Q1 2025 Herbalife Ltd Earnings Call
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Unknown Executive: Thanks for watching! Good afternoon, and thank you for joining the first quarter 2025 earnings conference call for Herbalife Limited.
Yeah.
Okay.
Speaker Change: Good afternoon, and thank you for joining the first quarter 2025 earnings conference call for Herbalife Ltd.
Unknown Executive: During the company's opening remarks, all participants will be in a listen-only mode.
During the company's opening remarks, all participants will be in a listen only mode.
Unknown Executive: Following the opening remarks, we will conduct a question and answer session. As a reminder, today's conference call is being recorded.
Speaker Change: Following the opening remarks, we will conduct a question and answer session.
Speaker Change: As a reminder, today's conference call is being recorded.
Erin Banyas: I would now like to turn the call over to Erin Banyas, Vice President and Head of Investor Relations, to begin today's call. You may begin. Thank you and good afternoon. Good evening, everyone.
Speaker Change: I would now like to turn the call over to earn Baggett, Vice President and head of Investor Relations to begin today's call you.
Speaker Change: You may begin.
Speaker Change: Thank you and good afternoon, good evening everyone.
Erin Banyas: Joining us today are Stephan Graziani, our President and incoming Chief Executive Officer, and John DeSimone, our Chief Financial Officer.
Speaker Change: Joining us today are Stefan Graziani, our president and incoming Chief Executive Officer, and John D. Simone our Chief Financial Officer.
Erin Banyas: Before we begin today's call, I would like to direct you to the cautionary statement regarding forward-looking statements on page 2 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 results to differ from those expressed in any forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker Change: 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.
Speaker Change: The presentation and earnings release include a discussion of some of the more important factors that could cause results to differ from those expressed in any forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Erin Banyas: As is customary, the content of today's call and presentation will be governed by the 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 period's roughness. 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 measure.
Speaker Change: As is customary the content of today's call and presentation will be governed by this language.
Speaker Change: 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's reference please refer to our earnings release and presentation materials for additional information regarding these non-GAAP financial.
Speaker Change: Measures and the reconciliations to the most directly comparable GAAP measure and with that I will now turn the call over to president and incoming CEO Stefan Graziani.
Stephan Gratziani: And with that, I will now turn the call over to President and incoming CEO, Stephan Gratziani. Thank you Erin, and good afternoon everyone. Thank you for joining us. It's an incredible honor to be with you today as I transition into the role of CEO. I take on this responsibility with a profound respect for Herbalife's 45-year history and with clear purpose. Honour our past while redefining what's possible for the future. I want to begin by expressing my deep appreciation for Michael Johnson, whose leadership and vision have been instrumental in shaping the strong foundation we stand on today.
Stefan Graziani: Thank you Erin and good afternoon, everyone. Thank you for joining us it's.
Stefan Graziani: It's an incredible honor to be with you today as I transition into the role of CEO.
Stefan Graziani: I take on this responsibility with a profound respect for Herbalife is 45 year history and with clear purpose.
Stefan Graziani: Under our past, while redefining what is possible for the future.
Speaker Change: I want to begin by expressing my deep appreciation for Michael Johnson, whose leadership and vision have been instrumental in shaping the strong foundation, we stand on today his contributions to herbalife global impact are enduring and I'm committed to building on that legacy.
Stephan Gratziani: His contributions to Herbalife's global impact are enduring, and I'm committed to building on that legacy. I'm pleased that Michael will continue to support the company in his role as Executive Chairman. Herbalife's mission has always been to change people's lives through better nutrition, stronger community and an entrepreneurial business opportunity. That mission remains unchanged, but the way we deliver it is evolving because the world is changing. The gig economy, digital and social platforms, and shifting consumer expectations are real forces. We consider them not only an invitation for us to evolve, but an opportunity for us to lead.
Speaker Change: Pleased that Michael will continue to support the company in his role as executive Chairman.
Speaker Change: Herbalife is mission has always been to change People's lives through better nutrition stronger community and an entrepreneurial business opportunity that mission remains unchanged, but the way we deliver it is evolving because the world is changing.
Speaker Change: The gig economy, digital and social platforms and shifting consumer expectations are real forces, we consider them not only an invitation for us to evolve, but an opportunity for us to lead.
Stephan Gratziani: Before we get into the Q1 results, I want to share with you three things. First, my conviction. I believe Herbalife is uniquely positioned, perhaps more than ever, to lead in the new health and wellness economy. With 2.1 million distributors and a brand trusted around the world, we have the human foundation, our network effect, to reach customers in ways few companies can match.
Speaker Change: Before we get into the Q1 results I want to share with you three things.
Speaker Change: First my conviction.
Speaker Change: I believe herbalife is uniquely positioned perhaps more than ever to lead in the new health and wellness economy with $2 1 million distributors and a brand trusted around the world. We have the human Foundation, our network effect to reach customers in ways few companies can match.
Stephan Gratziani: Second, our transformation. We are building on the strengths of our brand, our business model, and our high-quality, science-backed products. We will maximize the power of direct selling and expand our reach through technology, personalization, and tools that empower our distributors to connect more effectively with customers in more ways than ever before. We will become a true global platform for optimized health and wellness.
Speaker Change: Second our transformation.
Speaker Change: We are building on the strengths of our brand our business model and our high quality science backed products.
Speaker Change: We will maximize the power of direct selling and expand our reach through technology personalization and tools that empower our distributors to connect more effectively with customers in more ways than ever before we will become a true global platform for optimized health and wellness.
Stephan Gratziani: And third, our path forward. You will see us focus on innovation, in products, in technology, in AI-powered solutions, and how we empower our distributors to better serve today's customer and anticipate the needs of tomorrow. You will see us drive operational excellence, leveraging AI and data analytics to sharpen execution, improve alignment, and increase efficiency across the organization. And you will see us measure success not just by short-term gains, but by the strength of the foundation we are building for sustainable, profitable, global growth. I'll tell you more about a significant step we've taken in that path forward through our recent asset acquisitions in just a minute.
Speaker Change: Third our path forward.
Speaker Change: You will see us focus on innovation in products and technology and AI powered solutions and how we empower our distributors to better serve today's customer and anticipate the needs of tomorrow, you will see us drive operational excellence, leveraging AI and data analytics to sharpen execution improve alignment and increase efficiency across.
Speaker Change: The organization.
Speaker Change: And you will see us measure success, not just by short term gains, but by the strength of the foundation, we are building for sustainable profitable global growth.
Speaker Change: Tell you more about a significant step we've taken in that path forward through our recent asset acquisitions in just a minute, but before I do let's look at some of the Q1 financial highlights.
Stephan Gratziani: But before I do, let's look at some of the Q1 financial highlights. Our net sales of $1.2 billion were down 3.4% versus Q1 of 2024, which was just above the midpoint of our guidance. And on a constant currency basis, we delivered net sales growth of 1.4% year-over-year, our second consecutive quarter of year-over-year growth excluding FX headwinds. We delivered strong adjusted EBITDA results, exceeding our guidance. Additionally, through continued debt repayment during the quarter, we reduced our total leverage ratio to three times as of March 31st, achieving the target we set a year ago when we exited 2023 at 3.9 times.
Speaker Change: Our net sales of $1 2 billion were down three 4% versus Q1 of 'twenty 'twenty, four which was just above the midpoint of our guidance range and on a constant currency basis, we delivered net sales growth of one 4% year over year, our second consecutive quarter of year over year growth, excluding FX headwinds.
Speaker Change: We delivered strong adjusted EBITDA results exceeding our guidance.
Speaker Change: Additionally, through continued debt repayment during the quarter, we reduced our total leverage ratio to three times as of March 31st achieving the target we set a year ago. When we exited 2023 at three nine times. We reached this milestone nine months ahead of plan.
Stephan Gratziani: We reached this milestone nine months ahead of plan.
John DeSimone: John DeSimone will provide more on our financial results later on the call.
Speaker Change: John Desimone will provide more on our financial results later on the call kick.
Stephan Gratziani: Kicking off a new year at Herbalife is always energizing, and the positive momentum that began last year is continuing in 2025 with the number of new distributors joining Herbalife worldwide up 16% year-over-year. This is our fourth consecutive quarter of new distributor growth. Details about our new distributor and active non-sales leader growth are included in the appendix of today's presentation.
Speaker Change: Kicking off a new year at Herbalife is always energizing and the positive momentum that began last year is continuing in 2025 with the number of new distributors, joining herbalife worldwide up 16% year over year. This is our fourth consecutive quarter of new distributor growth.
Speaker Change: Details about our new distributor and active non sales leader growth are included in the appendix of today's presentation.
Stephan Gratziani: That same positive momentum and enthusiasm was evident at our annual honors event, where we brought together our top distributors from around the world, held in our hometown of Los Angeles. This year's event was especially exciting as we celebrated our 45th anniversary. We hosted several leadership and development panels and announced our planned asset acquisitions of Protocol Health, Prove Adventures, and Link Bioscience. As you can imagine, there was tremendous excitement among the approximately 2,600 distributor leaders in attendance as we unveiled these asset acquisitions and the important role they will play in the next era of Herbalife.
Speaker Change: That same positive momentum and enthusiasm was evident at our annual honors event, where we brought together our top distributors from around the world held in our hometown of Los Angeles. This year's event was especially exciting as we celebrated our 45th anniversary, we hosted several leadership and development panels and announced our planned asset acquisitions.
Speaker Change: A protocol health prove adventures Enlink Biosciences as you can imagine there was tremendous excitement among the approximately 2600 distributor leaders in attendance as we unveiled these asset acquisitions and the important role they will play in the next era of Herbalife.
Stephan Gratziani: Since Honors, we've completed the transactions, and I want to take a moment to talk about what we acquired, why we made these decisions, and how they collectively strengthen and align with our broader strategy and vision. We acquired assets of both Protocol and Proovit. Separately, we formed a new entity, HBL Bioscience, and obtained a 51% ownership interest. HBO Bioscience then purchased the assets of Link Bioscience. Slide five provides a brief overview of each of the companies.
Speaker Change: Since honors we've completed the transactions and I want to take a moment to talk about what we acquired why we made these decisions and how they collectively strengthen and align with our broader strategy and vision.
Speaker Change: We acquired assets of both protocol and prove it separately, we formed a new entity H B L Bioscience and obtained a 51% ownership interest.
Speaker Change: H B O bioscience than purchased the assets of link Biosciences.
Speaker Change: Slide five provides a brief overview of each of the companies.
Stephan Gratziani: Let's start with Protocol. Protocol is a health and wellness digital application company. The assets we acquired center on the protocol technology platform. As you will see on slide 6, it's a system designed to deliver tailored health and longevity protocols using individual data and biometrics. Through AI, coaching, and community, the platform will provide personalized nutrition recommendations, lifestyle plans, and ongoing support. Protocol takes today's fragmented and often confusing wellness landscape and unites it into one simple, accessible platform, helping people measure what matters, make better decisions, and achieve their health goals. Slide seven highlights initial key features of the protocol platform, including daily intake tracking, AI-powered nutrition tracking, and a personalized health dashboard.
Speaker Change: Let's start with protocol protocol as a health and wellness digital application company. The assets, We acquired center on the protocol technology platform as you will see on slide six it's a system designed to deliver tailored health and longevity protocols using individual data and biometrics through AI coaching and.
Speaker Change: <unk> the platform will provide personalized nutrition recommendations lifestyle plans and ongoing support.
Speaker Change: Protocol takes today's fragmented and often confusing wellness landscape and United into one simple accessible platform, helping people measure what matters make better decisions and achieve their health goals.
Speaker Change: <unk> seven highlights initial key features of the protocol platform, including daily intake tracking AI powered nutrition tracking and a personalized health dashboard. These capabilities are critical for capturing a broad range of consumers, increasing personalization and driving long term engagement.
