Tenure as the CFO, you've seen a lot of changes in the direct-selling channel over the years. Technological advances have helped in managing these businesses, but they've also given rise to the gig economy, which has been a disruptor. Yet Herbalife has proven to be remarkably resilient in the face of all the changes over the year. What has set Herbalife apart? Yeah, thanks, Doug. I guess I'll start big picture, maybe drill in a little bit into some of the details. So big picture, you know, the company's nearly 45 years old. When it started, the internet wasn't around. Social media wasn't around. There's been lots of disruptors over the last 45 years. Some of those disruptors have been on the product side. Others have been in the business opportunity side. When you're talking about a gig economy disruptors, you're talking about the business opportunity side. One of the things that sets us apart is our distributors are building businesses. A lot of the gig economy competitors are transaction-based. It's somebody doing a service where a technology tool connected a customer to a vendor, and the service provider is kind of delivering food or delivering people or something that's not—that's very transactional. Our distributors are independent distributors. They determine how best to go to market in their local community. That foundation of entrepreneurship is a real asset for Herbalife. It has allowed us to overcome disruptors. Why? Because we don't have to figure out how to go to market in Colombia, for example. I could throw out a country. It's the local distributor that determines how to go to market. They determine how to build a business. They are building a true, not just transactional business, but an organizational business, something they could sell, something they could pass on to their children if they'd like to. It's that business that really differentiates us from a lot of the gig economy transactional type opportunities that are out there. One of the things that we do really well as a company is we allow our distributors globally to determine what's a best way to overcome disruptors, and then we find those uniquenesses and we globalize them. And so when I think of how do we leverage the foundation of entrepreneurship that this company's built on to be able to be resilient, so we have a very unique relationship with our distributors that allows us to communicate in a very formal and informal way to find those great ideas, to overcome whatever challenges might be going on in the marketplace. And by globalizing it, we can spread those best practices. Too, often our distributors have disruptors. An example of something that differentiates us is something called the Nutrition Club, which hopefully we'll get into in a little while. But a Nutrition Club is a fixed location. It's a fixed location run, operated, owned by distributors. We have approximately 65,000 of those commercially around the globe. That idea was a disruptive idea when it came to the marketplace in Mexico, and we helped globalize it. So we have business models now that have been built by distributors. The idea has come from distributors, and we've globalized it. So I think that's another reason why we've been able to be resilient, is because we can take ideas of the hundreds of thousands of distributors out there, find the ones that are working well, and globalize them. Right. And I mean, there's also a passion component, I think, to a company like Herbalife, particularly like Herbalife. I've been to your extravaganzas, and they're very high energy, and there's just a lot of passion and interest in building businesses, not just driving around a car and collecting a check. I mean, these people are truly passionate about the product. By the way, so I didn't talk about the product, but that's a really important point, right? So the product in itself delivers good nutrition, oftentimes leads to a transformation of some sort, whether it's weight loss or it could be building muscle mass or whatever your specific objective is from the nutritional products that we offer. That is purpose-driven. Our distributors have a purpose. It's to help somebody. It's also a very good product for social selling, for network-marketing, because often the consumer has an objective result. You know, if you lose weight, your clothes fit better, you look better, you feel better. But equally important is the people around you see it, and they want to know what you've done to achieve those goals. And now you've got this door to introduce the product to somebody who's asking you about it instead of the other way around. So I think the product line itself fits really well into network marketing. I'd like to get back to the Nutrition Clubs because that is an interesting point. I mean, I follow direct-selling for many years, and it's certainly a unique DMO, if you will, for a direct seller to have this brick-and-mortar infrastructure. I mean, you have more of these on the ground, or I should say your distributors have more of these on the ground than Starbucks has stores or Subway has shops. So it's a big footprint. I don't think it should be underestimated, and so how do you leverage that footprint? What is different about Nutrition Clubs that makes Herbalife unique as a direct seller? Yeah, I think I'll start again, big picture, maybe drill down as needed. But big picture, so for those who don't know, a Nutrition Club is a fixed location where a distributor's customers can come to that location and get a single serving of a product. That product can be entirely made by Herbalife, or it could be Herbalife as the ingredients with flavor systems made by distributors, but it's distributors who can ultimately determine exactly