HLF
$44.56
Herbalife
$.29
.66%
Earnings Details
3rd Quarter September 2019
Tuesday, October 29, 2019 4:10:00 PM
Tweet Share Watch
Summary

Herbalife Beats but Guides Lower

Herbalife (HLF) reported 3rd Quarter September 2019 earnings of $0.73 per share on revenue of $1.2 billion. The consensus earnings estimate was $0.64 per share on revenue of $1.2 billion. The Earnings Whisper number was $0.68 per share. Revenue grew 0.1% on a year-over-year basis.

The company said it now expects 2019 earnings of $2.56 to $2.76 per share. The company's previous guidance was earnings of $2.40 to $2.80 per share and the current consensus earnings estimate is $2.61 per share for the year ending December 31, 2019. The company also said it expects 2020 earnings of $2.55 to $3.05 per share. The current consensus earnings estimate is $3.23 per share for the year ending December 31, 2020.

Herbalife Ltd is a nutrition company. The Company along with its subsidiaries sells weight management, targeted nutrition, energy, sports & fitness, and outer nutrition products.

Results
Reported Earnings
$0.73
Earnings Whisper
$0.68
Consensus Estimate
$0.64
Reported Revenue
$1.24 Bil
Revenue Estimate
$1.22 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Herbalife Nutrition Reports Record-Breaking Quarterly Volume Point Results and Provides Initial Full Year 2020 Guidance

LOS ANGELES--(BUSINESS WIRE)--Herbalife Nutrition Ltd. (NYSE: HLF) today reported financial results for the third quarter ended September 30, 2019.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20191029006012/en/

Third Quarter 2019 Earnings Infographic (Graphic: Business Wire)

Third Quarter 2019 Earnings Infographic (Graphic: Business Wire)

“The momentum we’ve built in our business throughout 2019 continued in the third quarter with record-breaking volume point results. We believe this momentum will continue long into the future with the appointment of John Agwunobi as our CEO and John DeSimone as President, effective March of next year. We are confident Dr. Agwunobi’s unique background and John DeSimone’s extraordinary knowledge of our business will create an outstanding team and take Herbalife Nutrition to new heights,” said Michael Johnson, Chairman and CEO of Herbalife Nutrition.

QUARTER HIGHLIGHTS

  • Reported net sales of $1.2 billion increased 0.1% compared to the third quarter 2018. Excluding China, net sales increased 6.1% compared to the prior year period.
  • Volume points of 1.5 billion increased 2.3% compared to the third quarter 2018, representing the largest quarterly volume point result in Company history. Excluding China, volume points increased 5.2% compared to the prior year period.1
  • Third quarter reported diluted EPS of $0.58 and adjusted2 earnings of $0.73 per diluted share, both of which were negatively impacted by expenses of approximately $5.8 million or $0.03 per diluted share, related to the China Growth and Impact Investment Program.
  • Updating FY 2019 volume point guidance to a range of 2.1% - 3.4% growth, net sales guidance to a range of (1.2%) – 0.1%, as well as reported and adjusted2, 3 diluted EPS guidance to a range of $2.20 - $2.40 and $2.56$2.76, respectively.
  • Initiating FY 2020 volume point and net sales guidance range of 1.0% - 7.0% and 1.0% - 7.0% growth, respectively, which includes an approximate 250 bps currency headwind.
  • In a separate press release this afternoon, the Company announced its CEO transition plan that goes into effect March 2020.

______________________________
1 Excluding adjustments to volume point values in 2018, the year over year change would have been an increase of 2.1% and an increase of 5.0% excluding China. See Regional Volume Point Metrics below.

2 Adjusted diluted EPS is a non-GAAP measure and excludes the impact of: non-cash interest expense and amortization of non-cash issuance costs associated with the Company’s convertible notes, China grant income, impacts relating to contingent value rights revaluation, impact related to finalization of insurance recoveries, expenses related to regulatory inquiries and legal accrual, and Mexico VAT Assessment. See Schedule A – “Reconciliation of Non-GAAP Financial Measures” for a detailed reconciliation of adjusted net income to net income calculated in accordance with GAAP and a reconciliation of adjusted diluted EPS to diluted EPS calculated in accordance with GAAP and a discussion of why we believe these non-GAAP measures are useful.

3 See Schedule A - “Reconciliation of Non-GAAP Financial Measures” for a reconciliation of adjusted diluted share count to reported diluted share count and a discussion of why the share count has been adjusted for purposes of calculating adjusted diluted EPS for the year to date periods of 2018 and 2019, and full year 2019 guidance.

