Conference Transcript - HLF 2026-08-26

Philip Cooper, Host

Welcome, everybody, to the Midwest Ideas Conference. I'm Philip Cooper with three-part advisors. Our next presentation comes from one of our investor relations clients, Herbalife, that's traded on the New York Stock Exchange under the ticker symbol HLF. Presenting for the company today are Samantha Hallway, VP of Investor Relations, and Scott Schaefer, SVP of Finance and incoming chief financial officer. Excuse me.

Samantha Hallway, Head of Investor Relations

Good afternoon, everyone, and thank you for joining us today, whether in person or via the webcast. I'm Samantha Hallway, Head of Investor Relations at Herbalife, and I'm joined by Scott Schaefer, our Senior Vice President of Finance and Transformation and incoming CFO, who will lead the project Before we begin, I'd like to direct you to the cautionary statement regarding forward-looking statements on page two of our presentation, which is available under the Investor Relations section of Herbalife's website. This presentation includes 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. As is customary, the content of today's presentation will be governed by this language. In addition, during today's presentation, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures exclude certain unusual or non-recurring items that management believes impact the comparability of the periods referenced. Please refer to our 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 it over to Scott to begin today's presentation.

Scott Schaefer, CFO

Hello, everyone. My name's Scott Schaefer. Like Sam said, I'll be the incoming CFO starting in January. Before I start, just a quick little background about Sam because she's pretty incredible. She's been with the company now for a number of years, but has a finance background, has been through pricing, FP&A, but the last two years she's actually led sales for a North America business so we get into Q&A she's gonna be a great person to help answer some more questions about North America about myself move forward while I'm talking I've been with the company since November of last year prior to that was 16 and a half years with zappos.com online footwear apparel subsidiary of Amazon so it part of the reason why I'm joining I think it's important to tell you is I I care about the purpose a company with purpose and this is a company with purpose I think purpose in terms of helping our customers reach their health goals and health outcomes as well as for our distributors creating great business opportunities not and we do that on a global scale and then again the opportunity side I think we and we'll get into some of the detail we have a business that has amazing secular tailwinds that is in 95 markets that is super powered by 6.4 million people inside of our broader distributor network over 2 million that are active at this point in time and this represents growing market segments everything that we're in has TAMs that are in growing markets I think so again I think we're in a great place and again I see both purpose and opportunity here and I'm excited to share some of the purpose and opportunity so again at a quick high level some of the statistics here that I think they're important to you is our distribution network and we'll get into some more details on that we're in 95 markets we are heavily concentrated in kind of the top 20 of them no single market represents over 50% of our business and I'll give you some geography a little bit later we have over 144 unique products that we sell across these 95 markets covering everywhere from weight management to protein base to NAD plus to personalized supplementation so a lot of different products that I think broaden a really good portfolio and again we'll get into some more portfolio details later. Last year, we did over $5 billion in net sales, generating $658 million in EBITDA, and we are now expecting full-year growth for this year, and we can share full-year guidance a little bit later, as well as we've had steady increase in what our EBITDA margins have been over the past couple of years. Herbalife is an incredible cash-generating business. Even some of the difficult times coming out of COVID has always been strong in terms of our operating cash and free cash flow. And so it's represented here in just what we've generated year-date, $147 million of operating cash. An important part of the journey that we've been on also, and I'll carry you through this, is some of the debt that we've retired. We had a high debt balance, about $2.8 billion coming 2021. Since that time, we've paid down about $800 million of debt. And our goal is to get down to $1.4 billion of gross debt, $1 billion in net debt by 2028 it's another 600 million dollars that we expect to pay down through 2028 in terms of our business the way that we go to market is we are a direct seller we leverage an incredible distribution network and the way the distribution network works is that you know we have people that new people that come in and you know they start learning the business understand the products understand what the opportunity is then we have kind of this base of existing people but really the bottom of the funnel or what we call active sales leaders or our sales leaders these are the ones who have started to establish a business they have a customer base that they're working with they start to become eligible for different levels of compensation and production bonuses they're the ones who are doing the vast majority of the work and so the retention of this group is extremely important and so what