how the product is delivered to their customers. The Nutrition Clubs come in a lot of different shapes and forms. Sometimes they're very social-oriented clubs. Other times they're much more transactional with the hopes of developing the social side to the business. So I think for an investor, the important point is these are fixed locations. They're owned, operated by distributors, and customers are now coming to distributors. It really flips the direct-selling model. direct-selling traditionally, think of an old Tupperware party or something. It's characterized by distributors seeing their customers very infrequently. And when they see those customers, they ask for a big purchase. In a Nutrition Club, the distributor is seeing their customers very frequently because they're only providing one serving when the distributor comes in, I mean, the customer comes into the club, and they see that customer frequently. So it really creates a smaller purchase, frequent interaction, which allows customers to stay on the product. It becomes more accessible because it's not necessarily a lower price point, but it's a more accessible price point because it's just what I need for today. It's also more of a replacement spend than a discretionary spend because the concept of a club is you're coming for a meal, a meal you may have gone somewhere else for, a meal you may have gone to fast food for. And you can actually come and maybe spend the same amount of money, maybe spend less money, get a healthier, nutritious meal, feel better, and lose weight and get a result. And so that frequent interaction helps customers stay on the product. It's viewed more as a replacement spend than a discretionary spend, and it creates stickiness, and that stickiness creates a result. Yeah, I would think that the recurring revenue is attractive. The retention rates have got to be attractive, and your consumption is immediate. So there's so many things that I think it brings to the whole concept of having that single-serve consumption model. Yeah, I think it also adds a tangibility to the business. You know, I think a lot of times for an investor, direct-selling is very intangible. Products are sold from a company to distributors, but that second transaction from a distributor to a customer, there isn't always a lot of visibility into that. But with a fixed location, investors can go and talk to distributors, talk to customers. They can channel check. It has a tangible feel to it that changes the perspective an investor might have about a direct seller. There's an interaction there. It's more than me and my Uber driver, for instance. You're going to have a relationship and be able to build a business that way. Yeah, and they also, another thing, like I could talk about clubs for a long time, but I think another important element of a club is often a club will do something in addition to just selling a serving of an Herbalife product. They might do a workout. They might do a mommy and me walking activity. They try to create some other social activity that incorporates exercise to help the consumer achieve whatever their nutritional goals are. So it becomes very social also. So it generally extends beyond just a transaction. Yeah, no, I would definitely encourage investors to visit a Nutrition Club if they get the opportunity to, because you really have to see it in action to get the full benefit of what that model is. Yeah, I can agree with that. Like one of the things, I know I keep interrupting. I'm sorry. No, that's all right. I think any investor who's interested in Herbalife, and I hope there are, should go see a club. I think we could talk about clubs for a long time, but an investor will learn far more about a Nutrition Club by walking out their door and walking into a Nutrition Club's door and seeing what transpires. I want to shift gears here, John. I want to talk about, you know, I followed Herbalife for a long time, and there was a period in the middle of the last decade that culminated with a settlement with the Federal Trade Commission (FTC) in 2016. And so there are a couple of years there really seemed like the company was on the defensive. But then once the settlement was announced and implemented, you seemed to use it to some advantage. So what were the key changes that Herbalife made coming out of the 2016 FTC settlement? Yeah, that's a big question. I think maybe to understand it, an investor needs to understand the before and after and what were the key changes, and actually, one key change, there's a number of nuances to it, but prior to our settlement with the FTC, Herbalife and the entire industry transacted with its distributors and paid the compensation to distributors based off of purchases by distributors or by customers. It didn't matter who purchased the product, and the risk with the industry and in Herbalife's business was, what if a distributor purchased a product with the intent to resell? Or they purchased a lot of product with the intent to resell, and they don't resell it, and we've already paid out our commission structure. There's an inherent risk of something called inventory loading, meaning as a distributor, if I were to recruit you, I might convince you to buy a lot of product, and you do, and now I've made money. I've loaded inventory into you with the hopes that you can sell it. Maybe you do, maybe you don't, but I've already made my money as a distributor. What we agreed to with the FTC, and this was a very reasonable approach, was in today's world, with the advent of technology, do not pay your distributors when another distributor buys product. Pay your distributors when that distributor sells the product to an end user (consumer). So don't pay out