HERBALIFE LTD. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Appointments: Stephan Gratziani named CEO effective May 1, Rob Levy as President of Worldwide Markets.
• Distributor Trends: Positive trajectory with new distributor growth up 22% YoY (third consecutive quarter of growth), active non-sales leaders up double-digits after three years of declines, and first year-over-year growth in average active sales leaders in 10 quarters.
• Initiatives: Expanded distributor training support via programs like Herbalife Premier League, Diamond Development Mastermind, etc., leading to increased recruiting and sales leader retention (70.3% in 2024 vs. 68.3% in 2023).
• Financial Results: Strong Q4 and full-year results with net sales growth on constant currency basis, adjusted EBITDA exceeding guidance, and debt reduction.

Segment Performance

• Net Sales:
  • Q4 2024: Reported net sales $1.2 billion, down 0.6% YoY; constant currency net sales up 2.7% YoY. Full year 2024: Reported net sales $5 billion, down 1.4% YoY; constant currency net sales up 1.2% YoY.
  • Regional: Latin America, EMEA, Asia Pacific had net sales growth in Q4 on reported and local currency; North America down 3% YoY (improving quarterly trends); China down 20% YoY.
• Adjusted EBITDA:
  • Q4 2024: $150 million, above guidance range; margin 12.4%, up 340 basis points YoY. Full year 2024: $635 million, significantly exceeding 2023's $571 million; margin 12.7%, up 140 basis points YoY.
• Debt: Paid down $250 million in 2024, total leverage ratio reduced to 3.2 times from 3.9 times at end of 2023.

Guidance

• 2025 Outlook:
  • First Quarter: Net sales range down 1.5% to 5.5% YoY (including ~550 basis point currency headwind); constant currency net sales flat to up 4% YoY. Adjusted EBITDA range $140M-$150M; constant currency $158M-$168M.
  • Full Year: Net sales range down 3% to up 3% YoY (currency impact ~$200M negative); constant currency net sales up 1% to 7% YoY. Adjusted EBITDA range $600M-$640M; constant currency $670M-$710M.
  • Target to reduce total leverage ratio to 3 times by end of 2025.

Risks

• Currency Impact: Significant currency headwind in 2025 affecting net sales and EBITDA.
• China Transition: Challenges in transitioning China market from food service to product results focus, leading to weaker than expected performance in Q4 2024.
• Tariffs: Potential retaliatory tariffs from Mexico and others, with limited impact currently but uncertain future exposure.

Question and Answer

• Q: What needs to happen to turn around North American volume trends and how long?

A: Rebuilding distributor and supervisor base; North American metrics improving, trends moving in right direction, matter of time.

• Q: Constant currency sales guidance range for 2025; what dictates high or low end?

A: High end driven by upside in China and US; low end by underperforming markets.

• Q: Preferred customers decline in Q4; read across to business turnaround?

A: Transition from transactional to transformational focus; need to balance and improve distributor models.

• Q: Leverage target and IP move to Europe?

A: Target to be at or below 3 times; IP move for cash flow flexibility, non-cash impact on tax rate excluded from guidance.

• Q: New distributor growth acceleration and sales leader manifestation?

A: Initiatives like Herbalife Premier League driving new distributor growth; quarter-by-quarter progress expected, with focus on consistency.