that we need to move forward with locally.
Stefan Graziani: As you know, nutrition clubs in the U.S. are the most important part of our business. It's also what differentiates us from almost any other business in the MLM industry and also the nutritional supplements industry. It's an incredible business, and we're seeing lots of opportunities to leverage and build upon that foundation. I'm going to give some high-level numbers for the first time to illustrate this, but first, I want to give a bit of a background.
Stephane: An example of this is China like Michael.
Stephane: And the executive team has spent more time on the ground in China with our service provider leaders and local team last year than we did in the last three to four years, we have appointed stellar Si as managing director. He is one of our top leaders, who ran north Asia and has more than 20 years experience and she will report directly to me the business is stabilizing.
Stefan Graziani: If we go back 10 years ago in the U.S., our nutrition clubs were primarily service-based nutrition clubs. What does that mean? Meaning almost all of the clubs, they were offering different types of services to learn more about the Herbalife Nutrition products, make lifestyle changes, and ultimately get results. In the U.S., for a few reasons, the club started shifting and moving to more of a food service office. By the way, this opened an entire new vertical of business for us and created tremendous growth, especially during the pandemic where food services were seen as essential. That model gained a lot of momentum, and some of the other models and the service models kind of moved out of focus. I'll say that it's really mostly a U.S. phenomenon.
Stephane: We have positive momentum and a clear plan for 2024 and were excited and other market. Our focus has been the U S.
Stephane: We spent a lot of time analyzing the business and all of the growth that happened over the last six to seven years post.
Stephane: Post pandemic market and the macro situation.
Stephane: As you know nutrition clubs in the U S are the most important part of our business.
Stephane: It is also our differentials differentiate us from almost any other business in the MLM industry and also the nutritional supplement industry, it's an incredible business and we're seeing lots of opportunities to leverage and build upon that foundation.
Stefan Graziani: The rest of the clubs around the world have really remained primarily the same service-focused clubs that we've had for so many years. But when you consider that just 10 years ago, we didn't have a food service, the numbers are quite impressive.
Stephane: Can you give some high level numbers for the first time to illustrate this but first of all I get a bit of background. If we go back 10 years ago in the U S. Our nutrition clubs were primarily service based nutrition clubs, what does that mean, meaning almost all of the clubs that were offering different types of services distributors, we're doing wellness evaluations teaching people about nutrition.
Stefan Graziani: In 2023, we had 4.4 million unique customers in our U.S. nutrition business. They generated around 55 million transactions, with an average transaction amount of $16.56. That's $900 million in retail business for our club. It's an incredibly strong foundation, and we believe we have lots of opportunities. For example, our preferred customer conversion rates are as low as 1% in some clubs.
Stephane: Personal coaching offering different types of workouts running weekly weight loss challenges.
Stephane: And all of this was to help people learn about the nutrition product of the herbalife nutrition products make lifestyle changes and ultimately get results.
Stephane: In the U S for a few reasons as Bob started shifting and moving to more of a foodservice offering.
Stefan Graziani: So just to give you a bit of context, www.herbalife.com. Only 1% of them actually become Herbalife customers that get on the program or order supplements and use them at home. It's a huge opportunity for us. We have other clubs that are doing more multi-service, that are still doing the types of services that the clubs were doing years ago, and the conversion rates for those clubs are north of 10%.
Stephane: By the way, which opened an entire new vertical of business for us and created tremendous growth, especially during the pandemic, where food services, we're seeing is essential.
Stephane: That model gained a lot of momentum and some of the other models and service.
Stephane: Service models kind of moved out of focus.
Stephane: I will say that it's really mostly a U S phenomenon the rest of the clubs around the world They've really remains primarily the same service focused clubs that we've had for so many years.
Stefan Graziani: So there's a big delta there and a big opportunity. We believe that the upside there can be very large. And our job is going to be helping the clubs, giving them the tools, the understanding, making accessible what they need to be able to offer all of the services that are out there that can add value to the club. We see some clubs, by the way, that are already starting to do this that weren't doing it three to six months ago. An example of that would be clubs that are now participating in 21-day challenges like the We Do Challenge.
Stephane: But when you consider that just 10 years ago, we didn't have our foodservice business the numbers are quite impressive.
Stephane: So in.
Stephane: In 2023, we had $4 4 million unique customers in our U S nutrition clubs and generated around 55 million transactions with an average transaction amount of $16 50.
Stephane: That's $900 million in retail business for our clubs.
Stefan Graziani: As Michael mentioned, we also just launched our GLP-1 Companion Packs, and they're already getting attention. We've got some distributor leaders that are actually reaching out to different providers of GLP-1s and who have patients that are looking for nutritional support and supplements. As that market continues to grow, and more people are using GLP-1s, there'll be an even bigger opportunity for us.
Stephane: It's an incredibly strong foundation and we believe we have lots of opportunities. There for example, our preferred customer conversion rates are as low as 1% in some clubs. So just to give you a bit of context.
Stephane: People that are walking in if you have 100 people walking in to buy a healthy shape.
And energy T. Some type of a food item that they're just basically consuming and then leaving.
Stephane: Only 1% of them actually become herbalife customers didn't get on the program are ordering supplements using them at home.
Stefan Graziani: In March, we have over 100 distributor leaders who are starting a training program to become certified life coaches to be able to help people in their communities and clubs by delivering the CDC Diabetes Prevention Program. We believe building off the strong foundation of nutrition clubs in the U.S. and offering additional services presents a huge opportunity for us. There's a lot more that I can say about that, but I'm going to leave it at that.
Stephane: It's a huge opportunity for us we have other clubs that are doing more multi surface that are still during the types of services that the clubs, we're doing years ago and the conversion rates for those clubs are north of 10%. So there's a big delta there and a big opportunity. We believe the upside there can be very big and.
Stefan Graziani: Another focus. Another area of focus is how are we going to bring the most value possible to our distribution? In my experience as a distributor for 32 years, there were some things that helped me successfully build my organization. One of them was focusing on leadership development and constantly upskilling the team. Whatever they were missing, whatever they needed, at whatever level they were at, we were able to deliver the things that would make a difference. One-on-one coaching made a big difference.
Stephane: Our job is going to be helping to clubs, giving them the tools the understanding making accessible what they need to be able to offer all of the services that are out there that can add value to the clubs.
Stephane: We see some clubs by the way already they're starting to do this it werent doing it three to six months ago, and example of that would be clubs that are now participating in 'twenty, one day challenges like the ouija challenges.
Stephane: As Michael mentioned, we also just launched our <unk> companion packs and it's already getting attention is that some distributor leaders that are actually reaching out to different providers of DLP ones and you have patients that are looking for nutritional support and supplements as that market continues to grow and more people are using <unk> to be in an even bigger opportunity.
Stefan Graziani: Any time that I could get, and my leaders could get, spending time one-on-one with people, going over the business metrics, going over the models that they were operating, going over the plans and the goals for the future, and how they were going to get there, made a huge difference. The last thing was helping to ensure that as time progressed and markets shifted, leaders had the most effective DMOs in place to be able to maximize market opportunities. Those are the main areas of focus.
Stephane: City for us.
Stephane: Nick will also mentioned the CDC program in March we have over 100 distributor leaders, who are starting a training program to become certified life coaches to be able to help people and their communities and clubs by delivering the CDC diabetes prevention program.
Stefan Graziani: As a company, as we move forward, we're going to be doing some things differently. One of them is that we're going to be putting into place, as Michael mentioned... We're going to be formalizing and standardizing an account management operating model, which is going to bring one-on-one support in a way that we can't do before with this company. We will have literally hundreds of people within the company, eventually thousands, that will be interacting with tens of thousands of distributor leaders in the market, sharing with them metrics that are standardized, formatted, done in a way that they can see what's happening in their businesses, the upside opportunities that they have, learning about the DMOs that are making the biggest difference, and being connectors for them.
Stephane: We believe by building off the strong foundation of nutrition clubs in the U S and offering additional services presents a huge opportunity for us.
Speaker Change: A lot more than I can say about that but I'm going to leave it at this.
Speaker Change: Another focus.
Speaker Change: Another area of focus is really how are we going to bring the most value pop value possible to our distributors.
Speaker Change: My experience as a distributor for 32 years there were some things that helped me successfully to build my organization.
Speaker Change: One of them was focusing on leadership development and constantly upskilling the teams.
Speaker Change: Whatever they were missing whatever they needed at whatever level. They were at is being able to deliver them the things that would make a difference.
Speaker Change: One on one coaching made a big difference anytime that I could get in my leaders to get spending time, one on one with people going over the business metrics going over the models that they were operating going over the plans and the goals for the future and how they were going to get there made a huge difference.
Stefan Graziani: This is something that will make a huge impact on the company in the future. It's something that I personally did in my own business and was a huge part of why I and my team became successful. That's one thing. The other thing is that we're also going to be redesigning our training and events to deliver more value and better fit the needs of the distributors and the leaders. It's just a bit of background.
Speaker Change: Last thing was helping to ensure that as time progressed and market shifted with the leaders at the most effective BMO is in place to be able to maximize market opportunities.
Speaker Change: Those main areas of focus.
Speaker Change: As a company as we move forward are going to have us doing some things differently.
Stefan Graziani: Historically, our training structure has been kind of generic, meaning that when we do monthly events or quarterly events, we bring people in from all different types of DMOs, all different types of demographics, and we train them on pretty generic things. The company's marketing plan, product training, we do recognition, you know, and we will touch on and show different DMOs, but we don't do in-depth training for DMOs. The impact is that people get a good vision for what's going on, but they don't have the details and the specifics of how to drive their models and get the best results.
Speaker Change: One of them is that we're going to be putting into place as Michael mentioned.
Speaker Change: We're going to be formalizing and standardizing and account management operating model, which is going to bring one on one support.
Speaker Change: Forward.
Speaker Change: We will have literally hundreds of people within the within the carbon eventually.
Speaker Change: There will be interacting with tens of thousands of distributor leaders in the market sure understand metrics standardized format done in a way that they can see what's happening in their businesses.
Speaker Change: Site opportunities that they have learning about the dsos that are making the biggest difference and being connectors for them.
Stefan Graziani: And so there's a shift that's happening. We are going to be moving from giving more generic training, as we've been doing, to very specific DMO training. Over the past two months... We have things that have never happened in the history of the Company. We have masterclasses and DMO-specific training that's happening at levels that are, quite honestly, impressive. We've had three DMO-specific trainings over the past two months, and we have one coming up next week. In the United Kingdom, we had a breakfast budget club, Masterclass.
Speaker Change: This is something that will make a huge impact on the company I believe in our future.
Speaker Change: That I personally in my own business under.
Speaker Change: A huge part of <unk>.
Speaker Change: And my team's became successful.
Speaker Change: <unk> London.
The thing is we're also going to be redesigning our training.
Speaker Change: To deliver more value and better fit the needs the distributors and the leaders.
Speaker Change: Just a great background historically, our training structure.
Speaker Change: Kind of a generic.
Speaker Change: Meaning that let me do must be of Axa quarterly events, we bring people in from all different types of <unk> all different types of.
Speaker Change: Demographics trends.
Speaker Change: Pretty generic things.
