Everyone, are we going to close the door, or are we going to leave the door open? I saw the clock moving, so. All right, great. I'm going to allow Erin Banyas from Herbalife to read some cautionary statements before we start. Good morning, everyone, and thank you for joining us, whether you are here in person or joining via the webcast. I'm Erin Banyas, Head of Investor Relations at Herbalife, and it is a pleasure to welcome you to today's Fireside Chat. We are joined today by Stephan Gratziani, Herbalife's Chief Executive Officer; John DeSimone, our Chief Financial Officer; and Bill Reuter, Managing Director of High Yield Credit Research at BofA Securities. Thank you all for being here. We are looking forward to an engaging and insightful conversation, and we appreciate your interest in Herbalife. Before we begin today's Fireside Chat, I would like to direct you to Herbalife's cautionary statements regarding forward-looking statements included in our most recent Form 10-Q filing and earnings release, which are both available under the Investor Relations section of Herbalife's website. The Form 10-Q and earnings release include a discussion of some of the more important factors that could cause results to differ from those expressed in any forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995. As is customary, the content of today's Fireside Chat will be governed by this language. In addition, during today's Fireside Chat, we may discuss 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 historical earnings releases and presentation materials available under the Investor Relations section of Herbalife's website for additional information regarding these non-GAAP financial measures and the reconciliations to the most directly comparable GAAP measure. I will now turn it over to Bill Reuter of BofA Securities to begin today's discussion. Thanks, Erin. You made it so I did not have to try and pronounce any names and stuff like that. I cooked my own food here in Bank of America, and I feel really lucky that the Herbalife team has joined us here today. I guess I will start with my first one to you, Stephan. You have been CEO now for seven months, but your background prior to that is pretty unique for your role now, given all of your time as a distributor. How has that shaped your early decisions, and how does it shape how you are going to lead the organization going forward? Oh, thanks. Thanks for the opportunity, Bill. I was a distributor for over 30 years, and my job was to take what the company was giving us in terms of the products and the tools and whatever support and actually figure out the go-to-market strategy. I did that. I do not want to date myself. I already said over 30 years as a distributor, but I started before cell phones were a thing. Try to imagine explaining to someone the products. You had to be in front of them to explain it. At the time when I started in Paris, if I had a customer that was in Nice, it would cost $1 a minute to talk to them. Try to sell a product at $1 a minute or try to follow up someone at $1 a minute. I bring that because technology through the last three decades, three and a half decades, it's always been evolving and changing. My job as a distributor was to make sure that the go-to-market strategies leveraged the technology changes and the market conditions. You can imagine over three decades, before cell phones, before there was a chance to talk to someone once, Skype came. It was like amazing. It was free. You could talk to someone for the cost of an internet connection. Zoom came, and you could talk to not just one, but you could talk to hundreds and even thousands of people. Social media came also. Imagine if you were my customer 20 years ago, the people that would see you lose weight and become more healthy and get results would be the people that you knew, the people you saw during holidays, and the people that worked with you. All of a sudden, social media came, and 5,000 of your friends could see you change and transform and ask, "What are you doing?" I share this because as technologies come and as the markets have evolved, as a distributor, my responsibility was to make sure that the strategies were always evolving with. How it really shaped coming in, and it's been two and a half years as an executive and seven months as CEO, was coming in already knowing through the work that I was doing how the landscape was evolving and where we needed to go as a company. That, I think, was a unique advantage. Having been responsible for the strategy overall of my individual business and built it across 70 markets, coming in and now being able to do it at scale and bring the strategy at scale for the entire company, I think it is unique. Just from a perspective of someone who was a distributor, I think it gives us a lot of opportunity for the future. Can I add a point? Stephan was not just a distributor. He was the second most successful distributor Herbalife has ever had in the 45 years. I say that because his business has across 70 markets, and he's very strategic in the way he's navigated the changing landscape of business over the last three decades. He's very strategic. He's not just a distributor. He's an uber-successful distributor. Who's number one? Also a very successful distributor, yeah. Speaking of him, he must have a really expensive business. Something important is the number one health and wellness company in the world or the industry. I guess