we've seen is we've seen a growth of our average active sales leaders the people that are producing by about 4.3 percent in consecutive quarters now and then on top of that we'll show a little bit later to our retention rate of this group is 70 percent us actually leads that at 78 percent we just went through a refi process where we refied our revolver and term loan as well as some of the senior debt we went down from a 12 handle to a seven handle our senior debts at seven and three quarters so we've done a great job cleaning up the balance sheet in just this refi process we've now expect to save 45 million dollars of interest savings just at that current balance so we get even more savings as we continue our pay down journey so at a broad level our we have our new CEO who came in Stefan Graziani who was our number one or number two distributor for a long period of time he was with the business for 32 and a half years he understands this business understands how we need to continue to move and evolve and so the mission that you serve the vision that we see up on the screen is the one that he helped us create which is to be the world's premier health wellness company community and platform one of the things that is different about us comparing against other direct sellers is we have a distribution channel that is incredible. It's our superpower and over 2 million people that are active as part of our sales channel. And what that distribution network has done over the past 10 years, we've generated $50 billion in top line. A differentiator for us is nutrition clubs. So it's not just the direct sales can be your door to door. That's not really the models anymore. Different distributors have different ways that they go to market. it. The most common one and the differentiator for us is our nutrition clubs. So the type of clubs, they vary by different regions. But for the U.S., for instance, it's more of a single-serve consumption model. So we work with our distributors. They're independent owners of these businesses. And what they do is think of it as the Starbucks, right? You go in and you get your daily coffee or your daily tea. So a lot of customers come in as part of their health journey and have that meal replacement shake. You know, we say if we can replace a McDonald's meal with a shake that a distributor has, right? We're helping people become healthier. And so across the globe, we have 63,000 nutrition clubs. The U.S., we have 9,000. Additionally, these clubs generate roughly about a third of the volume inside of the U.S., and about half in terms of what the nutrition club operator's business is in total. And across that, we have got 49 million transactions that occur annually across 3.7 unique customers. So where's the growth coming from? because we have now started to see consecutive quarters of growth nine consecutive quarters of growth within our active sales leader fourth consecutive growth quarter of growth for for net sales so again active non sales leaders this is kind of this middle bucket of the funnel right so you've got new people that are coming in the existing base that is now starting to get their footing in so we've seen consecutive quarters of growth of this existing base and then really these sales leaders we're seeing four point 3% is the one who are doing the majority of the volume, and 7% is a quarter of that, and it isn't the latest quarter of that, because we're in distribution, not every market always in the same way, macroeconomic factors, and geopolitical factors, but because we are geographically distributed, we don't necessarily have to have everybody going up at the same time for us to have a positive net sales, and usually it's a couple of them that are moving up and down. Where we are seeing a lot of growth right now is actually within APAC. The APAC sales, net sales in Q2 was up 15.2%, India being a large leader in this, which was heavily driven by some of the tax change, the GST change that took place in September of last year. And with that, the fundamentals of that business continue to grow. So as they had some price decreases that occurred from the government goods and services tax, they've been able to build on top of an already strong business. And so you can see that their sales leader growth has grown up by going by 12, a little over 12%. LATAM, which represents about 17% of the business, which includes Mexico, South America, and Central America, has continued to see sales growth also, 16% sales growth. North America kind of went through a bit of a journey coming out of COVID. And so the past couple of years, we've really focused on, one, bringing new people into the business, but then really the stability of that sales leader base. So we are now starting to get to a point where the decline in our sales leaders are starting to get to be almost flat, and we expect to be about flat in that trend, end of year to early next year. And again, that's the group that is more productive. They're actually the ones that own most of the nutrition clubs. So again, North America is now hitting this base of stabilization, which is one of the most important markets for us and also for the investment community. And then EMEA is in a bit of a rebuild. We kind of saw some weakness emerge coming out of the conflict that happened starting in February. And we're working through the region on some different things. But I think that's one of the areas where we're not seeing the strongest growth, but we see a lot more opportunity, and we're investing into it. Going, again, a little bit deeper into nutrition clubs, a little bit of background. I won't