After a Record-Breaking Year in 2018, Herbalife Nutrition Reports Highest First Quarter Volume Points in Company History

LOS ANGELES–(BUSINESS WIRE)–Herbalife Nutrition Ltd. (NYSE: HLF) today reported financial results
for the first quarter ended March 31, 2019:


“In the first quarter of 2019, the momentum of our geographically
diverse business continued with net sales growth in four of our six
regions. We are confident that our strategies will drive volume growth
in 2019,” said Michael O. Johnson, Chairman and CEO of Herbalife
Nutrition.

QUARTER HIGHLIGHTS

  • Reported net sales of $1.2 billion included growth in four of our six
    regions and was approximately flat compared to first quarter 2018.
    Excluding China, net sales increased 6% compared to the first quarter
    2018.
  • Volume points of 1.5 billion increased 6% compared to the prior year
    period1, the highest first quarter in Company history.
    Excluding China, volume points increased 10% compared to the prior
    year period.
  • First quarter reported diluted EPS of $0.66 and adjusted2
    earnings of $0.66 per adjusted3 diluted share, both of
    which were negatively impacted by expenses of approximately $0.7
    million or $0.00 per diluted share and adjusted3 diluted
    share, respectively, related to the China Growth and Impact Investment
    Program.
  • In mid-April, the Chinese government concluded a 100-day review of the
    health products industry, which led to a significant decrease in
    company and service provider meetings during the first quarter. While
    the Company and service providers are proceeding in a methodical
    manner, local government approvals for meetings in May
    are ramping up significantly and meetings have already begun.
  • Due to this recent slowdown in China, the Company is revising full
    year 2019 volume point guidance to a range of 0.5% – 6.5% growth, net
    sales guidance to a range of (1.0%) – 5.0%, as well as reported and
    adjusted1,3 diluted EPS guidance to a range of $2.19 –
    $2.64 and $2.50 – $2.95, respectively.

__________________________________________________________________

1 Excluding adjustments to volume point values in 2018, the
year over year change would have been an increase of 5.6%. See Regional
Volume Point Metrics below.

2 Adjusted diluted EPS is a non-GAAP measure and, for
guidance purposes, excludes the impact of: non-cash interest expense
associated with the Company’s convertible notes and expenses related to
regulatory inquiries. Adjusted diluted EPS for reported results
purposes, excludes the impact of the foregoing as well as impacts
relating to contingent value rights revaluation, insurance recoveries
and China grant income. See Schedule A – “Reconciliation of Non-GAAP
Financial Measures” for a detailed reconciliation of adjusted net income
to net income calculated in accordance with GAAP and a reconciliation of
adjusted diluted EPS to diluted EPS calculated in accordance with GAAP
and a discussion of why we believe these non-GAAP measures are useful.

3 See Schedule A – “Reconciliation of Non-GAAP Financial
Measures” for a reconciliation of adjusted diluted share count to
reported diluted share count and a discussion of why the share count has
been adjusted for purposes of calculating adjusted diluted EPS for the
first quarter of 2019 and second and full year 2019 guidance.

First Quarter 2019 Key Metrics4

Regional Volume Point Metrics

    Volume Points
Region     1Q ’19 (mil)     Yr/Yr % Chg
Asia Pacific 369.2     28.8 %
North America 330.7 9.1 %
EMEA 325.5 10.5 %
Mexico 224.9 1.4 %
South and Central America 133.8 (9.9 %)
China 96.3 (31.8 %)

Worldwide Total (a)

1,480.4 6.1 %

Worldwide Total excl. China (a)

    1,384.1     10.3 %

(a) During 2018, the Company adjusted volume point values for
certain products in North America and South & Central America. Excluding
these adjustments, the worldwide total year over year change in volume
points would have been an increase of 5.6% for the first quarter.
Adjustments to Volume Points during 2019 were not material.

______________________________________________________________

4 Supplemental tables that include Average Active Sales
Leader and additional business metrics can be found at http://ir.Herbalife.com.