your commission structure until the final consumer gets the product, and in order to earn, that final consumer can't be a distributor. So there's no question as to the motivation of purchases. So it really ties back to that there needs to be genuine demand for your product, and the compensation scheme needs to be set up so that the earnings only happen when that genuine purchase takes place, which means we had to build a lot of technology around capturing the sale in the field. Now, this is a U.S. initiative. So at all of our clubs in the U.S., we have POS systems that we built to see the transactions that take place at club level. And there's lots of other measures we put in place to be able to determine when that product gets to the end user. What that effectively does is it eliminates the inventory loading risk. It was a very reasonable request in today's environment. In fact, if every direct seller would adopt that, I think it would elevate the impression and the image of the industry because you would eliminate the risk for inventory loading. So whatever risk, I don't believe we had inventory loading prior to the settlement. We had genuine consumption, which is why we agreed to the order. And then we've proven it post-order that we had genuine consumption. But I think the risk inherent in this business model exists for every other direct seller and no longer exists for us. And I hope someday all the other direct sellers adopt it because it will elevate the image of this industry. Yeah, no, and I think that once you put all the receipting in place, that it demonstrated what you had thought all along is that you do have robust end consumption, but now you're able to prove it. And to your point, it was just in the U.S., but you still have policies and what have you around the world to make sure that this consumption is happening, right, even though you don't have actual receipting? That's correct, and in some cases, we still do receipting, and we're looking to spread some of these tools out globally, right, but I think one of the side benefits that we haven't yet leveraged is now that we have all the transactions with every consumer, every price point, when they purchase, what they purchase, there is an ability to leverage technology to be able to create greater economic benefit from our customer base. We have not yet leveraged that. That's a huge opportunity for us in the future. Yeah, I mean, typically, you know, historically anyway, direct sellers' relationship was with their distributor leaders, their sales leaders, and then the sales leaders had the relationship with their customers and their downlines. So with this technology in place, you can now actually go right to the end consumer for information and behaviors and whatever and be able to expand your marketing beyond just to the distributors to your end users, right? Yeah, I mean, I want to make something clear. The customer is our distributor's customers. We don't go acquire customers. Distributors acquire the customers. Distributors have the freedom to determine the best business model for which to sell to their customers. But once their customers are in the system, distributors can allow us to help the distributor market to them because we have the technology. We have the transaction built into a system that we can leverage. We have not done that very well because the tool we built initially for the POS system was for compliance more than it was for leveraging those transactions or the relationship with customers to sell more. But that is coming. Now, another unusual move, if you will, that Herbalife made over the last 12-18 months is bringing in a senior distributor into the corporate suite. I know you've had distributors on your board, but this is different. This is actually your active corporate leadership where you have a very senior distributor. One of your top two or three in the world, if I remember right, coming in. Now he's president. So how's it going? I mean, what is he bringing to the party that you didn't have before? And what moves have you made since he joined? This is Stephan. Stephan, yeah. So by the way, this is another thing that separates us. If I went back to your first question about what makes us resilient and what separates us from a lot of other players in this industry, it is that we brought Stephan on board. I started out in my answer to the first question that we have a very unique relationship with our distributors. It was that unique relationship with our distributors that allowed us to get close to Stephan. Stephan has been a distributor for 32 years. He has been an incredibly successful distributor. He has built a business in multiple geographies, in multiple methods. He's a very strategic person. For 32 years, he woke up every day saying, "How do I build a successful business selling Herbalife product?" Or, "How do I help other people in my organization build a successful business to sell Herbalife product?" Whether that be in the U.S. or India or Spain or whatever marketplace it was in, he has built his career at street level helping people build a sales business on Herbalife. And so when he came into the company, first of all, he didn't need the money, right? He was a very successful distributor. This is not unimportant, right? Because you also brought up the word passion. You brought passion and purpose into this conversation early on. Stephan is a very passionate, purpose-driven individual. He has helped people build businesses. He has also helped people change their nutrition profile, their shape of their body, their health through good nutrition. He's very passionate in helping people. And he's been incredibly strategic. He's been a disruptor himself over