Good morning, ladies and gentlemen. You are looking live, Sparks Steakhouse, New York City, New York. I'm John Heffernan. I'll be one of the emcees today. I'm an announcer for the New York Rangers, amongst some other pleasantries here in the city. I don't know a whole lot about finance, but it's awesome to be here. I see the Herbalife folks behind me also might be acting as sommeliers later in the day. If you wanna get some wine requests in, now would be a good time to do it. All joking aside, folks, we have a full day of presentations. Track one is this room. Track two, across the hall there to my left. We are delighted that you are here today, and I wanna officially welcome you to the 2025 MicroCap Rodeo. In my boxing and MMA, ring announcer best, I'll also say, and for those in attendance and the millions watching around the world, I wanna give a big shout-out to our webcast. All of our listeners, welcome officially. We are so glad you have joined us. Without further ado, everybody, I'm gonna turn it over to Erin Banyas, I should say, the Head of Investor Relations for Herbalife Ltd. Take it away, Erin. Good morning, everyone. Whether you're joining us here in person or participating remotely via our webcast, we are glad you are with us. I'm Erin Banyas, Head of Investor Relations at Herbalife, and it is my pleasure to welcome you today. We are pleased to be joined by John DeSimone, Herbalife's Chief Financial Officer, and Doug Lane, Water Tower Research's Head of Consumer Products. Before we begin today's fireside chat, I would like to direct you to our 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 Doug Lane of Water Tower Research. Thanks, Erin. Yes, and good morning, everybody. Glad to have Herbalife here. We're just gonna do a fireside chat, have a little conversation with John, who's the CFO of the company. He's in his second stint as CFO, so he's very familiar with the company and has a long track record. So John, I know it's the 45th anniversary of Herbalife. What is Herbalife today? Yeah, I guess a good way to start. So, we're a global health and wellness company. We have the largest publicly traded direct seller in the world. We are about $5 billion in net revenue. We operate in over 90 countries, and we sell through about a little over 2 million distributors globally. According to Euromonitor, we're the number one protein shake in the world. We have the number one weight management and well-being brand in the world, and we have the number one active and lifestyle nutrition brand in the world. Regarding the protein shakes, we sell about 4.5 million individual shakes per day. That's how the math works. To give you a little bit of the scale of the company on a global basis. That's the reason why we're the number one protein shake in the world. and recently we were awarded through U.S. News & World Report one of the best companies to work for in the U.S. We are proud of that. That is a nickel tour of who we are. No, that's great. That's a great way to introduce the company. I think one thing, and I've followed direct selling stocks for a long time, and one thing about Herbalife that was always unique to me is the Nutrition Clubs, because you have where your distributors are starting Nutrition Clubs, I think in Mexico some 20-odd years ago, and now it's a global thing, 65,000 or so approximately. I mean, that's a lot of doors. It's more than Subway. It's more than Starbucks. How do Nutrition Clubs fit in the equation? Yeah, that's an important question. I think it's something a lot of investors or potential investors don't know about Herbalife. Let me talk about what a Nutrition Club is. A Nutrition Club is a fixed location, brick-and-mortar location, owned and operated by a distributor or a group of distributors whose club name is determined by that distributor. It's not an Herbalife-owned location. It's a distributor-owned location. Within those locations, there's lots of different operating models, but the core of the operating model is that a consumer can come in and get what they need for that day. An analogy I like to use is think of Starbucks, right? You can buy a pound of coffee, or with Herbalife you can buy a container of a shake. Or Starbucks, you can go to a Starbucks location and get a single cup of coffee, and it's do it for me, and it's just that day, and that price point is accessible. Even though you can buy a pound of coffee for, I don't know, $10 in the last few months, people are willing to go to Starbucks for that individual cup of coffee. At an Herbalife Nutrition Club or a Nutrition Club that's products are Herbalife's products, a consumer can go in and just get their nutrition shake, or they can get a cup of tea. You walk in, it's a menu. You order from the menu, and you get an individual serving of a product. It's a very sticky model, and it kind of flips direct selling upside down. Direct selling traditionally is characterized by very infrequent interaction between a distributor and their customer. Usually in that interaction, you're asking for a pretty big sale. With the Nutrition Club, it's a very frequent interaction between a distributor and its customer 'cause the customer's coming into the club, and you're only asking