Good afternoon, and thank you for joining the Fourth Quarter and Full Year 2022 Earnings Conference Call for Herbalife Nutrition Limited. On the call today is Michael O. Johnson, the company's Chairman and CEO; Alex Amezquita, the company's Chief Financial Officer; John DeSimone, the company's Chief Strategic Officer; Mark Schissel, the company's Chief Operating Officer; and Eric Monroe, the company's Senior Director, Investor Relations. I would now like to turn the call over to Eric Monroe to read the company's Safe Harbor language. You may begin.

Good afternoon. On today's call, we will be making some forward-looking statements. And while we are making these statements in good faith, we do not have any guarantee about the results we will achieve. Descriptions of our risk factors are included in the documents we filed with the SEC. We will also be discussing some non-GAAP financial measures. These non-GAAP and adjusted numbers refer to measures that exclude items management believes impact the comparability for the period referenced. Please see the earnings release for additional information on our comparability items. These GAAP to non-GAAP reconciliations can be found in the earnings press release and the slides we will be reviewing on today's call, both of which can be found on the Investor Relations section of our website. I will now turn the call over to Chairman and CEO, Michael Johnson.

Thanks, Eric, and welcome everyone. It feels a bit ironic that I'm addressing you on Valentine's Day, my first day back with Herbalife after 2.5 years, coinciding with two American holidays. I'll provide a report on my first 100 days. I began on October 31, traveled to Cairo in November, where we met with our distributor leaders, our Chairman's Club, and Founder Circle. We followed up with a meeting in Los Angeles in early December to enhance sales and develop a strategic growth plan. We listened, learned, and made decisions, setting a plan to modernize and relaunch Herbalife. We shared this plan with emerging distributor leaders in Lisbon and Dallas to inspire and energize them, laying the groundwork for our relaunch, which we call Herbalife 2.0. This initiative is designed for our next level leaders. We have introduced new promotions and held 170 in-person events in 2023, reaching 175,000 distributors face-to-face, a significant improvement from our pandemic period. We established a digital task force of select distributors and our internal team to accelerate our digital transformation with Herbalife One. We’ve set up two internal committees: one focused on driving growth and the other on managing costs. However, we cannot overlook our disappointment in our performance for fiscal 2022 and the last quarter. Our fourth quarter net sales of $1.2 billion fell 10% from the previous year, while on a constant currency basis, sales decreased by 4%. For the full year, net sales of $5.2 billion also dropped 10%, or 5% when adjusted for constant currency. The strong dollar has clearly impacted our earnings per share as well. Our full year adjusted EPS stood at $3.40, affected by a $0.60 currency headwind. Despite this, we generated significant cash flow in 2022, with operating cash flow surpassing $350 million. Our cost management in the fourth quarter allowed us to maintain adjusted EBITDA flat compared to the same quarter in 2021. Moving forward, I promise that our sales will grow and our results will improve. I am fully committed alongside our Board, investors, distributors, and employees to lead a new era of growth for Herbalife. Our vision for delivering this growth is centered on two major platforms: content and distribution. Our content is our product, and we aim to expand our product portfolio to position Herbalife as a leading public health and wellness company. Initially founded as a weight loss company in 1980, we transitioned to a nutrition company in the 2000s, and now we are launching ourselves into the future as a public health and wellness entity, introducing new products, services, coaching, and wellness evaluations for our customers through our distributor platform. We see substantial opportunities to expand our daily nutrition products with new lines, including vegan options and proteins. We are also enhancing Herbalife 24 with new products based on our current ingredient profile. We've welcomed back the founder of Herbalife 24, a product that has significantly broadened our distributor base. We're exploring opportunities in sleep products and coaching while continuing to enhance our weight management platform. We're also looking into regional categories; in India, for instance, we have a unique product line tailored to that market. We are launching products across Europe, Asia, and China and anticipate synergies that will help us globalize some of these regional offerings. Our plan is to reach more consumers with a wider array of offerings through our distributors than ever before. The next platform is distribution, which empowers our distributors to connect deeply with consumers. Our global distributor base spans 95 markets, and our entrepreneurial distributors establish unique relationships with their consumers. We are modernizing our compensation structure, adding new promotions to motivate and incentivize our distributors, making it easier for them to earn right from the start. Through our digital platform, we aim to enhance data transfer to better understand our consumers and preferred customers, collaborating closely with distributors to boost sales. This leads us to Herbalife One, our largest investment to date. This digital platform will transform our operations. Herbalife One will serve as our first unified data-powered global digital platform, facilitating growth by offering exceptional digital experiences for distributors and consumers alike. We are committed to improving data visibility and know we can do better. We are refreshing and relaunching our brand to enable our operation across various verticals, with the rollout planned for our leadership event next month. Our vision consists of both short-term and long-term growth strategies. In the short term, we will focus on recruiting and retaining customers and distributors, while also expanding nutrition clubs by leveraging data metrics to enhance profitability in this area. Growth in preferred customer programs will be driven by better data analytics, maximizing our collected data for visibility and opportunity. Distributor compensation will also improve with new economic incentives and promotions designed to encourage and reward distributor activity. I want to reiterate that we must enhance data visibility, improve analytics, and refine our high-tech, high-touch approach. Herbalife One will be foundational to our operations moving forward. At this stage, we are not providing guidance for our future forecasts because we have just initiated new initiatives and need time to assess and analyze their impact. On margin enhancement, we have identified $70 million in ongoing efficiencies through our Transformation program. We are making some tough decisions, including a 7% workforce reduction, price increases in 2023, and implementing zero-based budgeting. Every expense is being scrutinized, including professional fees, but we are still investing in growth, as you can see with Herbalife One. Personally, my focus is on revitalizing Herbalife. This is how I know to increase volume, develop content, improve distribution, and create better margin opportunities. We share a vision with our distributors and management for strengthening both customer and distributor businesses. This represents our Herbalife today, our Herbalife of tomorrow, and our commitment to you. Now, let's turn it over to Alex to share more details.

