Good afternoon, and thank you for joining the Fourth Quarter and Full Year 2023 Earnings Conference Call for Herbalife Ltd. As a reminder, today's conference is being recorded. I would now like to turn the call over to Erin Banyas, Vice President and Head of Investor Relations, to begin today's call.

Thank you, Towanda, and good afternoon, good evening, everyone. Joining us today are Michael Johnson, our Chairman and Chief Executive Officer; Stephan Gratziani, our President; and Alex Amezquita, our Chief Financial Officer. Before we begin today's call, I would like to direct you to the cautionary statement regarding forward-looking statements on Page 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 statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended. As is customary, the content of today's call and presentation will be governed by this language. In addition, during today's call, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or nonrecurring items that management believes impact the comparability of the periods referenced. 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. And with that, I will now turn the call over to Chairman and CEO, Michael Johnson.

Thank you, Erin, and Happy Valentine's Day, everybody. When I returned to Herbalife in late 2022, we met in Cairo immediately. It was the first of November and we set out a vision for Herbalife, and that vision is to be the world's premier health and wellness company, community and platform. We are working on it and the results are getting very exciting. 2023, though, was a very challenging year. We all know that. So we laid out a plan to have net sales growth by the fourth quarter, which we delivered. Our year-over-year net sales trend improved every quarter in 2023. We modernized our brand, we updated our look, and we modernized our digital atmosphere. We enhanced our data management and transactional capabilities. We launched new websites in markets representing 70% of our sales. On the product front, we introduced 17 innovative products that supported our distributors' businesses and we launched our first ever vegan line. It was so successful, the demand was higher than anticipated, and we experienced out of stocks. We had strong cash generation. Our 2023 free cash flow exceeded 2022. We paid down debt ahead of schedule. Our transformation program took out $115 million out of SG&A, which exceeded the $70 million we set out to achieve. We did this through an aggressive back-office consolidation. This helped us build out centers of excellence in Krakow, Guadalajara, Bangalore, and Kuala Lumpur. Our retention is up. Those are the news points from 2023. So now let's focus on where we're going in 2024. Our top line sales and recruiting of new distributors and customers is our #1 focus. Bringing Stephan in to work with an incredible team of executives here is helping Herbalife get closer to the market, dive into analytics and data to support distributor businesses for insights and opportunity. It's allowing us to maximize sales and business opportunities through customer and distributor acquisition productivity and retention. We are deploying account management teams more aggressively in the field to work closely with distributors. We are investing and positioning ourselves for growth through 2024. Based on our line of sight today, we are forecasting this year to be relatively flat. With that said, stay tuned. The U.S. is our major focus. It's our home court. It's important to all of our stakeholders, to our investors, employees, and distributors. We are in this to succeed and get growth back into North America. We need to drive top line growth here in the U.S. to get deeper and closer to the market, which is what we are doing to create products for the market. The vegan line is an exciting product for us, opening up new customers, new distributors, and new opportunity. In the GLP world, we've just launched nutrition companion product combos to meet market demand. Distributors are looking at unique ways to work with their local markets. We have studied this market closely. We are also excited about the CDC Diabetes Prevention Program, which allows our distributors to be more deeply trained in offering their customers a lifestyle change enhanced by weight loss and behavioral modification. Let's summarize North America. Get recruiting up, get customers and distributors, get more of them into Herbalife with great products, with great business opportunity and with great innovation in our company. Get closer to our distributors, deliver a robust suite of digital and data tools that will enhance distributors' business opportunity and deploy our events specific to DMO training. We are also excited about our major markets where in China, we're back in action. We see good things on the horizon in China. India continues to grow with a great management team there. In Mexico, we're moving forward from supply chain challenges experienced in the latter part of 2023. This week, we announced a new relationship with the Mexico Olympic Committee, which is very exciting. We are the supply and product partner for athletes. Our partnerships enhance our brand universally and are in line with our healthy active lifestyle values. So before I turn it over to Stephan, let me reiterate our goals for 2024. Sales, sales, sales! We need to drive top line sales and margin. Finally, let me turn to the balance sheet. This year, we will refinance our senior credit facility and use our excess cash to continue to pay down debt. Now, before I turn it over to Stephan, let me just do a quick introduction of him. When we brought Stephan in, our goal was to get closer to the market, to have a distributor voice, mind, and mindset inside our company. His depot of experience and knowledge has helped us already tremendously. He's proved to be a transformative leader, and I'm proud to promote him to President this year. So, Mr. President, on to you.