spend too much time on it, but here you can see kind of some pictures of it. And I highly recommend anyone who's interested in investing in Herbalife, it's important for you to go and visit a nutrition club. and they vary and they're very different based on different markets and reach out to us we're happy to give you the information of tuition clubs near you 9,000 the US so we can probably find one that's in your area but again this is it's they are done completely independently they are not our stores actually the outsides of them don't have any branding on it it's kind of this rule of kind of protect the second sale someone might not want to join the business if they know that somebody is going to compete with them that has a store right off the bat so but the inside they can put in whatever branding So none of them actually have an Herbalife name to it. It's, you know, area code and, like, 702 Nutrition Club or, like, some, like, really cool names. And it's more of, like, kind of that Starbucks in the U.S., that single-serve consumption model. But in there, there are other go-to-market models that are employed. A lot of our distributors like to work with their customers in different ways of, like, challenges and healthy active lifestyles. So weight loss challenges, maybe fit clubs, fit challenges. So they use this as home base also, so for them to go to market and actually create a bit of community. It's a really important way of actually how we create community that is one of our differentiators and superpowers. And again, the difference between the U.S. and the single-served consumption model is different than in India, where their model is different and not every club is physical. They actually have virtual clubs. So instead of selling a single-served consumption, they actually sell a membership, a seven-day membership or a 30-day membership, where they bring you in, they give you product for that window and either virtually or in the club on a daily basis you go and you actually make the product together and then from there have the conversation in the community and it's done this really incredible environment so again the huge part of the distributors they build this community and this network with their customers so i talked briefly already on our geographic distribution but you can see it here displayed north america again being one of our more important regions is you know about 21 of the business it's also where our headquarters is we're headquartered in LA downtown Las Vegas I'm from Las Vegas so it's not in Las Vegas although recommend Vegas to anyone that wants to go visit but downtown LA is fantastic that's where our corporate headquarters are we also have another building in Torrance we have three manufacturing facilities so we own 100% of the formulas and we'll talk about that later but our three facilities are in Lake Forest California Winston-Salem North Carolina and then in Shuzhou China which we produce China for China at this point in time so when it comes to the actual products for a long period of time and currently we are a leader in these spaces so we are a leader in the active lifestyle nutrition brand we are a leader in weight management and we have the number one protein shake in the world as I referenced earlier you know we've got some incredible secular tailwinds that they just don't go away right these are all things that are perpetual and so for us it helps us play inside these markets that are core to who we are so from weight management and you can see that what the there are all markets that have expected growth coming from them to targeted nutrition to sports nutrition and now we've just entered a new space which is personalized nutrition with one of our acquisitions I'll tell you about called bionic so as we look at it you know the we and I'll show you the portfolio next some these are some of the areas where we are leaders are starting to emerge right weight management and specifically the formula one product is what the company started with and was built on so that's why we're the number one protein shake in the world and number one in terms of weight management over time and our old CEO Michael Johnson he led us into this effort of a healthy active lifestyle and so we created the h24 brand which is a very sports focused brand I think from kind of a protein first look to branched-chain amino acids creatine really through people that are into a deep sports lifestyle and that's why we're number one within this category and we've now entered into new categories like healthy lifespan with our NAD plus product called baseline but when you look and take a step back at what our broader portfolio is and this is where I think that we're unique is we get to hit a number of different segments that can be very unique or different in certain areas so I think from our core product of Formula One all the way through a vegan line where it's with plants green it's called the greens booster so I don't know how many of you love to have broccoli on a daily basis probably not everybody here so most people don't have their greens and so we actually have created a supplement you can put into your food that gives you your greens for the day. It actually tastes great. Life.io, which is a new brand that we've launched, which is our healthy lifespan. One of our acquisitions that we did last year, Prove It, brought us into the exogenous ketone field. And so we just launched in North America in July two ketone SKUs, which is an energy-focused thing. Energy is actually one of the categories that is one of our fastest-growing right now, specifically inside the