Stephan Gratziani: These capabilities are critical for capturing a broad range of consumers, increasing personalization, and driving long-term engagement. In conjunction with this platform, we plan to expand our product portfolio by launching protocol-specific offerings. These new products, combined with our existing lineup, will give customers more personalized options than ever before to achieve their wellness goals, ultimately strengthening engagement and driving incremental growth. We pursued this acquisition because protocol aligns perfectly with our vision for the future of health and wellness. It accelerates our plans to offer a modern, holistic technology platform, and importantly, it allows us to put these powerful tools in the hands of our global distributor network.
Speaker Change: In conjunction with this platform, we plan to expand our product portfolio by launching protocol specific offerings. These new products combined with our existing lineup will give customers more personalized options than ever before to achieve their wellness goals, ultimately strengthening engagement and driving incremental growth with.
Speaker Change: Pursued this acquisition because protocol aligns perfectly with our vision for the future of health and wellness. It accelerates our plans to offer a modern holistic technology platform and importantly, it allows us to put these powerful tools in the hands of our global distributor network democratizing access to health optimization on a worldwide scale.
Stephan Gratziani: democratizing access to health optimization on a worldwide scale. Combined with Herbalife distributor coaches, AI-driven health assistants, and both online and in-person community connections, Protocol will bring our high-tech, high-touch model to a new level, helping our distributors better serve existing customers, attract new customers, and attract new distributors who are looking for a more modern, tech-savvy business opportunity. We're excited about the future this unlocks for Herbalife. And we're not the only ones.
Speaker Change: Combined with Herbalife distributor coaches AI, driven health assistance in both online and in person community connections protocol will bring our high Tech high touch model to a new level, helping our distributors better serve existing customers attract new customers and attract new distributors, who are looking for more modern tech.
Savi business opportunity.
Speaker Change: We're excited about the future of this unlocks for Herbalife and we're not the only ones Cristiano Ronaldo understands the incredible opportunity we have and he is partnering with us to further develop the platform his personal commitment to nutrition and keen understanding of its impact on peak athletic performance makes him an ideal adviser.
Stephan Gratziani: Cristiano Ronaldo understands the incredible opportunity we have, and he is partnering with us to further develop the platform. His personal commitment to nutrition and keen understanding of its impact on peak athletic performance makes him an ideal advisor. We plan to launch a beta version of the protocol platform at the end of July during our North America extravaganza, making it available to select distributors in the U.S.
Speaker Change: We plan to launch a beta version of the protocol platform at the end of July during our North America extravaganza, making it available to select distributors in the U S. The.
Stephan Gratziani: The commercial release in the U.S. is planned for the fourth quarter. This launch represents a significant opportunity for our distributors to re-engage customers, increase customer lifetime value, and tap into new customer segments. It will also provide nutrition club owners with a powerful new offering for their customers, which we believe will drive higher conversion rates of club consumption customers to preferred customers.
Speaker Change: The commercial release in the U S is planned for the fourth quarter.
Speaker Change: This launch represents a significant opportunity for our distributors to reengage customers increased customer lifetime value and tap into new customer segments.
Speaker Change: I'll also provide nutrition club owners with a powerful new offering for their customers, which we believe will drive higher conversion rates of club consumption customers to preferred customers.
Stephan Gratziani: Beginning in 2026, we will start rolling out the protocol platform to additional markets. By the end of 2025, we believe we'll have tens of thousands of users on the platform, with hundreds of thousands by the end of next year.
Speaker Change: Beginning in 2026, we will start rolling out the protocol platform to additional markets by the end of 2025, we believe will have tens of thousands of users on the platform with hundreds of thousands by the end of next year.
Stephan Gratziani: Now let's talk about Link Biosciences. Based in Texas, Link Biosciences is a well-established manufacturing company that combines proprietary equipment, advanced technology, and specialized software. It analyzes data inputs including biometrics, biomarkers, lifestyle factors, and genetics to formulate personalized products.
Speaker Change: Now, let's talk about linked Biosciences based in Texas Link Biosciences is a well established manufacturing company that combines proprietary equipment advanced technology and specialized software.
Speaker Change: It analyzes data inputs, including biometrics biomarkers lifestyle factors and genetics to formulate personalized products.
Stephan Gratziani: We're extremely excited about this unparalleled technology, which provides us with a distinct competitive advantage in the U.S. and, over time, in markets around the world. Very few companies have the integrated capabilities that Link Biosciences offers, making it a truly strategic asset for Herbalife's future.
We're extremely excited about this unparalleled technology, which provides us with a distinct competitive advantage in the U S and over time in markets around the world.
Speaker Change: Very few companies have the integrated capabilities that link biosciences offers making it a truly strategic asset for herbal lifes future.
Stephan Gratziani: Herbalife has 45 years of proven experience in using science and data to formulate high-quality products and deliver personalized nutrition and supplement programs to customers around the world. Building on that strong legacy, the assets from Link Biosciences will enable us to take personalization to the next level. By leveraging the Protocol Technology Platform, we will be able to formulate and manufacture personalized, one-to-one supplements. These custom-formulated supplements, combined with the protocol platform and our global distributor network, will enable us to deliver personalized, data-driven health and wellness programs at an unprecedented global scale, empowering people to optimize their health outcomes like never before.
Speaker Change: Herbalife has 45 years of proven experience in using science and data to formulate high quality products and deliver personalized nutrition and supplement programs to customers around the world.
Speaker Change: Building on that strong legacy the assets from linked Biosciences will enable us to take personalization to the next level.
Speaker Change: By leveraging the protocol technology platform, we will be able to formulate and manufacture personalized one to one supplement these.
Speaker Change: These custom formulated supplements combined with the protocol platform and our global distributor network will enable us to deliver personalized data driven health and wellness programs at an unprecedented global scale empowering people to optimize their health outcomes like never before now.
Stephan Gratziani: Now let's talk about Pruvit, which is a direct seller of patented ketone supplements. The assets acquired primarily relate to the intellectual property, and these assets give us the opportunity to expand our product offerings into a new product category.
Speaker Change: Now, let's talk about prove it which is a direct seller of patented ketones supplements.
Speaker Change: The assets acquired primarily relate to the intellectual property and these assets give us the opportunity to expand our product offerings into a new product category.
Stephan Gratziani: Proove-It will continue to operate independently under its current ownership for up to two years. In the near term, Proove-It distributors in the U.S. will have the opportunity to join Herbalife and take part in the commercialization of the protocol platform and product.
Speaker Change: Prove it will continue to operate independently under its current ownership for up to two years in the near term prove it distributors in the U S will have the opportunity to join Herbalife and take part in the commercialization of the protocol platform and products.
Stephan Gratziani: These acquisitions are an important step in our strategy centered on accelerated growth and building on our heritage of science, innovation, and one-to-one support. That one-to-one support, of course, is our distributors, who are the heart of our business. We have and continue to implement programs and initiatives designed to rebuild and strengthen our distributor base. These programs are focused on training, leadership, engagement, and accountability and include programs such as the Herbalife Premier League, Diamond Development Mastermind Program, and our recently launched all-new Herbalife Flex 45 Challenge.
Speaker Change: These acquisitions are an important step in our strategy centered on accelerated growth and building on our heritage of science innovation and one to one support that.
Speaker Change: That one to one support of course is our distributors who are the heart of our business we.
Speaker Change: We have and continue to implement programs and initiatives designed to rebuild and strengthen our distributor base.
Speaker Change: These programs are focused on training leadership engagement and accountability and include programs such as the Herbalife Premier League Diamond development Mastermind program and our recently launched all new Herbalife Flex forty-five challenge.
Stephan Gratziani: Another way we inspire, educate, and motivate our distributors is through our extravaganza training events. Our first events of 2025 were held in April with an extravaganza in Shanghai, China, and in India, which hosted its first two of four extravaganzas planned for 2025 in Bengaluru and Delhi. We expect strong demand to continue for these trainings and development opportunities as distributors look to grow their business.
Speaker Change: Another way, we inspire educate and motivate our distributors is through our extravaganza training events. Our first events of 2025 were held in April with an extravaganza in Shanghai, China and in India, which hosted its first two of four extravaganzas plan for 2025 in Bengaluru in Delhi we.
Speaker Change: Strong demand to continue for these trainings and development opportunities as distributors look to grow their businesses.
Stephan Gratziani: Growing our business and achieving our vision for the future can only be realized with a strong, experienced executive team. And ours is one of the best.
Speaker Change: Growing our business and achieving our vision for the future can only be realized with a strong experienced executive team and ours is one of the best I'm proud to work alongside talented executives like Rob Levy, our most tenured senior executive who is stepping into his new role as president.
Stephan Gratziani: I'm proud to work alongside talented executives like Rob Levy, our most tenured senior executive, who is stepping into his new role as president. I've worked directly with Rob as a distributor and now as an executive for almost 30 years. He is extremely well respected by our distributors and our employees, and his global leadership and expertise will help us continue to evolve and grow.
Speaker Change: I've worked directly with Rob as a distributor and now as an executive for almost 30 years.
Speaker Change: He is extremely well respected by our distributors and our employees and his global leadership and expertise will help us continue to evolve and grow.
Stephan Gratziani: I'm also excited to be working with Blake Mallon, who recently joined Herbalife as our Chief Strategy Officer and President of Protocol. He has more than two decades of experience as an entrepreneur and direct-selling executive and is the co-founder of Protocol Health and previously served as the President of Pruva. Flake shares our vision for the future of health and wellness, and he will continue to lead the development and implementation of the protocol platform, as well as provide strategic direction as we enter this new era at Herbalife.
Speaker Change: I'm also excited to be working with Blake Mellon, who recently joined Herbalife as our Chief strategy Officer, and President of protocol. He has more than two decades of experience as an entrepreneur and direct selling executive and is the cofounder of protocol health and previously served as the president of prove it.
Speaker Change: <unk> shares our vision for the future of health and wellness and he will continue to lead the development and implementation of the protocol platform as well as provide strategic direction as we enter this new era at Herbalife.
Stephan Gratziani: On our last earnings call, I said Herbalife is destined to become one of the world's most important health and wellness platforms, and that you would start to see this expressed more and more through our digital tech stack, our products, and our services. You're beginning to see it now through these acquisitions, which are just one piece of a broader strategy. There's so much more to come as we continue to make bold moves and deliver on what we've been saying for more than a year, that Herbalife will be the world's premier health and wellness company, community, and platform.
Speaker Change: On our last earnings call I said Herbalife is destined to become one of the world's most important health and wellness platforms and that you would start to see this expressed more and more through our digital tech stack, our products and our services you're beginning to see it now through these acquisitions, which are just one piece of a broader strategy. There is so much more.
Speaker Change: To come as we continue to make bold moves and deliver on what we've been saying for more than a year that herbalife will be the world's premier health and wellness company community and platform.
John DeSimone: Now I'll turn it over to John for the in-depth financial review. Over to you, John. Thank you, Stephan. Turning to our Q1 financial highlights on slide 9. We are very pleased with our strong first quarter results. Net sales were $1.2 billion. Down 3.4% versus Q1 of 2024 and just above the midpoint of our guidance range of down 1.5% to down 5.5% year over year. On a constant currency basis, net sales were up 1.4% versus Q1 of last year. a little below the midpoint of our guidance range of flat to up 4% year over year. FX rates had a negative 480 basis point impact on year-over-year sales.
Speaker Change: Now I'll turn it over to John for the in depth financial review over to you John.
John DeSimone: Thank you Stephane turning to our Q1 financial highlights on slide nine.
Speaker Change: We are very pleased with our strong first quarter results.
John DeSimone: Net sales were $1 $2 billion down.
John DeSimone: Down 3.4% versus Q1 of 'twenty 'twenty, four and just above the midpoint of our guidance range of down one 5% to down five 5% year over year.
John DeSimone: On a constant currency basis net sales were up one 4% versus Q1 of last year.
John DeSimone: A little below the midpoint of our guidance range of flat to up 4% year over year.
John DeSimone: FX rates had a negative 480 basis point impact on year over year sales, which is slightly better than expected as it has been a small improvement in FX rates versus the rates used in our Q1 guidance.