for a small transaction. It's more of a frequent interaction, small price point, with the goal of building a community. In many of our clubs, the club operator does other physical activities. Some could have a small gym next door. Some could do mommy and me walking classes. They try to create a community that's not just based on the product, but also based on some physical activity that helps you achieve nutrition goals. That creates stickiness between the customer and the distributor, right? Because a lot of it revolves around weight loss or some sort of physical body change that is objective. If you lose weight, you know you lost weight. Your friends and family know you lost weight. And inevitably, somebody else from that circle wants to go to the club and do it. The club becomes very social in that respect. In the U.S., we have 9,500 of these clubs. Again, they're not named Herbalife on the outside, although on the inside many are. About 40% of our sales in the U.S. go to that daily consumption model, that daily price point model in Nutrition Clubs. About 2/3 of our sales in the U.S. come from Nutrition Club owners, meaning they do more than just that individual shake. They'll also sell take-home products or create preferred customers who can then buy from the company. It's a very important model for the company. In the U.S., all of the transactions get logged into our POS system. So we have a lot of consumer data. You know, we had over 4 million customers come into the clubs last year, and we know what they bought, how often they bought, what price point they paid. it's a lot of data we're not using yet. We're starting to get into the phase of being able to use that data and use AI to help the distributors sell more. But it's a huge opportunity for us. So that's a quick and [dirty of the.] No, that's important because it's sort of the opposite of social media selling where, you know, you reach a lot of people, but you may never even know who you're buying from or see them. Whereas with the Nutrition Club, you see them every day, you know? So it's a. It's a community. That's the important part of it, right? Close and personal. You mentioned the technology. I know that your insights in the end user are the best they've been. In direct selling, typically you sell to a distributor, and then the distributor builds a business around that. The distributor is the interface with the consumer. Now you've got much more consumer data. I think a lot of it had to do with the settlement with the U.S. Federal Trade Commission back in 2016. Can you talk a little bit about that settlement? Sure. How you've used that to move Herbalife forward? Yeah, we went through an interesting phase, from about 2012- 2018 between a short seller, another hedge fund owning a good chunk of our company, and some regulatory events. In 2016, we reached a settlement with the FTC. The core of the settlement was that we do not pay our distributors any commissions, any of their earnings, until the products they purchased from us get to an end user, which is very different than how direct selling worked in the past. And how direct selling works in every other company, which is when the distributor purchases product, even if it is to resell, all the commissions get paid out. Okay? There is some risk in that. What the FTC wanted us to do was track the inventory even when it gets to a distributor and only pay out commissions when that distributor resells it, which means we need to create a PO, we need to create a POS system so we can see that second transaction. Right now in the U.S., none of our distributors earn anything until they resell the product or if their customer buys directly from us, but it is their customer who is not a distributor. It gave us permission basically to get data and customer information from our distributors, which they were hesitant to give us in the past for the fear that we would not need the distributor anymore. We have proven to them that we are not going around them, that we are using this to help benefit them. We have a lot of customer data that no other company has. Again, we have not been good at using it. That is where some of the opportunity comes in. That settlement has given us a lot of information that we would not have had otherwise. I think what was interesting is after the settlement in the U.S., the distributors outside the U.S. saw what was going on, and they were like, "How do we do this?" It sort of, you took a negative and definitely split it into a positive where you updated your whole business model globally, not just in the U.S. Yeah, not, not with the same FTC rules. That is still strictly a U.S. settlement. There were some good things that came out of it. Some of those good things we were able to partially globalize, like preferred customers and things like that. Right, right. Preferred customers are in countries that represent 80% of our sales. Preferred customers didn't exist before. The preferred customers allows a distributor to sign up their customer with the company, and the distributor gets the economic credit for it, but the customer buys directly from the company. That didn't exist before that settlement. Again, end user information that you. More