Thank you, Michael. Michael left you with a vision of where we are headed in a plan that will return Herbalife to growth. I'll begin my session with the key takeaways for today's call. First, fourth quarter net sales of $1.2 billion were down 10.4% compared to the prior year. Although currency pressure eased toward the end of the quarter, the U.S. dollar remains significantly elevated over the prior year, driving a 620 basis point currency headwind to net sales. Second, despite the net sales decline, focused cost management efforts during the fourth quarter contributed to adjusted EBITDA that was approximately flat with the prior year. Third, over the past 90 days through Michael's leadership, we are aligned in a well-defined plan that focuses the company's efforts to improve distributor metrics and ultimately return Herbalife to growth. Fourth, while we are optimistic about revitalizing the top line, we are actively controlling expenses to manage margins and maximize profitability. We've expanded and accelerated our previously announced transformation program, which is now expected to deliver annual savings of at least $70 million, with approximately half of these savings being realized in 2023 and the remainder being realized in 2024 and thereafter. Fifth, during the fourth quarter, we took steps to secure our balance sheet. In December, we issued a new convertible note due in 2028, using all proceeds of the transaction to repurchase a portion of convertible notes due in 2024. In addition to the refinancing, the company strategically paid down its revolver. With scheduled amortization payments, we reduced our nominal debt by approximately $60 million. And sixth, we will not be providing guidance for 2023 on today's call. While we anticipate the trends we observed in the third and fourth quarters to continue into the first quarter, there are also growth initiatives being put into place that will need to observe traction before incorporating them into our forecast. Further, the macroeconomic conditions continue to create a backdrop of consumer behavior that is challenging to predict. Reported net sales for the fourth quarter declined 10.4% compared to the prior year and were down 4.2% on a constant currency basis. Reported net income of approximately $54 million resulted in adjusted EBITDA of approximately $131 million, which was in line with the prior year. Adjusted EBITDA margin in the quarter was 11.1%, an improvement of 110 basis points compared to the fourth quarter of 2021. Reported EPS of $0.55 resulted in adjusted earnings per diluted share of $0.53. Adjusted EPS was negatively impacted by year-over-year currency headwinds of approximately $0.25. During the fourth quarter, as previously communicated, the company strategically reduced approximately $60 million of our outstanding debt. We ended the quarter at a 3.47x gross debt to adjusted EBITDA ratio, which is above our target leverage ratio of 3.0x. The company plans to use free cash flow generation in 2023 to reduce our overall debt while continuing to work towards our long-term target leverage. For the full year, net sales declined 10.3% compared to the prior year. We experienced a year-over-year net sales headwind in all four quarters this year, with a full-year impact of 490 basis points. Local currency net sales declined 5.4% in 2022. Reported net income of approximately $321 million resulted in a full year adjusted EBITDA of approximately $694 million. Adjusted EBITDA margin for the year was 13.3%. Reported EPS of $3.23 resulted in adjusted earnings per diluted share of $3.40. Adjusted EPS was negatively impacted by year-over-year currency headwinds of approximately $0.60. The company generated over $350 million of operating cash flow in 2022. The impact of our working capital accounts improved in 2022 compared to 2021, and we will continue to focus on working capital initiatives to improve cash flow generation as we move into 2023. Drilling into fourth quarter net sales, where we benefited from 12.7 percentage points of pricing from price increases implemented throughout the year. An unfavorable country mix, primarily driven by significant outperformance in India, resulted in a net sales headwind of approximately 270 basis points. Local currency net sales for the fourth quarter were down 4.2% compared to the prior year. The U.S. dollar weakened toward the end of the quarter against most major currencies, but we're still materially elevated compared to the fourth quarter of 2021. For the full year, volume declined 10.1%, and an unfavorable country mix resulted in a net sales headwind of approximately 320 basis points. The full-year average of the price increases taken over the course of the year resulted in a net sales benefit of 7.9 percentage points. The U.S. dollar strengthened significantly over the course of the year before a modest pullback toward the end. This resulted in an FX headwind to net sales of 490 basis points for the full year. Moving to EBITDA margins, our adjusted EBITDA of $131 million resulted in an adjusted EBITDA margin of 11.1%, which was in line