the 32 years. He has outpaced Herbalife's growth in the 32 years by something like 10 times. That's how strategic he is. And he's created that strong business. He became the number two distributor in the world because he can change with the times. You know, when he joined, the internet didn't exist when he joined Herbalife, right? He's gone through the phases of internet and social media and social media selling and influencers and you name it, different disruptors that have come into the business. Stephan's been able to overcome. So now he's come in. He's the president of our company. He has been a street-level salesperson for 32 years. He has been a trainer of an organization. He has been a strategic thinker for 32 years. Now he gets to bring that to the globe, to every distributor, to every organization, to bring his ideas forward and to educate a lot of us executives who have never done that. I've been an executive. My journey at Herbalife has been sitting in LA, you know, and I can go visit clubs, but I'll never know how to get up every morning and sell more Herbalife product as a distributor. But Stephan knows that. So he has brought those ideas into Herbalife, and he started implementing them. He came in last August. You can see, if you see our trends, there's been a lot of trend improvement. You know, he came into a pretty tough cycle for the company, right? We came out of COVID like a lot of other direct sellers. And there was a lot of recruiting that happened during COVID, and that cohort was pretty weak. And it had to be rebuilt. And we were rebuilding it with some executives that were different than they were pre-COVID. So Michael Johnson came back, who was the CEO. I came back about six months ago. But most importantly, Stephan came in, and he brought a lot of ideas. And what you've seen is not just a steady improvement in a lot of the non-financial metrics, but you've seen a rebuilding of the distributor base. That's the key metric that we've been providing to investors now for a few calls. So the number of new distributors coming in, the number of new active distributors that are not yet to a level we call sales leader, which is somebody that can earn multi-level compensation. And you can just start seeing that foundation being rebuilt. And so Stephan has been a key to that. And I think the key, and he's one of the main reasons I came back to this role is I could see the ideation Stephan brought and how it was affecting the energy level of the distributors and how it was going to lead to a rebuilding of the distributor base. And that's what excited me. And so that's another unique difference between Herbalife and every other direct seller. It's we have this incredibly strong relationship with our distributors that allowed us actually to have one of them now join the company as the president. And I think we're incredibly lucky to have Stephan. He's already made organizational changes, right? Don't you actually have some of your larger markets reporting into him directly now? Did I read that? Yeah, so we did a reorganization. One of the goals of the reorganization was to get our key markets reporting directly to Stephan so he can influence them directly. You know, we had this structure with a lot of regional headquarters and even super regional headquarters. And there were layers between the senior executives at the corporate office and these various marketplaces. And so we wanted to eliminate those layers, at least at the bigger countries. I mean, we're in 95 countries. There had to be some span break. But we wanted Stephan to influence the important countries as much as he could so they report directly into him. Let's go back to the new distributors because I get why you put that metric out. It is an important leading indicator, but explain how that works because they have to come in, they have to go up a learning curve on how to sell Herbalife products, how to build their own businesses. And so what do you think the lead lag is? Is it a quarter? Is it a year, two years? I mean, is there any way to know or you just. Yeah, look, I think it's a good question. It's the question everybody's asking because the investors are seeing the growth in new distributors. And even though, you know, sales are kind of flattish, you know, we had a couple quarters were up a couple points, a point or two, and then we had the last couple we were down a couple points, but it was currency-driven. You know, they're not seeing the growth yet. But this foundation takes time to rebuild. We had three years of new distributor declines, and now we've had six months of new distributor growth, right? So it takes a little bit of time. And when that crosses to growth, we haven't necessarily projected, although we did say we expect to grow sometime next year. So I can give you a little bit of the horizon, right? Between now and the next 12 months, we think we'll achieve growth. We'll give a little more guidance when we release earnings in February. But clearly, the foundation is starting to strengthen, which is the important part for growth over a long sustainable period. I think not having negative signs in front of your organic growth is a differentiator, at least these days in direct-selling. The channel's been under such stress coming out of the pandemic. Maybe that's an early sign, but we'll see. You know, it's early days, but I think bringing Stephan in could prove to be a prescient move and again, an unusual one in the role of direct-selling. I would like to shift gears. You're the CFO here. Herbalife has a track record of generating a lot of free cash flow and returning it to shareholders. What are you doing these days to return the free cash flow to shareholders? That's