that gives you a unique perspective on the landscape, how it's evolving, and where you think it's going in the future. Can you talk a little bit about kind of the most recent transitions and what's been happening, and then where you think we're going? Yeah, so it's really interesting. Again, over the experience of a distributor, and it is evolving. Herbalife, the largest direct sales public nutrition company, our foundation is very strong: $5 billion in revenue across over 90 markets and one-on-one interaction, 2 million-plus distributors interacting on a daily basis with customers. Health and wellness is a personal journey. There's no—everyone has their own conditions, their own where they live, the lifestyle that they lead, the goals that they have. The one-on-one relationship of a distributor to personalize someone and support them throughout a journey, it's always been the foundation of our business. Health and wellness is evolving. If you think about it, I don't know how many of you wear a Whoop or an Oura Ring or just look at your phone. All of a sudden, now we're tracking how we sleep. Sleep is now one of the things that determines longevity. There are all of these inputs into health. Same thing if you look at where people are going. I mean, five years ago, the only reason why someone would go get a blood draw would be because their doctor said, "Oh, you need to go check this. Go." Today, people are doing things proactively. The landscape is changing. The inputs to know how someone is doing in terms of their health and wellness, it's evolving. There are more inputs than ever: microbiome, DNA, RNA, your glucose monitor, blood. You have all of these inputs besides the simple ones at home, your scale that now is connected to your phone, your phone that's tracking your steps. As the world evolves and as more inputs come into someone's health, we're able to now take the inputs. This is really the evolution of not just personalizing the nutrition program for someone based on information of you say, "Hey, I want to lose weight." Great, let's put you on this. No, I want to lose weight. And here's my overall, basically biometric, behavioral, nutrition, everything together. It allows us as a company, and especially our distributors, to be in a better position to personalize a journey for someone and accompany them along the way. I'll just try to do this quick, but if you think about there was a time where Blockbuster existed, right? Blockbuster, it was great. You could go rent a movie just coming out of the theaters. The experience was you'd go, and this is dating myself, but there used to be one down the street here that I would go to. You would go, the feature film you wanted would not be available. You would take the second-best choice. You would bring it home, then you would forget to return it, and you would get a late fee. Then you would not rewind it. There was a time where people had cassettes, and you would get another fee. Netflix came along, and they said, "You know what? We are going to disrupt. We are going to just send you. That way, when the feature comes out, you have it. You do not have to worry about going and not getting what you want. You just send it back, and there are going to be no late fees, and we will send you the next thing automatically." You always have some content. What ended up happening? Netflix disrupted Blockbuster, but then things went to streaming. Netflix had to not only make the shift to streaming because what their model was doing would be disrupted. Now, if you look at Netflix, it's not just streaming content. They have a whole flywheel and ecosystem. They own the content. They produce the content. They have the data of the 300 million people watching the content, which helps them to lead strategy. I equate this to Herbalife being 45 years in the nutrition business, a distribution of nutritional supplements through this massive organization. Health and wellness is evolving. Now there's an ecosystem of health and wellness: biometric data, blood data, DNA, microbiome, all of these things that are actually creating the image of what someone's personal health journey should be and help them along. As we build out our flywheel, and we will be on just selling nutritional supplements to actually encompassing the entire health picture of someone and wellness picture and supporting them through their journey, we will build our flywheel. There is no other company that has over 90 markets, 2 million distributors every single day interacting with tens of millions of customers, and over 60,000 physical brick-and-mortar locations. We have the network effect that no one has. We believe that this is our competitive advantage and that we will, and I do not say this lightly, we will become the Netflix of health and wellness. We will become the world's largest health and wellness platform. As part of that. That was a lot, sorry. No, no, no. There were, I think, four times where you mentioned personalization in that last answer. You've got a new app coming out, Protocol. I think it's in beta mode. Can you talk a little bit about the app, what the functionality of it is, how it works, when it's going to be available? Yeah. If you think about Protocol as a personal health operating system, whatever anyone does today, whether it's banking, ordering food, reserving a hotel, ordering a car, you have to have a digital layer. For us as a company, all of the health aspects that we just talked