U.S. Bionic was an acquisition that we completed in April, which is our first foray into the personalized vitamin and supplement space. When you think about our distributors, protein is one thing you can go to market with, but protein is available. Vitamins and supplements is actually how a lot of people think about Herbalife, but we actually do a very, very small business in vitamins and supplements because it's not really a differentiated product. You can go to a CVS or go to a Costco and buy a multivitamin or a bottle of vitamin C if that's what you're interested in. so for our distributors to bring that to our customers it's not a lot of value that they can bring it's not a lot of incrementality so what we did was we acquired a company out of the UK that does personalized nutrition and Cristiano Ronaldo is actually a 20% owner in this business and what they do is through an online assessment they understand more about you your you know your gender your height your weight what are some of the goals that you're looking to achieve is it better sleep is it anxiety is it and so we take those inputs through an online questionnaire and from there you get one of 40 formulas that looks at 26 different vitamins and minerals and dose it the dosage will vary based on the formula that you're get as part of that output through the questionnaire so it's now a foray into more personalized nutrition so I think this is exciting for us I think we're gonna see both a good direct benefit as well as an indirect benefit over time we haven't shared any results yet since we just launched it so again not much to share there outside of it's a new opportunity that we're bringing that we believe personalization is a place where we're going to plant our flag in the ground, where we believe it's something that we can own, and this is our first real foray and skew into it. And we talked about the Herbalife 24, H24, but we also have a good skincare line, too. And specifically, some of the ones that we've launched recently is inside of Europe and Africa, we launched HL Skin, which is our Korean skincare line, and we're looking to bring that to North America in 27, which presents kind of a differentiated opportunity as well if they want to go to market for skin care great with estheticians an important point that we learned very early on is that we need to control the product and control the quality of the product so we implemented our seed to feed program where we own basically the entire formula and of this we produce about 46 percent of our products directly through our manufacturing this will vary a little bit based on geography and where things are produced and then we use top tier contract manufacturers and specifically we create the formulas everything that we do is we we own and create the formula and we give it to them and we actually have people that sit inside of those facilities to manage quality because quality matters more than anything. It's a big part of our credibility. And then from there, we move it to our distribution centers to get through our distributors. So as we've been on this journey to be the world's premier health and wellness company, community, and platform, we've made some acquisitions to help us along the way. And I'll go into a little bit more detail on protocol and some of these, but when we look at the things that our distributors have been doing for 45 years, right, it's all about what to measure and for them things have been analog for so long you come to your district nutrition club or somewhere and you know they are gonna do you know your weights they're gonna do your measurements and but then they record it analog right and then from there what to take they've always done personalization but they personally curate products that are going to meet your goals and you you know who did what to do from there they can help you create protocols of exercise regimens or things to meet your goals and then of course the who to do it with which is an important community and we're moving that from an analog world into a digital world, which is our investment into protocol, our personalized health operating system. Along with that, it was kind of a broad acquisition because of shared ownership. We bought link biosciences. When we talked about bionic, the actual format of that is a Swiss granule that coats the actual mineral. This is a powder base. It gives us the ability to do N of one formulation and add in a number of different ingredients. We want to add like testosterone in there. It can create a really premium N of one product pending regulation. And And then from there, Pruvit, this is our company that does exogenous ketones that we took the formula from. And then Bionic. And so Bionic Lab kind of being another component of this acquisition that we completed, it's being held outside in a call option for us to bring in. They are a research peptide company. So think of your BPC157, TB500, some of the things that are going through regulatory approvals right now. They're a distribution company for that and making investments if we ever want to get into it, regulatory environment, gets into the right place, and just gives us some additional optionality. And then CR7, which is Cristiano Ronaldo. He was an investor in Bionic, and so he's still incentivized to help with that business because there was an earn out associated with that acquisition. So again, any incremental sales, he has earn out potential. And then he's now an investor in protocol, and I'll get into a little bit more of that detail. So won't spend too much time talking about protocol. It's still in beta. We've