with the prior year despite a $137 million reduction in net sales. EBITDA benefited approximately 400 basis points from our price increases. Despite the pricing benefit, gross profit of 77.5% was flat with the prior year as we continue to be impacted by elevated input costs in our supply chain. These cost increases to raw materials, manufacturing overhead, and freight are driven by EBITDA margin headwinds versus the prior year of approximately 170 basis points. Consistent with the third quarter, within SG&A, we experienced an approximate 120 basis headwind related to our promotional spending. This headwind was largely due to the return of in-person events in most regions, as well as the return of more normalized promotional spend. We continue to see the positive impact of our cost-saving initiatives in labor and benefits. During the fourth quarter, we benefited by approximately 80 basis points of EBITDA margin expansion due to efficiencies and targeted strategic improvements, leading to favorable margin impact even after absorbing the impact of annual wage increases. As mentioned earlier, currency had a significant impact and led to an additional approximately 170 basis points headwind on EBITDA margins. Full year adjusted EBITDA of $694 million resulted in an adjusted EBITDA margin of 13.3%, which was approximately 170 basis points lower than fiscal year '21. Full year gross profit of 77.4% was approximately 120 basis points unfavorable from the prior year as the approximately 210 basis points of price benefit was offset by elevated input costs in our supply chain, which negatively impacted EBITDA by approximately 130 basis points. In addition to FX and other impacts such as country mix. Within SG&A, we experienced an approximately 110 basis points headwind related to events and promotional spending. Labor and benefit cost savings initiatives, which were largely executed in the back half of '22, contributed to approximately 30 basis points of EBITDA expansion for the full year. Currency had a significant impact across the P&L and led to an approximately 70 basis points headwind on overall EBITDA margins. For the quarter, the average active sales leaders of approximately 480,000 was 6% under last year, and slightly reduced from second and third quarter levels. Performance was supported by the continued outperformance of India. While the Q4 metric followed our usual seasonality compared to the second and third quarters, new distributor and preferred customers joining the business declined 1% compared to the fourth quarter of 2021. New distributor and preferred customer growth is a key focus area as we move into 2023. We have implemented new global initiatives, in addition to market-specific action plans aimed towards improving this metric, with several strategies underway. Turning to our regional results for the quarter, where the Asia Pacific region was flat compared to the prior year. The region was led by India, which grew by 22%, and Vietnam, which was up 9%. The EMEA region saw a 3% decline in local currency net sales, which was materially amplified by 12 points of currency pressure in the quarter, resulting in reported net sales down by 15%. Within the LatAm region, Mexico returned to grow, increasing by 8% compared to the prior year, but was offset by declines in Chile, Colombia, and Brazil. Beginning in 2021, we initiated a transformation program to optimize global processes for future growth. The transformation program involves a realignment of infrastructure and the locations of certain functions to better support distributors and customers. In the back half of 2022, we began to see the benefits of these initiatives. We have expanded the scope and accelerated the program, which is now expected to deliver annual savings of at least $70 million, with approximately half of the savings being realized in 2023 and the other half being realized in 2024 and thereafter. We expect to incur total pre-tax expenses of at least $60 million to realize these run rate savings. We have already incurred total pre-tax expenses of approximately $25 million through the end of '22. Turning to cash flow. And while our cash generating ability remains strong, free cash flow in 2022 was below historical run rates. For 2023, we will continue to execute on the initiatives to optimize working capital that began in late 2022. Despite a higher level of expected capital expenditures in 2023 versus 2022 through margin initiatives and working capital management, we expect to generate a higher level of free cash flow in '23 versus '22. Turning to capital allocation. Our long-term use of cash prioritization as a company remains unchanged. As always, our number one priority is to service our debt. As we have previously mentioned, during the fourth quarter, we strategically reduced our debt by approximately $60 million as we remain prudent with cash given the difficult macro backdrop. We plan to use free cash flow generated in 2023 to continue to reduce our nominal debt levels. This concludes our prepared remarks. Operator, please open up the line for questions.