John DeSimone: Slightly better than expected as there has been a small improvement in FX rates versus the rates used in our Q1 guidance.
John DeSimone: Moving to Adjusted Evodoc. Our first quarter adjusted EBITDA was $165 million and above our guidance range of $140 million to $150 million. Adjusted EBITDA margins with 13.5%, up 260 basis points versus Q1 of last year. marking another quarter of strong operating performance. primarily driven by cost savings initiatives implemented in 2024.
John DeSimone: Moving to adjusted EBITDA.
John DeSimone: Our first quarter adjusted EBITDA was $165 million.
John DeSimone: And above our guidance range of $140 million $250 million.
John DeSimone: Adjusted EBITDA margins with 13, 5% up.
John DeSimone: Up 260 basis points versus Q1 of last year.
John DeSimone: <unk> another quarter of strong operating performance, primarily driven by cost savings initiatives implemented in 2024.
John DeSimone: CapEx for the quarter was $18 million, significantly below the low end of our guidance range of $30 to $40 million. primarily due to the delay and reprioritization of certain projects. some being shifted to later in 2020. Capitalized SAS implementation costs were approximately $5 million. First Quarter Gross Profit Margin improved to 78.3%, up 80 basis points compared to Q1 of 2020. The increase in gross profit margin was primarily due to pricing actions we took over the past which provided approximately 80 basis points of benefit. along with approximately 50 basis points of favorability from reduced input costs mainly related to lower raw material costs.
John DeSimone: Capex for the quarter was $18 million significantly below the low end of our guidance range of $30 million to $40 million, primarily due to the delay in re prioritization of certain projects.
John DeSimone: With some being shifted to later in 2025.
Capitalize SaaS implementation costs were approximately $5 million in the quarter.
John DeSimone: First quarter gross profit margin improved to 78, 3%.
John DeSimone: Up 80 basis points compared to Q1 of 2020 for.
John DeSimone: The increase in gross profit margin was primarily due to pricing actions, we took over the past year, which provided approximately 80 basis points of benefit.
John DeSimone: Along with approximately 50 basis points of favorability from reduced input costs, mainly related to lower raw material costs.
John DeSimone: These benefits were partially offset by 50 basis points of headwind. Higher Inventory Write-Downs, Year Over Year. First Quarter Net Income of $50 million includes approximately... $5 million of non-cash net deferred income. related to the $147 million Deferred Income Tax Benefit, we recognize. in the fourth quarter of 2024 due to changes that we made to our corporate entity. which was excluded from our adjusted results. As I stated on our Q4 earnings call, beginning this quarter, the net deferred tax effects related to the Q4 benefit will be excluded from our adjustment. Q1 Adjusted Diluted EPS of $0.59 includes a $0.13 FX headwind versus the first quarter of 2020.
John DeSimone: These benefits were partially offset by 50 basis points of headwinds from higher inventory write downs year over year.
John DeSimone: First quarter net income of $50 million includes approximately $5 million of noncash net deferred income tax related to the $147 million deferred income tax benefit we recognized in the fourth quarter of 2024 due to changes that we made to our corporate entity structure.
John DeSimone: Which was excluded from our adjusted results in the period as I stated on our Q4 earnings call beginning this quarter the net deferred tax effects related to the Q4 benefit will be excluded from our adjusted results.
John DeSimone: Q1, adjusted diluted EPS of <unk> 59 cents includes a 13th scent FX headwind versus the first quarter of 'twenty 'twenty four.
John DeSimone: Our first quarter Adjusted Effective Tax Rate was 21.8%. down from 27.1% for the first quarter of 2024, which had an approximately four cent favorable impact on adjusted diluted EPA. The lower 2025 rate was primarily due to changes in the geographic mix of income and tax benefits from discrete events in the period.
John DeSimone: Our first quarter adjusted effective tax rate was 21.8% down from 27, 1% for the first quarter of 2024, which had an approximately four cent favorable impact on adjusted diluted EPS.
John DeSimone: The lower 20 twenty-five rate was primarily due to changes in geographic mix of income and tax benefits from discrete events in the period.
John DeSimone: We now expect our full year 2025 Adjusted Effective Tax Rate to be approximately $28 to $35.
John DeSimone: We now expect our full year 2025, adjusted effective tax rate to be approximately 28% to 30%.
John DeSimone: Operating cash flows, which were neutral for the. came in ahead of our expectations. as we previously communicated. Our first quarter tends to be the lowest cash flow quarter of the year due to the payments of the annual Mach-Huge distributor bonus. which were approximately $74 million. and in line with last year's In addition, we paid out 2024 annual employee performance bonuses during Q1. which was about $35 million greater than last year. Due to a much higher bonus achievement level in 2024. We repaid approximately $70 million of debt during including the redemption of $65 million of the 2025 notes in February.
John DeSimone: Operating cash flows which were neutral for the first quarter came in ahead of our expectations.
John DeSimone: As we previously communicated our first quarter tends to be the lowest cash flow quarter of the year due to the payments of the annual mark huge distributor bonuses, which were approximately $74 million.
John DeSimone: And in line with last year's payment in.
John DeSimone: In addition, we paid out 2024 annual employee performance bonuses during Q1.
John DeSimone: Which was about $35 million greater than last year.
John DeSimone: Due to a much higher bonus achievement level in 2024 versus 2023.
John DeSimone: We repaid approximately $70 million of debt during the quarter, including the redemption of $65 million of the 2025 notes in February.
John DeSimone: And as of March 31st, our revolving credit facility remained Credit Agreement EBITDA for the first quarter was $192 million. And combined with our debt paydowns in the quarter, we further reduced our total leverage ratio to three times as of March 31st. Our target we set to achieve by the end of 2025. and we have achieved it three quarters.
John DeSimone: And as of March 31st our revolving credit facility remained undrawn.
John DeSimone: Credit agreement EBITDA for the first quarter was $192 million.
John DeSimone: And combined with our debt paydowns in the quarter.
John DeSimone: We further reduced our total leverage ratio to three times as of March 31.
John DeSimone: Our target we set to achieve by the end of 2020 five.
John DeSimone: And we have achieved at three quarters in advance.
John DeSimone: for additional details regarding the adjustments between adjusted EBITDA and credit agreement. as well as the calculation of our total leverage ratio. Please refer to the presentation.
John DeSimone: For additional details regarding the adjustments between adjusted EBITDA and credit agreement EBITDA as well as the calculation of our total leverage ratio. Please refer to the presentation appendix in the earnings press release.
John DeSimone: Turning to slide 10. We see the drivers of our year-over-year net sales. On a reported basis, first quarter net sales were down 3.4% year-over-year. while up 1.4% on a constant current. Overall volumes were down 2.3%. $29 million is more than offset by approximately $46 million of favoritism.
John DeSimone: Turning to slide 10, we.
John DeSimone: We see the drivers of our year over year net sales performance on a reported basis first quarter net sales were down three 4% year over year.
John DeSimone: Ill up 1.4% on a constant currency basis.
John DeSimone: Overall volumes were down two 3% or $29 million year over year.
John DeSimone: Which was more than offset by approximately $46 million of favorable pricing.
John DeSimone: FX was an approximately $60 million headwind year-over-year, or 480 base Slightly Better Than The 550 Bases Point Headwind We Had Anticipated In Our Q1 Guidance Provided In February. The FX Improvement since January. primarily due to the broad-based weakening of the U.S. dollar. Well, on a year-over-year basis, the dollar is still much stronger than it was a year ago.
John DeSimone: FX was an approximately $60 million headwind year over year, or 480 basis points, which was slightly better than the 550 basis point headwind, we had anticipated in our Q1 guidance provided in February.
John DeSimone: The FX improvement since January.
John DeSimone: It was primarily due to the broad based weakening of the U S dollar.
John DeSimone: While on a year over year basis. The dollar is still much stronger than it was a year ago.
John DeSimone: Turning to slide 11. We have the regional net sales result. FX negatively impacting each of these regions on a reported In Latin America, net sales were down 4% on a reported basis, while up 11% on a local currency. Favorable Year-Over-Year Net Price and then approximately 4% increase in volumes were more than offset by unfavorable FX. primarily due to the Mexican patient.
Turning to slide 11.
John DeSimone: We have the regional net sales results for the first quarter on a local currency basis, Latin America, EMEA and Asia Pacific All reported net sales growth in the quarter.
John DeSimone: With FX negatively impacting each of these regions on a reported basis.
John DeSimone: In Latin America, net sales were down 4% on a reported basis, while up 11% on a local currency basis.
John DeSimone: Favorable year over year net pricing and.
John DeSimone: And an approximately 4% increase in volumes were more than offset by unfavorable FX headwinds.
John DeSimone: Primarily due to the Mexican peso.
John DeSimone: In Mexico specifically, net sales were down 10% year-over-year on a reported... Whereas on a local currency basis, net sales were up. primarily due to favorable pricing on flat volumes year-round.
John DeSimone: In Mexico, specifically net sales were down 10% year over year on a reported basis, whereas on a local currency basis net sales were up 8%, primarily due to favorable pricing on flat volumes year over year.
John DeSimone: Me and Net Sales were down 2% year-over-year on a reported Well, up three. on a local current. Favorable year-over-year pricing and sales mix were more than offset by an approximately 5% decline in volume . as well as FX head.
John DeSimone: EMEA net sales were down 2% year over year on a reported basis, while up 3% on a local currency basis.
John DeSimone: Favorable year over year pricing and sales mix were more than offset by an approximately 5% decline in volume as.
John DeSimone: As well as FX headwinds year over year results were generally mixed across the market in the region.
John DeSimone: area results were generally mixed across the In Asia-Pacific, net sales were down 2% on a reported basis, while up 2% on a local currency Favorable year-over-year pricing impacts were more than offset by unfavorable FX movements and sales. Volumes Nearly Flat Year In India, net sales were up 3% on a reported and up 7% on a local currency. primarily due to an approximately 5% year-over-year increase in volumes and favorable prices. These benefits were partially offset by.
John DeSimone: In Asia Pacific net sales were down 2% on a reported basis, while up 2% on a local currency basis.
John DeSimone: Favorable year over year pricing impacts were more than offset by unfavorable FX movements and sales mix.
John DeSimone: With volumes nearly flat year over year.
John DeSimone: In India net sales were up 3% on a reported basis and up 7% on a local currency basis.
John DeSimone: Primarily due to an approximately 5% year over year increase in volumes and favorable pricing.
John DeSimone: These benefits were partially offset by FX headwinds.
John DeSimone: In North America, net sales are down 4% year over year, primarily driven by an 8% reduction in volumes, partially offset by higher...
John DeSimone: In North America, net sales were down 4% year over year, primarily driven by an 8% reduction in volumes, partially offset by higher pricing.
John DeSimone: China net sales were down 14% year-over-year on a reported basis and down 13% on a local currency basis, primarily driven by a 14% decrease in volumes year-over-year.
John DeSimone: China net sales were down 14% year over year on a reported basis and down 13% on a local currency basis, primarily driven by a 14% decrease in volumes year over year.
John DeSimone: Turning to slide 12, we see the drivers of the $27 million or 19% year-over-year increase in our first quarter adjusted EBIT. Our adjusted EBITDA remains strong at $165 million, with margin at 13.5%, a 260 basis point improvement year over year. Looking at the bridge, the impact of the gross profit margin improvement can be seen in the pricing benefit and favorable input.
John DeSimone: Turning to slide 12, we see the drivers of the $27 million or 19% year over year increase in our first quarter adjusted EBITDA.
John DeSimone: Our adjusted EBITDA remained strong at $165 million with margin at 13, 5% to 260 basis point improvement year over year.
John DeSimone: Looking at the bridge the impact of the gross profit margin improvement can be seen in the pricing benefit and favorable input costs.
John DeSimone: partially upset by lower volumes and unfavorable sales Reduction in salaries is primarily due to the restructuring initiative implemented during 2024, partially offset by employee merit increases in the first quarter. Lower employee bonus accruals reflect a reduction in headcount. As well as reduced bonus achievement levels expected in 2025 compared to the high levels achieved in 2020.