launched it in 11 European countries and And also North America, North America kind of being the test, the big ground for it. And again, it's trying to bring things into a more digital environment. All the things that you use right now through your Apple Health, but then kind of aggregating it all together. I like to think of it as like, have you ever used Mint or Quicken Simplifier, Rocket Money, this aggregator instead of for your financial health, this being for your overall personal health and your goals. So it's going to have activity tracking, specific health metrics, wellness assessments, and it's all done through a distributor and it connects in. And it gives your distributor more opportunity to have deeper connections in a digital way than exist currently today. They can have access to the protocols that they've created and it being digital. And then from there, we have a lot of AI capabilities that we can put into the software to help them with next best actions or is somebody following their protocol. So enhanced follow-up opportunities, servicing them products, and then, of course, who to do it with and through this platform. It's kind of our intelligence layer that we're bringing to our distributors. Everything we do is through our distributors, and they're the ones who are responsible for their customers. And then we talk about Cristiano Ronaldo, who the number one global sports athlete icon. He is the most followed person on earth, a billion followers across all the platforms, and is also the most measured athlete. So his story with Herbalife, for a long time, he was actually a partner with us. We created a product line where he got a royalty. This is his first time actually being an investor in with us. So he's now in it with us. And being the most measured athlete, protocol makes a lot of sense for him because it's all about measuring where you are and that continuation of it and bettering yourself through this process. He's a person that measures his biometrics before workout and exercise, during and after. And then from there, what are the products that can help him get and exceed to the next level? So for him, the investment is the continuation on the health journey with Herbalife. So it was a $7.5 million investment for 5% and an additional 5% ownership in protocol for some services and sponsorship to be credible in the sports world obviously we have to be deeply connected in with sports and that's what we are we're a proud sponsor of athletes across 35 different sports 120 plus different sponsorships and we're actually the sponsor of five different olympic committees and we in the last olympics we had several of our sponsored athletes that were medalists so we're pretty excited about so it's kind of it's deep rooted in our history of sports and then we're talking about the the actual flow of the business cash flow so coming out of covid was an interesting time where you know we saw kind of some growth in the business from people coming in that did it as a quick side gig and it wasn't sustainable so we saw some declines coming to the business and so you can see 23 into 24 was really the point in which we hit stabilization so our top line being stable around that five billion last year we did just above five billion trailing 12 months we're at 5.2 so again we're happy to see that you know we're on this kind of stabilization and now starting slower growth trajectory and with that too as we exit covid you can see our EBITDA margins hit a bottom out at 11.3 and we've now hit this continued drumbeat of making changes across you know where growth has been a lever but margin expansion being a huge part gna restructuring played a huge part in it's going to continue to be an important part of how we move forward our goal is to get back to 15 percent that was our pre-COVID number so pre-COVID represents actually a really good comparison for us and if you exclude kind of that COVID window all of our metrics have continued to be on that same positive trend specifically top line so our goal is to get back to that's 15% EBITDA margin we haven't put a specific time in a roadmap on it but the steady drumbeat of margin expansion is our path forward and you can see that our operating cash flow continues to be strong in all these periods this is a really great cash generating business I think that's an important part like a good good example of this is our free cash flow yield is 23% right now so we're generating a lot compared to the value that we have currently our journey on debt has been an interesting one we had to lever up to get Carl Icahn who was the activist long investor if you're familiar with the Ackman Icahn saga that had occurred and if you're not I recommend Google and some some good videos it's a great CNBC one where the to battle live it's very interesting but basically as he exited he forced us to lever up to get him out of his position so it was about a bill nine the billion nine that we had to buy back from carl a bill two in the last tranche where he took control of the board and forced this fast exit so pre pre this like we didn't really have a big debt balance so we looked at 2019 as our a good optimal debt balance where we were which was 1.4 billion gross 1 billion net and we've been on our journey to get back there coming out of this icon saga and since that time we've paid down 800 million dollars of debt to get our debt from 2.8 down to two and so you can see where we are right now we just did a successful refinancing also moving from our senior debt from that 12 handle down to a seven handle and so that freed up about 45 million dollars