Third Quarter 2019 Key Metrics4

Regional Volume Point Metrics

 

Volume Points

Region

3Q '19 (mil)

Yr/Yr % Chg

Asia Pacific

406.6

17.3%

North America

330.8

7.0%

EMEA

315.2

4.0%

Mexico

216.4

(7.1%)

China

142.4

(19.5%)

South and Central America

130.1

(5.9%)

Worldwide Total (a)

1,541.5

2.3%

Worldwide Total excl. China (a)

1,399.1

5.2%

(a) During 2018, the Company adjusted volume point values for certain products in North America and South & Central America. Excluding these adjustments, the worldwide total year over year change in volume points would have been an increase of 2.1% for the third quarter and an increase of 5.0% for the third quarter excluding China. Adjustments to Volume Points during 2019 were not material.

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

Region

Reported
Net Sales
3Q’19 (mil)

Growth/Decline
including FX
vs. 3Q ‘18

Growth/Decline
excluding FX
vs. 3Q ‘18

Asia Pacific

$

324.5

18.3

%

18.6

%

North America

$

257.1

7.1

%

7.2

%

EMEA

$

242.3

2.7

%

6.4

%

Mexico

$

116.5

(3.9

%)

(1.5

%)

China

$

208.7

(21.7

%)

(19.3

%)

South & Central America (a)

$

95.4

(9.1

%)

*

Worldwide Total

$

1,244.5

0.1

%

*

Worldwide Total excl. China

$

1,035.8

6.1

%

*

South & Central America excl. Venezuela (a)

$

95.0

(6.1

%)

(1.0

%)

Worldwide Total excl Venezuela (a)

$

1,244.1

0.4

%

2.4

%

Worldwide Total excl. China and Venezuela (a)

$

1,035.4

6.5

%

8.3

%

(a) Venezuela was impacted by significant price increases and erosion in foreign currency exchange rates. Venezuela represents less than 1% of the Company’s consolidated net sales. See Schedule A – “Reconciliation of Non-GAAP Financial Measures” for a discussion of why we believe adjusting for Venezuela is useful.

* Figure not meaningful due to significant foreign currency fluctuations in Venezuela and the price increases implemented as a result thereof that, when considered in isolation, have a disproportionately large impact on the Company’s South and Central American region and consolidated results. Amounts were 1,180.1%, 102.1% and 135.2% for South & Central America, Worldwide Total and Worldwide Total excluding China, respectively.

______________________________
4 Supplemental tables that include Average Active Sales Leader and additional business metrics can be found at http://ir.Herbalife.com.

Outlook

Following is the Company’s fourth quarter 2019, full year 2019 and full year 2020 guidance based on current business trends:

Three Months Ending

Twelve Months Ending

December 31, 2019

December 31, 2019

Low

High

Low

High

Volume Point Growth vs 2018 (a)

0.1%

5.6%

2.1%

3.4%

Net Sales Growth vs 2018 (b)

(0.9%)

4.6%

(1.2%)

0.1%

Diluted EPS (b) (c)

$0.41

$0.61

$2.20

$2.40

Adjusted Diluted EPS (b) (c) (d)

$0.48

$0.68

$2.56

$2.76

Cap Ex ($ millions)

$29.0

$39.0

$105.0

$115.0

Effective Tax Rate (b) (c)

27.0%

41.0%

30.6%

33.6%

Adjusted Effective Tax Rate (b) (c) (d)

23.0%

37.0%

27.0%

30.0%

Net Sales Growth vs. 2018 (Currency Adjusted) (b) (e)

0.5%

6.0%

2.1%

3.4%

Adjusted Diluted EPS (Currency Adjusted) (b) (c) (d) (e)

$0.52

$0.72

$2.89

$3.09

 

Twelve Months Ending

 

December 31, 2020

Low

High

Volume Point Growth vs 2019 (a)

1.0%

7.0%

Net Sales Growth vs 2019 (b)

1.0%

7.0%

Diluted EPS (b) (c)

$2.35

$2.85

Adjusted Diluted EPS (b) (c) (d)

$2.55

$3.05

Cap Ex ($ millions)

$130.0

$170.0

Effective Tax Rate (b) (c)

27.0%

32.0%

Adjusted Effective Tax Rate (b) (c) (d)

26.0%

31.0%

Net Sales Growth vs. 2019 (Currency Adjusted) (b) (f)

3.5%

9.5%

Adjusted Diluted EPS (Currency Adjusted) (b) (c) (d) (f)

$2.70

$3.20

(a) The Company is evaluating our current approach to assigning and maintaining volume point values for certain products or markets. Guidance excludes any future potential impact of volume point adjustments, which may have an impact on the use of volume points as a proxy for sales trends in future periods.