Stefan Graziani: We had over 1,200 distributors from 32 countries there. This club is one of the best performing DMOs in the entire region of Europe. And it is something that is an amazing fit for that region. So to have those numbers of people that are at an event specifically for a day or two, learning all of the details, gives them the capacity to go back to their markets with enough knowledge to implement and make the DMO happen. We also had just recently a marathon class last weekend in Belgium, where we had 1,800 participants from 34 markets again focused on one DMO and how to put this DMO into action specifically to go out and drive business. One of the top growing distributors in the whole European region is also using this specific way of going to market, called Marathon. Just last month, we had a We Do transformation event in Las Vegas. We had almost 4,000 people in person and virtually.
Speaker Change: The property marketing.
Speaker Change: Trainings are redo recognition.
Speaker Change: We will touch on serve different demos. So we don't do that training for.
Speaker Change: The impact is it people getting good vision for what's going on.
Speaker Change: But they don't have the details on the specifics of how to drive and their models and get the best results and so there is a shift that's happening now we are going to be moving from getting more generic training as we've been doing to very specific GMO training over the past two months.
Speaker Change: We have things that have never happened.
Speaker Change: And the history of the company, we have master classes and DLR specific training that's happening at levels that quite honestly is impressive.
Speaker Change: Three gms specific training over the past two months only have one coming up this next week.
Speaker Change: The United Kingdom, We had breakfast budget club Master class.
Stefan Graziani: This is another model that's helping people to go out, whether they have a club or whether they're working through social media at home, and to be able to go out, talk to people, get them into a challenge, get them on Herbalife products, help them to get results, and drive business. And so we are going to see more and more of this as we go through this year. We are still going to have events where we give the vision, and we help people to understand what the opportunity is with Herbalife. But we need to go more specific with training so that people can take the knowledge, the information, and go and put it into action to drive top-line sales. The last thing that I want to talk about that Michael referred to is something that, quite honestly, I've never seen in our industry. I think it's unprecedented.
Speaker Change: Over 200 distributors from 32 countries. There. This club is one of the best performing Gmos actually in the entire region of Europe.
Speaker Change: And it is something that is an amazing fit for that region. So to have those numbers of people that are in an event specifically entirely Fred date or two learning all of the details give them the capacity to go back to their markets with enough knowledge to implement and make the GMO happened. We also had.
Speaker Change: Just very recently a marathon class last weekend in Belgium, where we had 1800 participants from 34 markets again focused on one GMO and how to put this GMO into action specifically to go out and drive business one of the top growing distributors in the hall.
Stefan Graziani: I don't think there's ever been a company that did this in this way and with this individual who I believe is going to give huge value to our company. We are going to, and have entered into, an agreement with a leading expert in the multilevel marketing business. Someone who has written a book that has helped millions of people through the books and courses to learn what it is to become a professional distributor with a multi-level marketing company.
Speaker Change: European region also.
Speaker Change: Is using this specific way of going to market marathons.
Just last month, we had a we do transformation event in Las Vegas, we had almost 4000 people in person and virtually.
This is another model that's helping people to go out whether they have a club or whether they are working through social media at home and to be able to go out and talk to people get them into a challenge if demand herbalife products help them to get results and to drive business and so we are going to see more and more of this.
Stefan Graziani: This person has, for over 15 years, developed his skill set. He has trained more people in different companies. He has more knowledge about different companies in the industry. What are the things that are working today?
Speaker Change: As we go through this year.
Speaker Change: We are still going to have events, where we get into the vision and we help people to understand what the opportunity is with herbalife, but we need to go more specific into trainings that people can take the knowledge the information and go and put it into action to drive topline sales. The last thing that I want to talk.
Stefan Graziani: What are the things that distributors have to navigate as they start from the very first day until they reach the highest levels within any company? We're very excited to have Eric Mori be a part of Herbalife and partner with us in a very special multi-year contract, and he is going to be delivering for our distributor leaders content that some distributor leaders are paying tens of thousands of dollars for. Now, I just kind of want to put that into context.
Speaker Change: <unk> that Michael referred to is something that quite honestly.
Speaker Change: I've never seen in our industry I think it's unprecedented I don't think theres ever been a company that has done this.
Speaker Change: In this way.
Speaker Change: With this individual that I believe is going to give huge value to our company.
Stefan Graziani: We have some of our top leaders that are actually in programs with him and are getting tremendous value. As a company, to be able to take someone that's making that type of an impact and have him train not just a few distributors but tens of thousands of distributors and potentially hundreds of thousands at different levels, we believe that this is a game changer. So I'm going to leave it at that. Let me turn it over to Alex. Thank you, Stefan.
Speaker Change: We are going to and.
Speaker Change: And have entered into.
Speaker Change: In agreement with the leading expert in the multi level marketing business.
Speaker Change: That has written a book.
Speaker Change: That has helped millions of people.
Speaker Change: Through the books through courses to learn what it is to become a professional distributor with a multi level marketing company. This person has for over 15 years.
Alex Amezquita: I'll begin my section with the key financial highlights. Our fourth-quarter revenue was $1.2 billion. This is up 2.9% versus the fourth quarter of 2022, and it's the fourth consecutive quarter of improved year-over-year net sales. And while we know there is a lot more work to do in several of our key markets, delivering on the expectation of net sales growth in the fourth quarter is an important step as we move forward. For the year, we achieved $5.1 billion in net sales, which is down 2.7% versus 2022. Our current expectation is that we will improve our full year net sales trends to be relatively flat versus 2023. For the fourth quarter, we held gross profit margin flat versus Q3 at 76.3%. However, compared to Q4 of 2022, gross profit margin was down 120 basis points.
Speaker Change: His skill set he has trained more people in different companies. He has more knowledge about different companies in the industry. What are the things. That's working today what are the things that distributors have to navigate as they start from the very first day until they reached the highest levels within any company.
Speaker Change: We're very excited to have Eric Ori.
Eric Monroe: Via part of Herbalife and partnering with us in a very special multi year.
Contract.
Eric Monroe: And he is going to be delivering for our distributor leaders.
Eric Monroe: Content.
Eric Monroe: That some distributor leaders are paying tens of thousands of dollars for now I, just kind of want to put it into context, we have some of our top leaders that are actually in programs with him and they are getting tremendous value.
Eric Monroe: As a company to be able to take someone that's making that type of an impact and have him train not just a few distributors, but tens of thousands of distributors and potentially hundreds of thousands at different levels. We believe that this is a game changer.
Alex Amezquita: While the pricing actions we have taken over the past year provided an approximately 100 basis point benefit, we continue to face headwinds from input cost inflation and unfavorable manufacturing absorption rates on lower production volumes, which drove an approximately 210 basis point negative impact. As we look forward to full year 2024, we expect gross profit margin to be relatively flat to 2023 levels. We have seen input cost inflation stabilize and is now trending at levels at or below our ability to price in 2024. Q4 adjusted diluted EPS was $0.28. On a year-over-year basis, the fourth quarter was negatively impacted by higher input cost inflation.
Eric Monroe: So I'm going to leave it at that let me turn it over to Alex.
Alex: Thank you Stefan I'll begin my section with the key financial highlights our fourth quarter revenue was $1 2 billion. This is up two 9% versus the fourth quarter of 2022 and is the fourth consecutive quarter of improved year over year net sales trends and while we know there is a lot more work to do in several of our key markets delivering on the X.
Alex: <unk> of net sales growth in the fourth quarter is an important step as we move forward.
Alex: For the year, we achieved $5 1 billion of net sales, which is down two 7% versus 2022. Our current expectation is that we will improve our full year net sales trends to relatively flat flat versus 2023.
Alex: For fourth quarter, we held gross profit margin flat versus Q3 at 76, 3% compared to Q4 of 2022 gross profit margin was down 120 basis points, while the pricing actions, we have taken over the past year provided an approximately 100 basis point benefit we continue to face headwinds from input.
Alex Amezquita: The non-repeat of 9 million of non-income tax items and an increase in our technology spend as we continue to enable capability in our Herbalife 1 platform. Our 2023 adjusted effective tax rate was 25.3%, and we anticipate our full year 2024 adjusted effective tax rate to be slightly elevated versus full year 2023. Full year 2023 operating cash flows exceeded 2022. And 2023 free cash flow was up 26 million year over year to 223 million. During 2023, our cash flow significantly benefited from working capital optimization. Our operations team did well in right-sizing inventory now that the global supply chain has stabilized.
Alex: Cost inflation and unfavorable manufacturing absorption rates on lower production volumes, which drove an approximately 210 basis point negative impact.
Alex: As we look forward to full year 2024, we expect gross profit margin to be relatively flat to 2023 levels. We have seen input cost inflation stabilized and now trending at levels at or below our ability to price in 2024.
Alex: Q4, adjusted diluted EPS was <unk> 28 on a year over year basis, the fourth quarter was negatively impacted by higher input cost inflation the.
Alex: The non repeat of $9 million of non income tax items and an increase in our technology spend as we continue to enable capability and our herbalife one platform.
Alex: Our 2023 adjusted effective tax rate was 25, 3% and we anticipate our full year 2024, adjusted effective tax rate to be slightly elevated versus full year 2023.
Alex Amezquita: Full year 2023 adjusted EBITDA was $571 million, which represents a margin of 11.3%. Our pricing actions over the past year resulted in an approximate 270 basis point benefit, which outpaced the approximate 220 basis point headwind from higher input costs. Currency continued to be a headwind throughout most of 2023, driving an unfavorable year-over-year impact of approximately 90 basis points. Additionally, unfavorable sales mix and increased promotional spend due to a further increase in in-person events also negatively impacted full-year markets.
Alex: Full year 2023, operating cash flows exceeded 2022, and 2023 free cash flow was up $26 million year over year to $223 million.
Alex: During 2023, our cash flow significantly benefited from the working capital optimization or.
Alex: Our operations team executed well and right sizing inventory now that the global supply chain has stabilized.
Alex: Full year 2023, adjusted EBITDA was $571 million, which represents a margin of 11, 3%.
Alex: Our pricing actions over the past year resulted in an approximate 270 basis point benefit, which outpaced the approximate 220 basis point headwind from higher input cost curve.
Alex Amezquita: In 2023, we have been sharply focused on productivity initiatives to best manage margin while also investing in the modernization of Herbalife. Our transformation program, which is primarily focused on bettering the effectiveness of our internal support functions, has significantly exceeded our original expectations. Based on the actions we have taken through the end of 2023, we are now expecting the program to produce at least $115 million of benefit in 2024, much higher than our expectations when we met a year ago today. In 2023, the program delivered approximately $70 million of cost benefits, with approximately $27 million realized in the fourth quarter. During the fourth quarter, we recognized an incremental $12 million of pre-tax expenses in SG&A related to the program, primarily related to employee retention and separation costs, bringing our total program-to-date pre-tax costs to $79 million. These expenses are excluded from our adjusted results.
Currency continued to be a headwind throughout most of 2023 driving an unfavorable year over year impact of approximately 90 basis points.
Alex: Unfavorable sales mix and increased promotional spend due to a further increase of in person events also negatively impacted full year margins.
Alex: In 2023, we have been sharply focused on productivity initiatives to best manage margin. While also investing in the modernization of Herbalife, our transformation program, which is primarily focused on better effectiveness of our internal support functions has significantly exceeded our original expectations.
Alex: Just on the actions we have taken through the end of 2023, we are now expecting the program to produce at least $115 million of benefit in 2020 for much higher than our expectations. When we met a year ago today.
Alex: In 2023, the program delivered approximately $70 million of cost benefit with approximately $727 million realized in the fourth quarter.
During the fourth quarter, we recognized an incremental $12 million of pre tax expenses in SG&A related to the program primarily related to employee retention and separation costs, bringing our total program to date pre tax cost to $79 million. These.