of interest savings so you see our leverage ratio continues to be positive this is our gross leverage ratio our net right now is about 2.2 our goal is to get down to at two or below by year end And so I think I told everything I meant to tell you on this slide and the previous slide so I won't spend too much time. I think, again, when you're thinking about your models, this isn't a business that needs a lot of debt. It's not a capital-intensive business. Our CapEx requirements, including SAS capitalization for implementation, it's about 1% to 2% of And so, again, not very capital-intensive. We generate a lot more cash flow than typically we need, and so we look at our capital allocation priorities. So once we get through our debt targets, we are looking at ways that we're going to invest. And we've been able to do that even along the way, right? As we've been on this journey, we've made two small M&A acquisitions. So again, we think that there is opportunity for us to continue to pay down our debt, to meet our targets. We feel very confident on that. And if we did nothing else but pay down the remaining $600 million of debt on $100 million share base, that's $6 a share. So if we can see, you know, we have excess cash that we generate on top of it. You know, our hierarchy of cash needs really is debt service, internal working capital and internal investments, external investments, and then rewarding shareholders. We're more focused on growth at this point, so we're more focused if we're going to do anything on a share repurchase. Coming out of the refi that we just had and completed in April and having to delever from the whole ICON situation, we don't have an active share repurchase agreement yet. It's going to be an active conversation with the board as they get more comfortable for where we are in our growth and stability as well as that we've now more time since this you know the kind of the refi process so again something that's going to be a continual conversation with our board just don't want to put anything out there right now that we have anything in place because we don't i personally believe that we're intrinsically undervalued but that's my own personal opinion uh based on models that i've created but again that and that speaks to the free cash flow yield uh and so we're going to continue to generate value as we grow the business as we expand margins and pay down debt as our core priorities at this moment in time. So a quick run through our financial highlights. And if you don't listen to our earnings calls, they are amazing. I highly recommend all of you listen to them. No, they're not, I mean, they're not that wild versus anyone else, but I love them. So in Q2, we generated $1.3 billion in net sales, up 5.4% year over year. What we did experience was about 40 basis points of FX headwinds. We were expecting some tailwinds coming into it, so our constant currency growth is actually at 5.8%. India was a significant driver of growth coming off of the GST change that happened in September of last year. It really helped to boost that, but stability of North America, where we were flat for this quarter, also helped out significantly, too. LATAM is another one of our bigger growing markets. We generated $167 million of EBITDA. It's down year over year, but this quarter was planned down specifically because of some timing issues. so we have won't go into too much detail but some of our sales events timing we did them in this quarter versus prior quarter so a little bit more G&A in this window but it nets out for the year and then a little bit in capex 11 million in capex we did have when it comes to our actual net loss we did have a net loss and that was only because of an extraordinary event which was the extinguishment on the debt refinancing that we did so when you would just it out our actual EPS was 51 cents and when you look at through the rest of the year we continue to project growth you know not just in Q3 but for the full year we actually took up our full year guidance for for net sales so if you look at Q3 we're targeting between 0.5 and 4.5 percent top line reported on a constant currency basis because we do expect a little bit of currency headwind to continue to occur constant currencies 1.5 percent to 5.5 5.5 percent midpoint of EBITDA being 170 midpoints on a constant currency basis being 175 You get all those being up on a year-over-year basis. Full year, we took up our full year reported and constant currency guidance, so you can see we're 2.5 to 5.5 percent, and then prior guidance was 1.5 to 5.5. And then for EBITDA, constant currency EBITDA, we actually did take up on a reported basis because some of the FX headwinds that we saw, we did take the midpoint down by 10 million, so not really a material change in what that midpoint was, but just something we wanted to make sure that we're trying to hold true to forecast when we forecast because we are such a global company i think this is important to know is you know we don't try and project rates when we do this process what we do is we take the average of the first two weeks of the quarter and use that for our guidance for what our reported sales activity is going to be so if the currency moves a little bit on and off that that'll be kind of the indicator of where things go uh only other kind of big change i think it's worth calling out because we called it out in the last earnings report was for this year we are seeing a higher tax rate our effective tax rate we had planned to be at 30 which is pretty normal for us this year because of some you know one country mix and then two with some discrete