Thank you, Michael. It's been an exciting six months since I joined the company. Last quarter, we talked a little about the long-term vision for the company and how we're going to be a sustainably growing company in the future. Michael has mentioned becoming the world's premier health wellness company, community, and platform. We have tens of millions of customers and millions of distributors that work every day face-to-face with customers, teaching them better nutrition habits and getting them on Herbalife products. As a company, many of those customers do not live on a platform with us, and part of what the Herbalife One ecosystem is about is delivering more value to our customers and allowing them to be closer to the company. Short term, we have things to work on, focusing specifically on China, the U.S., and Mexico. In China, the executive team has spent more time on the ground with our service provider leaders and local teams than we did in the last three to four years. The business is stabilizing, we have positive momentum, and a clear plan for 2024. Another focus area is the U.S., where we spend a lot of time analyzing the business and the growth that occurred over the last six to seven years. Nutrition Clubs in the U.S. are the most important part of our business. It's also what differentiates us from other businesses in the MLM and nutritional supplements industry. In 2023, we had 4.4 million unique customers in our U.S. Nutrition Clubs, generating around 55 million transactions at an average transaction amount of $16.50. That's $900 million in retail business for our clubs. While some clubs are doing well, others are only converting 1% of customers into Herbalife customers. There’s a significant opportunity for us to help improve these conversion rates. We believe that focusing on multi-services for clubs will enhance conversion rates. We are also excited about the CDC Diabetes Prevention Program, which allows our distributors to become certified life coaches. Additionally, we are implementing a standardized account management operating model to support our distributors. This initiative is focused on delivering value to our distributors and closing training gaps in the DMO side, which we'll be doing uniquely for themselves. We have exciting new training and master classes coming that focus specifically on practice scenarios. This shift will make a huge impact in allowing our distributors to maximize market opportunities and ultimately will lead to better outcomes.

Thank you, Stephan. I'll begin with the key financial highlights. Our fourth-quarter revenue was $1.2 billion, up 2.9% versus the fourth quarter of 2022, and is the fourth consecutive quarter of improved year-over-year net sales trends. For the year, we achieved $5.1 billion of net sales, down 2.7% versus 2022. We are expecting our full year net sales trends to improve to relatively flat compared to 2023 levels. For fourth quarter, we held gross profit margin flat versus Q3 at 76.3%. Compared to Q4 of 2022, gross profit margin was down 120 basis points. The pricing actions we took over the past year provided about a 100 basis point benefit, but we continue to face headwinds from input cost inflation and unfavorable manufacturing absorption rates, which drove an approximately 210 basis point negative impact. For 2023, operating cash flows exceeded 2022 with a free cash flow of $223 million. Our transformation program has exceeded expectations, and we expect it to produce at least $115 million in benefits in 2024. Our balance sheet remains strong, and we have paid down $155 million of our credit facility and convertible notes. We are on track to address our 2024 convertible notes and we have initiated the process to refinance our senior credit facility, which matures in 2025.

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

Great. Thanks for taking the question. I'd like to start on 4Q results and specifically on the SG&A line. Alex, can you help explain why SG&A dollars were up almost 7% in the quarter and why we haven't seen those $27 million of cost savings show up in the P&L? And just related to that, for the increased cost savings target of $115 million next year, when will that show up in the P&L? And do you expect that to get dropped to the bottom line or is your thinking here that that will need to get reinvested?

Chasen, great question. So the savings are showing up in SG&A. It's being offset, as I mentioned, by the investments we're making in our digital technology, in our events, in our people, and other things to modernize Herbalife. While you are correct in that the overall SG&A spend is higher in '23 versus 2022, it is being offset by all of those savings initiatives.

Got it. And then just changing gears, could you maybe expand on your expectations for flat sales in '24 and specifically comment on what you're expecting from regions and on a price versus volume basis? And related to that, do you expect constant currency sales to be positive year-over-year, and similarly, do you expect EPS to be up year-over-year in 2024?

That's a lot of questions, so we'll break that down. Our expectation for net sales growth being flat does not include from a currency standpoint; however, we do expect there to be some headwind from currency in 2024. As we look to 2024, just thinking law of large numbers, we have a more modest expectation for the overall contribution of growth from India as it provided almost 30% of net sales growth in 2022 and 18% in 2023. So as India's growth moderates, it yields more of a flat growth expectation for 2024.

Thank you. Please standby for our next question.

Your line is open.

Hi. Thanks for taking our question. Can we dive deeper into your expected uses of free cash flow in 2024? You mentioned repaying some more debt, but if you could provide more color around that.

Yes, our excess cash flow is going to be directed towards reducing our total debt levels. We will be looking to pay down our bonds that are due at the end of 2025, which become callable in the third quarter of this year.

Okay, great. Got it. Thank you. And then just one follow-up. Your CapEx guidance is wide at $145 million to $195 million. What are some pieces that could move it from the lower end?

So there are two significant components of that CapEx spend. One is in our technology spend, which involves Herbalife One and where we are in that process. There is some variability on the prioritization of those applications and whether it makes sense to accelerate or defer some of those programs into '25 and '26. The second component is deferred CapEx related to our manufacturing facilities and automation programs.

I wanted to follow-up on the conversations about debt pay down and the capital allocation. Have you articulated a target leverage ratio that you're shooting for? And is there some point where a stock buyback makes sense?

Our policy around a 3x total debt is still our target. We ended 2023 at 3.9x and we expect strong cash flow generation to continue to pay down debt until we reach that 3x target.

Our company is metric-focused as we should be. We need to improve on some of our metrics, and our challenges are overshadowed by our opportunity. So we are excited about 2024. Our vision of being the world's premier health and wellness company, community, and platform has never been more relevant. Thank you for joining us today.

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