about, there's got to be a level of connectivity. It's all got to come somewhere. Think of Protocol as your personal health operating system. It's on your phone. It connects your behavior, your nutrition, your supplements that you're taking, whatever data that we bring in from whatever connected device. It is connected to your distributor, who's there as your coach and your support. It helps you to personalize your journey because everyone is individual. This is one of the acquisitions that we made early last year, and it really was to help us to kind of leapfrog and get into the space of having a digital application and having this connective digital experience layer. At the same time, most of the time when someone develops an application, they develop it, and then they have a small beta group, and then they'll evolve it over time, and they'll kind of bring it prime time. For a company that has 2 million distributors, bringing this layer, we've had to bring it in through what we're calling really a one-year beta process. The first is because distributors have never had this layer before. The first was to take a group of people, around 7,000 approximately, and to start having them experience it personally so that they could give their feedback as distributors because they managed to go to market. The second step is opening it up to customers and getting their feedback. We will actually in December be opening it up broader to have kind of any customer in the United States or Puerto Rico able to access the app still in beta so that we can take the customer feedback. In July of next year at Extravaganza, we will go into a commercial full-blown availability in North America of a non-beta version. Got it. I guess, has there been feedback that you've received thus far? We know a little bit about how it's. Yeah, so the feedback's been great. The amount of, I would say, distributors are entrepreneurs, and they're on the market. Just the amount of insights in terms of what their expectations and how they would go to market with, that was the first thing. The second now is the customers coming in and their relationship with the customers because it's not just a digital application that customers will use on their phone and distributors will use on their phone, but there's also a coaching dashboard that information is transmitted if the customer opts in to have the coach have their information so they can support them. If I'm your distributor and you're living your day in and out, I'm able to see how things are evolving for you. Based on your goals, I can say, "Hey, Bill, great. I see that you were in the Bahamas for a week. Your numbers were showing it. Let's get back. Welcome back from vacation. Let's get back on it because you said you wanted to lose X amount of pounds before Christmas. To allow distributors to support their customers even better, there are different layers to this. It's moving fast, but at the same time, we want to move steady, and we want to make sure that all of the steps, we're not skipping steps. The distributors are so important for the success of anything that we do as a company. Their involvement is really critical. Sounds like this app actually follows me around and is watching me at all times. Just like your phone and all the apps are doing currently right now. In addition, you just named a 51% controlling interest acquisition of Link BioSciences. Can you talk a little bit about how this complements Protocol and when consumers are going to see this product in the market? Yeah. We are super excited about this. If you think about, again, 45 years, $5 billion in revenue across the world, 90-plus markets, 2 million distributors that are out there day-to-day talking to customers. We have always been in the personalization business. Our portfolio of products, if you and I were to sit together, I would be asking you, "What are your goals? Do you have any things health-wise that you are trying to do? What does your diet look like currently?" I would be curating your program for you based on your needs. We believe the next level is beyond curation of personalized products to actually formulation of personalized products. If you think about this personal health operating system where it is following you around in a certain sense, and it's knowing what you're eating, it's knowing your weight, how it's tracking, it's knowing your energy, it's knowing all of these different aspects, plus some different biometric inputs. Basically, with Link Bio, it's going to allow us to personally formulate your individual formula. That is different than curating. It's different than saying you should be using this product, that product, that product. It's actually creating your individual formulation of a product. We believe this is the next generation and the evolution of nutrition. This acquisition is allowing us to do really what no one is doing, and especially at scale today. We're super excited about this. By summer of next year, it'll be available to a select group of distributors that are in beta. I would say full commercialization, or we'll talk about in the United States, really sometime around summer next year. Got it. I think this question is probably directed towards John, but either of you can answer. In terms of you just are in the midst of these recent acquisitions, how are you expecting CapEx to trend over the next couple of years? Are these going to both require investments that are elevated