end user information. A few years ago. Yeah. Let's talk a little bit about current events because the pandemic has wreaked havoc on just about any direct-to-consumer model, not just Herbalife. Talk a little bit about your journey through the pandemic and where are we today with regards to that? Yeah, so during the pandemic, pandemic, us and a lot of direct sellers thrived. A lot of people signed up as distributors. A lot of people did the business. A lot of people opened up clubs because clubs were serving food. Most of our products are considered functional foods, and they were considered essential by the U.S. government. Distributors were allowed to open up clubs and stay open. Even though they could not have the social element there, they could deliver the food, the shakes and whatnot. Turned out that cohort that drove all that benefit during COVID left when COVID. They were weak, it was a weak cohort. We could not have training events. We had no in-person events. They only knew one way to do business, and they did it because it was available, and then went back to their lives, and it created an air pocket for us, and we had to rebuild our distributor base. Kind of the second half of 2022 and all of 2023 were pretty weak. We rebuilt in 2024, started growing new distributors in 2024, starting in the end of the first quarter, really late March into April, we started rebuilding the distributor force. Had distributor growth every quarter since. That foundation is now much more stable. Sales have stabilized. We have not, you know, we are teetering on flattish, but some quarters on a constant currency basis, we have had growth now two quarters in a row. Got kind of a little hurt from the strength of the dollar on the translation side. Sales are stable to, at least on a constant currency basis, growing. Mm-hmm. A lot of that had to do with what I thought was a very unusual move in that you took one of your top distributor leaders, these are independent contractors, and brought him into the corporate offices. I think initially he was head of strategy, and now he's the CEO. How has Stephan influenced the business and driven some of this growth you see? Yeah, sure. Maybe I'll step back for a second for context. Prior to COVID, our long-term CEO retired. Mm-hmm. During kind of the end of COVID, I also partially retired. And there was the new CEO, and things did not work out too well. We are really a unique company in how we sell and the amount of commitment and confidence our distributors need to have in management. In late 2023, to help stabilize the business, the prior CEO came back. A year ago in March, he brought me back. I have been back a year as CFO. Most importantly, our CEO was 70, and he needed a viable successor, which did not work out well the prior time. When he came back in late 2023, he brought on board our number two global distributor. A gentleman has businesses in most of our countries who joined as a distributor in 1992, became our number two distributor, did very well for himself. He doesn't need the money. He's really on a mission. He's got a passion for nutrition, and so he joined with the hopes that he could be the successor. He came out as head of strategy, got promoted to president, and now he's CEO, and he's a very strategic thinker. More importantly, for 32 years, every day he woke up and said, "How do I sell more product? How do I build an organization that sells more product?" He was incredibly successful at building an organization that sells more product because he's got great discipline. He's very strategic. He's been through a number of shifts in the globe. I mean, he joined, the internet didn't exist, right? You went from internet to social media, you know? He's very good at adapting the business to work in any environment. He came in. He's the one who put the programs together to drive new distributor growth, and so we're thrilled to have him. He, you know, he became CEO on May 1st, I think it was. May 1st, he became CEO. The prior CEO in chairman status is chairman, right? The good thing is Stephan gets to focus on the strategy of the business without being distracted with the board of directors role. That helps Michael and Stephan. Michael, who was the prior CEO, is now executive chair. He's still an employee. He's still, you know, in the company, still mentoring Stephan. Stephan's a great, great executive, and we're lucky to have him. Yeah. Also, recently, John, I was in L.A. in March. You announced some acquisitions. You know, I can't remember Herbalife announcing a lot of outside acquisitions in its past. That is kind of a departure from normal trends. They are relatively small. What was the purpose of the acquisitions and how are they going to help going forward? Yeah. The core strength, one of the core strengths, if not our biggest asset, is our distributor base, right? These two-plus million distributors who have access to millions of customers. That platform is incredibly powerful. We want to bring the next wave of product, I guess, to that platform. This acquisition is, we believe, will do that. There were three acquisitions. They were all connected. They had some shared ownership. I'll talk about two core ones: Pro2col and Link