(b) Excludes any future potential Venezuela currency devaluations and associated pricing and inflationary consequences.

(c) Excludes the following items that cannot be accurately predicted: any future potential ongoing tax effects from the exercise of equity awards that could impact the Company's tax rate due to the stock compensation accounting standard, benefits from future potential China grant income, any future potential dilution from the Company’s convertible notes due in 2024, as well as any impact of the China Growth and Impact Investment Program.

(d) Adjusted diluted EPS and adjusted effective tax rate excludes the impact of: non-cash interest expense and amortization of non-cash issuance costs associated with the Company’s convertible notes, China grant income, impacts relating to contingent value rights revaluation, impact related to finalization of insurance recoveries, expenses related to regulatory inquiries and legal accrual, and Mexico VAT Assessment, as detailed in Schedule A. See Schedule A – “Reconciliation of Non-GAAP Financial Measures” for a detailed reconciliation of adjusted diluted EPS to diluted EPS calculated in accordance with GAAP and a discussion of why the Company believes these non-GAAP measures are useful.

(e) Currency adjusted net sales and adjusted diluted EPS represent projections translated into US dollars at currency rates equal to the average rates used to translate 2018 fourth quarter and full year net sales and diluted EPS and adjusted for items such as hedging gains/losses and Venezuela to be directly comparable to 2018 values.

(f) Currency adjusted net sales and adjusted diluted EPS represent projections translated into US dollars at currency rates equal to the average rates used to translate 2019 full year net sales and diluted EPS and adjusted for items such as hedging gains/losses and Venezuela to be directly comparable to 2019 values.

  • With respect to guidance, the Company cannot accurately predict the impact to its share base from any share repurchases in 2019 or 2020. Accordingly, any impact thereof is excluded from the guidance tables above.
  • Guidance is based on the average daily exchange rates during the first two weeks of October 2019.
  • Adjusted2 diluted EPS guidance for the fourth quarter 2019 includes a projected currency headwind of approximately $0.04 per diluted share versus the fourth quarter of 2018.
  • Full year 2019 adjusted2 diluted EPS guidance includes a projected currency headwind of approximately $0.33 per diluted share, $0.06 unfavorable compared to the impact included in the full year 2019 guidance provided on August 1, 2019.
  • Full year 2020 adjusted2 diluted EPS guidance includes a projected currency headwind of $0.15 compared to 2019.

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 Tuesday, October 29, 2019, at 2:30 p.m. PT (5:30 p.m. ET).

The dial-in number for this conference call for domestic callers is (877) 317-1296, and (262) 320-2006 for international callers (conference ID: 2178226). Live audio of the conference call will be simultaneously webcast in the investor relations section of the Company's website at http://ir.Herbalife.com.

An audio replay will be available following the completion of the conference call in MP3 format or by dialing (855) 859-2056 for domestic callers or (404) 537-3406 for international callers (conference ID: 2178226). The webcast of the teleconference will be archived and available on Herbalife Nutrition's website.

About Herbalife Nutrition Ltd.

Herbalife Nutrition is a global company that has been changing people's lives with great nutrition products and a proven business opportunity for its independent distributors since 1980. The Company offers high-quality, science-backed products, sold in over 90 countries 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 global campaign to eradicate hunger, Herbalife Nutrition is also committed to bringing nutrition and education to communities around the world.

For more information, please visit IAmHerbalifeNutrition.com.

Herbalife Nutrition also encourages investors to visit its investor relations website at ir.herbalife.com as financial and other information is updated and new 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 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, such as those disclosed or incorporated by reference in our filings with the Securities and Exchange Commission. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following:

  • our relationship with, and our ability to influence the actions of, our Members;
  • improper action by our employees or Members in violation of applicable law;
  • adverse publicity associated with our products or network marketing organization, including our ability to comfort the marketplace and regulators regarding our compliance with applicable laws;
  • changing consumer preferences and demands;
  • the competitive nature of our business;
  • regulatory matters governing our products, including potential governmental or regulatory actions concerning the safety or efficacy of our products and network marketing program, including the direct selling markets in which we operate;
  • legal challenges to our network marketing program;
  • the Consent Order entered into with the FTC, the effects thereof and any failure to comply therewith;
  • risks associated with operating internationally and the effect of economic factors, including foreign exchange, inflation, disruptions or conflicts with our third-party importers, pricing and currency devaluation risks, especially in countries such as Venezuela;
  • uncertainties relating to interpretation and enforcement of legislation in China governing direct selling and anti-pyramiding;
  • our inability to obtain or maintain the necessary licenses for our direct selling business in China and elsewhere;
  • adverse changes in the Chinese economy;
  • our dependence on increased penetration of existing markets;
  • any material disruption to our business caused by natural disasters, other catastrophic events, acts of war or terrorism, or cybersecurity incidents;
  • noncompliance by us or our Members with any privacy laws or any security breach by us or a third party involving the misappropriation, loss, or other unauthorized use or disclosure of confidential information;
  • contractual limitations on our ability to expand our business;
  • our reliance on our information technology infrastructure and outside manufacturers;
  • the sufficiency of our trademarks and other intellectual property rights;
  • product concentration;
  • our reliance upon, or the loss or departure of any member of, our senior management team which could negatively impact our Member relations and operating results;
  • U.S. and foreign laws and regulations applicable to our operations;
  • uncertainties relating to the United Kingdom’s vote to exit from the European Union;
  • restrictions imposed by covenants in our existing indebtedness;
  • risks related to the convertible notes;
  • uncertainties relating to the application of transfer pricing, duties, value added taxes, and other tax regulations, and changes thereto;
  • changes in tax laws, treaties or regulations, or their interpretation;
  • taxation relating to our Members;
  • product liability claims;
  • our incorporation under the laws of the Cayman Islands;
  • whether we will purchase any of our shares in the open markets or otherwise; 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

Herbalife Nutrition Ltd. and Subsidiaries

Condensed Consolidated Statements of Income

(In millions, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

9/30/2019

 

9/30/2018

 

9/30/2019

 

9/30/2018

 

 
North America

$

257.1

 

$

240.0

 

$

791.9

 

$

733.7

 

EMEA

 

242.3

 

 

235.9

 

 

756.9

 

 

744.1

 

Asia Pacific

 

324.5

 

 

274.3

 

 

918.6

 

 

772.9

 

Mexico

 

116.5

 

 

121.2

 

 

357.0

 

 

353.4

 

China

 

208.7

 

 

266.5

 

 

546.1

 

 

765.5

 

South and Central America

 

95.4

 

 

104.9

 

 

286.3

 

 

335.6

 

Worldwide Net Sales

 

1,244.5

 

 

1,242.8

 

 

3,656.8

 

 

3,705.2

 

Cost of Sales

 

243.4

 

 

218.1

 

 

728.2

 

 

693.4

 

Gross Profit

 

1,001.1

 

 

1,024.7

 

 

2,928.6

 

 

3,011.8

 

Royalty Overrides

 

363.8

 

 

344.0

 

 

1,090.1

 

 

1,031.1

 

Selling, General, and Administrative Expenses

 

500.1

 

 

499.4

 

 

1,412.5

 

 

1,469.7

 

Other Operating Income (1)

 

(6.4

)

 

(6.0

)

 

(33.7

)

 

(23.9

)

Operating Income

 

143.6

 

 

187.3

 

 

459.7

 

 

534.9

 

Interest Expense, net

 

31.6

 

 

39.9

 

 

104.0

 

 

124.1

 

Other Expense (Income), net (2)

 

(1.3

)

 

30.9

 

 

(15.7

)

 

60.0

 

Income Before Income Taxes

 

113.3

 

 

116.5

 

 

371.4

 

 

350.8

 

Income Taxes (3)

 

31.8

 

 

45.3

 

 

117.1

 

 

103.1

 

Net Income

$

81.5

 

$

71.2

 

$

254.3

 

$

247.7

 

 
Weighted-Average Shares Outstanding:
Basic

 

137.4

 

 

136.2

 

 

137.3

 

 

141.3

 

Diluted

 

140.0

 

 

145.6

 

 

142.3

 

 

150.8

 

 
Earnings Per Share:
Basic

$

0.59

 

$

0.52

 

$

1.85

 

$

1.75

 

Diluted

$

0.58

 

$

0.49

 

$

1.79

 

$

1.64

 

 

(1) Other Operating Income for the three months ended September 30, 2019 and September 30, 2018 relates to certain China government grant income. Other operating income for the nine months ended September 30, 2019 relates to certain China government grant income and income related to the finalization of insurance recoveries in connection with the flooding at one of the Company's warehouses in Mexico during September 2017. Other Operating Income for the nine months ended September 30, 2018 relates to certain China government grant income.