John DeSimone: Partially offset by lower volumes and unfavorable sales mix.
John DeSimone: The reduction in salaries is primarily due to the restructuring initiative implemented during 2024, partially offset by employee merit increases in the first quarter.
John DeSimone: Lower employee bonus accruals reflect a reduction in head count as well as reduce bone and achievements levels expected in 2025 compared to the high levels achieved in 2024.
John DeSimone: Unfavorable Year of the FX Movement resulted in an approximately $17 million reduction.
Unfavorable year over year FX movements resulted in approximately $17 million reduction in adjusted EBITDA.
John DeSimone: Moving to slide 13, I'll provide an update on our capital. During the first quarter, we paid down $70 million of debt, including $65 million of the 2025 notes redeemed in February, and $5 million of the Term Loan B, scheduled to emit As of March 31st, our revolving credit facility remained undamaged. Importantly, we further reduced our total leverage ratio three times as of March 30th.
John DeSimone: Moving to slide 13, I'll provide an update on our capital structure.
John DeSimone: During the first quarter, we paid down $70 million of debt, including $65 million of the 2025 notes redeemed in February and $5 million of the term loan b scheduled amortization payments.
John DeSimone: As of March 31st our revolving credit facility remained undrawn.
John DeSimone: Importantly, we further reduced our total leverage ratio of three times as of March 31.
John DeSimone: Target we had originally set to achieve by the end. Cash at the end of March was $329 million. with the steps we have taken over the past year to optimize our in-house. and Abel Zoss. Centralize our cash management and reduce cash holdings in certain countries. We now have more flexibility to maintain an overall lower minimum cash balance. Going forward, some quarters may see higher or lower cash balances.
John DeSimone: A target we had originally set to achieve by the end of 2025.
Cash at the end of March was $329 million.
John DeSimone: And with the steps we've taken over the past year optimize our in House Bank.
John DeSimone: Which enables us to centralize our cash management and reduce cash holdings in certain countries.
John DeSimone: We now have more flexibility to maintain an overall lower minimum cash balance.
John DeSimone: Moving forward and some quarters may see higher or lower cash balances depending on the circumstances.
John DeSimone: We remain committed to reducing our principal amount of debt outstanding to $1.4 billion by the end of 2028. which is a billion dollar reduction from where we stood at the end of Q2 2024 when we first made the commitment. We remain on track to repay the $197 million outstanding on the 2025 note. at or prior to the September 2025 maturity.
John DeSimone: We remain committed to reducing our principal amount of debt outstanding to $1.4 billion by the end of 'twenty 'twenty eight.
John DeSimone: Which is a billion dollar reduction from where we stood at the end of Q2 'twenty 'twenty four when we first made the commitment.
John DeSimone: We remain on track to repay the $197 million outstanding on the 20th twenty-five notes.
John DeSimone: At or prior to the September 'twenty twenty-five maturity.
John DeSimone: leaving the next meaningful debt maturity not due until 20.
John DeSimone: Leaving the next meaningful debt maturity not due until 2028.
John DeSimone: As Stephan noted in his opening remarks, we recently completed the asset acquisitions related to Protocol, Prove-It, and Link Bio. Total cash consideration paid in April relating to these acquisitions was $25.5 million. In 2025, contingent payments of up to $5 million in total are payable upon the successful launch of the beta version of the Protocol Technology Platform in July and the commercial release in the U.S. in the fourth quarter of 2025.
John DeSimone: As Stephen noted in his opening remarks, we recently completed the asset acquisitions related to protocol prove it and link Biosciences <unk>.
John DeSimone: Total cash consideration paid in April relating to these acquisitions was $25 $5 million.
John DeSimone: And 'twenty twenty-five contingent payments of up to $5 million in total are payable upon the successful launch of the beta version of the protocol technology platform in July and the commercial release in the U S. In the fourth quarter 2025.
John DeSimone: Moving to slide 14, we will review our outlook for the second quarter in full year 2025. We continue to expect FX to be a significant headwind for the remainder of 2025. Despite the recent weakening of the U.S. dollar. Therefore, we are providing net sales and adjusted EBITDA guidance based on the both on a reported as well as constant currency for both the second quarter and full year 2025. For the second quarter, FX is expected to have an approximately $40 million negative impact to our net sales and approximately $17 million negative impact to our Q2 adjusted EBITDA.
John DeSimone: Moving to slide 14.
John DeSimone: We will review our outlook for the second quarter and full year 2025.
John DeSimone: We continue to expect FX to be a significant headwind for the remainder of 2025. Despite the recent weakening of the U S dollar.
John DeSimone: Therefore, we are providing net sales and adjusted EBITDA guidance based.
John DeSimone: Both on a reported basis, which uses the average daily exchange rates for the first two weeks of April 2025.
John DeSimone: As well as constant currency for both the second quarter and full year 2025.
John DeSimone: For the second quarter FX is expected to have an approximately $40 million negative impact to our net sales and approximately $17 million negative impact to our Q2 adjusted EBITDA.
John DeSimone: We expect second quarter net sales to be in a range of down 3.5% to up 0.5% year-over-year, which includes an approximately 300 basis point headwind from current sales. On a constant currency basis, we expect net sales to be down 0.5% to up 3.5% year-over-year. We expect adjusted EBITDA for the second quarter to be in the range of $160 to $170 million. while in the range of $177 to $187 million on a constant currency. Our planned capital expenditures for the second quarter are in the range of $25 to $35 million.
John DeSimone: We expect second quarter net sales to be in a range of down three 5% up a half percent year over year, which includes an approximately 300 basis point headwind from currency.
John DeSimone: On a constant currency basis, we expect net sales to be down a half percent to up three 5% year over year.
John DeSimone: We expect adjusted EBITDA for the second quarter to be in the range of $160 million to $170 million.
John DeSimone: All in the range of $177 million to $187 million on a constant currency basis.
John DeSimone: Our planned capital expenditures for the second quarter or in the range of $25 million to $35 million.
John DeSimone: Now moving to our full year guidance, which we have updated given our first quarter performance and the revisions to the outlook for the remainder of this year. which include our preliminary estimates of tariff increases. Currency Movement since we provided guidance in February. and the estimated operating costs associated with the RESAC. And with all of this, we are raising our adjusted EBITDA guidance for the year. In respect to tariffs, our 2025 guidance includes a preliminary estimate of the impact of the incremental tariffs that have been enacted as of yesterday. The estimated impact of these tariffs is not material to our full year 2025 expected results.
John DeSimone: Now moving to our full year guidance, which we have updated given our first quarter performance and the revisions to the outlook for the remainder of this year, which include our preliminary estimates of tariff impacts.
John DeSimone: Currency movements since we provided guidance in February.
John DeSimone: And the estimated operating costs associated with the recent acquisitions.
John DeSimone: And with all of this we are raising our adjusted EBITDA guidance for the year.
John DeSimone: With respect to tariffs are 2025 guidance includes a preliminary estimate of the impact of the incremental tariffs that have been enacted as of yesterday.
John DeSimone: The estimated impact of these tariffs is not material to our full year 'twenty twenty-five expected results.
John DeSimone: and on an annualized basis. We do not expect the enacted tariffs to have a material impact. Turning to FX, we now expect currency to drive an approximately $150 million negative impact to our full-year 2025 net sales, reduced from an expected $200 million headwind based on the FX assumptions included in our February. In addition, we now expect currency to drive an approximately $65 million negative impact. to our 2025 Adjusted EBITDA, reduced from an approximately $70 million anticipated FX headwinds in the guidance we provided. We've narrowed our full year net sales range to now be in the range of down 2.5% to up 2.5% year-over-year.
John DeSimone: And on an annualized basis, we do not expect the enacted tariffs to have a material impact on our results.
John DeSimone: Turning to FX, we now expect currency to drive an approximately $150 million negative impact to our full year 2025 net sales.
John DeSimone: Reduced from an expected 200 million dollar headwind based on the FX assumptions included in our February guidance. In addition, we now expect currency to drive an approximately $65 million negative impact to our 2025 adjusted EBITDA reduced from approximately $70 million anticipated FX headwind.
And the guidance we provided in February.
John DeSimone: We've narrowed our full year net sales range to now be in the range of down two 5% to up two 5% year over year.
John DeSimone: Whereas at constant currency, we expect net sales to be up 0.5% to up 5.5% year-over-year. As I stated, we are raising our expectations for the full year adjusted EBITDA to a range of $625 million to $655 million. while in the range of $690 to $720 million on a constant current.
John DeSimone: Whereas at constant currency, we expect net sales to be upper half percent to up five 5% year over year.
John DeSimone: As I stated, we are raising our expectations for the full year adjusted EBITDA to a range of $625 million to $655 million, while in the range of $690 million to $720 million on a constant currency basis.
John DeSimone: We are reducing our expected capital expenditures for the year. to now be in the range of $90 million to $120 million. Includes the incremental spend related to the further development and launch Historical Plac. We continue to expect full-year capitalized SaaS implementation costs to be in the range of $25 to $30 million. which is incremental to our plan. Appreciation and Ammonization, including Ammonization of SAS Implementation Costs, is expected to be in the range of $140 million to $150 million. For the full year 2025, we expect our adjusted effective tax rate to be between 28 and 30%.
John DeSimone: We are reducing our expected capital expenditures for the year to now be in the range of 90 million to $120 million, which includes the incremental spend related to the further development and launch.
John DeSimone: Of the protocol platform.
John DeSimone: We continue to expect full year capitalize SaaS implementation costs to be in the range of $25 million to $30 million.
John DeSimone: Which is incremental to our planned capex.
John DeSimone: Depreciation and amortization, including amortization of SaaS implementation costs is expected to be in the range of $140 million to $150 million.
John DeSimone: For the full year 2025, we expect our adjusted effective tax rate to be between 28 and 30%.
John DeSimone: Now before moving to Q&A, I want to close my opening remarks with one final. 2025 is off to a strong start as we continue to pay down debt, improve margins, and drive greater distributor engagement. It's an exciting time at Herbalife. as we made bold strategic moves to position ourselves for the future of health and wellness.
John DeSimone: Now before moving to Q&A I want to close my opening remarks with one final comment.
John DeSimone: 2025 is off to a strong start as we continue to pay down debt improve margins and drive greater distributor engagement.
It's an exciting time at herbalife.
John DeSimone: As we made bold strategic moves to position ourselves for the future of health and wellness.
John DeSimone: On behalf of our entire team, we're excited to welcome Stephan as our new CEO and to usher in the next era of Herbalife.
John DeSimone: On behalf of our entire team we're excited to welcome Stefan who is our new CEO and to Usher in the next era of Herbalife.
Unknown Executive: This concludes our opening remarks, Operator, please open the call. Thank you.
John DeSimone: This concludes our opening remarks, operator, please open the call for questions.
Unknown Executive: Ladies and gentlemen, to ask a question, please press star 1-1 on your telephone, then wait for your name to be announced. To withdraw your question, please press start one more again. Please stand by while we compile the Q&A roster.
John DeSimone: Thank you.
Speaker Change: Ladies and gentlemen to ask a question. Please press star one on your telephone and wait for your name to be announced.
John DeSimone: To withdraw your question. Please press star one again please.
Speaker Change: Please stand by while we compile the Q&A roster.
Chasen Bender: Our first question comes from the line of Chasen Bender with Citi. Your line is open. Great afternoon, everyone. Thanks for taking the question, Stephan.
Speaker Change: Our first question comes from the line of Jason Bender with Citi. Your line is open.
Jason Bender: Great afternoon, everyone. Thanks for taking the question.
Stephan Gratziani: To start, I was hoping you could expand a little bit on the monetization strategy of protocol. I realize it's still pretty early, but given the expectations for adoption that you were highlighting earlier, you know, how do you anticipate that the ROIs will evolve through 25 and 26? And related to that, you know, it's been almost a year since I think you first discussed the conversion opportunity at U.S. nutrition clubs. Could you just give us a sense, you know, how the conversion rates have evolved over the last year and how the protocol integration or launch could potentially influence those conversion rates going forward?