Regional Net Sales and Foreign Exchange (“FX”) Impact

Region    

Reported Net
Sales
1Q’19 (mil)

   

Growth/Decline
including FX
vs. 1Q ‘18

   

Growth/Decline
excluding FX
vs. 1Q ‘18

Asia Pacific     $ 294.5     19.9 %     25.9 %
North America $ 256.5 10.9 % 11.1 %
EMEA $ 251.7 1.4 % 12.9 %
Mexico $ 119.3 4.6 % 7.3 %
South & Central America (a) $ 99.8 (20.6 %) 8130.8 %
China $ 150.4 (29.1 %) (24.8 %)

Worldwide Total

$ 1,172.2 (0.4 %) 874.7 %

Worldwide Total excl. China

$ 1,021.8 5.9 % 1,072.7 %
South & Central America excl. Venezuela (a) $ 99.5 (16.4 %) (6.1 %)

Worldwide Total excl. Venezuela (a)

    $ 1,171.9     0.1 %     5.9 %

(a) Venezuela was impacted by significant price increases and
erosion in foreign currency exchange rates. Venezuela represents less
than 1% of the Company’s consolidated net sales. See Schedule A –
“Reconciliation of Non-GAAP Financial Measures” for a discussion of why
we believe adjusting for Venezuela is useful.

Outlook

Following is the Company’s second quarter and full year 2019 guidance
based on current business trends:

    Three Months Ending     Twelve Months Ending
      June 30, 2019     December 31, 2019

Low

   

High

Low

   

High

Volume Point Growth vs 2018 (a) (1.0 %) 5.0 % 0.5 % 6.5 %
Net Sales Growth vs 2018 (b) (3.5 %) 2.5 % (1.0 %) 5.0 %
Diluted EPS (b) (c) $ 0.53 $ 0.68 $ 2.19 $ 2.64
Adjusted Diluted EPS (b) (c) (d) $ 0.65 $ 0.80 $ 2.50 $ 2.95
Cap Ex ($ millions) $ 35.0 $ 45.0 $ 130.0 $ 170.0
Effective Tax Rate (b) (c) 30.0 % 34.0 % 29.0 % 33.0 %
Adjusted Effective Tax Rate (b) (c) (d) 27.0 % 31.0 % 27.0 % 31.0 %
Net Sales Growth vs. 2018 (Currency Adjusted) (b) (e) (0.1 %) 5.9 % 1.1 % 7.1 %
Adjusted Diluted EPS (Currency Adjusted) (b) (c) (d) (e)     $ 0.73       $ 0.88       $ 2.76       $ 3.21  

a) The Company is evaluating our current approach to
assigning and maintaining volume point values for certain products or
markets. Guidance excludes any future potential impact of volume point
adjustments, which may have an impact on the use of volume points as a
proxy for sales trends in future periods.

(b) Excludes any future potential Venezuela currency
devaluations and associated pricing and inflationary consequences.

(c) Excludes the following items that cannot be accurately
predicted: any future potential ongoing tax effects from the exercise of
equity awards that could impact the Company’s tax rate due to the stock
compensation accounting standard, any future contingent value rights
revaluation, benefits from future potential China grant income, any
future potential dilution from the Company’s convertible notes due in
2019 and 2024, as well as any impact of the China Growth and Impact
Investment Program.

(d) Adjusted diluted EPS and adjusted effective tax rate
excludes the impact of: non-cash interest expense associated with the
Company’s convertible notes and expenses related to regulatory
inquiries, as detailed in Schedule A. See Schedule A – “Reconciliation
of Non-GAAP Financial Measures” for a detailed reconciliation of
adjusted diluted EPS to diluted EPS calculated in accordance with GAAP
and a discussion of why the Company believes these non-GAAP measures are
useful.

(e) Currency adjusted net sales and adjusted diluted EPS
represent projections translated into US dollars at currency rates equal
to the average rates used to translate 2018 second quarter and full year
net sales and diluted EPS and adjusted for items such as hedging
gains/losses and Venezuela to be directly comparable to 2018 values.

  • With respect to guidance, the Company cannot accurately predict the
    impact to its share base from any share repurchases in 2019.
    Accordingly, any impact thereof is excluded from the guidance tables
    above.
  • Guidance is based on the average daily exchange rates during the first
    two weeks of April 2019.
  • Adjusted1 diluted EPS guidance for the second quarter 2019
    includes a projected currency headwind of approximately $0.08 per
    diluted share versus the second quarter of 2018.
  • Full year 2019 adjusted1 diluted EPS guidance includes a
    projected currency headwind of approximately $0.26 per diluted share,
    $0.04 unfavorable compared to the impact included in the full year
    2019 guidance provided on February 19, 2019.

Earnings Conference Call

Herbalife Nutrition senior management will host an investor conference
call to discuss its recent financial results and provide an update on
current business trends on Thursday, May 2, 2019, at 2:30 p.m. PT (5:30
p.m. ET).

The dial-in number for this conference call for domestic callers is
(877) 317-1296, and (262) 320-2006 for international callers (conference
ID: 6149836). Live audio of the conference call will be simultaneously
webcast in the investor relations section of the Company’s website at http://ir.Herbalife.com.