BioScience. Pro2col is an app that was in development, hadn't been launched yet. We're launching it to our U.S., some of our U.S. distributors in July and then the rest of the U.S. in October. It's a health and wellness app, right? It tracks your water intake, your steps, very interactive. You answer a handful of questions. You can get blood tests. You can get DNA tests, a lot of different biomarkers. That then we take that information into Link BioScience, which is the second company we purchased, who is an operating company who does something like this for three other companies already. They take that data and they create a very personalized nutrition product for you based on that data. If you can picture a manufacturing line with a bunch of different hoppers with different ingredient powders in it. This package will come and just grab from the different ingredients and create a product for you. It'll have your name on it. It'll come in a daily packet, and it'll have all the supplement ingredients that your body needs based on your biomarkers, whatever test you decided to take, and whatever questions you answered. It's very personalized for you for what your body needs. It's personalized nutrition. There's different buckets to it. The big one is this ultra-personalized component. There's also semi-custom where you can just answer questions and say, "Based on those questions, here are eight inventory products." Not customized, but eight inventory. You're a man over 50, and here are your goals. Here's the product for you. It's going from this set of products that are for the masses to something that's very personalized, which we believe is the next wave for nutrition. That's right. I mean, you know, the company was founded on weight loss. Lose weight now, ask me how. And then Michael Johnson, the previous CEO, really expanded sports nutrition, just really made it a high-quality nutrition company vertically integrated. What is Stephan going to do? Is it a personalized nutrition? Is it just maybe explain the Pro2col app a little bit more and what that does for your distributors and your customers? Yeah. I mean, the Pro2col app creates a technical connection to the customer, right? That creates an interaction so that customers' book information is available for you to create a custom program for that customer, for the distributor or the company to create a custom program for that customer. That interaction creates a community. As a distributor, I can set my own goals. I can have a little challenge with my customers through the app, and that app can track lots of different things. Again, it is going to be launched in July. If you are interested, come to our extravaganza. You will see the app. We are still finalizing some of the elements of it, but just it is a technical community is what it is going to create. These acquisitions were mostly IP, right? I mean, you did have a little operating company, but it's mostly IP. Yeah, but they're also small. They're IP. Our acquisition strategy is to acquire technology or products that are new, innovative, that doesn't have the distribution yet because we have the distribution. That's our strength. We can't acquire a company who already has distribution. That's value that we're not going to be able to leverage. We can acquire somebody who's got a great idea that just needs distribution. That's what these two companies did. There's a third company that was in this deal, which is called Prüvit, which is another direct seller. There's some value in that. That wasn't core to the deal, but these other two companies were founded to support Prüvit. You couldn't buy the two without the third. We're going to create value out of the very two. We're not going to own Prüvit for two more years. Right. You just took their technology. We took their technology. You've been CFO now. This is your second step. And so you've been involved with capital allocation for Herbalife for a long time. So talk a little bit about your capital allocation strategy and how much is going to be required for these acquisitions and how much just in internal growth, just in general, what your outlook on stock buyback dividends, capital investing. First of all, we generate a lot of cash. Even in the lean times coming out of COVID, we generate a lot of cash. We have negative working capital. It is a great position to be in. In the past, that excess cash did not go to acquisitions and likely will not go to acquisitions unless they are small. We are not going to do a big acquisition. That excess cash, which is beyond what we could invest appropriately in the company, went back to shareholders and mostly in the form of buyback. We bought back over $6 billion of stock since I joined the company. Today, we are using that excess cash to pay down debt. Our leverage ratio when I came back was about 3.9-1. We wanted to get it down below 3. At the end of the first quarter, we were at 2.97 based on bank EBITDA. We hit that goal. We wanted to hit it by the end of 2025. We hit it by the end of first quarter of 2025. We're going to continue to pay down debt because it's an expensive debt deal. Plus, I think if you look at our enterprise value, a lot of it's wrapped up in debt. The more