Speaker Change: Stephane to start I was hoping you could expand a little bit on the monetization strategy of protocol I realize it's still pretty early but given the expectations for adoption that you were highlighting earlier.
Speaker Change: Do you anticipate that the Rois will evolve through 'twenty five 'twenty six and related to that you know it's been almost a year since I think you first discussed the conversion opportunity.
Speaker Change: U S nutrition clubs could you just give us a sense.
Speaker Change: How how the.
Speaker Change: Conversion rates have evolved over the last year and how the protocol integration or launch could potentially influence.
Speaker Change: Those conversion rates going forward.
Stephan Gratziani: Yeah, so Chasen, thanks for the questions. So first of all, I appreciate the fact that you said it's a bit early to start talking about the, you know, the, the ROI. Obviously, this is a new era for us as a company, you know, launching a digital platform that supports our business, supports more product consumption, longer product consumption, sales of new products, and supports distributors in helping their customers achieve the best results possible and create a stickiness to the company that we've never experienced before in this way. So I'll let John talk a little bit about kind of how we've modeled things out.
Speaker Change: Yeah, So Jason Thanks for the questions. So first of all I. Appreciate the fact that you said, it's a bit early to start talking about the.
Speaker Change: The ROI.
Speaker Change: Obviously this is a new era for us as a company.
Speaker Change: Launching a digital platform that supports our business supports more product consumption longer product consumption sales of new products and.
Speaker Change: It supports distributors and helping their customers achieve the best results possible and create a stickiness to the company that we've never experienced before in this way. So I'll, let John talk a little bit about kind of how we've modeled things out but again.
Stephan Gratziani: But again, it's very new. We will be launching the beta in July and in October starting commercialization. So, again, I'll let J.D. talk a little bit about that. On the Nutrition Club conversion, you know, it's, it's a huge opportunity for us. And you're right, it has been probably just over a year that we've been talking about it. If we look at the 2024 data of, you know, unique consumers purchasing from U.S. Nutrition Clubs, it's almost 4 million people. I mean, if you think about that in the United States, it's a huge amount of people. And as you mentioned, you know, we've been talking about conversion, 1 to 2% conversion as preferred customers.
Speaker Change: It's very new.
Speaker Change: We will be launching the beta in July and in October starting commercialization. So.
Speaker Change: Again, I'll, let Judy talk a little bit about that.
Speaker Change: On the nutrition club conversion.
Judy: It's a huge opportunity for us and you're right. It has been probably just over a year that we've been talking about it if we look at the 2024 data.
Judy: Unique consumers purchasing from U S nutrition clubs, it's almost 4 million people I mean, if you think about that in the United States. It's a huge amount of people and as you mentioned, we've been talking about conversion, 1% to 2% conversion as preferred customers and part of it is.
Stephan Gratziani: And part of it is that the people that are, you know, distributors and the people that are working in the clubs that are selling to consumers, because it is really a consumption-based, more of a food service model, they're not taking the time specifically to sit down with someone and ask them what their goals are and to explain the products to them or to go through and evaluate how they're eating. And so to have a technology that is as simple as saying, hey, download this QR, you know, scan the QR code, download, you know, do a digital diagnostic.
Speaker Change: The people that are distributors and the people that are working on the clubs that are selling to consumers because it is really a consumption based more of our foodservice model, they're not taking the time, specifically to sit down with someone and ask them what their goals are and to explain the products to them or to go through in a.
Speaker Change: <unk>, how they're eating and so to have a technology that is as simple as saying hey download. This QR scan the QR code download do a digital diagnostic they may promoted and say Youll get $5 off your next visit here at the club you take the 4 million people and we will be looking at different.
Speaker Change: Testing different conversion models.
Speaker Change: It's clear that we're going to go beyond the 1%, 2% conversion and so again early days, but we see that there's a huge opportunity for us and Thats just the United States. I mean, we can then talk about the 65000 clubs around the world, but your points are very important these are huge upsides for us.
Stephan Gratziani: I mean, we can then talk about the 65,000 clubs around the world, but your points are very important. These are huge upsides for us. And yes, it's early, but I think logic would tell you that this is going to have a very positive impact on conversion. And, you know, this is, again, new territory.
Speaker Change: And yes, it's early but I think logic would tell you that this is going to have a very positive impact on conversion and this is again new character, let me pass it over to John to talk a little bit more about the modeling in terms of the memberships and the users yes. So.
John DeSimone: Let me pass it over to John to talk a little bit more about the modeling in terms of the memberships and the users. Yeah, so, Jason, thank you. This, I think, is an important question. When it comes to ROI and creating value, There's three main components and there's some subcomponents of a couple of them. So first The app itself could generate revenue. I say could because there's likely to be a fee for that unless you buy product. and so that it itself can have some revenue generating. that's one. Two, the app will help us sell more product.
John: Jason Thank you.
Speaker Change: I think it's an important question.
John: When it comes to ROI and creating value.
John: The three main components in there some sub components.
John: A couple of them so first.
John: The app itself could generate revenue.
John: I say could because there's likely to be a fee for that unless you byproduct.
John: And so that itself can have some revenue generating attributes.
John: That's one two.
John DeSimone: And I kind of put that into three buckets. So there's the ultra personalized bucket that's tied to link bioscience, which is very much a product unique to you with your name on it, based on your biomarkers and how you've answered questions and whatnot. So that's one subset of it. Two is, it will be product specific to the protocol app that are not in our portfolio today, that will get launched over time. We'll get into more details next quarter as to what that looks like. And that should be incremental revenue. And then three, the app should help us sell more of our Herbalife product.
John: The App will help us sell more products and I kind of put that into three buckets. So theres the Ulster personalized bucket.
John: Bucket, that's tied to link bioscience, which is very much a product you need with your name on it.
John: Based on your Biomarkers, and how you've answered questions and whatnot. So thats one subset of it too is there will be product specific too.
John: The protocol at that.
John: In our portfolio today that will get launched overtime will get into more details next quarter as to what that looks like.
John: And that should be incremental revenue and then three they actually help us sell more of our herbalife product.
John DeSimone: And then, so those are three subsets of the product value. And then there's new distributors and new customers. And that comes, I'll put that in two buckets. So really there is the Herbalife bucket. We think there'll be, this'll be. Really a new DMO for our district. that can bring in new distributors and generate new customers. But also, Protocol was originally being developed for Approve-It and for their distributors, and now their distributors have an opportunity to sign up for Protocol and become Herbalife distributors, and that will help us. So, hopefully that kind of buckets it. Lastly, I'll tell you, in terms of the 2025 projections that we used for guidance, we included the cost of Protocol.
John: And then so those are three subsets of the product value and then there's new distributors and new customers.
John: And that comes up with it in two buckets. So really there is the the herbalife bucket, we think there'll be.
John: This will be.
Really a new demo for our distributors that.
John: That can bring in new distributors and generate new customers, but also protocol was originally being developed for a prove it.
John: And for the industry theaters and now the industry has had an opportunity to sign up for protocol and become herbalife distributors and that will help us so hopefully that that kind of buckets. It.
John: Lastly, I will tell you theres not in terms of the 2025 projections that we used for guidance. We included the cost of.
Chasen Bender: We have not included revenue yet, because, you know, when we launch the app in beta, it'll be July. You know, maybe there'll be some revenue for some product at that point, but it'll be small. And if the commercial launches October, we'll know a lot more by then, and we'll start including more into our guidance. Got it. Thanks for that color.
John: The protocol, we have not included revenue yet because when we launched the app in beta it'll be July maybe there'll be some revenue some product at that point, but it'll be small if the.
John: The commercial launches October we'll know a lot more by that and we'll start including more into our guidance as the year progresses.
Speaker Change: Got it thanks for that color and then secondarily.
Stephan Gratziani: And then secondarily, for North America, the trend on a lot of the distributor number KPIs and volumes too, you know, has taken a sequential step backwards. So I was hoping you could provide some some additional perspective on what's driving that and your expectations for the marketing context of 2025 guidance. Yeah, I'll take it from a high level. So when we think about, you know, net sales and just overall volume in the US The U.S. finished the quarter very strong. It actually started the quarter strong. It had a weak February, which I think we will come.
Speaker Change: For North America, the trend on a lot of the distributor number kpis and volumes too.
Speaker Change: Taken a sequential step backwards. So I was hoping you could provide some some additional perspective on what's driving that and your expectations for the market in context of 2025 guidance.
Speaker Change: Yes, I'll take it from a high level, so when we think about.
Speaker Change: Net sales and just overall volume in the U S.
Speaker Change: The U S finished the quarter very strong it actually started the quarter strong.
Speaker Change: A weak February which I think we will come in.
Stephan Gratziani: And there could be a few reasons why, including, you know, there's a lot of noise in the world back then that kind of slowed things down. And the consumer was pretty weak in February in general. And also, we were launching a lot of new technology the first week in March. Including our new e-commerce platform in the U.S., our digital IPP, which for signing up which was much less expensive because it was digital leads. There's a whole host of different actions we took at the beginning of March that may have slowed things down in February while distributors waited for the new stuff to come in March.
Speaker Change: There could be a few reasons why including you know there's a lot of noise in the world back then that kind of slowed things down and the consumer was pretty weak in February in general and also we were launching a lot of new technology. The first week in March.
Speaker Change: Including our new ecommerce platform in the U S digitally.
Speaker Change: Which you have for signing up which is much less expensive because it was digital.
Speaker Change: Leeds is a whole host of different actions, we took at the beginning of March that may have slowed things down.
Speaker Change: February wine wine distributors waited for the new stuff to come in March so but.
Stephan Gratziani: But I will tell you, we finished the quarter strong, and we expect the North American region to improve Q2 versus Q1 sequential. Gotcha.
Speaker Change: But I will tell you we finished the quarter strong and we expect.
Speaker Change: The North American region to improve Q2 versus Q1 sequential trends continued to improve during the year.
John DeSimone: And then if I can just sneak one last one in, the guide for the constant currency sales guidance for 2025 came down by about 1% at the midpoint, which is more than just the flow through of 1Q. And this is happening when broadly new distributed growth, ex-North America, ex-China, still looks pretty healthy. You're getting Pricing in a number of markets and the overall trend in active sales leaders and non-sales distributors is headed in the right direction. So, you know, they're kind of pointing in opposite directions. So curious if you can elaborate on why the reduction to the midpoint of guide.
Speaker Change: Gotcha, and then if I can just sneak one last one in the guide for the constant currency sales guidance for 2025 came down by about 1% at the midpoint, which is more than just the flow through of <unk> and this is happening when broadly new distributor growth ex north.
Speaker Change: Erica ex China still looks pretty healthy you're getting.
Speaker Change: Yes.
Speaker Change: Pricing in a number of markets and the overall trend.
Speaker Change: In active sales leaders in non sales with distributors is headed in the right direction. So.
Speaker Change: Pointing in opposite directions. So curious if you can elaborate on why the reduction to the midpoint of guidance.
John DeSimone: Yeah, I mean, so, so what you're saying it is like, slightly in a different direction, right? It's not materially in a different direction, right? I mean, the, you take the Q1 trend, if you annualize it, yeah, we took the year down by slightly more than what the annual number would be for the, for the first quarter, but not much. So it really was basically rolling in what we saw in the first quarter. We had a little bit of weakness in Asia Pac, we rolled that the back half of the year and we're not expecting a lot out of China although we are expecting improvement and I think you know we've launched We're very cautious on China, you know, we've been through a rollercoaster ride over the last five years in China.
Speaker Change: Yes.
Speaker Change: So what you are saying it is slight slightly different direction right, it's not materially different direction right.
Speaker Change: You take the Q1 trend if you would annualize it yes, we took the year down by slightly more than what the annual number would be for the for the first quarter, but not much.
Speaker Change: So it really was basically rolling and what we saw in the first quarter.