Our first question comes from Chasen Bender with Citi. Your line is open.

Thanks, operator. Hi, everyone. Good afternoon. Thanks for taking the question. Where I'd like to start is on the Herbalife 2.0. It sounds really exciting with all the new products and offerings and tools and brandings. What have you? But I was hoping maybe you could wrap some additional commentary around that, specifically in terms of timeline and rollout, and how you plan to manage the execution of all of those moving pieces without it being too disruptive? Additionally, in terms of any extra investment for this initiative on top of the $400 million that you called out related to Herbalife One?

Okay. Chasen, this is Michael. John DeSimone and I will tag team on the answer here. It’s going to be additive and not disruptive. Our distributors have wanted and needed a better platform in which to operate their business. We will lay out for them in March at our event where we have the Worldwide Leadership Forum here in Los Angeles. We will roll out for them the opportunities available and time that as we launch Herbalife One, which is our digital transformation in the company. Product-wise, we are consistently and continually launching new products in regional markets as well on a global footprint. Bringing back the creator of Herbalife 24 was a significant boost for us. That created new distributors, new consumers, and new opportunities for distributor methods of operation inside our company. We will look at a variety of opportunities along that line, and let me turn it over to John to discuss some enhancements around the marketing and compensation plan.

Yes, I'll take on some of the initiatives discussed in Michael's opening. The key takeaway is that many of the actions are either staged in a manageable way or we are making internal changes to handle the incremental work needed. For instance, we talked about growing nutrition clubs. That's really data analysis on our part, providing that data to our distributors, and the work largely rests on their side to open doors. With respect to enhancing our preferred customer program to generate more sales for our distributors, that's a phased approach. There’s a manual phase currently underway and then an AI phase that will align with Herbalife One's implementation. We have a lot of work on product content and launching new products, and we initiated a SKU rationalization program to free up resources for that. The SKU wrap program will not significantly impact sales. We also worked on optimizing the distributor compensation plan, making the bonus plan more accessible to more distributors. This is something we can do immediately, and we believe it's going to drive activity and engagement at the distributor level. Everything is planned and phased in with mostly current resources.

Got it. Super helpful color. Thank you for that. And then maybe one for you, Alex. Just in terms of not providing guidance, I understand you went through all of these new initiatives and need time to digest them. But when I think back when you pulled guidance last quarter, one of the reasons you highlighted was essentially KPIs changing at the same rate or simultaneously as sales. I think in the press release, you called out seeing some stabilization on a global basis in terms of KPIs and business trends. So the question is, how do I balance those two ideas? Is it something in key geographies where you're still seeing the rate of change happen at the same time? And two, what does it take for you to get to a place where you can issue guidance?

