Herbalife 3rd Quarter 2026 Earnings Conference Call - HERBALIFE LTD

Financial Performance:

• Third-quarter net sales reached $1.4 billion, representing a 6% year-over-year (YoY) reported increase and 7.6% on a constant currency basis, outpacing the prior guidance range of 0.5% to 4.5% reported.
• This marks the fifth consecutive quarter of YoY net sales growth on both reported and constant currency bases.
• Adjusted EBITDA was $182 million, exceeding the guidance range of $160 million to $180 million, with the adjusted EBITDA margin expanding 70 basis points YoY to 13.5%.
• Net income attributable to Herbalife was $59 million (up 36% YoY), while adjusted net income was approximately $69 million.
• Diluted EPS was $0.55 (up $0.13 YoY), and adjusted diluted EPS was $0.64 (up $0.14 YoY).
• Gross profit margin stood at 77.3%, a decrease of 40 basis points YoY, driven by country mix (-44 bps) and input cost increases (-36 bps), partially offset by pricing benefits (+61 bps).
• Operating cash flow for the year-to-date was $298 million, up 27% compared to the first nine months of 2025.
• Year-end net leverage ratio was 2.0 times, down from 2.2 times in Q2, meeting the long-term target of at or below 2.0 times.
• Credit agreement EBITDA for the quarter was $199 million.

Guidance and Future Outlook:

• Q4 2026 net sales are expected to grow 0.5% to 4.5% reported (including a 200 bps currency headwind) and 2.5% to 6.5% on a constant currency basis.
• Q4 2026 adjusted EBITDA is projected at $145 million to $165 million reported, and $155 million to $175 million constant currency.
• Full-year 2026 reported net sales guidance raised to a 4.9% to 5.9% increase, and constant currency sales to a 5.3% to 6.3% increase.
• Full-year 2026 adjusted EBITDA range maintained at $670 million to $690 million reported, while the constant currency range was raised to $700 million to $720 million.
• Capital expenditures (CapEx) for 2026 narrowed to a range of $55 million to $65 million, with capitalized and prepaid SaaS implementation costs expected between $35 million and $45 million.
• The company targets capturing at least 50% of global distributor consumer transactions within its technology ecosystem over the next three years.
• Future margin expansion is anticipated to be gradual, with Q4 margins expected to be lower than Q3; a three-year margin objective will be disclosed in the next quarter.

Business Segments and Product Lines:

• Asia-Pacific led growth with a 26% constant currency increase, primarily driven by India's 39% reported (52% local currency) sales growth.
• North America reported 1.7% growth, supported by a revenue recognition timing shift from Q1 to Q3 and two consecutive quarters of growth.
• Latin America grew 5.1% in constant currency, while EMEA and China experienced declines.
• Nutrition clubs, representing 64,000 globally (9,000 in the U.S.), accounted for 42% of U.S. volume with club productivity increasing over 10% YoY per quarter.
• New strategic initiatives include establishing a dedicated nutrition club vertical, launching a modular customer engagement platform, and expanding the Bionic brand.
• Bionic is being repositioned as a premium health and wellness brand spanning personalized nutrition, sports performance, and healthy lifespan, with plans to integrate the "Life.io" product line under the Bionic umbrella.
• The "24 Games" fitness event pilot launched in Miami with 350+ attendees and is slated for global rollout via the new technology platform starting Q1 2027.
• New product development is targeting consumers using GLP-1 medications with adapted existing product programs rather than new SKUs initially.

Market and Competitive Landscape:

• Herbalife leverages its 3 million+ global entrepreneurs and 90+ markets as a primary competitive advantage against other direct sellers.
• The company emphasizes human connection and community building (via nutrition clubs and fitness events) as a differentiator against purely digital competitors.
• The "24 Games" are designed to replicate successful local fitness competitions globally, fostering community engagement and brand visibility.
• Market trends indicate a rising demand for personalized nutrition and wellness solutions, which Bionic aims to address as an "insurgent" brand.

Risks and Challenges:

• Foreign exchange rates posed a 160 bps headwind in Q3, stronger than the 100 bps expected in guidance, and are expected to remain a headwind in Q4.
• Country mix contributed a $47 million negative impact to sales, reflecting unfavorable revenue distribution across regions.
• Gross margin pressure from unfavorable sales mix (-44 bps) and rising input costs (-36 bps) remains a challenge despite pricing benefits.
• The "Protocol" app currently has low usage and is in beta; its future value depends on distributor adoption compared to a broader, more flexible platform.
• India's recent growth was partly boosted by a GST change in Q3 2025, creating a potential comparative headwind as the quarter matures.

Management Commentary and Tone:

• Interim CEO John DeSimone expressed high confidence in the company's future, emphasizing the entrepreneurial spirit of distributors as the core competitive moat.
• Management tone is optimistic and execution-focused, highlighting a "simple principle" that Herbalife succeeds only when distributors succeed.
• Scott Schaefer, the new CFO, reinforced a disciplined approach to capital allocation and margin management, noting that margin expansion will be a gradual process.
• The leadership team is committed to sharpening priorities, establishing dedicated verticals (like nutrition clubs), and avoiding the reinvention of existing successful models.

Analyst Questions and Answers:

• GLP-1 Impact: Anthony Vendetti (Maxim Group) asked about the impact of GLP-1 medications on product demand. Management clarified that GLP-1 users present a growth opportunity; the strategy involves positioning existing products to be taken alongside GLP-1s rather than developing new SKUs immediately.
• Brand Priorities: Vendetti asked about the priorities of Protocol, Bionic, and Life.io. DeSimone explained that Bionic is a priority for reaching new demographics, with Life.io being integrated into Bionic. Protocol is being maintained as a parallel beta project but is not the sole focus; the broader strategy is a modular, configurable customer engagement platform where usage determines value.
• No Further Questions: The Q&A session concluded after a single question from Maxim Group.

Other Key Points:

• Management acknowledged former CEO Stefan's contributions, highlighting his background as a distributor.
• The company paid down $88 million in debt during the quarter while maintaining $50 million outstanding on the revolving credit facility.
• A new $250 million share repurchase program was authorized, with plans to begin repurchasing shares in Q4.
• The "24 Games" are cited as a key example of leveraging distributor innovation for consumer engagement.
• The company expects to continue investing in technology to support diverse distributor business models (clubs, challenges, social selling) rather than forcing a single digital workflow.