for some period of time? Fixed income investors, we love our free cash flow, so. Great question. I'm actually going to take it in another direction first, and I'll come back to that question. Just with the acquisitions, they're pretty low-cost acquisitions, right? Our biggest, most valuable asset is our distribution network. If we can find a technology company or a product company that has a great product, great content, but very limited distribution, and we can purchase them very inexpensively, that's our strategy. We're not spending a lot of money on acquisitions. I want to make that clear. Second, on the capital expenditure side, we're a capital-light business, right? Our capital expenditures historically range in the, including capitalized SaaS cost, in the 2-3% of net sales range. We can reprioritize our tech spend. Most of that is tech spend, actually. We're reprioritizing the tech spend toward these projects. It's not incremental capital expenditures. It's going to fit within our core business model of 2-3% of net sales. Great. I guess this could be a question for either of you. Third quarter was strong. Momentum seems to be building globally, really, across all of your regions. What does this mean for the fourth quarter, and how do you feel about the momentum going into next year? I'll start with investment. For the last eight quarters, the business has been pretty stable. We've had constant currency net sales growth in six of the last eight quarters. In the other two quarters, it was essentially flat. We've had this run of stability. That inflected up in Q3, and we had growth globally, and we also had growth in the US. That's a function of a lot of initiatives that we haven't talked about today that were built on top of our core business. What we said for the fourth quarter is we continue, we guide, we guide with a lot of information, and we're expecting growth in the fourth quarter. We have not guided for next year, but we have said publicly that we expect growth next year, both globally and for the US. In the third quarter, like I said, we grew globally, and we grew in the U.S. In the fourth quarter, we said we may not grow in the U.S., right, because we had some product launches in the third quarter that gave it a little spike. If you look at the trend over the last eight quarters in the U.S., it's gotten better each quarter. The trend has gotten better. It's on the right path, and we expect to grow next year. I have additional questions, but I also want to make sure that any members of the audience get to ask theirs. Are there any questions from the audience at this time? I see you've sprung that on them. They're. I know. Yeah, put everybody on the spot, make them feel awkward and look at each other. I guess, John, another question. You've set out this goal to reduce debt to $1.4 billion by the end of 2028. You've made great progress thus far. You also have a leverage target of three times, which you're at, more or less. I guess, how does that inform decisions about potential share repurchases kind of in association with that debt reduction target? Sure. For those who do not know, I was CFO of the company for a long time. I came back as CFO at the beginning of 2024, in March of 2024. My initial goal for debt was to get our leverage ratio below three times. We were at 3.9 times at that moment. That is because I do not believe a company should ever be over three times. That was really a short-term goal. I set that goal to be able to be achieved by the end of 2025. We actually achieved it at the beginning of 2025, and now we are at 2.8 times. That does not mean that is the end of the journey. That was the first goal. Subsequently to setting the first goal, we set a second goal, which is to reduce our gross debt by a billion dollars starting Q2 of last year. That's when we set that goal. We said between Q2 of last year and 2028, we would reduce our gross debt by $1 billion. That would get our gross debt to $1.4 billion by 2028. That's our longer-term goal. We're a little over $2 billion now. That's our priority. We generate a lot of cash. Our business is a cash generator. Even with the current debt deal, we generate a lot of cash, more than we need for our core investments in our business. The number one priority beyond our investments in our core business is to continue to pay down debt. If we hit the 2028 goal, which we are on track to do, our leverage ratio will actually be below two times. That's how you kind of connect the two goals. One was a short-term goal. The other one's a longer-term goal. As far as share repurchase, it's not a priority. Like I said, we generate a lot of cash, more cash than we need to invest, probably more cash than we need to hit our goal of $1.4 billion gross debt by 2028. Any incremental cash could be used for a lot of things. It could be used for an acquisition or repurchase, but it's not a priority. It's not going to come at the expense of paying down our debt and hitting the 2028 goal. Got it. Oh, we got a question. Just to follow up on that point on shareholder returns. I mean, the equity has underperformed over the past few years because of the high leverage and some of the hiccups that you had. To get the equity story working as well, do not you have to promise some sort of return to them, maybe change the shareholder base? How do you balance that? I understand debt reduction is the near-term goal, but eventually, it seems like you have to start turning some