I'll start with the end. There have been long periods when we could provide guidance, and our business has been predictable enough to meet it. However, the past couple of years, whether due to the pandemic environment or current global economic conditions, have created an environment where that predictive ability is lacking. Coupling that with all the growth initiatives we are launching creates a situation where, at this moment, providing guidance isn't something we can do. We don’t have enough observable traction to confidently give investors or analysts a clear path. While we are confident in the strategy, we need time to see how initiatives will progress in the marketplace.

Got it. Appreciate the color. I will pause there and pass it on.

Thank you. Please stand by for our next question. Our next question comes from the line of Jeff Van Sinderen with B. Riley. Your line is open.

Hi, everyone. Multipart question for Michael, if you can bear with me. Now that you've had some time to assess, Michael, analyze, and formulate a plan to reinvigorate the business, what do you believe were the primary mistakes made under the prior regime? Given that you've laid out some high-level initiatives here, how much of the turnaround plan is focused on product content? I know you mentioned SKU rationalization, but how do new products fit into the plan? Where is the emphasis there? Additionally, how much of the turnaround elements are around distribution? Can you weigh that for us?

On the first part of your question, I had a mentor who told me long ago, you're never going to get anywhere looking in the rearview mirror for too long. Look out the windshield and see where you're going. Everyone in this company has worked incredibly hard, and our distributors have worked hard through a very tough time with macroeconomic headwinds. To answer your second part, our product is vital to us; it’s our content and essential to our success in the marketplace with both distributors and consumers. We need to better tune our ingredient profile to the times. We have outstanding products, especially one of the best meal replacements on the market. We want to shift consumer preferences toward healthier diets, addressing needs like sleep and anxiety. We aim to evolve from a weight loss company to a comprehensive health and wellness entity, leveraging our digital platform to assist our distributors and enhance consumer well-being. This is all about expansion and creating better opportunities for distributors and consumers.

Okay. And as a follow-up, will the new product content be internally developed?

That's not necessarily a fair statement right now. We need to widen our approach a little bit. Our distribution is global, and there are people who would love to have their product featured on a global platform. We're not going to shy away from that. Herbalife 24 was an acquisition; we purchased it from a small company that took off—an example of how we can attract new products and partners into our company. I don’t think I've evolved Herbalife One; instead, I may have sped it up a bit. One change we implemented was reducing the large distributor group involved from around 40 people to six key distributors with a strong understanding of data and digital marketing strategies. We're launching and testing it out in several markets soon. We'll have that data for you on the next earnings call, and I am excited about it.

Thank you. Please stand by for our next question. Our next question comes from the line of Karru Martinson with Jefferies. Your line is open.

Good afternoon. It was nice to see the trend stabilize here in the fourth and get some traction, seemingly from the turmoil in the first half of the year. When you say that those trends have continued into the first quarter, should we be looking at the first quarter as being similar to the fourth quarter results, or how should we think about the cadence of that going forward?

Thanks, Karru. We are making a general comment that we have many initiatives in our plan suggesting a return to growth. However, we want to clarify there’s still top-line decline, so the first quarter may reflect financial results more consistent with the second half rather than showing an immediate increase.

Okay. And when we look at cash flow generation for the year, how are you applying that? Is that still revolver pay down, or are we looking to address those 2024 converts? What’s the big picture for you?

Cash flow generation is directed towards nominal debt reduction and also amounts set aside for the upcoming 2024 converts due early next year. Two factors focus on improving our overall gross leverage ratio.

Lastly, when you implement Herbalife One and Herbalife 2.0 and new compensation structures, and execute on cost savings, do you think your gross margin will return to historical levels, or should we expect a new long-term level?

Our current gross profit level, where we ended 2022, is about 3 points away from our desired run rate. We need structural improvements in the supply chain for recovery in gross profit margins. While we’ll work toward that, external limitations are hindering our ability to recover margins in the near term, but we still have a long-term plan to restore gross profit margins.

Thanks very much, guys. I appreciate it.

Thank you. Please stand by for our next question. Our next question comes from the line of Anna Lizzul with Bank of America. Your line is open.