(2) Other Expense (Income), net for the three months ended September 30, 2019 relates to the gain on revaluation of the Contingent Value Rights (CVR) issued in connection with the October 2017 modified Dutch auction tender offer. Other Expense (Income), net for the three months ended September 30, 2018 relates to the $35.4 million loss on extinguishment of the 2017 senior secured credit facility, partially offset by a gain on revaluation of the CVR. Other Expense (Income), net for the nine months ended September 30, 2019 relates to the gain on revaluation of the CVR. Other Expense (Income), net for the nine months ended September 30, 2018 relates to the $35.4 million loss on extinguishment of the 2017 senior secured credit facility; the $13.1 million loss on the extinguishment of a portion of the 2.0% convertible senior notes due 2019 repurchased in March 2018; and the $11.4 million loss on revaluation of the CVR.

(3) Includes the impact of excess tax benefit recognized under ASU 2016-09 of $0.2 million and $19.3 million for the three months ended September 30, 2019 and 2018, respectively; and $3.0 million and $49.6 million for the nine months ended September 30, 2019 and 2018, respectively.

Herbalife Nutrition Ltd. and Subsidiaries

Condensed Consolidated Balance Sheets

(In millions)

(Unaudited)

 

Sep 30,

 

Dec 31,

 

2019

 

2018

 
ASSETS
Current Assets:
Cash and cash equivalents

$

715.2

 

$

1,198.9

 

Receivables, net

 

100.4

 

 

70.5

 

Inventories

 

420.1

 

 

381.8

 

Prepaid expenses and other current assets

 

153.6

 

 

153.8

 

Total Current Assets

 

1,389.3

 

 

1,805.0

 

 
Property, plant and equipment, net

 

360.6

 

 

360.0

 

Operating lease right-of-use assets

 

181.9

 

 

-

 

Marketing-related intangibles and other intangible assets, net

 

310.1

 

 

310.1

 

Goodwill

 

89.3

 

 

92.9

 

Other assets

 

214.4

 

 

221.8

 

Total Assets

$

2,545.6

 

$

2,789.8

 

 
 
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable

$

75.8

 

$

81.1

 

Royalty overrides

 

283.9

 

 

281.4

 

Current portion of long-term debt

 

24.5

 

 

678.9

 

Other current liabilities

 

536.4

 

 

547.4

 

Total Current Liabilities

 

920.6

 

 

1,588.8

 

 
Non-current liabilities:
Long-term debt, net of current portion

 

1,779.3

 

 

1,774.9

 

Non-current operating lease liabilities

 

165.4

 

 

-

 

Other non-current liabilities

 

147.8

 

 

149.5

 

Total Liabilities

 

3,013.1

 

 

3,513.2

 

 
Commitments and Contingencies
 
Shareholders' deficit:
Common shares

 

0.1

 

 

0.1

 

Paid-in capital in excess of par value

 

363.7

 

 

341.5

 

Accumulated other comprehensive loss

 

(230.4

)

 

(209.8

)

Accumulated deficit

 

(272.0

)

 

(526.3

)

Treasury stock

 

(328.9

)

 

(328.9

)

Total Shareholders' Deficit

 

(467.5

)

 

(723.4

)

 
Total Liabilities and Shareholders' Deficit

$

2,545.6

 

$

2,789.8

 

 

Herbalife Nutrition Ltd. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In millions)

(Unaudited)

 

Nine Months Ended

 

 

9/30/2019

 

9/30/2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income

$

254.3

 

$

247.7

 

Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization

 

73.4

 

 

76.0

 

Share-based compensation expenses

 

29.7

 

 

31.8

 

Non-cash interest expense

 

37.5

 

 

49.4

 

Deferred income taxes

 

8.0

 

 

6.0

 

Inventory write-downs

 

17.9

 

 

13.9

 

Foreign exchange transaction loss

 

4.0

 

 

10.4

 

Loss on extinguishment of debt

 

-

 

 

48.5

 

Other

 

(10.4

)

 

11.3

 

Changes in operating assets and liabilities:
Receivables

 

(35.7

)

 

(25.9

)

Inventories

 

(63.5

)

 

(40.5

)

Prepaid expenses and other current assets

 

2.7

 

 

(52.2

)

Accounts payable

 

(2.9

)

 

25.2

 

Royalty overrides

 

5.9

 

 

14.2

 

Other current liabilities

 

(18.0

)