Alex Amezquita: Securing our balance sheet and managing our debt capital structure has also been a key focus area. We continue to be on track to address our upcoming maturity of our 2024 convertible notes with cash liquidity, and we have initiated a process to refinance our senior credit facility, which matures in 2025. Moving to slide 10.
Alex: These expenses are excluded from our adjusted results.
Alex: Securing our balance sheet and managing our debt capital structure has also been a key focus area. We continue to be on track to address our upcoming maturity of our 2024 convertible notes with cash liquidity and we have initiated a process to refinance our senior credit facility, which matures in 2025.
Alex Amezquita: Reported net sales for the fourth quarter were $1.2 billion, up approximately $34 million, or 2.9% versus the fourth quarter of 2022. On a constant currency basis, net sales were up 2.5% year-over-year on lower volume. Adjusted EBITDA for the fourth quarter was $109 million, down approximately $22 million from Q4 of 2022. The adjusted EBITDA margin for the fourth quarter was 9.0% and was impacted by higher input costs.
Alex: Moving to slide 10 reported net sales for the fourth quarter.
Alex: $1 2 billion up approximately $34 million or two 9% versus the fourth quarter of 2002 on a constant currency basis net sales were up two 5% year over year on lower volume points adjusted EBITDA for the fourth quarter was $109 million down approximately $22 million from Q4, 'twenty to adjusted EBITDA EBITA margin for the quarter.
Alex: Fourth quarter was 9.0% and was impacted by higher input costs on.
Alex Amezquita: Unfavorable manufacturing absorption and non-repeat of certain non-income tax-related benefits in Q4 of 2022, partially offset by higher pricing and continued cost-saving initiatives. However, we had strong cash generation in the quarter. Free cash flow was up $50 million year-over-year, primarily due to favorable working capital changes in the fourth quarter versus the prior year. Cash on hand was up $80 million from September 30th to $575 million at the end of the year.
Alex: Unfavorable manufacturing absorption.
And non repeat of certain non income tax related benefits in Q4, 22, partially offset by higher pricing and continued cost savings initiatives.
Alex: We had strong cash generation in the quarter free cash flow was up $50 million year over year, primarily due to favorable working capital changes in the fourth quarter versus the prior year cash on hand was up $80 million from September $30 million to $575 million at the end of the year.
Alex Amezquita: Moving to slide 11, we see the drivers of our year-over-year increase in net sales. While overall volume was down 2% year-over-year, it was more than offset by approximately 410 basis points of pricing during the period as a result of price increases implemented over the past year in a majority of our markets. The price increases were instituted to address region or market-specific conditions and were generally in line with local CPI.
Alex: Moving to slide 11.
Alex: We see the drivers of our year over year increase in net sales, while overall volume was down 2% year over year. It was more than offset by approximately 410 basis points of pricing in.
Alex: In the period as a result of price increases implemented over the past year and a majority of our markets the.
Alex: The price increases were instituted to address region or market specific conditions and were generally in line with local CPI favorable country mix drove a 40 basis point benefit primarily due to increased sales in China, partially offset by higher sales in India and lower sales in the U S relative to our overall net sales.
Alex Amezquita: Favorable country mix drove a 40 basis point benefit, primarily due to increased sales in China, partially offset by higher sales in India and lower sales in the U.S. relative to our overall net sales portfolio. Favorable currency movements, primarily for the Mexican peso versus the U.S. dollar, resulted in an approximate 40 basis point FX tailwind year over year. Moving to the adjusted EBITDA margin bridge on slide 12, Q4 adjusted EBITDA was $109 million, with a margin of 9.0%.
Alex: Portfolio.
Alex: Favorable currency movements, primarily for the Mexico peso versus U S. Dollar resulted in an approximate 40 basis point.
Alex: Next tailwind year over year.
Alex: Moving to the adjusted EBITA margin bridge on Slide 12, Q4, adjusted EBITDA was $109 million with margin at 9.0%.
Alex Amezquita: Adjusted EBITDA margin benefited by approximately 130 basis points from the pricing increases we implemented year-over-year. However, elevated raw materials, labor, and manufacturing overhead costs continue to negatively impact the results, which drove an approximate 210 basis point margin headwind versus the fourth quarter of 2022. Within SG&A, we benefited from an approximately 80 basis point improvement in promotional spend, primarily driven by event cost optimization initiatives. Also, within SG&A, salaries and bonuses provided a 10 basis point benefit, reflecting the cost savings achieved in the period as a result of our transformation program, partially offset by increased wages and bonus accruals in the current period, which were essentially zero in the fourth quarter of 22.
Alex: Adjusted EBITDA margin benefited by approximately 130 basis points from the pricing increases we implemented year over year.
Alex: However, elevated raw materials labor and manufacturing overhead costs continued to negatively impact our results, which drove an approximate 210 basis point margin headwind versus the fourth quarter of 2022.
Alex: Within SG&A, we benefited from an approximately 80 basis point improvement in promotional spend primarily driven by event cost optimization initiatives also within SG&A salaries and bonus provided 10 basis point benefit reflecting the cost savings achieved in the period as a result of our transformation program, partially offset by increased.
Alex: Wages and bonus accruals in the current period, which were essentially zero in the fourth quarter of 2002.
Alex Amezquita: Other includes an approximately 50 basis point headwind due to increased technology costs and the unfavorable impact of one-time items that are related to non-income tax items in the 4th quarter of 2022 versus the 4th quarter of 2022. Turning to our regional results, four of our five regions reported net sales growth in the fourth quarter.
Alex: Other includes an approximately 50 basis point headwind due to increased technology costs and the unfavorable impact of one time items.
Alex: That are related to non income tax items in the fourth quarter of 'twenty two versus the fourth quarter of 'twenty three.
Alex: Turning to our regional results.
Four of our five regions reported net sales growth in the fourth quarter.
Alex Amezquita: In addition, China, Asia-Pacific, and North America reported improvements in year-over-year net sales trends from the third quarter to the fourth quarter of 2023. We are encouraged by China's results in the fourth quarter, reporting year-over-year double-digit growth on both the reported and local currency basis, of 16 and 17 percent, respectively. This is the first time since the third quarter of 2020 that China has had quarterly year-over-year net sales growth. Michael and Stephane have spent a lot of time with the Chinese leadership this year, and the turnaround plans are progressing well, as reflected in the Q4 results. Asia-Pacific was up 9%, led by India, which continues to outperform in the region. India's net sales were up 26%, which was partially driven by a difference in timing from a price increase in 22 versus 25.
Alex: In addition, China Asia Pacific and North America reported improvements in year over year net sales trends from the third quarter to the fourth quarter of 2003.
We are encouraged by China's results in the fourth quarter reporting year over year double digit growth on both a reported and local currency basis up 16% and 17% respectively. This.
Alex: This is the first time since the third quarter of 2020 that China has had quarterly year over year net sales growth, Michael and Stefan I've spent a lot of team with the China leadership this year and the turnaround plans are progressing well as reflected in the Q4 results.
Alex: Asia Pacific was up 9% led by India, which continues to outperform in the region, India net sales were up 26%, which was partially driven by a difference in timing from a price increase in 22 versus <unk> 23.
Alex Amezquita: The NIA was up 1% with year-over-year results generally mixed across the markets in the region. In Latin America, reported net sales were at 3% with local currency net sales down 1%. The favorable FX impact was primarily due to the Mexican peso. Mexico's net sales were up 3% year over year on a reported basis while down 8% on a local currency basis.
Alex: EMEA was up 1% with year over year results generally mixed across the markets in the region and Latin America reported net sales were up 3% with local currency net sales down 1%.
Alex: The favorable FX impact was primarily due to the Mexican peso.
Alex: Mexico's net sales were up 3% year over year on a reported basis, while down 8% on a local currency basis.
Alex Amezquita: The year-over-year volume declines in Mexico, which were primarily driven by the importation delays we experienced in the fourth quarter of this year, were partially offset by the price increases implemented in the market. As we stated during the third-quarter earnings call, we began experiencing importation delays in Mexico in September as a result of the government delaying timely approval of import permits. The hold is not unique to Herbalife and applies to all food supplements entering Mexico. This has affected products making up approximately 70% of our sales in Mexico. In November, the importation hold was lifted, and permits began to be processed.
The year over year volume declines in Mexico, which were primarily driven by the importation delays we experienced in the fourth quarter of this year were partially offset by the price increases implemented in the market.
Alex: As we stated during the third quarter earnings call, we began experiencing importation delays in Mexico in September as a result of the government delaying timely approval of importation permits the whole is not unique to herbalife and apply to all food supplements entering Mexico.
Alex: Impacted products, making up approximately 70% of our sales in Mexico.
Alex: In November the importation hold was lifted and permits began to be processed we believe the supply chain should be stabilized with the full product portfolio back in stock by mid March.
Alex Amezquita: We believe the supply chain should be stabilized with the full product portfolio back in stock by mid-March. Despite the tireless effort by our operations teams to minimize the impact from the importation hold, we believe there was an approximately 14 million loss of volume or approximately 11 million net sales in the quarter. In North America, the year-over-year trends have improved from the third quarter to the fourth. However, the recovery has been slower than anticipated.
Alex: Despite the tireless effort by our operations teams to minimize the impact from the importation hold we believe there was an approximately $14 million loss of volume or approximately $11 million of net sales in the quarter.
Alex: In North America.
Year over year trends have improved from the third quarter to the fourth however, the recovery has been slower than anticipated Stefan provided color on this key market and we will look forward to continued improvement in 2024.
Alex Amezquita: Staphon provided color on this key market, and we will look forward to continued improvement in 2025. Moving to slide 14, we have continued to use excess cash generation to reduce the total debt levels of the company.
Alex: Moving to slide 14, we have continued to use excess cash generation to reduce the total debt levels of the company in 2023, we paid down $155 million of our senior credit facility in 2024 converts which included the 60 million reduction in our revolver in the first quarter and the repurchase of approximately 66 million.
Alex Amezquita: In 2023, we paid down $155 million of our senior credit facility in 2024 converts, which included the $60 million reduction in our revolver in the first quarter and the repurchase of approximately $66 million of our 2024 convertible notes in the third quarter. We ended the quarter with a 3.9 gross leverage ratio. Cash at the end of December remains strong at $575 million, up $67 million from the end of 2022. Consistent with what we told you in November, we intend to fully repay the $197 million of outstanding 2024 converts when they come due in March. We plan to utilize available cash on hand and funds available under the revolver, which remains fully undrawn, to cover any deficit.
Alex: Our 2024 convertible notes in the third quarter we.
Alex: We ended the quarter with a three nine gross leverage ratio cash at the end of December remains strong at $575 million up $67 million from the end of 'twenty two.
Alex: Consistent with what we told you in November we intend to fully repay the $197 million of outstanding 2024 converts when they come due in March we plan to utilize available cash on hand, and funds available under the revolver, which remains fully undrawn to cover any difference.
Alex Amezquita: And as I previously stated, we initiated the process to refinance our 2018 Term Loan A and Revolving Credit Facility, which matures in March of 2025. We aren't going to go into the details of the proposed refinancing on today's call. We will update you in due course. Looking at our capital spend for the year, there are two pieces to consider. Pure capital expenditures were $135 million.
Alex: And as I previously previously stated we initiated the process to refinance our 2018 term loan a and revolving credit facility, which matures in March of 2025.
Alex: We arent going to go into the details of the proposed refinancing on today's call. We will update you in due course.