items things like the the debt service it caused us to be up a little bit when we think about next year are we're still trying to target that 30 percent there's a hundred to two hundred basis points of risk on that that we're gonna let people know about as we get a little bit further we have an incredible tax team and they're doing a lot of their tax planning and diligence to see where we're going to land so we can provide the best guidance we always guide based on the best information that we know we don't want to overstate anything if an area is not doing well we're not going to bake it into guidance based on hope so we always present what we believe are achievable metrics for ourselves in terms of how we guide and we continue to guide every quarter that represents the the bulk of it i i won't go into the appendix because that's boring so why don't we open things up for uh for q a yes sir yeah so what we like to the the stat that we like to um really share the most is our sales leaders so the ones who are doing the majority of the volume our sales leader retention is at 70 on a global basis in the u.s it's close to 78 percent uh just quick interesting story of that and it's it kind of tells the story of us focusing on customer first and not business opportunity first in the late 90s to early 2000s our sales leader retention rate was in the 20s because it was all focused on the business opportunity bringing people in for the business opportunity and not on the customer and I think early on distributors and us we realized that's not a sustainable business model we want to focus on customer first otherwise this business wouldn't even be here today if we continue on that path so we flipped the model and basically said okay let's focus on customers and so we created those great outcomes for customers and as we did that and people got comfortable with the product portfolio and the go-to-market models what they did was it was customer first and if they were interested in the business opportunity then they would come into the business and with that they already understand the model it became more replicatable and for how they go to market and then from there they also know the product portfolio and how they can create those health outcomes so changing from business opportunity first to customer first for how our distributors go to market helped us get to the 70 percent level and has been pretty steady at the 70 percent and again u.s leads at 78 percent so hopefully that's helpful. So the question was, do we publish a chart of the trend of sales leaders, active sales leaders in the distribution network? So what we do is we do publish in our supplemental, our supplemental, supplementals, whatever it's called. Basically on our website every quarter we publish those metrics on what are the actual numbers of average active sales leaders, average active non-sales leaders. So I don't have it here, but we can follow up and it is on our web on our part of our website we do publish it quarterly yes so I mean overall it's it's a continue to trend up so we did show it a little bit earlier so the average sales leader is up 4.3 percent I think we've got it here in the presentation so average active sales leader trend seven consecutive quarters of growth faster than each one 4.3 percent growth sir so the answer is not yet but that is on the roadmap so bionic when we acquired them, they did have two specific products. The Go product, which was the lower price point entry, which was online health questionnaire based. Their second one, Pro, which is a higher price point one, uses blood and specifically blood biomarkers that you could influence through vitamin and mineral stacks. So that is on the roadmap. Protocol is going to be the ingestion point for it. And we are already doing different blood testing also. So we are in beta with a smaller distributor group for the tasso blood collection device where we can have it and then the results of the 11 blood biomarkers represent instead of protocol so from there you can see how the products can impact those blood biomarkers through repeat testing i think that's also an area we can help really build incremental value because it's not just a one-time how are you doing it's a continual test how are you doing what is it what's working what's not working how How is your personalized formula impacting these impactable biomarkers? So think of it more as not just the leverage target, but the actual debt level. So the $1.4 billion of gross debt by 28, $1 billion of net, it'll put us in the ones.

Philip Cooper, Host

That's where we're going to be.

Scott Schaefer, CFO

It's a very conservative number. I think it's a level that us and the board are comfortable with, knowing the history that we we've gone through is to get there there's constant conversations of you know it's 28 the right number do we have to move that into 29 as we think about our uses of cash but as of right now it continues to be there so we'll be it's in the mid ones for our leverage ratio is that target by 28 yes so again i forgot apologize i'm doing a very poor job repeating the question here so the question of is high unemployment uh good for our business so what we have seen is during some recessionary periods that you know where people might get laid off they look for different opportunities and yes we present as a good business opportunity so we do start to see more people come into the business during those windows so we do see it as that type of unfortunate you know headwind in the economy be a tailwind for us and bringing new people in all right great thank you all very much