Herbalife Nutrition Reports Third Quarter 2022 Results, Withdraws Full Year 2022 Guidance and Announces CEO Transition

Herbalife Nutrition Ltd. (NYSE: HLF) today reported financial results for the third quarter ended September 30, 2022:

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“Building momentum will be my top focus as I continue to work with this talented management team.” - Michael O. Johnson, Chairman and Interim CEO of Herbalife Nutrition

Highlights

• Third quarter 2022 net sales of $1.3 billion, a 9.5% decrease compared to the third quarter 2021. On a constant currency basis¹, net sales declined 3.5% compared to the prior year period.

• Third quarter 2022 reported diluted EPS of $0.83 and adjusted² diluted EPS of $0.91, compared to third quarter 2021 reported and adjusted² diluted EPS of $1.09 and $1.21, respectively.

• Third quarter 2022 reported net income of $82.2 million and adjusted² EBITDA of $182.8 million.

• During the third quarter, the Company reduced its debt levels by paying down $50 million of its revolving credit facility.

• Given the rapidly shifting macroeconomic sentiment and backdrop, as well as increased volatility in the marketplace, the Company is withdrawing FY 2022 guidance. The Company will periodically reassess its ability to provide guidance when we believe future performance can be reasonably estimated.

• Michael O. Johnson announced as Chairman and interim CEO. Please refer to separate press release for more information related to the CEO transition.

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¹ Growth/decline in net sales excluding the effects of foreign exchange is based on “net sales in local currency,” a non-GAAP financial measure. See Schedule A – “Reconciliation of Non-GAAP Financial Measures” for a discussion of why we believe adjusting for the effects of foreign exchange is useful.

² Adjusted diluted EPS and adjusted EBITDA are non-GAAP measures. See Schedule A – “Reconciliation of Non-GAAP Financial Measures” for a detailed reconciliation of these measures to the most directly comparable GAAP measure, and a discussion of why we believe these non-GAAP measures are useful.

Management Commentary

Herbalife Nutrition reported net sales of $1.3 billion for the third quarter of 2022, a decrease of 9.5% compared to the prior year, which was below the Company’s expectations. The Company believes that macroeconomic inflationary pressures challenged Members’ operations and customer demand during the quarter. Net sales were also negatively impacted due to unfavorable geographic mix of revenue as well as the strengthening of the U.S. dollar, which drove a significant currency headwind compared to net sales the prior year.

Management took decisive actions to execute on expense management initiatives that benefited net income and also contributed to an adjusted¹ EBITDA and adjusted¹ EPS that were above or near the high-end of the Company’s Q3 guidance range. Additionally, during the third quarter, the Company strategically reduced $50 million of its outstanding debt.

From a global perspective, some of the Company’s underlying business trends and KPIs remained largely stabilized compared to Q2 levels. Worldwide active sales leaders, and new distributors and preferred customers, were slightly improved from Q2 levels. The global metrics were supported by significant strength in India and management is keenly focused on improving distributor metrics outside of India.

As such, the Company is rolling out a new campaign focused on driving new distributors to the Company. This collaboration with the Company’s independent distributors has resulted in market-specific initiatives designed to attract additional distributors to join the company in both the short and long-term. The Company is also supporting Members with the resumption of in-person events, product line expansions, and the deployment of enhanced technology tools to support their businesses.

The sales trends that softened through the third quarter are expected to continue into the fourth quarter were impacted by the challenging macroenomic landscape. Given the rapidly shifting macroeconomic sentiment and backdrop, as well as increased volatility in the marketplace, the Company is withdrawing FY 2022 guidance.

As the Company continues to navigate the macro backdrop, profit protection initiatives remain a focal point for management. At the same time, the Company continues to invest for future growth, including its digital transformation, the Herbalife ONE platform, in addition to the development and launch of new products around the world.

“Over our 42-year history we have overcome numerous macroeconomic challenges, and many of our distributors have developed new successful sales strategies and seen positive longer-term impacts on their organizations as a result of these times, as new individuals look to the Herbalife Nutrition business opportunity as a way to supplement their income,” said CEO, Michael O. Johnson. “We remain confident that the resilience of our business model, the entrepreneurial spirit of our independent distributors, the growth profile of our product categories, and the strategic actions we are taking will help us emerge from the current environment stronger than ever.”

Third Quarter 2022 Key Metrics

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

^{(a) Growth/decline in net sales excluding the effects of foreign exchange is based on “net sales in local currency,” a non-GAAP financial measure. See Schedule A – “Reconciliation of Non-GAAP Financial Measures” for a discussion of why we believe adjusting for the effects of foreign exchange is useful.}

^{(b) During the third quarter of 2022, the Company combined its Mexico and South and Central America regions into one geographic region now named Latin America. Historical information has been reclassified to conform with the current period geographic presentation.}

Regional Volume Point Metrics

Outlook

Given the rapidly shifting macroeconomic sentiment and backdrop, as well as increased volatility in the marketplace, the Company is withdrawing FY 2022 guidance. The Company will periodically reassess its ability to provide guidance when we believe future performance can be reasonably estimated.

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 Monday, October 31^st, 2022, at 2:30 p.m. PT (5:30 p.m. ET).