An audio replay will be available following the completion of the
conference call in MP3 format or by dialing (855) 859-2056 for domestic
callers or (404) 537-3406 for international callers (conference ID:
6149836). The webcast of the teleconference will be archived and
available on Herbalife Nutrition’s website.

About Herbalife Nutrition Ltd.

Herbalife Nutrition is a global nutrition company whose purpose is to
make the world healthier and happier. The Company has been on a mission
for nutrition – changing people’s lives with great nutrition products
and programs – since 1980. Together with our Herbalife Nutrition
independent distributors, we are committed to providing solutions to
poor nutrition and obesity, an aging population, and skyrocketing public
healthcare costs, while also providing a means for entrepreneurs of all
ages to pursue a business opportunity. Herbalife Nutrition offers
high-quality, science-backed products, most of which are produced in
Company-operated facilities, one-on-one coaching with an Herbalife
Nutrition independent distributor, and a supportive community approach
that inspires customers to embrace a healthier, more active lifestyle.

Herbalife Nutrition’s targeted nutrition, weight-management, energy and
fitness and personal care products are available exclusively to and
through its independent distributors in more than 90 countries.

Through its corporate social responsibility efforts, Herbalife Nutrition
supports the Herbalife Nutrition Foundation (HNF) and its Casa Herbalife
programs to help bring good nutrition to children in need. Herbalife
Nutrition is also proud to sponsor more than 190 world-class athletes,
teams and events around the globe.

Herbalife Nutrition has approximately 8,900 employees worldwide, and its
shares are traded on the New York Stock Exchange (NYSE: HLF) with net
sales of approximately $4.9 billion in 2018. To learn more, visit Herbalife.com
or IAmHerbalife.com.

Herbalife Nutrition also encourages investors to visit its investor
relations website at ir.herbalife.com as financial and other information
is updated and new information is posted.

Forward-Looking Statements

This release contains “forward-looking statements” within the meaning
of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995.
Although we believe that the expectations
reflected in any of our forward-looking statements are reasonable,
actual results could differ materially from those projected or assumed
in any of our forward-looking statements. Our future financial condition
and results of operations, as well as any forward-looking statements,
are subject to change and to inherent risks and uncertainties, such as
those disclosed or incorporated by reference in our filings with the
Securities and Exchange Commission. Important factors that could cause
our actual results, performance and achievements, or industry results to
differ materially from estimates or projections contained in our
forward-looking statements include, among others, the following:

  • our relationship with, and our ability to influence the actions of,
    our Members;
  • improper action by our employees or Members in violation of
    applicable law;
  • adverse publicity associated with our products or network marketing
    organization, including our ability to comfort the marketplace and
    regulators regarding our compliance with applicable laws;
  • changing consumer preferences and demands;
  • the competitive nature of our business;
  • regulatory matters governing our products, including potential
    governmental or regulatory actions concerning the safety or efficacy
    of our products and network marketing program, including the direct
    selling markets in which we operate;
  • legal challenges to our network marketing program;
  • the Consent Order entered into with the FTC, the effects thereof
    and any failure to comply therewith;
  • risks associated with operating internationally and the effect of
    economic factors, including foreign exchange, inflation, disruptions
    or conflicts with our third-party importers, pricing and currency
    devaluation risks, especially in countries such as Venezuela;
  • uncertainties relating to interpretation and enforcement of
    legislation in China governing direct selling and anti-pyramiding;
  • our inability to obtain or maintain the necessary licenses for our
    direct selling business in China and elsewhere;
  • adverse changes in the Chinese economy;
  • our dependence on increased penetration of existing markets;
  • any material disruption to our business caused by natural
    disasters, other catastrophic events, acts of war or terrorism, or
    cybersecurity incidents;
  • noncompliance by us or our Members with any privacy laws or any
    security breach by us or a third party involving the misappropriation,
    loss, or other unauthorized use or disclosure of confidential
    information;
  • contractual limitations on our ability to expand our business;
  • our reliance on our information technology infrastructure and
    outside manufacturers;
  • the sufficiency of our trademarks and other intellectual property
    rights;
  • product concentration;
  • our reliance upon, or the loss or departure of any member of, our
    senior management team which could negatively impact our Member
    relations and operating results;
  • U.S. and foreign laws and regulations applicable to our operations;
  • uncertainties relating to the United Kingdom’s vote to exit from
    the European Union;
  • restrictions imposed by covenants in our existing indebtedness;
  • risks related to the convertible notes;
  • uncertainties relating to the application of transfer pricing,
    duties, value added taxes, and other tax regulations, and changes
    thereto;
  • changes in tax laws, treaties or regulations, or their
    interpretation;
  • taxation relating to our Members;
  • product liability claims;
  • our incorporation under the laws of the Cayman Islands;
  • whether we will purchase any of our shares in the open markets or
    otherwise; and
  • share price volatility related to, among other things, speculative
    trading and certain traders shorting our common shares.