debt we can pay off, the more equity value we can just create, just transferring value from debt holders to equity holders. We're going to look to use most of our excess cash over the next four years to pay down debt. What I said when I came back last year, my second earnings call is that from that point to the end of 2028, we're going to pay down $1 billion. That's the goal. We generate, we think, we believe we're going to generate more than that in cash. There is some cash still to either do an acquisition, a small acquisition, or some other form of capital allocation. We're going to look to pay down debt primarily with the use of cash. And your market cap is what, $600 million, $700 million? I mean, you're going to buyback $1 billion worth of debt, assuming the EBITDA stays the same. Oh yeah. There's a lot. Look, I came back because I think there's a lot of opportunity in stock, right? Right. You know, for what it's worth, you know, I don't get paid. I don't get paid salary. I took all the SARs to come back because I think the stock is undervalued. And that proposition, that undervalued proposition or opportunity, I put into four buckets. One is our margins had really deteriorated coming out of COVID. In 2023, our EBITDA margin was 11.3%. I think there's a lot of room to grow that. We got up to 12.7% in 2024, and we were at 13.4% last quarter. There's a lot. That's one avenue to create value. The second is, like you said, our equity is, you know, $700 million right now, our equity value. We pay down $1 billion in debt over the next three and a half years. Even if you do not think the value of the company changes, it moves $1 billion of value from debt holders to equity holders. That is a huge opportunity in stock right there. Third is I do believe we are going to return to sales growth soon. We stabilized. I believe that. That is an opportunity. Fourth, you know, our enterprise value multiple is like four times right now, which is incredibly low. I think there is just a lot of misunderstanding of who we are. Some of that is we did it to ourselves and the industry did it to itself because of how poorly it performed coming out of COVID. We are turning that around. Second is, you know, I do not think the investor community understands Nutrition Clubs and the opportunity it offers and then Pro2col. We're going to have all this consumer data that we can leverage that most other direct sellers don't have. I just think there's a big opportunity to increase the enterprise multiple. Well, yeah. John, just as a reminder, if you want to open it up, we have five minutes to go. You should open up to questions. I do not mean to interrupt. Okay. Yeah, sure. We're counting down here. Okay. Any more questions or we can open it up? Maybe just to sum it up, you know, you've already given a lot of good reasons. You know, just as an analyst, I see new distributor growth growing double digits. To me, that's a leading indicator. It seems like the stage is set. Maybe what's your elevator pitch for why people should invest in Herbalife today? I think the stock is tremendously undervalued. I think it's the four reasons I just gave. Our enterprise multiple is incredibly low. There's a huge opportunity there. Our performance is improving. Margins are improving. New distributor growth is improving. Sales are stable. That, and then we generate a lot of cash. Cash is value. We've got a lot of different ways we can use that. Management has skin in the game between John taking equity and Stephan giving up a very lucrative distributorship to come in as CEO. They have skin in the game. That is just my perspective. Does anybody have any questions for John? Yeah. Can you break down what the debt was used for? Ultimately, it was used for buyback. I look at this as kind of the tail to what we went through in 2012- 2019. In 2012, we had a short seller come out against the company. We bought back a lot of stock then. Did not really leverage up much. We also had a hedge fund buy a lot of the company. Ultimately, we got control of the board. When the short seller bailed, that hedge fund that owned a lot of us wanted us to buyback his stock, and we did. A lot of that was debt. Any other questions? We have about a minute left. Do you have a slide showing your products? No, but we can send you all products. We did not come with a slideshow. We do a fireside chat. Our products are mostly functional food. We have meal replacement shakes. We have sports products, sports shakes. We have tea, a lot of different kinds of tea, energy teas, aloe, nutritional supplements, snack bars, protein chips. We are very much a protein company. And okay. How do you plan to implement AI? That's a great question. We're doing a search for a CTO right now that's going to be heavily focused on AI expertise because it's a huge opportunity for us. We're going to leverage it both for internal efficiencies because our tech group is a very expensive tech group right now. We spend a lot of money in technology. We need to be more efficient in that. I think most importantly is we have a lot of consumer data that AI can leverage to help our distributors sell more. That's how we're going to. We're done? Okay. Yeah Thank you very much. [crosstalk]