Hi, good afternoon, and thanks very much for the question. I understand that you're not providing guidance for 2023 currently, but I was wondering if you could comment on how the business is performing so far this year in various geographic markets? It also looks like there was continued weakness in China in the fourth quarter; can you touch on the volume and sales trends you’re seeing there so far this year?

Thanks, Anna. We are not providing guidance for this year, and we typically don't read out results post-reporting period. Regarding performance in China during the fourth quarter, it was still impacted by Zero COVID. China came out of that policy near the end of 2022. As we move into 2023, we expect to see the business transformation initiatives we began at the end of 2021 take hold, though it's challenging to predict trends just yet.

Okay, great. Thanks very much.

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.

Good afternoon. When you discussed the new bonus program, it sounds like it's more accessible to more distributors, which I assume implies that if we don't see sales growth based on this, EBITDA margins will come under pressure. Is that fair?

No, it's not. It is an allocation of the dollars already spent on the bonus program. It doesn't impact margins; sales could go up or down.

Great. And I think your price increase in the third quarter was 13% year-over-year. Are we at a point now where further price increases aren’t needed, or do you expect additional ones in '23?

We still haven’t completely recovered the full input costs impacting our manufacturing. Therefore, we anticipate continuing to execute price increases into 2023, but we’ll do so thoughtfully, mindful of the impacts on consumers and distributors.

That makes sense. I understand. Lastly, regarding capital allocation, you mentioned that you'll allocate all cash toward debt reduction. Is there a target leverage you hope to achieve, or when would you change your capital allocation strategy?

Yes, the target leverage is at 3x. We would look to change our strategy when we're at or near that target leverage and are assured of returning to growth in our top line. We require a trajectory of EBITDA and confidence that we will achieve our growth targets before changing our current strategy.

Got it. Very helpful. Thank you.

Thank you. Please stand by for our next question. Our next question comes from the line of Hale Holden with Barclays. Your line is open.

Thanks. I had two questions. First, on China, it’s become a much smaller part of the business over the last couple of years. Could you elaborate on whether you think you can grow it without margin dilution? Would you need to add costs or personnel to get back to the previous growth profile?

You raised a good point. China has indeed become a less significant portion of our overall net sales profile. We believe we can execute on margin initiatives in that market while still pursuing growth opportunities. China is one of the largest consumer markets globally, and we see tremendous potential there. We aim to adjust for margins while optimizing the top line.

Great, and my second question is for Michael. The number of in-person meetings you’ve held and the people you’ve touched since the beginning of the year is impressive. Could you share some examples of how those meetings energize distributors to sell? What tangible feedback do you receive that demonstrates that excitement?

The best example I can give you is when we met with our leadership in Cairo and brought them back to Los Angeles. There were distributors with sizable businesses who had kind of retired, building homes in the mountains and along oceans, stepping away from the business. I promised them they could come back all-in to rebuild their organizations. The meetings happening in their businesses are inspiring—hard to quantify in metrics. They send me videos from meetings in places like Tennessee, Texas, France, and Asia, all rallying around a theme we call LGH—Let’s Go Herbalife. People are excited and engaged, showing serious enthusiasm about their future. Promotions like “I’m All In with Michael” have been well accepted, and we’ll have all distributors here in March to reward their efforts with our bonus program. Overall, we’re seeing an energized distributor leadership, and that translates into a revitalized sales force.

Thank you. I appreciate it. Sounds great.

Thank you. I’m showing no further questions in the queue. I would now like to turn the call back to Chairman and CEO, Michael Johnson for closing remarks.

Thank you very much, and thanks, everyone, for being on the call. I know we have some new voices on the call today, and we hope you take the time to understand our company in depth. Come visit us, spend time with us, understand the metrics of our distributors, the emotion of our marketplace, and the opportunity of our digitalization as we go forward. As I said in my last answer, our distributors are energized, and we're embarking on a new and exciting Herbalife. We are out of the pandemic malaise and onto a brighter, bigger future. Our customer base is expanding. Our opportunities for customers are only going to grow. Our distribution methodologies will become more exciting than they’ve been in the company’s history. I came back because I’m passionate about Herbalife; I didn’t come back for the salary since my compensation is tied to our success. I am aligned with all of you and am excited for our journey ahead. It may take time to see results, but we'll get there; you’ll see. Thank you for joining us today. Let's go Herbalife.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.