Alex: Looking at our capital spend for the year there are two pieces pieces to consider.
Alex: Pure capital expenditures was $135 million and as we strategically pivoted in 2023 to more SaaS based arrangements. We've also capitalized SaaS implementation cost of approximately $35 million that are recognized in other assets and then amortized through the P&L over time, so in total for 2023.
Alex Amezquita: And as we strategically pivoted in 2023 to more SAS-based arrangements, we've also capitalized SAS implementation costs of approximately $35 million that are recognized in other assets and then amortized to the P&L over time. So, in total, for 2023, our total capital spend was approximately $170 million, whereas in 2022, it was approximately $165 million, including the capitalized SAS implementation. For 2024, we expect CapEx in the range of $145 to $195 million, with capitalized SAS implementation costs to be relatively comparable with 2023. As of December, we have incurred approximately half of the approximately $400 million of expected implementation costs related to Herbalife 1. Based on the cost incurred as of December 31st for both CAPEX and the capitalized SAS implementation costs, we expect to recognize an incremental $30 million of non-cash amortization expenses in the P&L for 2024. This concludes our prepared remarks. Operator, please open the lines.
Alex: Our total capital spend was approximately 170 million, whereas in 2022, there was approximately $165 million, including the capitalized SaaS implementation costs.
Alex: For 2024, we expect Capex in the range of $145 million to $195 million with capitalized SaaS implementation cost to be relatively comparable with 2023.
Alex: As of December we have incurred approximately half of the approximate $400 million of expected implementation costs related to herbalife one.
Based on the cost incurred as of December 31 for both Capex and the capitalized SaaS implemented implementation costs, we expect to recognize an incremental $30 million of noncash amortization expenses in the P&L for 2024.
Speaker Change: This concludes our prepared remarks, operator, please open the line for questions.
Operator: Thank you. Ladies and gentlemen, to ask a question, please press star 11 on your telephone and then wait to hear your name announced. To withdraw your question, press star 1 1 again.
Speaker Change: Thank you, ladies and gentlemen to ask a question. Please press star one on your telephone and then wait to hear your name announced.
Speaker Change: To withdraw your question Press Star one again.
Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Chase and Bender with Citi. Your line is open. Great, thanks for taking the question. I'd like to start with the 4Q results and specifically on the SG&A line.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Jason Bender with Citi. Your line is open.
Jason Bender: Great. Thanks for taking the question.
Jason Bender: To start on <unk> result, and specifically on the SG&A line. Alex can you help explain why SG&A dollars were up almost.
Alex Amezquita: Alex, can you help explain why SG&A dollars were up, you know, almost 7% in the quarter and why we haven't seen those 27 million dollars of cost savings show up in the P&L? And just related to that, for the increased cost savings target of 115 million next year, you know, when will that show up in the P&L, and do you expect that to get dropped to the bottom line, or is your thinking here that that'll need to get reinvested? Hi Jason, great, great questions.
Jason Bender: Almost 7% in the quarter and why we haven't seen those $27 million of cost savings show up in the P&L and just related to that for the increased cost savings target of $150 million next year.
Jason Bender: What will that show up in the P&L and do you expect that to get dropped to the bottom line or is your thinking here that that will lead to get reinvested.
Speaker Change: Hi, Jason Great great questions. So the savings are showing up in SG&A, it's being offset as I mentioned by the investments, we're making in our digital technology and our events and our people and other things to modernize herbalife that has been a big initiative in 2023 and we.
Alex Amezquita: So the savings are showing up in SG&A. But it's being offset, as I mentioned, by the investments we're making in our digital technology, in our events, and our people, and other things to modernize Herbalife. That was a big initiative in 2023. And we continue to be in an investment period as we move through 2024. The benefit of the transformation program has been allowing us to continue to make those investments.
Speaker Change: You need to be an investment period as we move through 2024.
Speaker Change: For the benefit of the transformation program has been allowing us to continue to make those investments and so there has been a significant increase in our technology spend and a significant spend in areas that are going to strategically move the company forward. So while you are correct in that the overall SG&A spend is higher in 'twenty three.
Alex Amezquita: And so there has been a significant increase in our technology spend and a significant spend on areas that are going to strategically move the company forward. So while you are correct in that the overall SGA spend is higher in twenty-three versus twenty-two, it is being offset by all of those savings initiatives that we've.
Speaker Change: Three versus 2022, it is being offset by all of the savings initiatives that we've mentioned.
Speaker Change: Got it.
Alex Amezquita: And then just changing gears, could you maybe expand on your expectations for flat sales in 24 and specifically comment on what you're expecting from regions and on a price versus volume basis? And, you know, related to that, do you expect constant currency sales to be positive year over year? And similarly, do you expect EPS to be up year over year in 2024? Transcribed by https://otter.ai. That's a lot of questions
Speaker Change: And then just changing gears could you maybe expand on your expectations for flat sales in 'twenty, four and specifically comment on what youre expecting from regions and on a price per volume basis and related to that do you expect constant currency sales.
Speaker Change: <unk> to be positive year over year, and similarly, do you expect EPS to be up year over year in <unk>.
Speaker Change: That's a lot of questions.
Speaker Change: So we will break that down piece by piece, so our expectation for net sales growth being flat does not include it from a currency standpoint, we do expect there to be some headwind to currency in 2024, so that net sales expectation of flat <unk>.
Alex Amezquita: So we'll break that down piece by piece. So our expectation for net sales growth being flat does not include it from a currency standpoint. We do expect there to be some headwinds to currency in 2024. So that net sales expectation of flat includes currency rates as they are, which would bake in some level of a headwind in 2024. By the way, that FX currency does not only impact the top line, but there is an impact across the P&L from the top line all the way down to EPS. So that generally covers the currency question. What are our expectations for 2024? We're not going to go region by region, but the big factor that I can point out is that India has been a large contributor to our overall buoyancy in our top line.
Speaker Change: <unk> currency rates as they are which would bake in some some some level of a headwind in 2024 by the way that FX currency does not only impact topline, but there is an impact across the P&L from top line all the way down to EPS.
Speaker Change: That generally covers the currency question what is in our expectations for 2024.
Not going to go region by region, but the big factor that I can point out is India has been long.
Large contributor to our overall buoyancy in our in our topline. So in 2022, the India provided almost 30% of net sales growth in 2023 was 18% of net sales growth. So as we go into 2024, just thinking law of large numbers, we have a much more modest expectation for the overall contribution of growth growth.
Alex Amezquita: So, in 2022, India provided almost 30% of net sales growth. In 2023, it was 18% of net sales growth. So, as we go to 2024, just thinking large numbers, we have a much more modest expectation for the overall contribution of growth from India. So, as India's expectation of growth moderates, and other markets are in recovery, it yields more of a flat growth expectation for 2022.
Speaker Change: From India, So as India's expectation of growth moderates and other markets are in recovery yields more of a flat growth expectation for 2024.
Alex Amezquita: Got it. And then do you have any expectations for EPS in 2024? So, from a margin perspective, we have a flat top line, so there's not an operating leverage expectation for 2024. Gross profit will largely stay where it is, although, as I mentioned, we have some input costs, inflation stabilizing over CPI level price increases that we're able to take in 2024. So, gross profit margin remains relatively flat, and as I mentioned, we continue to be in an investment period for the modernization of Herbalife. So, overall, I do see margin levels being probably a bit below where they are in 2023 as we continue to invest for future growth. Got it. I appreciate the color.
Speaker Change: Got it and then did you do you have any expectation for EPS in 2024.
Speaker Change: So from a margin perspective, we have flat top line. So theres not a operating leverage expectation for 2024 gross profit level will largely stay where it is although as I mentioned, we have some input cost.
Speaker Change: Inflation stabilizing over CPI level price increases that were able to take in 2024. So gross profit margin remaining relatively flat and as I mentioned, we continue to be in an investment period for the modernization of herbalife. So overall I do see margin levels being probably a bit below.
Where they are in 2023, as we continue to invest for future growth.
Speaker Change: Got it appreciate the color I'll pause there and pass it on.
Alex Amezquita: I'll pull it up there and pass it on. Thank you. Please stand by for our next question. Our next question comes from the line of William Reuter with Bank of America. Your line is open. Hi, thanks for taking our question. This is Rob Bigby on behalf of Bill.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of William Reuter with Bank of America. Your line is open.
William Michael Reuter: Hi, Thanks for taking our question. This is Rob <unk> on for Phil.
Alex Amezquita: So I guess, can we just dive a little bit deeper into your expected uses of free cash flow in 2024? You know, you mentioned repaying some more debt, but if you could just provide some color, some more color around that, that'd be appreciated. Yeah, it's actually pretty simple.
William Michael Reuter: So I guess can you just talk a little bit deeper into your expected uses of free cash flow in 2024, you mentioned.
Rob: Thanks, and Mark yet, but if you could just provide some color similar color around that that'd be appreciated. Thanks.
Rob: Yes.
Alex Amezquita: Our excess cash flow is going to go towards repaying our total debt levels. As I mentioned, we're in a refinancing; we have bonds that are due at the end of 2025, which become callable in the third quarter of this year. So as cash is generated, we will look down to take down our total debt levels with that excess cash. Okay, great. Got it. Thank you. And then just one follow-up question. Your CapEx guidance is pretty wide at $145 to $195 million. What are some of the pieces that kind of move it from the lower end versus So there's two components.
Speaker Change: <unk> actually.
Speaker Change: Pretty simple our excess cash flow is going to go down to repaying our total debt levels. So I mentioned, we are in a refinancing we have bonds that are due at the end of 2025, which become callable in the third quarter of this year. So as cash is generated we will look down to take down our total debt levels.
Speaker Change: That excess cash.
Speaker Change: Okay, Great got it. Thank you and then just one follow up.
Speaker Change: Your capex guidance is pretty wide at $145 million to $195 million.
Some of the pieces that kind of move it from the lower end.
Speaker Change: So there's two components.
Alex Amezquita: There's two significant components of that CAPEX spend. One is our technology spend. And we've mentioned Herbalife 1 and where we are in that process. So there is some variability on what types of applications, the prioritization of those applications, and whether or not it makes sense to accelerate or defer, potentially, some of those programs into 25 and 26.
Speaker Change: There's two there's two significant components of that Capex spend one is in our technology spend and we've mentioned herbalife, one and where we are in that process.
So there is some variability on what types of applications, the prioritization of those applications and whether or not it makes sense to accelerate or defer potentially some of those programs into 'twenty five 'twenty six and that will just be a business decision as we see those markets evolve that creates one element the variability and the second element of variability.
Alex Amezquita: And that'll just be a business decision as we see those markets evolve. That creates one element of variability. And the second element of variability is we've had a bunch of deferred CAPEX that we haven't been able to put in place at our manufacturing facilities. And so we have some automation programs; we have some deferred CAPEX that we have to evaluate whether or not those automation programs make sense to put into place now, or does it make sense to defer those again until 2025. So those are the large components of that variability. Got it?
Speaker Change: <unk> is we've had a bunch of deferred capex that we haven't been able to put in place on our manufacturing facilities and so we have some automation programs. We have some deferred capex that we have to evaluate whether or not those automation programs makes sense to put into place now or does it make sense to defer those again until 2025.
Speaker Change: Those are large components of that variability.
Alex Amezquita: Great. Thank you. I'll pass it on.
Speaker Change: Got it great. Thank you I'll pass it on.