Speaker Change: We had a little bit of weakness in Asia Pac and we roll that in to.
Speaker Change: To the back half of the year.
Speaker Change: And we're not expecting a lot out of China, Although we are expecting improvement.
Speaker Change: We've launched.
Speaker Change: We're very cautious on China.
Speaker Change: We've been through a roller coaster ride over the last five years in China.
John Baumgartner: We have a lot of initiatives. We're very hopeful. But we're going to wait and see on China before we do anything else. website. Thank you. Okay, I'll take the rest offline. Thanks so much, guys. Thank you. Please stand by for our next question.
Speaker Change: We have a lot of initiatives, we're very hopeful.
Speaker Change: But we're going to wait and see on China before we roll any meaningful upside into our projections.
Speaker Change: Okay I'll take the rest offline. Thanks, so much guys.
Speaker Change: Thank you. Thank you.
Speaker Change: Please standby for our next question.
John Baumgartner: Our next question comes from the line of John, John Baumgartner with Missoula Securities. Your line is open. Good afternoon. Thanks for the question.
Speaker Change: Our next question comes from the line of John John Baumgartner with Mizuho Securities. Your line is open.
Speaker Change: Good afternoon, and thanks for the question.
Stephan Gratziani: Maybe first off, building on the last line of questioning, I wanted to come back to the link to biosciences. And Stephan, could you elaborate a little bit on your sort of intentions for that business? The offering seems maybe a bit more advanced and maybe a bit more expensive relative to the needs of the average person looking to drop a few pounds or, you know, maintain a healthy weight. So is this something that you're looking to tap into athletes, a more specialized audience with the NSF certified for sport and, you know, have it slide into the energy sports fitness category?
Speaker Change: Maybe.
Speaker Change: First off building on the last line of questioning I wanted to come back to the link the Biosciences and Stephane can you elaborate a little bit on your your sort of intentions for that business. The offerings seems maybe a bit more advanced than maybe a bit more expensive relative to the needs of the average person looking to drop a few pounds or maintain a healthy weight. So is this something that youre looking to tap it.
Speaker Change: Athletes to more specialized audience with the NSF certified for sport and have it slide into LNG sports fitness category, how do you think about the audience for link.
Stephan Gratziani: How are you thinking of the audience for link? Well, I think there's a few audiences, you know, definitely athletes, and without going into details, we actually the last couple of weeks have spent a good amount of time with some of our partners that work with very high level athletes. And this is something that is of high interest to them. So we're looking at, you know, opportunities and programs there. I think if we look overall and to Chasen's question a little bit in terms of kind of the U. S. The U. S. market is becoming more and more sophisticated, has more and more, you know, access to information.
Speaker Change: Well I think Theres a few audiences are definitely athletes and without going into details. We actually the last couple of weeks have spent.
Speaker Change: Good amount of time with some of our partners that work with very high over the last week.
Speaker Change: And this is something that is of high interest to them. So we're looking at opportunities and programs. There I think if we look overall and to Jason's question, a little bit in terms of kind of the U S.
Speaker Change: The U S market is becoming more and more sophisticated as more and more.
Stephan Gratziani: I think there's more and more competition in terms of what's being offered by companies. And so Link Biosciences offers something that is really unique and differentiates us from almost every other company out there, you know, to be able to formulate on a one to one basis for someone. And not just on a one to many basis. It's just something that is not very, it's not common at all. I mean, you know, look at what's in your cupboards. How many of those products were formulated one to one for you? And so we believe that there's going to be a category of customers that are the more sophisticated that, you know, number one are looking for something and having something unique for them.
Speaker Change: Access to information I think theres more and more competition in terms of what's being offered by companies until link Biosciences offer something that is really unique and differentiate us from almost every other company out there too.
Speaker Change: To be able to formulate on a one to one basis for someone.
Speaker Change: And not just on a one to many basis.
Speaker Change: It's just something that is not very it's not commented at all I mean.
Speaker Change: Look at what's in your covered.
Speaker Change: How many of those products were formulated one to one for you and so we believe that there's going to be a category of customers that are the more sophisticated that's number one or are looking for something and having something unique for them. That's more customized it's going to bring customers in that don't have anywhere else to.
Stephan Gratziani: That's more customized. It's going to bring customers in that don't have anywhere else to go because we have it number one. First of all. So the second is the technology. And so having this technology and being able to build upon it. We believe over time what's going to happen is, yes, now it's hyper-customized, but we actually think the world is going to go in that direction also. So if we go down the road five or ten years from now, you know, I think that the population overall that's going to be looking for hyper-customization, it will be bigger.
Speaker Change: Because we have it number one first of all so the second is the technology and so having this technology and being able to build upon it.
Speaker Change: We believe over time, what's going to happen is yes, now its hyper customized but we actually think the world is going to go in that direction also so if we go down the road five or 10 years from now I think that the population overall thats going to be looking for hyper customization it will be bigger and so being ahead of this and especially having acquired.
Stephan Gratziani: And so being ahead of this, and especially having acquired this technology and being able to build on it and expand it internationally, it's going to position us in market ahead of, I don't want to say any competitors, but I would say almost any competitor. So, you know, it's going to bring different levels of customers now, and yes, you're right, it's more of a premium customer, and, you know, athletes definitely fall into that category. But we believe over time this will become more generalized, and we will be at the right place at the right time because of the moves that we're making today.
Speaker Change: This technology and being able to build on it and expanded internationally, it's going to position us in market ahead of I don't see any competitors, but I would say almost any competitor so.
Speaker Change: It's going to bring different levels of customers now and yes, you are right. It's more of a premium customer and athletes definitely fall into that category, but we believe over time. This will become more generalized and we will be at the right place at the right time because of the moves that we're making today.
John DeSimone: Okay, thanks for that.
John DeSimone: And then, John, if we can dig a bit more into Asia Pacific, that region's seen some pretty good growth in the active non-sales leader distributors for a couple of years now, and yet the volume isn't really converting.
Speaker Change: Okay. Thanks for that and then <unk>.
Speaker Change: John if we can take a bit more into Asia Pacific.
Speaker Change: <unk> seen some pretty good growth in the active non sales leader distributors for couple of years now and yet the volume isn't really converting can you elaborate a bit in terms of what you're seeing on the ground and maybe it's India versus non India, but is it macro is there upskilling knee that you haven't really implemented yet.
John DeSimone: Can you elaborate a bit in terms of what you're seeing on the ground, and maybe it's India versus non-India, but is it macro? Is there an upskilling need that you haven't really implemented yet? Any thoughts on Asia Pacific would be appreciated. Yeah, sure. So Asia is still performing well, by the way, right? And, and, you know, India is A big part of that, and it's still growing, but the numbers have gotten big and the growth rates have decreased, as expected, and that has an overweighting impact on the consolidated APAC numbers that you So there's still a lot of strength in APAC, but there was a few markets that had some weaknesses in the quarter.
Speaker Change: Any thoughts on Asia Pacific would be appreciated.
Speaker Change: Yeah sure. So you are still performing well by the way right.
Speaker Change: And India is.
Speaker Change: A big part of that and it's still growing but the numbers have gotten big and the growth rates have decreased as expected and that has an overweight impact on the consolidated APAC numbers that you are probably looking at so there's still a lot of strengthening impact, but there was a few markets that had some weaknesses in the quarter Korea was a little weak some of that is timing of price increases.
John DeSimone: Korea was a little weak. Some of that is timing of price. We expected to launch a price increase. which we thought would pull a little bit of volume into Q1. That didn't happen until April, so I think we'll make up the career volume. Taiwan had a number of promotions last year and it's got some tough comps, it's not doing great. Indonesia's got a little bit of weakness and some of that was Ramadan and you know timing was March of this year and it was April of last year but it's not, there's nothing major negative going on APAC, there's a lot of good stuff going on in APAC, it's just slightly under our expectations in the quarter and we rolled some of that forward.
Speaker Change: We expect it to launch a price increase in March, which we felt would pull a little bit of volume into Q1 that didnt happen until April. So we will make up the curve I think will make up the Korea volume in April.
Speaker Change: Taiwan had a number of promotions last year.
Speaker Change: And tough comps, it's not doing great Indonesia.
Speaker Change: Little bit of weakness for some of that was Ramadan timing.
Speaker Change: Timing was March of this year and it was April of last year, but.
Speaker Change: It's not there's.
Speaker Change: Theres nothing major negative going on APAC, it's there's a lot of good stuff going on at <unk>.
Speaker Change: Packaged just slightly under our expectations.
Speaker Change: In the quarter and we rolled some of that forward into the year.
Speaker Change: For the year.
John DeSimone: Thanks for your time.
Speaker Change: Thanks for your help.
Stephan Gratziani: Well, I was just going to add that, you know, we've talked about the three-year decline in recruiting, right? So that there's a tail to that. And as we've now had our fourth consecutive quarter of new distributor growth, what ends up happening is that, you know, we've got to find the end of the tail, and it's got to have that moment of capitulation. So, and it's a mixed basket, right? You've got, you know, certain markets dealing with certain conditions and individual situations. So, you know, it's, it's, it's a timing. And this is why, you know, we've been very clear, it's quarter by quarter.
Speaker Change: Yes.
Speaker Change: Well I was just going to add that we've talked about the three year decline in recruiting right. So that there is a tail to that and as we've now had our fourth consecutive quarter of new distributor growth. What ends up happening is that we've got to find the end of the tail and it's got to have that moment of capitulation, so and it's a mixed.
Speaker Change: Basket right, you've got certain markets dealing with certain conditions and individual situations. So.
Speaker Change: It's a timing and this is why we've been very clear it quarter by quarter I think overall the <unk>.
Stephan Gratziani: I think overall, the company, and I spoke a little bit about it in the opening comments, the distributor leadership, with these acquisitions and the vision and the tools of the protocol platform, and this new manufacturing capability and technology, it's, it's created a new vision for everyone around the world in the future and where we're going as a company. So, you know, I just, again, it's, it's, we're in this period of time, where, well, we, we, we want to be able to come on these calls and say, growth, growth, growth. And, you know, we've, we've done a great job over the last year.
Speaker Change: Company and I spoke a little bit about it in the opening comments the distributor leadership with these acquisitions and the vision and the tools of the protocol platform and this new manufacturing capability and technology.
Speaker Change: It's created a new vision for everyone around the world in the future and where we're going as a company. So.
Speaker Change: I just again.
Speaker Change: We're in this period of time.
Speaker Change: Look we want to be able to come on these calls and say.
Speaker Change: Both growth growth and we've done a great job over the last year.
Stephan Gratziani: Recruiting is up. The tail of the three years prior, you know, we're quarter by quarter closer to the point of capitulation. And, you know, it's, it's just quarter by quarter. And again, just to put it in perspective, right, APAC on a constant currency basis was up. Right. We expect it to continue throughout the year. So we're not looking But the numbers are just lower relative to what they were the prior year, because India was growing at such a hyper rate that it had an overweighting impact on the consolidated.
Speaker Change: <unk> is up.
Speaker Change: The tail of the three years prior quarter.
Speaker Change: Quarter by quarter closer to the point of capitulation.
Speaker Change: And it's just quarter by quarter and again just to put a perspective APAC on a constant currency basis was up alright.
Speaker Change: Alright.
Speaker Change: We expect it to continue throughout the year. So we're not looking at declines in Asia Pacific, but there just the numbers are just lower relative to what they were the prior year, because India was growing at such a hyper right.
Speaker Change: That it had an overweight impact on the consolidated APAC numbers.
Stephan Gratziani: Great. Thanks, Stephan.
John DeSimone: Thanks, John.
Speaker Change: Great. Thanks, Thanks, Scott.
William Reuter: 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. Hey, guys. Good evening. Thank you for taking our question. This is Rob Rigby on for Bill. So first one from us.
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 Reuter: Hey, guys good evening.
Rob Levy: Thank you for taking our question. This is Rob break beyond for Bill So first one from us.