of that back on at some point. That's a great question. Thank you for the question. I'll kind of tell you how we view it. We have a certain enterprise value today, right? It's 4X our EBITDA. It's incredibly low, okay? One way to create equity value is to take some of that enterprise value and transfer it from debt holders to equity holders. Just by paying off the debt, $1 billion in debt, we add $1 billion to our equity holders, right? From where we were, where the stock was a month ago, that doubles the stock, right? There's value to the equity holders by paying down the debt. That's one way to do it. Second is we just have to perform, right? I think if we perform, our multiple will grow, right? I mean, if you look historically at where our enterprise value multiple is, we're at an all-time low recently, right? Yet our business is stable. It's starting to grow. Our margins are improving, right? Our EBITDA margins, adjusted EBITDA margins in 2023 was 11.3%, 12.7% last year, north of 13% this year. We're on a great trajectory on margins. I think it's just pay down debt, continue to perform. The equity holders will get a return. I'll ask another one, probably towards John, but how are you thinking about pricing for next year? What are you seeing in terms of commodity inflation? Your gross margins are so high that commodity inflation isn't too big of a challenge for the company, and that's certainly one of the strengths that I've always seen. How do you think about those dynamics? First of all, let me add that we're pretty much unimpacted by the duty environment. We're a big US manufacturer. Most of our ingredients come from the US, not all. There is some small impact by duty. We're not really in a position where we're forced to take a price increase beyond what's happening in inflation, which I think is a good spot, maybe different than a lot of other companies. Our approach to pricing is to take a price increase commensurate with what's going on in the local markets for products like ours. I think that's going to be a much lower price increase next year than what we've seen in the past, but we'll be able to get some price. Like kind of commodities, there's a little bit of pricing pressure on commodities or cost pressure on commodities, but nothing material can handle. No big shifts on either side. Got it. In terms of innovation, it seems like innovation has been at the most rapid pace over the last year or two since I've been covering the company. Can you talk a little bit about what's driving that growth and how that will impact the next couple of years? Yeah. First, it's intentional. I think if you look at the acquisitions that we made, as John was saying, they're strategic. They're strategic to our core business, which is this $5 billion in revenue, 2 million distributors across 90 markets plus. For us, bringing what's needed to support them to go to market and to attract more customers, keep customers longer, increase the LTV, and build and grow that top line, everything that we need to do, we're in the process of doing. At the same time, the world is moving fast. There's not a day that goes by that everyone isn't talking about AI and how it's going to absolutely change the landscape, and especially I believe in the health and wellness industry. It's something that's needed. I don't think that it's—I don't know if in the history, John, you'd know more about the overall history, but I would say that the rate at which we're evolving is where we need to be. I don't know if it's the most in the history of Herbalife, but over the last couple of years, probably. I think Herbalife's been incredibly resilient over its entire life, right? Everybody knows some of the backstory. The reason why it's resilient is because we've got 2 million distributors who are all ideating and finding ways to make things work in their local marketplace, and we provide great products, and the consumers get a benefit. As far as speed of change, we're pretty much used to it. We're good at it as a company. I think we're kind of at the end here. If there could be three key messages or three takeaways that you would want the audience to take with them today, what would those be? I'll start. First of all, we're really geographically diverse. If you look at the world overall, North America is approximately 20% of our revenue. India is another 20%. Asia-Pacific with China is another 20%. With TAMS, another 20%. You have Europe as well. Number one, we're diverse. We're not concentrated in one or just a couple of markets. Number two, there's a lot of upside as we continue to evolve as a company. I think as you look across the spread, just understanding that markets are in different places and cycles, but overall, where we're headed directionally, there's just a tremendous amount of upside, we believe. Yeah. I'll add a couple of financial takeaways. Besides the fact that our performance is—it seems our momentum is accelerating. We're a cash generator. We're a capital-light business. We've generated cash even in our most challenging years. We've never had a year we haven't generated cash. Even with the current debt deal, which is an expensive debt deal, we generate positive cash. We're using that cash to strengthen our balance sheet. That's our continued plan. Stephan, John, Aaron, thank you all for joining us today. Thank all of you for attending and listening to this story, and have a great conference. Thank you. Thanks for the invitation.