Alex Amezquita: Thank you. Please stand by for our next question. Our next question comes from the line of John Baumgartner with Missoula Security. Your line is open. Hi, good afternoon.
Speaker Change: Thank you please standby for our next question.
Speaker Change: Our next question comes from the line of John Baumgartner with Mizuho Securities. Your line is open.
John Joseph Baumgartner: Hey, good afternoon. Thanks for the question.
Stefan Graziani: Thanks for the question. Hi John. First off, hey good afternoon.
John Joseph Baumgartner: Hi, John first off Hey, good afternoon.
Stefan Graziani: Stefan, I wanted to come back to your commentary regarding distributor training. You know, it's really encouraging that you're ramping up the resources there. You made it very clear the need to raise capabilities, but having been in the Herbalife system for quite some time, why do you think such resources are now necessary? Is this a function of the nutrition space having become more crowded over the years across channels, new competitors coming in, in bricks and mortar, where these folks now need a sharper skill set versus history? Or is it, you know, just more of a function of differences in the backgrounds of these folks coming into the system relative to, you know, five, ten years ago? Yeah, you know, John, there's probably a couple of different things. It's good to talk to you, by the way.
John Joseph Baumgartner: Stefan I wanted to come back to your commentary regarding distributor training, it's really encouraging that youre ramping the resources there you've made it very clear the need to raise capabilities, but you having been in the herbalife system for quite some time why do you think such resources are down necessary is this a function of the nutrition space, having become more crowded over the years across <unk>.
John Joseph Baumgartner: <unk>, new competitors coming in and bricks and mortar where these folks need a sharper skill set versus history or is it just more of a function of differences in the background. So these folks coming into the system relative to 510 years ago.
Stefan: Yeah, John it's there's probably a couple of different things.
Stefan Graziani: I think if you take the overall base of people that come in, and let's just take the nutrition clubs in the United States, just as an example, because I talked about that, when people come in, they come in for a specific model, right? So they come in. Someone says, look, open up your own nutrition club. Here's what you're going to do. You need to have this as your menu.
Good to talk to you by the way.
Stefan: I think if you take the overall base of people that come in and let's just take the nutrition clubs in the United States just as an example, because I talked about that when.
Stefan: When people come in they come in for a specific model right. So they come in.
Stefan: Someone says look open up year on nutrition club tiers, which youre going to do you need to have this as your menu. This is how you set up your club. This is what youre going to be doing.
Stefan Graziani: This is how you set up your club. This is what you're going to be doing. And they might have come from any background.
Speaker Change: And they'd say.
Speaker Change: They might have come from any background. They may have had zero business background zero marketing background. They just come in and maybe they were doing maybe they were a housewife maybe they were.
Stefan Graziani: They might have had zero business background, zero marketing background. They just came in. Maybe they were doing something, maybe they were a housewife.
Stefan Graziani: Maybe they were college students but didn't have the experience of running a business. And so they get into a very specific model. They learn specific skills, but as you know, the market changes, right? So there's different aspects that start to be aspects that potentially, you know, for example, they're using social media, and they post, and the algorithms actually are working quite well. And what happens is the algorithm changes, but they're not social media experts. So they don't know how to deal with advertising or social media marketing.
Speaker Change: Our college students.
Speaker Change: Have the experience of running a business and so people get into a very specific model. They learn specific skills, but as you know the market changes right. So there's different aspects that start to be aspects that potentially for example, they're using social media and they post and the algorithms actually.
Speaker Change: Our working quite well and what happens is the algorithm changes, but theyre not social media experts. So they don't know how to deal with the advertising or social media marketing. So the skills that are needed.
Stefan Graziani: So the skills that are needed as you progress in a business and as new models come, what ends up happening is that people have gaps. And so really having the DMO training specific and allowing them just, for example, to bring in what we do as a nutrition club owner. They're not used to offering these different services, so there is a level of that. So the training, you know, I would say overall that it does change over time. There is a need for it, but there is also from an industry standpoint. So, for example, you've been to events, an extravaganza.
Speaker Change: As you progress in our business and as new models come.
Speaker Change: What ends up happening is that people have gaps and so really having the GMO training specifics and allowing them. Just for example to bring into we do as a nutrition club owner, they're not used to offering these different services. So there is a level of that so the training.
Speaker Change: I would say overall.
Speaker Change: It does change over time, there is a need for it but there is also from an industry standpoint. So for example, <unk> been two events. The extravaganza. It brings a certain value. There is the bigger picture there is recognition.
Stefan Graziani: It brings a certain value. There's the bigger picture. There's recognition. People have an understanding of, you know, product training and things like that. But it's not specific to the skills that they're going to need to run their clubs, for example. So really, what we're doing is identifying gaps in the training. And on the DMO side, that's one of them.
Speaker Change: We'll have an understanding of product training and things like that but it is not specific to the skills that theyre going to need to run their clubs. For example, so really what we're doing is identifying gaps in the training and on the Dms side. That's one of it but also why we're so excited about Eric Laurie is because it really is about.
Stefan Graziani: But also why we're so excited about Eric Worry is because it really is about leadership training, someone that starts as a distributor, simply getting their customers, to building a team, managing a team, innovating through their different models, working with different people at different levels. So it's the gaps that we're trying to close right now. And, you know, it's just part of, I think, just the natural progression of business in the world that we live in today. Okay, thanks for that. And then, you know, to follow up your comments on the preferred conversion rates in the US nutrition clubs, I think I heard the spread was like 1% to 10%. And I'm curious, I know it's very early days, and it's a pretty wide network. But how do you think about, you know, where that spread should be? Is 10% at the high end too low?
Speaker Change: The leadership training someone that starts as a distributor simply getting their customers to building a team managing a team innovating through their different models at.
Speaker Change: Working with different people at different levels. So it's the gap that we're trying to close right now and it's just part of I think just the natural progression of business in the world that we live in today.
Speaker Change: Okay. Thanks for that and then it's a follow up your comments on the preferred conversion rates in the U S. Nutrition clubs I think I heard the spread was like 1% to 10% and I'm curious I know, it's very early days and its pretty wide network, but how.
Speaker Change: How do you think about where that spread should be is 10% at the high end to low can be 20%, 30% Im just sort of curious in what like what you would think is sort of achievable going forward as implement these these sort of resources.
Stefan Graziani: Can it be 20% 30%? I'm just sort of curious and what you think is sort of achievable going forward as we implement these these sort of resources? Yeah, so it's really, it's really kind of model-based, right? By the way, we give 10%. There are over 10%. Okay, it's not the majority of people. Obviously, it's a small subset of people.
Speaker Change: Yes, so it's really it's really kind of model based right by the way, we give 10% there is over 10%. Okay. It's not the majority of people obviously, it's a small subset of people, but when we actually break it down.
Stefan Graziani: But when we actually break it down, it could be their demographics, where they're living, it could be, and most of the time, it's the models that they're doing and the services that they're offering. So if it's just a food service, for example, the conversion we know is much lower. They're more focused.
Speaker Change: It could be their demographics, where they are living it could be in most of the time is the models that they are doing and the services that they're offering. So if it's just foodservice for example, the conversion and we know as much lower they are more focused there may be higher volume clubs, where they have more customers coming in and out.
Stefan Graziani: There may be higher volume clubs where they have, you know, more customers coming in and out. And, you know, they're just doing everything that they can to make sure the customers get the service that they need to buy the food item that they're trying to purchase and be on their way. Other clubs, they have better conversion.
Speaker Change: They are just doing everything that they can to make sure that customers get the service that they need to buy the food item. The date that they are trying to purchase and beyond their way other clubs. They have better conversion people are coming in what they're coming in for could be a variety of things they might be coming in some of these clubs have workouts that are happening a couple.
Stefan Graziani: People are coming in. What they're coming in for could be a variety of things. They might be coming in because some of these clubs have workouts that happen a couple of times a week.
Speaker Change: Times of weak some of the clubs people are doing wellness evaluations. Some of the clubs theyre running challenges, where they'll have weekly meetings and they'll have groups of people that are coming in those types of clubs have higher conversion. So so we believe long term that the more people focus on multi services. The higher the conversion is going to go now by the way.
Stefan Graziani: In some of the clubs, people are doing wellness evaluations. In some of the clubs, they're running challenges where they have weekly meetings, and they'll have groups of people that are coming in. Those types of clubs have higher conversion rates, so we believe long-term that the more people focus on multi-services, the higher their conversion is going to go. Now, by the way, I don't want to talk about the tech stack because this is the bigger picture of things for the future, but having technology that allows someone to, for example, simply scan a QR code on a drink and it says, maybe, would you like to have more information about what's in the drink? This brings them to a platform that says, hey, here's what's in the drink. And would you like to join a platform where you can get recipes, where you can learn about nutrition, where you can track your daily steps a day, and how you slept last night?
Speaker Change: I don't want to talk about the tech stack because this is the bigger picture of things for the future, but having technology that allows someone to for example, simply scan a QR code on a shake and it says maybe would you like to have more information about what's in the shake this brings them to a platform that says hey, here's what's been the shake Ann.
Speaker Change: Would you like to join our platform, where you can get recipes, where you can learn about nutrition, where you can track your daily steps on a day, how you slept last night.
Stefan Graziani: Everything that's wearable, everything that's connected today, is actually a place for them to live on a platform that adds value to them, that's connected to their distributor, that's connected to the company, that's connected to the club that they're connected to. And so this is the opportunity for us in the future. Part of it's tech-based, and part of it is really upskilling and allowing our distributors to have access to the information they need to be able to go out and add these additional services to their businesses to be able to get the conversion up. And that scan that you're referencing, is that the idea for it to be on a product label or elsewhere, like advertising? Where would that scan actually be useful for consumers?
Speaker Change: Everything that's wearable everything thats connected today than it actually is a place for them to live on our platform that adds value to them. That's connected to their distributor that's connected to the company that is connected to the cloud that they're connected to and so this is this is the opportunity for us in the future part of its tech based and part of it is really <unk>.
Speaker Change: Skilling, and allowing our distributors to have access to the information they need to be able to go out and add these additional services into their businesses to be able to get the conversion up.
Speaker Change: And Thats scan that Youre referencing is that is the idea to beyond a product label or elsewhere advertising, where would that scan actually beef was producing disguise. The sky's the limit John right I mean in today's world of marketing I mean, it is so wide and so large so it could be on a shape when someone buys.
Stefan Graziani: The sky's the limit, John, right? I mean, in today's world of marketing, it is so wide and so large. So it could be in a shake.
Stefan Graziani: When someone buys a shake at a club, it could print out based on the ingredients that are in there; scan this, and you're good to know. By the way, you could have something where someone walks up to a club and it says, you know, take our questionnaire, right? Answer five questions and, you know, be able to refer a friend or, you know, be able to win something as a prize.
Speaker Change: A shake out of club it could print out based on the ingredients that are in their scan. This you'll get to know by the way you can have something that someone walks up to a club and it says.
Speaker Change: Take our questionnaire right answer five questions and be able to refer a friend or be able to to.
Speaker Change: To winning something enterprise marketing today, social media marketing. It is so vast and it's so broad and it's there's so much opportunity there. So what's beautiful about this as the technologies. There. It's unlimited what you can do and our distributors are amazing they are creative they are always pushing the envelope.
Stefan Graziani: Marketing today, social media marketing, it's so vast and it's so broad and there's so much opportunity there. So what's beautiful about this is that if the technology is there, it's unlimited what you can do. And our distributors are amazing. They are creative.