We do not undertake any obligation to update or release any revisions
to any forward-looking statement or to report any events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events, except as required by law.

Results of Operations

       
Herbalife Nutrition Ltd. and Subsidiaries
Condensed Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)
       
Three Months Ended

 

  3/31/2019     3/31/2018  
 
North America $ 256.5 $ 231.2
EMEA 251.7 248.2
Asia Pacific 294.5 245.6
Mexico 119.3 114.0
China 150.4 212.2
South and Central America   99.8     125.7  
Worldwide Net Sales 1,172.2 1,176.9
Cost of Sales   241.6     239.9  
Gross Profit 930.6 937.0
Royalty Overrides 359.5 337.3
Selling, General, and Administrative Expenses 435.4 460.1
Other Operating Income (1)   (27.3 )   (16.2 )
Operating Income 163.0 155.8
Interest Expense, net 36.1 39.9
Other Expense (Income), net (2)   (8.5 )   24.4  
Income Before Income Taxes 135.4 91.5
Income Taxes (3)   39.1     9.4  
Net Income $ 96.3   $ 82.1  
 
Weighted-Average Shares Outstanding:
Basic 137.1 145.3
Diluted 145.5 152.7
 
Earnings Per Share:
Basic $ 0.70   $ 0.57  
Diluted $ 0.66   $ 0.54  
 
(1) Other Operating Income for the three months ended
March 31, 2019 relates to certain China government grant income and
income related to the finalization of insurance recoveries in
connection with the flooding at one of the Company’s warehouses in
Mexico during September 2017. Other Operating Income for the three
months ended March 31, 2018 relates to certain China government
grant income.
(2) Other Expense (Income), net for the three months
ended March 31, 2019 relates to the gain on revaluation of the
Contingent Value Rights (CVR) issued in connection with the October
2017 modified Dutch auction tender offer. Other Expense (Income),
net for the three months ended March 31, 2018 relates to the $13.1
million loss on the extinguishment of a portion of the 2.0%
convertible senior notes due 2019 repurchased in March 2018; and the
$11.3 million loss on revaluation of the CVR.
(3) Includes the impact of excess tax benefit recognized
under ASU 2016-09 of $2.4 million and $19.4 million for the three
months ended March 31, 2019 and 2018, respectively.
       
Herbalife Nutrition Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions)
(Unaudited)
 
Mar 31, Dec 31,

 

 

2019

    2018  
 
ASSETS
Current Assets:
Cash and cash equivalents $ 1,209.0 $ 1,198.9
Receivables, net 92.6 70.5
Inventories 407.5 381.8
Prepaid expenses and other current assets   126.0     153.8  
Total Current Assets 1,835.1 1,805.0
 
Property, plant and equipment, net 359.4 360.0
Operating lease right-of-use assets 172.5
Marketing-related intangibles and other intangible assets, net 310.1 310.1
Goodwill 92.0 92.9
Other assets   213.7     221.8  
Total Assets $ 2,982.8   $ 2,789.8  
 
 
LIABILITIES, TEMPORARY EQUITY, AND SHAREHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable $ 82.8 $ 81.1
Royalty overrides 260.4 281.4
Current portion of long-term debt 686.2 678.9
Other current liabilities   501.7     547.4  
Total Current Liabilities 1,531.1 1,588.8
 
Non-current liabilities:
Long-term debt, net of current portion 1,775.5 1,774.9
Non-current operating lease liabilities 151.1
Other non-current liabilities   142.9     149.5  
Total Liabilities   3,600.6     3,513.2  
 
Commitments and Contingencies
 
Temporary Equity 11.3
 
Shareholders’ deficit:
Common shares 0.1 0.1
Paid-in capital in excess of par value 333.8 341.5
Accumulated other comprehensive loss (204.1 ) (209.8 )
Accumulated deficit (430.0 ) (526.3 )
Treasury stock   (328.9 )   (328.9 )
Total Shareholders’ Deficit   (629.1 )   (723.4 )
   
Total Liabilities, Temporary Equity and Shareholders’ Deficit $ 2,982.8   $ 2,789.8  
 
       

Herbalife Nutrition Ltd. and Subsidiaries

Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
 
Three Months Ended
  3/31/2019     3/31/2018  
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 96.3 $ 82.1

Adjustments to reconcile net income to net cash provided by
operating activities:

Depreciation and amortization 24.4 25.6
Share-based compensation expenses 10.6 9.8
Non-cash interest expense 13.9 15.7
Deferred income taxes 0.4 3.3
Inventory write-downs 5.3 12.1
Foreign exchange transaction loss 4.5 0.5
Loss on extinguishment of debt 13.1
Other (6.8 ) 12.4
Changes in operating assets and liabilities:
Receivables (23.1 ) (16.1 )
Inventories (27.9 ) 8.4
Prepaid expenses and other current assets 26.9 (11.9 )
Accounts payable 2.0 16.4
Royalty overrides (21.5 ) (12.6 )
Other current liabilities (72.2 ) (3.7 )
Other   5.7     1.1  
NET CASH PROVIDED BY OPERATING ACTIVITIES   38.5     156.2  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment   (27.0 )   (15.6 )
NET CASH USED IN INVESTING ACTIVITIES   (27.0 )   (15.6 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on senior secured credit facility and other debt (5.1 ) (24.5 )
Proceeds from convertible senior notes 550.0
Repurchase of convertible senior notes (582.5 )
Debt issuance costs (11.7 )
Share repurchases (7.6 ) (54.2 )
Proceeds from settlement of capped call transactions 27.1
Other   0.8     0.6  
NET CASH USED IN FINANCING ACTIVITIES   (11.9 )   (95.2 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS, AND
RESTRICTED CASH
  4.4     6.1  
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH 4.0 51.5
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD   1,215.0     1,295.5  
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD $ 1,219.0   $ 1,347.0  
 

Supplemental Information

SCHEDULE A: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Unaudited and unreviewed), (All tables provide Dollars in millions,
except per Share Data)

In addition to its reported results and guidance calculated in
accordance with GAAP, the Company has included in this release adjusted
net income and adjusted diluted EPS, performance measures that the
Securities and Exchange Commission defines as “non-GAAP financial
measures.” Management believes that such non-GAAP financial measures,
when read in conjunction with the Company’s reported or forecasted
results, in each case calculated in accordance with GAAP, can provide
useful supplemental information for investors because they facilitate a
period to period comparative assessment of the Company’s operating
performance relative to its performance based on reported or forecasted
results under GAAP, while isolating the effects of some items that vary
from period to period without any correlation to core operating
performance and eliminate certain charges that management believes do
not reflect the Company’s operations and underlying operational
performance. The Company’s definition of adjusted net income and
adjusted diluted earnings per share may not be comparable to similarly
titled measures used by other companies because other companies may not
calculate them in the same manner as the Company does and should not be
viewed in isolation from nor as alternatives to net income or diluted
EPS calculated in accordance with GAAP.

The impact of foreign currency fluctuations in Venezuela and the price
increases the Company implements as a result of the highly inflationary
economy in that market can each, when considered in isolation, have a
disproportionately large impact to the Company’s consolidated results
despite the offsetting nature of these drivers and that net sales in
Venezuela, which represent less than 1% of the Company’s consolidated
net sales, are not material to our consolidated results. Therefore, in
certain instances, the Company believes it is helpful to provide
additional information with respect to these factors as reported and
excluding the impact of Venezuela to illustrate the disproportionate
nature of Venezuela’s individual pricing and foreign exchange impact to
the Company’s consolidated results. However, excluding the impact of
Venezuela from these measures is not in accordance with U.S. GAAP and
should not be considered in isolation or as an alternative to the
presentation and discussion thereof calculated in accordance with U.S.
GAAP.

The following is a reconciliation of net income, presented and reported
in accordance with U.S. generally accepted accounting principles, to net
income adjusted for certain items:

       
 
Three Months Ended
  3/31/2019     3/31/2018  
(in millions)
 
Net income, as reported $ 96.3 $ 82.1
Expenses related to regulatory inquiries and legal accrual (1)
(2)
14.5 2.3
Non-cash interest expense and amortization of non-cash issuance costs
(1) (2) (3)
12.3 12.5
China grant income (1) (2) (21.3 ) (16.2 )
Contingent Value Rights revaluation (1) (2) (8.5 ) 11.3
Income related to finalization of insurance recoveries (1) (2)
(4)
(6.0 )
Loss on extinguishment of convertible debt (1) (2) (5) 13.1
Venezuela devaluation (1) (2) 4.7
Income tax adjustments for above items (1) (2)   6.1     (3.3 )
Net income, as adjusted $ 93.4   $ 106.5  
 

Contacts

Media Contact:
Jennifer Butler
VP, Media Relations
213.745.0420

Investor Contact:
Eric Monroe
Director, Investor
Relations
213.745.0449

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