John DeSimone: Regarding the current economic environment, do you do you think that it's that it could be a tailwind, given that consumers may be seeking a job? I guess this is John. I won't answer directly, but I think indirectly. History has shown direct sellers do pretty well in this kind of cyclical environment where people are looking to make extra money. That's a century worth of data that kind of supports that. So you can make your own determination whether you think it'll help us or not. This cycle, I mean, there's just a lot of noise. in the world right now, so I don't know if it'll happen or not, but historically that's been a benefit to our company and other direct sellers.
Rob Levy: Regarding the current economic environment do you do you think it could be a tailwind given that consumers seeking a job.
Speaker Change: So this is John.
Rob Levy: Sure.
Rob Levy: I won't answer it directly but I think indirectly.
Rob Levy: History has shown direct sellers do pretty well in this kind of cyclical environment, where people are looking to make extra money.
Rob Levy: That's going on.
Rob Levy: A century worth of data that kind of supports that so you can make your own determination, whether you think it will help us.
Rob Levy: This cycle I mean, that's just a lot of noise in.
Rob Levy: In the World right now so I don't know if it will happen or not but historically, that's been a benefit to our company and other direct sellers.
John DeSimone: Understood. Thank you. And then second one from us. Appreciate all of the color regarding tariffs and understand that it's not very material portion or won't materially impact 25 results, I guess. Do you have any sourcing from China into the US? And then do you think, or do you have an idea of if others within the industry may source from China into the US? I can speak for us. I don't know where the other companies source their ingredients. We have some botanicals that we source from our own. Manufacturing Facility in China. It's at the ingredient level and there is an impact from that.
Speaker Change: Understood. Thank you and then second one for us.
Speaker Change: <unk> off the color regarding tariffs and understand that it's not very material portion of our won't materially impact 25 results I guess do you have any sourcing.
Speaker Change: From China into the U S. And then do you think or do you.
Speaker Change: I have an idea of if.
Speaker Change: Others within the industry.
Speaker Change: From China into the U S.
Speaker Change: I can speak for us I don't know where the other companies software ingredients. So we have some botanicals that we source from our own.
Speaker Change: Manufacturing facility in China.
Speaker Change: At the ingredient level.
Speaker Change: And there is an impact from that.
John DeSimone: Now half the imports end up getting re-exported out. They come from China, the ingredients, they get manufactured here and they get shipped out. So there is a duty drawback. That's about 50% of the duties we have to pay and that's why in total, like with all the, on an annualized basis in 2026, nothing changes except for the duties that have been announced. to $10 to $15 million impact. It's not material after the duty drawback. Most of that is coming from China. But again, that's, you know, that that's That's our impact and that takes China's China's the majority of that impact, but it's just not overall material because a big picture where a U.S.
Speaker Change: Now has the important end up getting re export it out they come from China, the ingredients to get manufactured here and they get shipped out. So there is a duty drawback that's about 50% of the Judy do you have to pay and that's why in total like with all the on an annualized basis in 2026, if nothing changes except for the duties that have been announced.
Speaker Change: So $10 million to $15 million impact is not material.
Speaker Change: <unk> back most of that is coming from China.
Speaker Change: But again that's.
Speaker Change: <unk>.
Speaker Change: That's impacting that China's China as the majority of that impact, but its just not overall material because big picture wary.
John DeSimone: manufacturer and most of the ingredients we use in our manufacturing facility come from the U.S. Not all of them, but most Um, so. at least for the, you know. The U.S. Tariffs that have been enacted. Great, thanks.
Speaker Change: U S manufacturer and most of the ingredients, we use in our manufacturing facility come from the U S not all of them, but most of them.
Speaker Change: So.
Speaker Change: At least for the.
Speaker Change: The tariff the U S tariffs that have been enacted just not much of an impact for us.
John DeSimone: And then just one last one from us. Are there any additional or is there any additional CAPEX that's associated with the recently acquired assets? And then regarding the CAPEX guidance, I was just wondering what the rationale was for lowering guidance there. Thank you. So the rationale for lowering guidance is we spent less in Q1 as we reprioritize our spend, right? So all the reduction taken down, all the reduction that's inherent in the full year guidance is a result of what happened. Actually, the next nine months goes up slightly because we underspent the midpoint of guidance in CapEx and Q1 by around $17 million and we took...
Speaker Change: Great. Thanks, and then just one last one from us.
Speaker Change: Sure.
Speaker Change: Are there any additional or is there any additional capex that's associated with the recently acquired assets and then regarding the Capex guidance.
Speaker Change: Just wondering what the rationale is for lowering guidance there. Thank you.
Speaker Change: So the rationale for lowering guidance as we spent less in Q1 as we re prioritize our spend right. So all the reduction taken down all the reduction that's inherent in our full year guidance as a result of what happened in Q1.
Speaker Change: Actually the next nine months goes up slightly because we underspent the midpoint of guidance and Capex in Q1 by around $17 million and we took the full year down by 10.
John DeSimone: But I will tell you that the next nine months includes all the CapEx necessary for protocol for the acquisitions too. So there's nothing we're expecting from an operating cost standpoint or from a CapEx standpoint that's not included in the guidance. Great, super helpful. Thank you. Please stand by for our next question.
Speaker Change: But I will tell you that the next nine months includes all the capex necessary for protocol for the acquisitions too. So there's nothing we're expecting from an operating cost standpoint or from a capex standpoint, that's not included in the guidance we provided.
Speaker Change: Great Super helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: Please standby for our next question.
Hale Holden: Our next question comes from the line of Carolyn Popalka with Barclays. Your line is open. Thanks. It's Hale from Barclays. It was great to see the increase for the year, despite what sounds like some additional SG&A costs associated with protocol and launch costs. So I was wondering if I was thinking about that correctly, because it wouldn't have been in the number that you gave at the beginning of the year. That's correct. Is that a material spend for you to get that off the ground in the U.S. or not? I mean, I guess I don't know your definition of material.
Speaker Change: Our next question comes from the line of Caroline Paul Palca with Barclays. Your line is open.
Speaker Change: Thanks Taylor from Barclays.
Speaker Change: John.
Speaker Change: It was great to see the EBITDA.
Speaker Change: Increase for the year, despite what sounds like some additional SG&A costs associated with protocol and launch costs.
Speaker Change: So I was wondering if I was thinking about that correctly because it wouldn't have been in the number that you gave at the beginning of the year.
Speaker Change: Correct.
Speaker Change: Does that is that a material spend for you to get that off the ground in the U S or not.
John DeSimone: I would say it's not material from a company our size, but it's it's it's meaningful money to get that open.
Speaker Change: Thank you.
Speaker Change: Yes, I don't know if thats.
Speaker Change: Definition of material I would say, it's not material from a company our size, but it's meaningful money to get that up and launched and Theres a lot of effort to.
John DeSimone: There's a lot of effort to get it, both the beta launch in July and the commercial launch Got it.
Speaker Change: To get it both the beta launch in July and the commercial launch in October.
John DeSimone: And then the second question I have for you is, you did a pretty good job of outlining the increased cash costs in the first quarter with the John Hughes payment, and then the The bonus payments for the fourth quarter that carried over, but your cash conversion was pretty good. So I was wondering what what worked in your favor in the first quarter that kind of offset those. Well, we took we took our cash balance down, you know, I go back a year, maybe maybe five quarters ago, we ended 2023 with a cash balance north of not $500 million.
Speaker Change: Got it and then the second question I have for you is you did a pretty good job of outlining the increased cash costs in the first quarter with John Hughes payment.
Speaker Change: The bonus payments for the fourth quarter, but carried over.
Speaker Change: Cash conversion was pretty good. So I was wondering what what worked in your favor in the first quarter.
Speaker Change: Kind of offset those.
Speaker Change: Well, we took we took our cash balance down.
Speaker Change: I'll go back a year, maybe five quarters ago, we ended 2023 with a cash balance north of $500 million.
John DeSimone: When we did the debt deal last year, we communicated that we think we can get it to 350 and maybe better with some initiatives that we had planned. And I think what you're seeing now, what we're seeing is the benefit of those initiatives that was able to get our minimum cash needs to a point where we could draw our cash down to below 300. I don't know that there's much more room to go in some quarters based on, you know, whatever circumstances going on and the ability to move money around. Some quarters may go up or may go down.
Speaker Change: When we when we did the debt deal last year, we communicated that we think we can get it to $3 50, and maybe better with some initiatives that we had planned and I think what <unk>, what youre seeing now what we're seeing is the benefit of those initiatives that was able to get our minimum cash needs to a point, where we could draw our cash down to below 350.
Speaker Change: This is much more room to go in some quarters based on whatever circumstances going on and the ability to move money around some quarters may go up it may go down.
John DeSimone: But that was one of the reasons why we were able to pay down our debt and... have all these cash needs from an operating standpoint, but still lower our leverage. Got it.
Speaker Change: But that was one of the reasons.
Speaker Change: Why are we able to pay down our debt and have all these cash needs from an operating standpoint, but still lower our leverage ratio.
John DeSimone: Thank you. Congrats on the acquisitions. I look forward to ordering my bespoke vitamins and pills. Thank you.
Speaker Change: Got it thank you and congrats on the acquisitions I look forward to order might bespoke vitamin pills.
Doug Lane: Please stand by for our next question. Our next question comes from the line of Doug Lane with Water Tile Research. Your line is open. Yes, good afternoon, everybody.
Speaker Change: Thank you.
Speaker Change: Please standby for how next question.
Speaker Change: Our next question comes from the line of Doug Lane with Watertown Research. Your line is open.
John DeSimone: I'm John staying on protocol here. And I'm more interested, I think, in the out years and capital investment there. I mean, it seems to me you're basically building a company inside a company here, and taking what is now a very, you know, early stage operation and taking it to maturity. So we see sort of a permanent elevation in capital spending over the next three to five years as you do that. Well, I think so when you say elevated, I mean, there's some CapEx associated with with protocol, but not we're not going to elevate our capital expenditures above and beyond what we ordinarily would have done.
Doug Lane: Yes, hi, good afternoon everybody.
Speaker Change: John staying on protocol here.
Speaker Change: And I'm wondering if you said I think in the out years capital investment there I mean, it seems to me you're basically building a company inside a company here.
Speaker Change: And taking what is now a very.
<unk> early stage operation and taking it to maturity. So we see sort of a permanent elevation in capital spending over the next three to five years as you do that.
Speaker Change: Well I think so when you say elevated I mean, there is some capex associated with with protocol, but not we're not going to elevate our our capital expenditures above and beyond what we all narrowly would've done where we're actually just re prioritizing our internal spend.
John DeSimone: We're actually just reprioritizing our internal spend away from things that we were going to have to do that we now don't have to do because of protocol.
Speaker Change: Away from things that we were going to have to do that we now don't have to do because of protocol.
John DeSimone: So I, you know, I'm going to step back and just take a kind of big picture approach. You know, we spent a lot of money in tech over the last Two and a half years. We said that there was a flex to do that and that spending would come down. And that's what we're seeing. We flexed up, spent a lot of money, built this integration layer, which protocol is leveraging. And maybe that's the piece that's missing is, you know, the development of the app. That's money we have to spend. The integration of it into our operating systems and our different databases, that's really leveraging the work we've already done and the money we've already spent.
Speaker Change: I'm going to step back and just take a kind of a big picture approach. We spent a lot of money in tech over the last.
Speaker Change: Two and a half years.
Speaker Change: We said that there was a flex to do that and it spending would come down.
Speaker Change: And Thats what were seeing we flexed up.
Speaker Change: <unk> spent a lot of money built this integration layer.
Speaker Change: Which protocol this leveraging and maybe that's maybe that's the piece that's missing is.
Speaker Change: Development of the App.
Speaker Change: This morning, we have to spend the integration of it into our operating systems and our different databases, that's really cheap really leveraging the work we've already done and the money. We've already spent so it's only a subset of what you might think the capex at protocols only a subset of what you might think if we were actually genuinely starting a new company.