Stefan Graziani: They are always pushing the envelope. And as a company, it's our job to make sure that we support them and everything that they need to be able to take their businesses wherever they want to go. Thanks, Yvonne; very helpful.
Speaker Change: And as a company, it's our job to make sure that we're supporting them and everything that they need to be able to take their businesses wherever they want to go.
Speaker Change: Thanks, Thats very helpful.
Stefan Graziani: Thank you. Will you stand by for our next question? www.herbalife.com. Our next question comes from the line of Linda Bolton-Weiser with D.A. Davidson.
Speaker Change: Thank you. Thank you.
Speaker Change: Please standby for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Linda Bolton Weiser with D. A Davidson your line is open.
Stefan Graziani: Your line is open. Yes, hello. Um, so, uh, Stefan, when you were talking about the account management operating model, I'm just curious about, like, those people that will be doing that, will those be corporate employees? And if so, does that kind of add, over time, something to your cost structure to implement that type of model? Yes, Linda, we already have corporate employees that interface with distributors. And so it's part of what's already happening there. As we add, and we're actually going to be having, you know, more and more of them, it's really about how we're designing and we're going to reallocate resources to this area. You know, quite honestly, the distributors that are out there, we look at any market, right? There are different ways that they have access to information. We're finding that having company employees that are on the ground, that are visiting the clubs or visiting distributor leaders, and that are sharing information with them that's relevant. Because again, going back to John's question, why do we need training? Why do we need this type of connectivity?
Speaker Change: Yes Hello.
Speaker Change: So I was wondering Stefan when you were talking about the account management operating model.
Speaker Change: I'm just curious about like those people that we'll be doing that or they'll both be corporate employees and if so does that kind of add overtime like something to your cost structure to implement that type of model.
Stefan: Yes, Linda we have already corporate employees that do interfaced with distributors and so it's part of what's already happening there as we add and we're actually going to be having more and more of them. It's really about how we're designing and we're going to reallocate resources to this area.
Stefan: Quite honestly the distributors that are out there.
Stefan: We look at any market right.
Stefan: There is different ways that they have access to information we.
Stefan: We are finding actually that having.
Company employees that are on the ground that are visiting the clubs. We're visiting distributor leaders ended are sharing information with them that's relevant because again going back to John's question why do we need the training why do we need this type of connectivity is because some people come into the business. They get a result on the products. They are inspired but they don't have.
Stefan Graziani: It is because some people come into the business, they get a result with the products, they're inspired, but they don't have a background in business. They don't know how to read the numbers, or they don't know how to specifically plan, and they just don't have the background. So this is something that we are going to be formatting, developing with our leadership to be able to understand where we can give the most value to the distributors. We already have in some regions, what we would call regionals that are actually on the ground, in the field, meeting distributor leadership. It's part of what they're doing is what they're gonna be doing in the future, but we're really gonna standardize and format this. And by the way, then if we think about AI and information and data and how things can be automated, and we can take a program and know what delivering value is, but then we can also automate the program to deliver the value to more people.
Stefan: Background in business, they don't know how to read the numbers well they don't know specifically sometimes plan in.
Stefan: They just don't have the background. So this is something that we're going to be format.
Stefan: Developing with our leadership to be able to understand where can we give the most value to the distributors. We already have in some regions. While we would call regionals that are actually on the ground in the field meeting distributor leadership.
Part of what they're doing is what theyre going to be doing in the future, but we're really going to standardize and format. This and by the way then if we think about AI and the information and the data and how things can be automated and we can take our program and delivering the value is but then we can also automate the program to deliver the value to more people.
Stefan Graziani: So this is just the beginning of something that's gonna be very, very big for us in the future and that we're very excited about. And, as mentioned, we'll reallocate, and we'll automate. Great.
This is just the beginning of something that's going to be very very big for us in the future and that we're very excited about.
Stefan: And as mentioned, we'll reallocate and will allow me.
Stefan Graziani: And then, um, I was wondering if you could talk a little bit more about China and what exactly was done there to kind of bring about this turnaround. I'm wondering how much of it is just the general market there becoming more open, or is it specific actions that you took? And just remind us, too, is China less of a nutrition club market? I don't think that was as much the focus there.
Speaker Change: Great and then.
Speaker Change: I was wondering if you could talk a little bit more about China, and what exactly was done there to kind of bring about this turnaround I am wondering how much of it is just.
Speaker Change: But general market, they're becoming more open end or is it specific actions that you took and just remind us too.
Speaker Change: Less of a nutrition club market I don't think that was as much. The focus there is that the case.
Stefan Graziani: Is that the case? Well, it's quite interesting. So to answer your question, it's kind of both. It's obviously coming out of the pandemic. They were the last ones. They were the longest in, you know, the lockdowns.
Speaker Change: Well, it's quite interesting so to answer your question, it's kind of both its obviously coming out of the pandemic. They were the last ones. There was up there with the longest.
Stefan Graziani: They were the last ones to come out. And so the distributors, you know, or the service providers that we have there, you know, quite honestly, they had a very difficult time. And in terms of clubs, they actually started to adopt and implement nutrition clubs right before the pandemic. And so I don't know if you can just kind of visualize and imagine, imagine, you know, thousands of service providers that opened up clubs and took locations just before the pandemic. And then all of a sudden, they didn't even have a chance to get off the ground. So it was really disruptive.
Speaker Change: The Lockdowns they were the last ones to come out.
Speaker Change: And so the distributors.
Speaker Change: The service providers that we have there.
Speaker Change: Quite honestly.
Speaker Change: <unk> had a very difficult time and in terms of clubs they actually started to adopt and implement nutrition clubs right before the pandemic and so I don't know if you could just kind of visualizing imagine imagine thousands of service providers that opened up clubs took locations just before the pandemic.
Speaker Change: And then all of a sudden they didn't even have a chance to get off the ground. So it was really disruptive and I would say what is kind of leading the turnaround.
Stefan Graziani: And I would say what is kind of leading the turnaround? A couple of things. One, number one, getting closer to the leadership there and supporting the service provider leaders, and then actually understanding after a couple of years that, you know, the company is there to support them. And so this started at an early level last year with Michael and myself meeting with them in March. We went together again in April.
Speaker Change: A couple of things one number one getting closer to the leadership, there and supporting the service provider leaders and then actually understanding after a couple of years.
Speaker Change: The company is there to support them and so this started early last year with with Michael and myself meeting with them in March.
Speaker Change: We went together also in April I went another two times, there and met personally with distributor or service provider leaders and local staff and I.
Stefan Graziani: I went another two times there and met personally with distributor or service provider leaders and local staff, and I would say that everything is coming together. They also had a return to growth plan that, you know, really kind of lined up and organized things for the year. So we have positive numbers. Things are looking very good there. Again, they're coming off a two-year, very strong disruption.
Speaker Change: I would say that everything is coming together. They also had a back to growth plan.
Speaker Change: Really kind of lined up.
Speaker Change: Organize things for the year. So we have positive numbers things are looking very good there.
Speaker Change: Again, theyre coming off of two year very strong disruption, it's going to take a bit of time to build momentum there, but we do have positive momentum happening and so again, we're we're feeling very very good about this.
Stefan Graziani: It's going to take a bit of time to build momentum there, but we do have positive momentum happening. And so, again, we're, we're feeling very, very good about it. And I was just wondering why the price mix all of a sudden, seemingly in China, looked like it was down about 11% or so. It looked a bit like an anomaly. What was it that caused that in the numbers? um, I'd say that the price mix. Say that again, Linda, I'm not sure I can. Yeah, sorry. For China, I thought it looked like... um, the price mix? It looked like the volume point growth was really strong, but the price mix was, Yeah, I thought volume points were up 28% and price mix was down 11. Is that, is that wrong?
Speaker Change: Okay.
Speaker Change: And I was just wondering why why was the price mix all of a sudden seemingly in China. It looked like it was down about 11% or so it looks a bit like an anomaly what was there something that caused that.
Speaker Change: In the numbers.
Speaker Change: Say that the price mix.
Speaker Change: Say that again Linda.
Speaker Change: Yes.
Linda: Yes, sorry for China.
Linda: Look like.
Linda: The price mix look.
Looks like the volume point growth was really strong, but the price mix was.
Speaker Change: Yes, I thought volume points were up 28% and price mix was down 11 is that is that wrong or.
Stefan Graziani: I'll have to come back to you. I'll have to come back to you. I have...
Speaker Change: So you will have to come back.
Speaker Change: Yes.
Yes.
Stefan Graziani: I'll have to come back to you on that, Linda. Okay, yeah, we can do that offline. And then, just another, I guess, financial one for you, Alex. On the free cash flow for 2024, I guess I'd be picturing it to be maybe down somewhat because what would be the working capital benefits? Are you expecting some more of those in 2024?
Speaker Change: I'll have to come back to you on that Linda.
Linda: Okay, Yes, we can do that offline and then.
Linda: Just.
Linda: Another I guess financial one for you Alex on the free cash flow for 2024.
Linda: So it'd be picturing it to be maybe.
Linda: Somewhat because what would be the working capital benefits are you expecting some more of those in 2024.
Alex Amezquita: So, the working capital benefit in 2023, which was largely right-sizing the inventory, that isn't a benefit that we're expecting to see in 2024 because we're now at the right-sized level. So, we're not going to have that contributor, which was a significant contribution to our results in 2023. We do expect – one thing that we did in 2023 is we had our cash flow conversion get back to our stronger levels where it was above one times. You might notice that in 2022, it was below one X. So, we expect that cash flow conversion to still be strong in 2024. However, the working capital piece is not going to be a contributor to that 2024 benefit.
Alex: So the working capital benefit in 2023, which would look which largely right sizing the inventory that isn't a benefit that we're expecting to see in 2020 for it because we are now we're now at the right size level. So we're not going to have that contributor which was a significant contribution to our 2023. We do expect one thing that we did do in 2023 as we had.
Alex: Our cash flow conversion get back to our our stronger levels, where it was above one times you might notice that in 2022 was below onex. So we expect that cash flow.
Alex: <unk> still to be strong in 2024, however, the working capital piece is not going to be a contributor to that 2024 benefit.
Alex Amezquita: Do you mean conversion of EBITDA to cash flow or netting adjusted net income to cash flow? We typically look at it from an adjusted net income basis. Okay. Okay, and then, Just in terms of the GLP-1 stuff that you talked about, that's very clever that they're reaching out to, you know, prescription providers to look for clients. I'm just wondering if you're in the works for doing something more formalized, some sort of partnership where you can actually partner with a GLP-1 provider to get a funnel of sorts of customers. Is that something you're thinking about? Hi Linda, it's Michael.
Alex: You mean conversion of EBITDA to cash flow, our netting adjusted net income to cash flow.
We typically look at it from an adjusted net income basis.
Alex: Okay.
Speaker Change: Okay and then.
Speaker Change: Just in terms of the G. L. P. One stuff that you talked about that that's very clever that they're reaching out to.
Speaker Change: Prescription providers to look for clients and just wondering if you are in the works we're doing something more for like some sort of partnership where you can actually partner with a G. L. P. One provider.
Speaker Change: To get a funnel of kind of.
Speaker Change: Customers is that something youre thinking about.
Michael O. Johnson: I've been waiting for that question from you. So we have studied this really carefully. And we've looked at healthcare providers, telehealth, you know, we've gone back and forth on it. We think the best method for the marketplace for this is to work locally, to provide the opportunity for our distributors to work with longevity clinics, work with doctors, work with different areas in their local marketplaces to provide a product that's complimentary. We don't see ourselves in the near future offering a GLP-1 product.