 

82.3

 

Other

 

(2.0

)

 

11.6

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

300.9

 

 

509.7

 

 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment

 

(79.5

)

 

(55.7

)

NET CASH USED IN INVESTING ACTIVITIES

 

(79.5

)

 

(55.7

)

 
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from senior secured credit facility, net of discount

 

-

 

 

998.1

 

Principal payments on senior secured credit facility and other debt

 

(17.4

)

 

(1,231.7

)

Proceeds from convertible senior notes

 

-

 

 

550.0

 

Repayment of convertible senior notes

 

(675.0

)

 

(582.5

)

Proceeds from senior notes

 

-

 

 

400.0

 

Debt issuance costs

 

-

 

 

(26.8

)

Share repurchases

 

(9.9

)

 

(740.6

)

Proceeds from settlement of capped call transactions

 

-

 

 

55.9

 

Other

 

2.5

 

 

2.4

 

NET CASH USED IN FINANCING ACTIVITIES

 

(699.8

)

 

(575.2

)

EFFECT OF EXCHANGE RATE CHANGES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

(13.4

)

 

(48.0

)

NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

(491.8

)

 

(169.2

)

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD

 

1,215.0

 

 

1,295.5

 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD

$

723.2

 

$

1,126.3

 

 

Supplemental Information

SCHEDULE A: RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

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

In addition to its reported results and guidance calculated in accordance with GAAP, the Company has included in this release adjusted net income and adjusted diluted EPS, performance measures that the Securities and Exchange Commission defines as “non-GAAP financial measures.” Management believes that such non-GAAP financial measures, when read in conjunction with the Company’s reported or forecasted results, in each case 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 or forecasted 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 of adjusted net income and adjusted diluted earnings per share 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.

The impact of foreign currency fluctuations in Venezuela and the price increases the Company implements as a result of the highly inflationary economy in that market can each, when considered in isolation, have a disproportionately large impact to the Company’s consolidated results despite the offsetting nature of these drivers and that net sales in Venezuela, which represent less than 1% of the Company’s consolidated net sales, are not material to our consolidated results. Therefore, in certain instances, the Company believes it is helpful to provide additional information with respect to these factors as reported and excluding the impact of Venezuela to illustrate the disproportionate nature of Venezuela’s individual pricing and foreign exchange impact to the Company’s consolidated results. However, excluding the impact of Venezuela from these measures is not in accordance with U.S. GAAP and should not be considered in isolation or as an alternative to the presentation and discussion thereof calculated 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:

 

Three Months Ended

 

Nine Months Ended

9/30/2019

 

9/30/2018

 

9/30/2019

 

9/30/2018

(in millions)

 
Net income, as reported

$

81.5

 

$

71.2

 

$

254.3

 

$

247.7

 

Expenses related to regulatory inquiries and legal accrual (1) (2)

 

1.9

 

 

1.8

 

 

34.1

 

 

6.1

 

Non-cash interest expense and amortization of non-cash issuance costs (1) (2) (3)

 

8.7

 

 

12.6

 

 

33.0

 

 

40.7

 

China grant income (1) (2)

 

(6.4

)

 

(6.0

)

 

(27.7

)

 

(23.9

)

Contingent Value Rights revaluation (1) (2)

 

(1.3

)

 

(4.6

)

 

(15.7

)

 

11.4

 

Income related to finalization of insurance recoveries (1) (2) (4)

 

-

 

 

-

 

 

(6.0

)

 

-

 

Loss on extinguishment of convertible debt (1) (2) (5)

 

-

 

 

-

 

 

-

 

 

13.1

 

Loss on extinguishment of 2017 senior secured credit facility (1) (2)

 

-

 

 

35.4

 

 

-

 

 

35.4

 

Mexico VAT assessment (1) (2)

 

19.0

 

 

-

 

 

19.0

 

 

-

 

Venezuela devaluation (1) (2)

 

-

 

 

-

 

 

-

 

 

4.7

 

Income tax adjustments for above items (1) (2)

 

(1.4

)

 

(4.8

)

 

2.6

 

 

(3.5

)

Net income, as adjusted (6)

$

102.1

 

$

105.6

 

$

293.7

 

$

331.7

 

 

The following table is a reconciliation of diluted shares outstanding, as presented and reported in accordance with GAAP, to adjusted diluted shares outstanding, adjusted to include the impact of outstanding capped call transactions. The Company's outstanding capped call transactions are anti dilutive and not included in GAAP earnings per share but are expected to mitigate the dilutive effect of the Company's convertible notes due 2019, if the trading price of the Company's stock exceeds the conversion price, up to a certain level. Therefore, the Company has adjusted the diluted shares outstanding to include the impact of the capped calls, based on the average share price for the period that the capped calls are anti-dilutive.