a big question too. Let me start with our business has generated a substantial amount of free cash flow every year, right? It's got a history of sustainable free cash flow generation even in the most challenging of times. Even if you look at where we've been the last few years, where we're investing heavily in technology and we've had a decline in sales, we've generated a lot of cash. In our business, we're not a very capital-intensive business. We're doing some things in technology that require a short-term flex in capital spending. In general, we're not a capital-intensive business. We have a little bit of investing to do in manufacturing if we change our packaging or modernize our packaging. For the most part, we have the capacity that we need for the next five years in manufacturing. We expect to continue to generate a lot of free cash. Now, in the past, most of that free cash went to share buyback. We've repurchased over $6 billion of our shares back since 2007 when the program started. We've done that because we're not very M&A oriented. When you generate the excess cash beyond what you can invest in your core business and you're not going to invest in outside businesses, you find the best, most effective way to return it to shareholders, which at the time we felt was a share buyback. We had a dividend for a while, but we thought it was a share buyback. Now we've communicated that between now and the end of 2028, we want to pay $1 billion of debt off. The reason we want is, look, the debt's a, it's expensive. I think we can generate a lot of value just by paying the debt down, real economic value. Two, when you look at our enterprise value, there's a big chunk of that enterprise value that's tied up in debt. We can transfer $1 billion of that enterprise value from debt holders to equity holders. Given where our stock is, that more than doubles the stock, right? Just pure math. I'm not trying to project where the stock's going to be. I'm just saying if the enterprise value of the company doesn't change. Now, I think it can change. I think there's lots of ways it can change and improve, especially if we start growing. We've already started to improve margins substantially. We've done that now a few quarters in a row, right? We've stabilized sales. We layer in some growth. I think there's a huge opportunity to expand the enterprise value of this company. But let's say you don't want to take that risk as an investor. You take today's enterprise value, you transfer $1 billion of that value from debt holders to equity holders, and you more than double the stock. So I almost look at it as I think it's a sound economic financial decision for us to do. I think it's the right thing to do. I also think it's a little bit of a protection mechanism for investors, depending on what you think about our ability to generate cash. But if you believe our ability to generate cash in the future is no different than it was, let's say, this year and last year, then we can pay off the $1 billion, and that becomes just a lot of upside for an investor. That's not to say, by the way, I don't want to say we'll never buy back stock again. Everything's circumstantial. The circumstances today, our debt is expensive, and a lot of our enterprise value is tied up in debt, right? But that could change. Right. I mean, your equity market cap is under $1 billion now. So that's just, that's the math, right? Your equity market cap now is under $1 billion. You move $1 billion out of debt to equity, and there's that 2X you're talking about without a change in valuation. And I have the work, and I published a report showing where valuations are for Herbalife and the group, which are at historical lows because they've been out of favor for so long. And I don't think investors are paying attention, but that's just my opinion. That's not to say buybacks are off the table, right? Everything's based on what we think is best for our shareholders at whatever the current circumstances are when we make a decision, right? So right now, we expect to pay $1 billion of debt off by the end of 2028. If something circumstantially changes, we can move. Right. You have a target leverage ratio out there by 3.0x, right? 3.0. So if you complete your $1 billion and your leverage ratio is under 3.0, then should investors expect a pivot to maybe stock buyback at that point? 3.0 is a target maximum leverage ratio we want. We're a little beyond that now. We're a little bit at 3.3x, I think we were at the end of last quarter. What we said is we will be down to 3.0 by next year, okay? We're going to be that, but that's the maximum. We don't ever want to be above 3.0. I want investors to know we have a pathway to get to 3.0. We're not stopping at 3.0. We expect to continue to buy back and be much lower than 3.0x by the end of 2028. What I'm saying, though, is there may be along that journey, maybe something circumstantially happens and we change, and instead of paying down more debt, we buy back stock. We won't do that by going above 3.0x. But so for 3.0x, it's still just the maximum goalpost. Got it. That makes sense. So, all right, I think we're running out of time, so we'll stop it there. John, I appreciate you joining us on today's Fireside Chat. Doug, it was a pleasure, man. Thank you. To learn more about Herbalife, please visit the Investor Relations page on their website, herbalife.com, or access our research on WTR's website at watertowerresearch.com. Thank you, everybody, for joining us. Please note that the views expressed in this Fireside Chat may not necessarily reflect the views of Water Tower Research, LLC, and are provided for informational purposes only. 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