Speaker Change: Hi, Linda its Michael I've been waiting for that question from you. So.
Speaker Change: No.
Michael O. Johnson: We have studied this really carefully and we've looked at healthcare providers telehealth, we've gone back and forth on it we think the best method to the marketplace for this is to work locally is to work with.
Michael O. Johnson: The opportunity for our distributors to work with.
Michael O. Johnson: Longevity clinics work with doctors work with different areas in their local marketplaces to provide a product that is complementary we don't see ourselves in the near future operated <unk> one product.
Michael O. Johnson: We believe that our strength is in behavioral modification, giving a product to people that complements a GLP-1 user on their journey. As you know, you're on that personal journey. And so that opportunity for us is the beauty of this is to build a long-term customer who will use the GLP-1 on a temporary basis. And to work with local opportunities, whether it's a healthcare provider, whether it is a telehealth company on a local basis, through our distributors, and not in a corporate relationship. We just think it works better that way. It fits our model perfectly.
Michael O. Johnson: We believe that our strength is in the behavior modification, giving product to people that complements our GOP one user on their journey as you know you are unmet personal journey.
And so that opportunity for us as is the beauty of this is to build a long term customer who we will use the <unk> on a temporary basis and to work with local opportunities, whether it's a health care provider, whether it is a telehealth company on a local basis through our.
Michael O. Johnson: <unk> and not on a corporate relationship. We just think it works better that way it fits our model perfectly we've got some distributors who are employees very engaging ideas I don't want to talk too much further about that right now because they are in the early phases of talking to folks in ways that they can help the GOP customer get on that.
Michael O. Johnson: We've got some distributors who are employing some very engaging ideas. I don't want to talk too much further about that right now, because they're in kind of the early phases of talking to folks about ways that they can help the GLP customer get on that long-term journey and just off that short-term journey that they're on now. Okay, sounds good. Thank you very much.
Michael O. Johnson: Long term journey.
Michael O. Johnson: Off that short term journey that they're on now.
Speaker Change: Okay sounds good thank you very much.
Michael O. Johnson: Thank you, Linda. Please stand by for our next question. Our next question comes from the line of Jeff Van Sinderen with B Raleigh. Your line is open. Hi, everyone.
Speaker Change: Thank you Linda.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line and Cinerin with B Riley Your line is open.
Cinerin: Hi, everyone.
Alex Amezquita: Just thinking about the considerable CapEx investments you've made and are going to continue to make. So far, where are the benefits from those showing up in the metrics you tried? So Alex and I are going to double team this one.
Cinerin: Thinking about the considerable capex investments you've made are going to continue to make.
Cinerin: Paul where are the benefits from those showing up in the metrics we track.
Cinerin: So I'm going to Alex and I are going to double team. This one so the initial investments in our digital where to rebuild our infrastructure and those don't show up immediately and the benefits to the business that you can see in numbers, what we had to do.
Michael O. Johnson: So the initial investments in our digital were to rebuild our infrastructure, and those don't show up immediately in the benefits to the business that you can see in numbers. What we had to do, because we had an antique, and we had to rebuild this thing completely from the ground up.
Cinerin: Because of our we have an antique and we had to rebuild this thing completely from the ground up so some of those investments some of those early investments that we spent in the digital world.
Michael O. Johnson: So some of those investments, some of those early investments that we spent in the digital world, were about rebuilding that infrastructure to get it right. So now we can add components to build a platform to bring in some great providers of products for both the MLM marketplace and the direct selling marketplace, for sales acquisition, for customer acquisition, all the different tools that our distributor is going to be able to employ in the marketplace. And that's coming in very short order. Alex?
Cinerin: 'bout rebuilding that infrastructure to get it right. So now we can add componentry to build a platform to bring in some great providers of products for both the MLM marketplace for direct salary marketplace for sales acquisition for customer acquisition and all the different tools that our distributor is going to be able to employ to marketplace <unk>.
Cinerin: In very short order, Alex Yes, that's correct and just to.
Alex Amezquita: Yeah, that's correct. And just to emphasize that we're about halfway through the program, particularly on the technology spend. We'll continue to invest in 2024. Our brand sites did in 70% of markets that represent 70% of our net sales. They went live at the end of the year.
Emphasize that we're about halfway through the program, particularly on the technology spend will continue to invest in 2020 for our brand sites did in 70% of markets that represent 70% of our net sales. They went live at the end of the year and the initial metrics that we're seeing are incredible so.
Alex Amezquita: And the initial metrics that we're seeing are incredible. So, a significant improvement on all of the metrics that you look at in terms of engagement, in terms of all the things that you would want from someone to engage with your brand site. So we're seeing that. That is obviously just the first step of something external that sits on top of the internal platform that Michael just mentioned. And there's more to come as 2024 rolls out.
Cinerin: Significant improvement on all of the metrics that you would look at in terms of engagement in terms of all the things that you would want from someone who engage with your brand sites. So we're seeing that that is obviously just the first step of something external that sits on top of the internal platform that Michael just mentioned and there is more to come as 2024.
Alex Amezquita: And what I mentioned earlier around the breadth of CapEx, I think we got a question on what the spread of CapEx is related to. That's related to the prioritization of what capability externally will we roll out now? Where does that prioritization roll out?
Cinerin: It rolls out and when I mentioned earlier around the breadth of Capex I think we got a question on what was the spread of capex related to that related to the prioritization of what capability externally now will we rollout where where does that prioritization rollout how will it affect the markets best and those will be.
Alex Amezquita: How will it affect the markets best? And those will be business decisions as the year progresses. Okay, thanks. That's helpful.
Cinerin: Decisions as the year progresses.
Speaker Change: Okay. Thanks, that's helpful.
Alex Amezquita: And then understand you got flat revenues for the year, but considering that you grew in Q4, what sort of quarterly progression might we anticipate this year? And then, I guess to clarify, I think you said margins would be down for 24. So should we anticipate EBITDA and dollars down for the year? So we're not giving quarterly guidance.
Speaker Change: Then understand you guided a flat revenues for the year.
Speaker Change: Entering a growing Q4, what sort of quarterly progression might we anticipate this year and then I guess to clarify I think you said margins would be down for 24.
Speaker Change: So should we anticipate EBITDA dollars down for the year.
Speaker Change: So.
Speaker Change: We're not giving quarterly guidance, we have a relatively flat.
Alex Amezquita: We have relatively flat growth for the year, there could be some choppiness in on a quarter by quarter basis, but we have relative flat growth for 2024. I think that's probably as granular as we can get at this point. Okay, and then, I'm sorry, on Ibiza? color there, even what we might expect with margin staff.
Speaker Change: For the year, there could be some choppiness in on a quarter by quarter basis, but we have relative flat growth for 2024.
Speaker Change: Think that's probably as granular as we can get at this point.
Speaker Change: Okay, and then I'm sorry on EBITDA.
Speaker Change: Any color there on EBIT, what we might expect with margins down.
Alex Amezquita: So on EBITDA, I think I mentioned before, relatively flat top line, no operating leverage, obviously, from that top line, gross profit margins relatively flat. And then this is going to continue to be an investment year for us as we position Herbalife One strategic initiatives to gain growth as we look for 2024 and beyond. Okay. Alright, so from that, I'm taking EBITDA down a little bit. And then I just had one other question on the Nutrition Clubs overall because I think Stephan gave some metrics around those, but I didn't catch them all.
Speaker Change: So on EBITDA.
Speaker Change: I think I've mentioned before relatively flat top line no operating leverage obviously from that top line gross profit margins relatively flat and then this is going to continue to be an investment year for us as we position.
Herbalife, one strategic initiatives to gain growth as we.
Speaker Change: Look look look for 2024 and beyond.
Okay.
Speaker Change: Alright, so if I'm not I'm, taking EBITDA down a little bit.
Speaker Change: And then I just had one other question on the nutrition clubs overall, because I think Stephane gave some metrics around those I didn't catch the wallet you said $9 million I wasn't sure what that was for but.
Alex Amezquita: He said $9 million. I wasn't sure what that was for, but in the U.S., and I don't know if you have these metrics to want to provide them or not, but what are the revenues from U.S. clubs? Is that the $9 million? And then also, do we have a number for average revenue per club? I'm just curious about that and then maybe the margins that the club owners are making on those, if there's a way to look at that. There may not be, but I'm curious about that. Yeah, Jeff, let me just repeat them for you. There were no nine; there were 900 million in sales.
Speaker Change: In the U S and I don't know if you have these metrics I want to provide them or not but.
Speaker Change: What are the revenues from the U S clubs was up $11 million and then also do we have a number for average revenue per club I'm. Just curious about that and then maybe margins that club owners are making on those if there's a way to look at that there may not be but curious there.
Speaker Change: Yes, Jeff let me. So there was no nine there was $900 million in sales, but let me just repeat them for you so $4 4 million nutrition club customers in 2023.
Stefan Graziani: So 4.4 million Nutrition Club customers in 2023. 55 million transactions. Average transaction, $1,650. That makes up, actually, right around $910 million.
Jeff: 55 million transactions.
Jeff: Average transaction $16 50.
Jeff: That makes up actually.
Jeff: Right around $910 million.
Stefan Graziani: Retail club sales. Okay, so those are the retail prices that customers pay to our club owners in their clubs. And so it doesn't really do it justice because you've got clubs that are in a small city of 5,000 people that, you know, they are operating, they have how many customers they have, their cost, you know, basis is whatever it is compared to other clubs that are operating in much bigger cities that have higher costs. So, you know, and some of the clubs there do quite well; they're small, and it's low cost.
Speaker Change: Retail club sales. Okay. So those are the retail prices that customers paid to our club owners and their clubs.
Speaker Change: So it's.
Speaker Change: To average it out doesn't really do it justice because you've got clubs that are in a small city of 5000 people that they are operating they have how many of our customers. They have their cost basis is whenever it is compared to other clubs that are operating and much bigger cities have higher costs. So.
Speaker Change: Some of the clubs there they do quite well, they're small it's low cost all they've got to do is is 2000 and revenue. Other clubs. We have that are that are doing $10 $15000 in revenue monthly. So it's really really hard enough and of course, we don't have their costs right. We have what they purchase from the company. We've got the transactional data from what they are selling things.
Stefan Graziani: All they've got to do is a few thousand, you know, in revenue. Other clubs we have that are doing 10, $15,000 in revenue monthly. So, it's really, really hard. And, of course, we don't have their costs, right? We have what they purchased from the company. We've got the transactional data from what they're selling things for, but we don't don't track what their rents are, what they're paying for electricity, and everything.
Speaker Change: But we don't we don't track what their rents are what they are paying in electricity and everything so it's hard for us to come up with that number.
Stefan Graziani: So, yeah, it's hard for us to come up with that number. Okay, understood. Thanks for taking all my questions. Thank you. Please stand by for our next question. Our next question comes from the line of Hannah Lizzell with Bank of America. Your line is open. Hi, good afternoon, and thanks very much for the question. In general, we get a lot of questions in our coverage these days on Argentina, just given the hyperinflationary environment. I was just wondering how exposed are you to Argentina?
Speaker Change: Okay understood. Thanks for taking all my questions.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Panel Middle: Our next question comes from the line of panel Middle with Bank of America. Your line is open.
Panel Middle: Hi, good afternoon, and thanks very much for the question.