John DeSimone: So it's only a subset of what you might think. The CapExit protocol is only a subset of what you might think if we were actually genuinely starting a new company, because we already have Oracle. We already have the integration layer. We already have our MCS, which are members of that compensation plan. All we now do is taking the applications, creating websites and integrating them into that platform. And that middleware that helps the integration is now.
Speaker Change: Because we already have Oracle, we already have the integration layer, we already have our Mcs, which I remember stock compensation plan all without do is taking the applications, creating websites and integrating into that platform and that middleware that helps the integration is now built.
John DeSimone: Okay, that's good color. Thank you.
Speaker Change: Okay. That's good color thank you and.
Stephan Gratziani: And can we talk a little bit about the Flex 45 challenge, which was launched with great fanfare at your honors back in March. We should be starting that program now, if I'm not mistaken. So can you give us an early read on the distributor response to Flex 45? Yeah, Doug, I'll cover this. First of all, lots of excitement at different levels. Number one, distributor engagement, because the seven elements that they're actually engaged in every single day for the 45 days are things that are positive for themselves, personally, how their product use, the activities that they're going to be doing, personal development, exercising.
Speaker Change: Can we talk a little bit about the flex 45 challenge, which was launched with great fanfare at your owners back in March we should be starting that program now so I'm not mistaken. So can you give us an early read on the distributor response to flex 45.
Doug Lane: Yeah, Doug I'll cover this first of all lots of excitement.
Doug Lane: Current levels number one distributor engagement because the seven elements that they are actually engaged in every single day for 45 days or things that are positive for themselves personally the other product use the activities that theyre going to be doing personal development exercising.
Stephan Gratziani: And so, you know, we had 200, over 200,000 distributors that actually, you know, pre-registered for this, and we have tens of thousands of them that are participating. And I would say the level of excitement around the program, you know, just as an initial feeling for what's going on is it's quite incredible. I mean, they've taken this on as an idea, and now they're implementing it in their organization. So, again, this is a very simple program. There was no cost to this. This was something that distributors could engage, engage their customers and engage their organizations. And so, you know, we are following it very closely.
Doug Lane: So we had 200 over 200000 distributors that actually pre registered for this and we have tens of thousands of them that are participating.
Doug Lane: And I would say the level of excitement around the program just as an initial feeling for whats going on it's quite incredible I mean, they've taken this on as an idea another implementing it in their organization. So again. This is a very simple program. There was no cost to this this was something that distributors could engage engage their customers in.
Doug Lane: Engage their organizations and so we are following it very closely but.
Stephan Gratziani: But overall, I think it was just, you know, I would say a little bit of genius in a simple program, but it can have a really long lasting impact over time. It's something that we think that they're actually going to, once the 45 days are up, actually keep it in terms of kind of not a DMO, but something that helps new people, new customers and new distributors come in and just be a part of, you know, getting right on board and getting focused, and it'll impact the results. So we're pretty excited about it. And this is happening all in this quarter, right?
Doug Lane: Overall I think it was just.
Doug Lane: I would say a little bit of genius and a simple program, but that can have a really long lasting impact over time, it's something that we think that theyre actually going to once the 45 days are up actually keep it in terms of kind of not a demo, but something that helps new people, new customers and new distributors come in and just be a part of.
Doug Lane: Getting right onboard and getting focused and it will impact the results. So we're pretty excited about it.
Doug Lane: And this is happening all in this quarter right. So we'll have more to talk about when you report the second quarter and into.
Stephan Gratziani: So we'll have more to talk about when you report the second quarter and move into the challenge, right? Yeah, but just so you're clear, this is something that distributors are doing amongst themselves and for themselves, right? So we had a kind of a pre-registration for them to be able to, you know, register and commit to it. It was really more for them to commit to the program, how it actually gets expressed in their own organizations with their customers, with their downlines. That's not something that we're tracking, you know, we're going to track the productivity, obviously, but we're not tracking per se all of the participants and what they're doing on a daily basis.
Doug Lane: The challenge right.
Doug Lane: But just figured clear this is something that distributors are doing amongst themselves for themselves right. So we had a kind of a pre registration for them to be able to register and commit to it it was really more for them to commit to the program.
How it actually gets expressed in their own organizations with their customers with their down line, that's not something that we're tracking we're going to track the productivity, obviously, but we're not tracking for say all of the participants and what theyre doing on a daily basis.
Unknown Executive: I see. Okay. Thanks, Stephan. You're welcome. Thank you. Ladies and gentlemen, I'm showing no further questions in the queue.
Doug Lane: I see okay. Thanks Stefan.
Doug Lane: 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 Stephane Graziano for closing remarks.
Stephan Gratziani: I would now like to turn the call back over to Stephan Gratziani for closing remarks. Thank you.
Stephan Gratziani: So before closing, I'd like to share just a little bit of from a personal standpoint. As many of you know, I signed up as a distributor in 1991. And, you know, as a 22 year old living in France, who had really no idea of what my future was going to be, and Being introduced to this community and this opportunity and the products and the vision of Herbalife at that time, it was life changing for me. You know, I remember certain elements, whether it was hearing a story of someone that had started the business and it changed their life, or whether it was Babette who, you know, in France, in Paris, I saw at an event and who had lost 54 kilos and was standing up in front of the room and crying and it touched me to the core.
Doug Lane: Thank you.
Doug Lane: Before closing I would like to share just a little bit of from a personal standpoint.
Doug Lane: As many of you know I signed up as a distributor and 1991 and.
Speaker Change: 22 year old living in France, who had really no idea of what my future.
Doug Lane: It was going to be and.
Doug Lane: Being introduced to this community in this opportunity and the products and the vision of Herbalife at that time. It was a life changing for me.
Doug Lane: I remember certain elements, whether it was hearing a story of someone that had started the business and has it changed their life.
Doug Lane: It was about that too in France in Paris, I saw at an event and who had lost.
Doug Lane: <unk> 54, kilos and was standing up in front of the room and crying.
Stephan Gratziani: It's hard not to get emotional about this because it has been my life for the last 34 years. Mark Cubes started the company and his whole mission was to help people lose weight naturally because he had lost his mother to medication, trying to lose weight. Funny enough, 45 years people are still taking medication. They're just injecting it now and not swallowing it and maybe not swallowing it. The problem still exists. When Mark started in 1980, that was his mission. That was his vision. 20 years later, Herbalife became the world's weight loss program, probably the premier in the world.
Doug Lane: Lets me to the core.
Doug Lane: It's hard not to get emotional about this because.
Doug Lane: It has been my life for the last 34 years.
Doug Lane: <unk> started the company and his whole mission was to help people lose weight naturally because he had lost his mother to medication trying to lose weight funny enough 45 years. Later people are still taking medication. They are just injecting it now not following it and maybe now swallowing.
Doug Lane: The problems still exist and so when Mark started in 19 AE that was is that with his mission that was his vision 20 years later.
Doug Lane: <unk> became the worlds weight loss program, probably the premier in the world.
Stephan Gratziani: Then we had Michael Johnson, who joined and his heart and spirit and his professionalism, you know, number one, an athlete, and he birthed an entire community of healthy, active, lifestyle-focused individuals. Not only did he make sure that the company was vertically integrated, that the products were science-backed, that people started to pay attention to their lifestyle and, you know, not just focus on losing weight, but actually integrate a holistic, healthy, active lifestyle. And for 22 years, that was the vision and the mission of Herbalife. And so if you look at the results of that as per Euromonitor, well, today we're the number one weight management brand in the world.
Doug Lane: Then we had Michael Johnson, who joined and his heart and spirit and his professionalism.
Doug Lane: Number one an athlete and he burst and entire <unk>.
Speaker Change: Community of healthy active lifestyle focused individuals.
Speaker Change: Not only did he make sure that the company was vertically integrated that the products were science backed that people started to pay attention to their lifestyle and not just focus on losing weight, but actually integrate a holistic healthy active lifestyle and for 22 years.
Speaker Change: The vision and the mission of Herbalife and so if you look at the results of that as per Euro monitor.
Speaker Change: Today, we're the number one weight management brand in the world So Mark cubes 20 years.
Stephan Gratziani: So Mark Cubes, 20 years, you know, 1980. Herbalife became the number one weight management brand in the world. Michael Johnson, 22 years, healthy, active lifestyle focus affiliations with some of the greatest athletes in the world. Well, guess what? As per Euromonitor, we're the number one active lifestyle and nutrition brand. were also the number one protein shake in the world with 25% of the market share in meal replacement.
Speaker Change: 1980.
Speaker Change: Herbalife became the number one weight management brand in the World Michael Johnson in 'twenty two years healthy active lifestyle focus.
Speaker Change: Affiliations with some of the greatest athletes in the world well guess what as per Euro monitor we're the number one active lifestyle nutrition brand.
Speaker Change: We're also the number one protein shaken the world was 25% of the market share and meal replacements. So the vision and the mission of.
Stephan Gratziani: So the vision and the mission of. Two incredible leaders that have built Herbalife to what it is today, and now I have the honor of taking on this next, you know, role and opportunity. And so I share this with you because it's not a, it's not a job for me. It was never a career path to become an executive of Herbalife. I told Michael 14 years ago that I wasn't interested in that. But changing people's lives and seeing for 32 and a half years in meetings. People telling their story about how Herbalife changed their lives and many of them saying that it saved their lives.
Speaker Change: Two incredible leaders that have built herbalife to what it is today.
Speaker Change: Now I have the honor of taking on this next.
Speaker Change: Roll and opportunity.
Speaker Change: So I share this with you because it's not a it's not a job for me. It was never a career path to become an executive of Herbalife I told Michael 14 years ago that it was.
Speaker Change: And interested in that.
Speaker Change: But changing People's lives and seeing for 32 and a half years in meetings.
Speaker Change: People, telling their story about how herbalife changed their lives and many of them, saying that it saved their lives.
Stephan Gratziani: It's impossible not to have that become your purpose over time. And so I take on this role. And my purpose is to make sure that our company becomes the premier health and wellness company, community and platform for the world. Because my purpose, and I believe Herbalife's purpose, is to impact humanity's health and wellness. And that is the reason that our company exists.
Speaker Change:
Speaker Change: It's impossible not to have that become your purpose over time.
Speaker Change: And so I take on this role.
Speaker Change: My purpose is to make sure that our company becomes the Premier health and Wellness company community and platform for the World because my purpose in I believe herbalife purpose is to impact Humanities health and wellness and that is the reason that our company exists. So I don't know what to tell you about the next 10 to 20.
Stephan Gratziani: And so I don't know what to tell you about the next 10 to 20 years. But if history has a way of repeating itself, Mark's vision of weight loss, Michael's vision of healthy, active lifestyle. It became who we are today. The vision of becoming the world's premier health and wellness company, community and platform. That's our vision for the future. The acquisitions that you've seen. I think you could kind of get a sense that this is leading us to that future. And that's the future that we're all going to be working for.
Speaker Change: Years.
Speaker Change: But if history is a way of repeating itself.
Michael Johnson: Mark's vision of weight loss Michael's vision of healthy active lifestyle.
Speaker Change: It became who we are today.
Speaker Change: The vision of becoming the world's Premier health and Wellness company community and platform, that's our vision for the future the acquisitions that you've seen.
Speaker Change: You could kind of get a sense that this is leading us to that future and that's the future that we're all going to be working for.
Stephan Gratziani: And lastly, I just want to say thank you, because many of you have been for a long time following us or participating, partnering, believing and. Every single one of us, we have a responsibility. And our responsibility is to grow this company and to have it make the impact that we know it can have in the future. So thank you all very much for participating, and we'll talk to you next quarter.
Speaker Change: And lastly, I just wanted to say thank you because many of you have been for a long time following us.
Speaker Change: Participating partnering believing and.
Speaker Change: Every single one of US we have a responsibility and our responsibility is to grow this company and to have it make the impact that we know it can have in the future. So thank you all very much for participating and we'll talk to you next quarter.
Unknown Executive: Ladies and gentlemen this concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Unknown Executive: Thank you for watching!
Speaker Change: [music].
Speaker Change: Okay.