 
Three Months EndedNine Months Ended
9/30/20199/30/20189/30/20199/30/2018
(in millions)
 
Diluted shares outstanding, as reported

140.0

145.6

142.3

150.8

Impact of capped call transactions

-

(3.4)

(1.3)

(2.7)

Diluted shares outstanding, as adjusted

140.0

142.2

141.0

148.1

 

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.

 
Three Months EndedNine Months Ended
9/30/20199/30/20189/30/20199/30/2018
(per share)
 
Diluted earnings per share, as reported

$

0.58

 

$

0.49

 

$

1.79

 

$

1.64

 

Impact of adjusted shares outstanding

 

-

 

 

0.01

 

 

0.01

 

 

0.03

 

Diluted earnings per share using adjusted diluted shares outstanding

$

0.58

 

$

0.50

 

$

1.80

 

$

1.67

 

 
Expenses related to regulatory inquiries and legal accrual (1) (2)

 

0.01

 

 

0.01

 

 

0.24

 

 

0.04

 

Non-cash interest expense and amortization of non-cash issuance costs (1) (2) (3)

 

0.06

 

 

0.09

 

 

0.23

 

 

0.27

 

 
China grant income (1) (2)

 

(0.05

)

 

(0.04

)

 

(0.20

)

 

(0.16

)

Contingent Value Rights revaluation (1) (2)

 

(0.01

)

 

(0.03

)

 

(0.11

)

 

0.08

 

Income related to finalization of insurance recoveries (1) (2) (4)

 

-

 

 

-

 

 

(0.04

)

 

-

 

Loss on extinguishment of convertible debt (1) (2) (5)

 

-

 

 

-

 

 

-

 

 

0.09

 

Loss on extinguishment of 2017 senior secured credit facility (1) (2)

 

-

 

 

0.25

 

 

-

 

 

0.24

 

Mexico VAT assessment (1) (2)

 

0.14

 

 

-

 

 

0.13

 

 

-

 

Venezuela devaluation (1) (2)

 

-

 

 

-

 

 

-

 

 

0.03

 

Income tax adjustments for above items (1) (2)

 

(0.01

)

 

(0.03

)

 

0.02

 

 

(0.02

)

Diluted earnings per share, as adjusted (6)

$

0.73

 

$

0.74

 

$

2.08

 

$

2.24

 

 

(1) Based on interim income tax reporting rules, these expenses are not considered discrete items. As a result, the Company's full year effective tax rate is impacted by these items. When applying the full year effective tax rate to year-to-date income, the Company's year-to-date tax provision recorded with respect to these non-GAAP adjustments is different from the forecasted full-year tax provision impact of these items. As a consequence, adjustments to the year-to-date and quarterly tax impacts will be recorded as the adjusted full year effective tax rate is applied to income in subsequent periods. Additionally, adjustments to items unrelated to these non-GAAP adjustments may have an effect on the income tax impact of these non-GAAP adjustments in subsequent periods. The Company plans to update the income tax impact of these items in subsequent interim reporting periods.

(2) Excludes tax (benefit)/expense as follows:

Three Months Ended

 

Nine Months Ended

9/30/2019

 

9/30/2018

 

9/30/2019

 

9/30/2018

(in millions)

 
Expenses related to regulatory inquiries and legal accrual

 

1.3

 

$

(1.4

)

 

(3.2

)

 

(1.0

)

Non-cash interest expense and amortization of non-cash issuance costs

 

(0.7

)

 

(0.3

)

 

(1.3

)

 

0.8

 

China grant income

 

1.7

 

 

1.6

 

 

8.1

 

 

7.7

 

Contingent Value Rights revaluation

 

(0.5

)

 

3.5

 

 

1.3

 

 

0.7

 

Income related to finalization of insurance recoveries

 

(0.4

)

 

-

 

 

0.5

 

 

-

 

Loss on extinguishment of convertible debt

 

-

 

 

0.9

 

 

-

 

 

(1.2

)

Loss on extinguishment of 2017 senior secured credit facility

 

-

 

 

(9.2

)

 

-

 

 

(9.2

)

Mexico VAT assessment

 

(2.8

)

 

-

 

 

(2.8

)

 

-

 

Venezuela devaluation

 

-

 

 