Participants will need to register to receive dial-in information to the call, and may do so by visiting the investor relations section of the Company’s website at http://ir.herbalife.com. Additionally, live audio of the conference call will be simultaneously webcast at https://edge.media-server.com/mmc/p/bvzrmiar. Senior management also plans to reference slides during the call, which will also be available on the investor relation’s section of the Company’s website.

An audio replay will be available following the completion of the conference call, and the webcast of the teleconference will be archived and available on the Company’s investor relations site.

About Herbalife Nutrition Ltd.

Herbalife Nutrition (NYSE: HLF) is a global nutrition company that has been changing people's lives with great nutrition products and a business opportunity for its independent distributors since 1980. The Company offers science-backed products to consumers in 95 markets by entrepreneurial distributors who provide one-on-one coaching and a supportive community that inspires their customers to embrace a healthier, more active lifestyle. Through the Company’s commitment to nourish people, communities and our planet, Herbalife Nutrition pledges to achieve 50 million positive impacts – tangible acts of good – by 2030, its 50th anniversary.

For more information, please visit IAmHerbalifeNutrition.com and follow us @Herbalife.

Herbalife Nutrition also encourages investors to visit its investor relations website at ir.herbalife.com as financial and other 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 or outcomes 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, many of which are beyond our control. Additionally, many of these risks and uncertainties are, and may continue to be, amplified by the COVID-19 pandemic. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in or implied by our forward-looking statements include the following:

• the potential impacts of the COVID-19 pandemic and current global economic conditions, including inflation, on us; our Members, customers, and supply chain; and the world economy;
• our ability to attract and retain Members;
• our relationship with, and our ability to influence the actions of, our Members;
• our noncompliance with, or improper action by our employees or Members in violation of, applicable U.S. and foreign laws, rules, and regulations;
• adverse publicity associated with our Company or the direct-selling industry, including our ability to comfort the marketplace and regulators regarding our compliance with applicable laws;
• changing consumer preferences and demands and evolving industry standards, including with respect to climate change, sustainability, and other environmental, social, and governance, or ESG, matters;
• the competitive nature of our business and industry;
• legal and regulatory matters, including regulatory actions concerning, or legal challenges to, our products or network marketing program and product liability claims;
• the Consent Order entered into with the FTC, the effects thereof and any failure to comply therewith;
• risks associated with operating internationally and in China;
• our ability to execute our growth and other strategic initiatives, including implementation of our transformation program and increased penetration of our existing markets;
• any material disruption to our business caused by natural disasters, other catastrophic events, acts of war or terrorism, including the war in Ukraine, cybersecurity incidents, pandemics, and/or other acts by third parties;
• our ability to adequately source ingredients, packaging materials, and other raw materials and manufacture and distribute our products;
• our reliance on our information technology infrastructure;
• noncompliance by us or our Members with any privacy laws, rules, or regulations or any security breach involving the misappropriation, loss, or other unauthorized use or disclosure of confidential information;
• contractual limitations on our ability to expand or change our direct-selling business model;
• the sufficiency of our trademarks and other intellectual property;
• product concentration;
• our reliance upon, or the loss or departure of any member of, our senior management team;
• restrictions imposed by covenants in the agreements governing our indebtedness;
• risks related to our convertible notes;
• changes in, and uncertainties relating to, the application of transfer pricing, income tax, customs duties, value added taxes, and other tax laws, treaties, and regulations, or their interpretation;
• our incorporation under the laws of the Cayman Islands; 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

Supplemental Information

SCHEDULE A: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

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

Adjusted Net Income, Adjusted Diluted EPS and Adjusted EBITDA

In addition to its reported results calculated in accordance with GAAP, the Company has included in this release adjusted net income, adjusted diluted EPS and adjusted EBITDA, performance measures that the Securities and Exchange Commission defines as “non-GAAP financial measures.” Adjusted net income, adjusted diluted EPS and adjusted EBITDA exclude the impact of certain unusual or non-recurring items such as non-cash interest expense and amortization associated with the Company’s convertible notes, expenses related to regulatory inquiries and legal accruals, debt issuance costs and losses on extinguishment of debt, expenses related to COVID-19 pandemic, non-income tax items, expenses related to transformation program, and expenses related to digital technology program, as further detailed in the reconciliations below.

Management believes that such non-GAAP financial measures, when read in conjunction with the Company’s reported results, 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 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 and calculation as set forth in the tables below of adjusted net income, adjusted diluted EPS and adjusted EBITDA 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.

Currency Fluctuation

Our international operations have provided and will continue to provide a significant portion of our total net sales. As a result, total net sales will continue to be affected by fluctuations in the U.S. dollar against foreign currencies. In order to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency fluctuations, in addition to comparing the percent change in net sales from one period to another in U.S. dollars, we also compare the percent change in net sales from one period to another period using “net sales in local currency.” Net sales in local currency is not a measure presented in accordance with U.S. GAAP. Net sales in local currency removes from net sales in U.S. dollars the impact of changes in exchange rates between the U.S. dollar and the local currencies of our foreign subsidiaries, by translating the current period net sales into U.S. dollars using the same foreign currency exchange rates that were used to translate the net sales for the previous comparable period. We believe presenting net sales in local currency is useful to investors because it allows a meaningful comparison of net sales of our foreign operations from period to period. However, net sales in local currency should not be considered in isolation or as an alternative to net sales in U.S. dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented 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:

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

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

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