Middle: In general we get a lot of questions in our coverage. These days on Argentina, just given the Hyperinflationary environment. Just wondering how exposed are you to Argentina are you able to take significant pricing to offset the inflation in that market.
Alex Amezquita: Are you able to take significant pricing to offset the inflation in that market? And separately, on China, just any early expectations on results from the Lunar New Year this quarter and how things are tracking in that region? Thank you. Sure. Thanks for the questions, Anna. So, regarding Argentina, we obviously have a business in Argentina.
Middle: Separately on China, just any early expectations on results from lunar new year, this quarter and how things are tracking in that region. Thank you.
Speaker Change: Sure. Thanks for the questions Ana So regarding Argentina, we obviously have a business in Argentina. The hyperinflation is something that we keep up we have regular price increases to keep up with that there is still risk with that as you are trying to get cash in Argentina peso out, but our our exposure is relatively limited as we.
Alex Amezquita: Hyperinflation is something that we keep up with. We have regular price increases to keep up with that. There is still risk with that as you're trying to get cash and the Argentinian Pesa out, but our exposure is relatively limited as we continue to price with the hyperinflation of that market. As it relates to how 2024 is going, we'll update you in April or, actually, in May, rather. We're not going to give any commentary about 2024.
Speaker Change: Continue to price with the hyperinflation of that market as it relates to how 2024 is going we'll update you in April or actually in may rather, we're not going to we're not going to give any commentary about 2024 at this point.
Alex Amezquita: Okay, thank you. Please stand by for our next question. Our next question comes from the line of Hal Holden with Barclays. Your line is open.
Speaker Change: Okay. Thank you.
Speaker Change: Okay.
Speaker Change: Please standby for our next question.
Speaker Change: Our next question comes from the line of Hale Holden with Barclays. Your line is open.
Alex Amezquita: Thank you for your time. Alex, when you think about cash balances that you want to have on hand to run the company, I know a lot of it is international, but as you start thinking about, you know, what debt you would pay down through the course of this year, can you sort of tell us how much cash you would keep on hand as a minimum amount, or we should think about whether you're not going below? So it cycles depending on where we are in our expansion or contraction.
Hale Holden: Hi, Thank you afternoon, Washington videos of Eric Laurie.
Hale Holden: We made higher for our sales to Africa.
Speaker Change: Guys sorry.
Speaker Change: Correct.
Speaker Change: He is going to be busy so I don't think probably didn't have much time at all.
Speaker Change: He looks very high energy so I'm sure you can handle the business.
Speaker Change: Uh huh.
Speaker Change: The only question I had was.
Speaker Change: Alex when you think about <unk>.
Speaker Change: Cash balances that you want to have on hand around the company I know a lot of it is international.
Alex: As you start thinking about what that you would pay down through the course of this year can you sort of tell us how much cash you would sort of keep on hand, as a minimum amount or we should think about.
Alex: Youre not going below.
Alex: So its cycles, depending on where we are in and our expansion or contraction. Obviously the past couple of years, we've been a bit of contraction and so typically that's around $500 million is I would call. It a safe average in terms of working capital cash or I would say cash in in the system.
Alex Amezquita: Obviously, the past couple of years, we've been in a bit of contraction. And so typically, that's around 500 million is what I would call a safe average in terms of working capital cash, or I would say cash in the system. We have a couple of initiatives about establishing an in-house bank and other Cash Management Efficiencies, so we're looking to get that number down, but I think for today, a placeholder of $500 million is sufficient. Thank you very much.
Alex: We have a couple of initiatives abound, establishing an in house bank and other.
Alex: Cash management efficiencies. So we're looking to see to get that number down, but I would think for today, a placeholder of 500 million is sufficient great.
Speaker Change: Great. Thank you very much.
Alex Amezquita: Please stand by for our next question. Our next question comes from the line of Doug Lane with Watertower Research. Your line is open.
Alex: Sure.
Alex: Please standby for our next question.
Alex: Our next question comes from the line of Doug Lane with water Tower Research. Your line is open.
Alex Amezquita: Oh, yes. Hi. Thanks for taking my question. I know it's getting late here.
Douglas Matthai Lane: Alright, Yes, hi, thanks for taking my questions I know, it's getting late here. So I just wanted to follow up on the conversations about debt Paydown and the capital allocation here. So have you articulated a target leverage ratio that you're shooting for.
Alex Amezquita: So I just wanted to follow up on the conversations about debt paydown and capital allocation here. So have you articulated a target leverage ratio that you're shooting for? And then is there some point where a stock buyback makes sense?
Douglas Matthai Lane: And then is there some point, where a stock buyback makes sense.
Alex Amezquita: So our policy of around three times total debt is still our target. That is an investment grade target. We are, our excess cash flow right now, we ended 2023 at 3.9 times.
Douglas Matthai Lane: So our policy around three times total debt is still our target that is an investment grade target. We are our excess cash flow right now we ended.
Douglas Matthai Lane: 2023 at three nine times, so our excess cash flow is going to continue to pay that debt down until at least we get to the three times target and we have plans to get there.
Alex Amezquita: So our excess cash flow is going to continue to pay that debt down until at least we get to the three times target. And we have plans to get there with the continual paydown of the free cash flow generation. So we expect strong cash flow generation in 2024, following up 2023, and that's where we're going to put it, and Stark Buyback. Is that on the table?
Douglas Matthai Lane: With the continued pay down of the free cash flow generation. So we expect strong cash flow generation in 2024, following up 2023, and that's where that's where we're going to put it.
Douglas Matthai Lane: And stock buyback is that on the table.
Alex Amezquita: Well, we need to get the three times target before we can ever consider that. But again, Doug, our focus right now is getting our debt levels significantly lower than where they are today. Okay, I understand. Just one last thing on guidance. Is there a reason why you haven't started back up with guidance on your balance sheets getting deleveraged, and your sales have turned positive?
Douglas Matthai Lane: Well, we need to get to three times target before we can ever consider that but.
Douglas Matthai Lane: Again, Doug our focus right now is getting our debt levels are significantly lower than where they are today.
Speaker Change: Okay I understand.
Speaker Change: Just one last thing on guidance is there a reason why you haven't started back up with guidance on your balance sheet is getting deleverage sales turn positive. It just seems like things are starting to shift in a favorable direction. So I think we'd be actually to see.
Alex Amezquita: It just seems like things are starting to shift in a favorable direction, so I think we'd be anxious to see formal guidance reinstated. Thanks, Doug.
Speaker Change: Formal guidance reinstated.
Speaker Change: Thanks, Doug Thanks for that feedback obviously, we've given you a topline some topline guidance. We've given you some profitability guidance in a bit of a different format than we have historically, but hopefully that gives you enough to kind of pencil out forecast for herbalife fair.
Michael O. Johnson: Obviously, we've given you some top line guidance and some profitability guidance in a bit of a different format than we have historically, but hopefully, that gives you enough to kind of pencil out a forecast for Herbalife. Fair enough.
Michael O. Johnson: Thanks, Alex. We also thank you. Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Michael Johnson for closing remarks. Let's get you all home for Valentine's Day.
Speaker Change: Fair enough. Thanks al.
Speaker Change: Awesome.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, I'm showing no further questions in the queue I would now like to turn the call back over to Michael Johnson for closing remarks.
Michael O. Johnson: Let's get you all home for Valentine's day, that's pretty important.
Michael O. Johnson: That's pretty important. Our company is metric-focused, as we should be. There's no doubt about it. We need to improve on some of our metrics. We've got a lot of energy behind what we are doing, but it wouldn't be me if I didn't tell you a little personal story to close our call today because, frankly, that's what I do. High-tech is vital in today's business, and the reality is, we're in a high-touch business. Recently, I had the opportunity to follow my team all the way to the national championship. We chased Michigan from Ann Arbor to Houston, and I did it with a childhood friend of mine, one of my best friends and, still today, someone who I ski raced with and raced bikes with.
Michael O. Johnson: Our company is metric focused as we should be there is no doubt about it we need to improve on some of our metrics where it got a lot of energy behind what we're doing but it wouldn't be me if I didn't tell you a little personal story to their close our call today, because frankly, that's what I do high tech vital in today's business in the <unk>.
Michael O. Johnson: Reality is we're in a high touch business.
Michael O. Johnson: And recently I had the opportunity to follow my my team all the way to the National Championship, We Chase, Michigan from Ann Arbor to Houston, and I did it with <unk>.
Michael O. Johnson: Kyle good friend of mine, one of my best friends and still today someone who I ski rates with the rate spikes with and it was an incredible athlete in his youth, but like many of us.
Michael O. Johnson: He was an incredible athlete in his youth, but like many of us, not necessarily me, but he gained too much weight. When he was young, he was this incredible athlete, but he let himself go. He purchased Herbalife products years ago, but he never really met the success that he wanted to meet, and he did not modify his lifestyle. So he founded a Herbalife Distributor in our small town in southern Michigan, where we grew up; a world team member who was in our hometown. And like many, he thought about GLP once because he wanted to have a quick transformation in his body.
Michael O. Johnson: Not necessarily but he gained too much weight and when he was young it was this incredible athlete, but he let himself go deep.
Michael O. Johnson: He purchased herbalife products years ago, and he never really met the success that he wanted to meet.
Michael O. Johnson: And he did not modify his lifestyle.
Michael O. Johnson: So he founded herbalife distributor in our small town in Southern Michigan, where we grew up a world team member who within our hometown. Unlike many.
Michael O. Johnson: He thought about GOP want because you wanted to have a quick transformation in this quality, but the real transformation team. When he started to work with a distributor at a nutrition club in our hometown the lost weight by being held accountable early in this journey that we started to come off.
Michael O. Johnson: But the real transformation came when he started to work with the distributor at a nutrition club in our hometown. He lost weight by being held accountable. Early on in his journey, that weight started to come off.
Michael O. Johnson: Through this, and this wonderful Herbalife distributor, through weekly visits, he was held accountable to be measured, to discuss calorie intake, nutrition training, and proper use of Herbalife products. His distributor is what we call a transformational distributor. For 13 years in Southern Michigan, he's helped people get active and healthy, and he's built a successful business doing it. This is what makes us so special and unique and opportunistic. This is why all of us sitting around this table here today, and all the distributors listening in from around the world, know that Herbalife is an incredibly unique company. Weight loss?
Michael O. Johnson: This in this wonderful herbalife distributor through weekly visits he was held accountable to be measured to discuss calorie intake nutrition training proper use of herbalife product. His distributor is what we call a transformational distributor for 13 years in southern Michigan needs help people get active and healthy that he has built a successful.
Michael O. Johnson: <unk> doing it this is what makes us so special and unique and opportunistic. This is why all of us sitting around this table here today and all the distributors listening in from around the World know that Herbalife is an incredibly unique company.
Michael O. Johnson: It's back in the discussion. Our vision of being the world's premier health and wellness company, community, and platform has never, ever been more relevant. We're excited about 2024.
Michael O. Johnson: It's back in the discussion.
Michael O. Johnson: Our vision of being the world's Premier health and Wellness company community and platform has never ever been more relevant. We're excited about 2024 I hope that came across today, our challenges are overshadowed fire opportunity. So as we paid everybody at Herbalife <unk>, Let's go herbalife. Thank you guys.
Michael O. Johnson: I hope that came across today. Our challenges are overshadowed by our opportunity. So, as we say to everybody at Herbalife, OGH. Let's go Herbalife.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Operator: Thank you, guys. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you for watching!
Speaker Change: Okay.
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Speaker Change: Okay.
[music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.