0.1

 

 

-

 

 

(1.3

)

Total income tax adjustments

$

(1.4

)

$

(4.8

)

$

2.6

 

$

(3.5

)

 
 

Three Months Ended

 

Nine Months Ended

9/30/2019

 

9/30/2018

 

9/30/2019

 

9/30/2018

(per share)

 
Expenses related to regulatory inquiries and legal accrual

 

0.01

 

 

(0.01

)

 

(0.02

)

 

(0.01

)

Non-cash interest expense and amortization of non-cash issuance costs

 

(0.01

)

 

-

 

 

(0.01

)

 

0.01

 

China grant income

 

0.01

 

 

0.01

 

 

0.06

 

 

0.05

 

Contingent Value Rights revaluation

 

-

 

 

0.02

 

 

0.01

 

 

-

 

Income related to finalization of insurance recoveries

 

-

 

 

-

 

 

-

 

 

-

 

Loss on extinguishment of convertible debt

 

-

 

 

0.01

 

 

-

 

 

(0.01

)

Loss on extinguishment of 2017 senior secured credit facility

 

-

 

 

(0.06

)

 

-

 

 

(0.06

)

Mexico VAT assessment

 

(0.02

)

 

-

 

 

(0.02

)

 

-

 

Venezuela devaluation

 

-

 

 

-

 

 

-

 

 

(0.01

)

Total income tax adjustments (6)

$

(0.01

)

$

(0.03

)

$

0.02

 

$

(0.02

)

(3) Relates to non-cash expense on the Company's 2.00% convertible senior notes due 2019 and the related prepaid forward share repurchase contracts and the 2.625% convertible senior notes due 2024.

(4) Relates to the finalization of insurance recoveries in connection with the flooding at one of the Company's warehouses in Mexico during September 2017, which damaged certain of the Company's inventory stored within the warehouse.

(5) Relates to the loss on the extinguishment of a portion of the 2.00% convertible senior notes due 2019 repurchased in March 2018.

(6) Amounts may not total due to rounding.

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

 

Three Months Ending

 

Twelve Months Ending

December 31, 2019

 

December 31, 2019

 

 

 

 
Diluted EPS Guidance

$0.41 - $0.61

 

$2.20 - $2.40

Non-cash interest expense and amortization of non-cash issuance costs (1)

0.04

 

0.27

China Grant Income (2)

0.00

 

(0.20)

Contingent Value Rights revaluation (3)

0.00

 

(0.11)

Income related to finalization of insurance recoveries (4)

0.00

 

(0.04)

Impact of adjusted shares outstanding

0.00

 

0.02

Expenses related to regulatory inquiries (5)

0.02

 

0.26

Mexico VAT Assessment (6)

0.00

 

0.13

Income tax adjustments for above items (7)

0.01

 

0.03

Adjusted diluted EPS guidance (8)

$0.48 - $0.68

 

$2.56 - $2.76

 

(1) Relates to non-cash expense on our convertible notes and prepaid forward share repurchase contract. Excludes tax impact of $1.1 million for the three months ending December 31, 2019.

(2) Excludes tax impact of $0.1 million and $8.0 million for the three months and twelve months ending December 31, 2019, respectively.

(3) Excludes tax impact of $1.1 million for the three months ending December 31, 2019.

(4) Excludes tax impact of $0.4 million and $0.04 million for the three months and twelve months ending December 31, 2019, respectively

(5) Excludes tax impact of $1.5 million and $1.6 million for the three months and twelve months ending December 31, 2019, respectively.

(6) Excludes tax impact of $0.9 million and $1.8 million for the three months and twelve months ending December 31, 2019, respectively.

(7) Aggregates the individual tax impacts of each item as described in greater detail in footnotes 2 through 6 above.

(8) Amounts may not total due to rounding.

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

 

Twelve Months Ending

December 31, 2020

 

Diluted EPS Guidance

$2.35 - $2.85

Non-cash interest expense and amortization of non-cash issuance costs (1)

0.16

Expenses related to regulatory inquiries (2)

0.06

Income tax adjustments for above items

(0.02)

Adjusted diluted EPS guidance

$2.55 - $3.05

 

(1) Relates to non-cash expense on our convertible notes.

(2) Excludes tax impact of $2.5 million for the twelve months ending December 31, 2019.

Media Contact:
Jennifer Butler
VP, Media Relations
213.745.0420

Investor Contact:
Eric Monroe
Director, Investor Relations
213.745.0449

 

Source: Herbalife Nutrition Ltd.