Herbalife Nutrition Ltd.
Q1 2018 Earnings Call Transcript

Published: 4 May 2018

[Operator:]

Good afternoon, and thank you for joining the First Quarter 2018 Earnings Conference Call for Herbalife Nutrition Limited. On the call today is Rich Goudis, the company's CEO; Des Walsh, the company's Executive Vice Chairman; John DeSimone, the company's Co-President and Chief Strategic Officer; Dr. John Agwunobi, the company's Co-President and Chief Health and Nutrition Officer; and Eric Monroe, the company's Director, Investor Relations. I would now like to turn the call over to Eric Monroe to read the company's Safe Harbor language.

[Eric Monroe:]

Before we begin, as a reminder, during this conference call, comments may be made that includes some forward-looking statements. These statements involve risk and uncertainty and, as you know, actual results may differ materially from those discussed or anticipated. We encourage you to refer to today's earnings release and our SEC filings for a complete discussion of risks associated with these forward-looking statements in our business. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any future events or circumstances or to reflect the occurrence of unanticipated events except as required by law. In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements, prepared in accordance with U.S. generally accepted accounting principles, referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe that these non-GAAP financial measures assist management and investors in evaluating our performance and preparing period-to-period results of operations in a more meaningful and consistent manner, as discussed in greater detail in the supplemental schedules to our earnings release. Please refer to the Investor Relations section of our website, herbalife.com, for additional supplemental information and to find our press release for this quarter which contains a reconciliation of these measures. Additionally, when management makes reference to volumes during this conference call, they are referring to volume points. I will now turn the call over to our CEO, Rich Goudis.

[[05F4FP-E Rich Goudis]:]

Good afternoon, everyone. Thank you for joining our first call as Herbalife Nutrition Limited. We're excited about the name change, which was approved by shareholders at our April General Meeting, because we believe this new name is more reflective of our purpose to make the world healthier and happier and it better communicates our strategies and investments to position us as a leader in the nutrition industry. In the first quarter, we exceeded expectations as we return to growth in the U.S. ahead of schedule and, as such, we raised our financial outlook for the year. This is an exciting time for the company. In the area of products, we're introducing more products than ever before, the speed of introductions has increased, and the degree of collaboration on innovation with our distributor leadership has never been stronger. In the area of technology, our acute focus to develop tools that improve the efficiency and productivity of our distributors is accelerating with the continued beta test of HN-connect what we formerly called Salesforce.com project. In the area of education and training, we continue to increase our focus and investments to enhance our distributor difference so our distributors in turn can help their customers achieve better results. And with our success in the U.S., where our first quarter of 2018 was greater than the highest quarter in 2017, we are clearly leading the industry. For the quarter, volume, net sales and EPS, all exceeded our guidance. This is a testament to the hard work of our entrepreneurial distributors and the teamwork across our company. And on the topic of teamwork, I'm thrilled to announce that once again we're included in the Forbes list, America's Best Midsize Employer for the third consecutive year. We also had very encouraging distributor metrics in the quarter. Let me share a few highlights with you. Worldwide Average Active Sales Leaders increased 3% year-over-year following three quarters of decline. And in the U.S., we welcomed over 67,000 new preferred members to our community of like-minded people, the highest number since we began segmenting the sign-up applications in the first quarter of 2017. In addition to our positive financial performance, we continue to execute initiatives designed to accelerate shareholder value. A few recent key initiatives were the completion of the refinancing for a portion of our convertible notes and the commencement of our modified Dutch auction tender offer to buy back up to $600 million of our common shares. As you can see from our reported numbers and as you'll hear on this call, we're confident about our future and, as a result, we've raised our guidance for the full year. John will give you the details of our financial performance and guidance in just a few minutes. Our success continues to be attributable to the dedication of our entrepreneurial distributors and the difference they play to help ensure their customers receive the proper nutrition education coaching and support and, of course, consumer great nutrition products to achieve their nutrition goals. Distributors are our unique point of difference. They play an important role in their customers' lives, providing them with much needed nutrition education, support and encouragement and they create communities of like-minded people, whether nutrition clubs and fit camps, or through weight loss challenges and other methods of operation. This one-on-one, high-touch customer experience that our distributors create is critically needed in our industry because of the complexity of nutrition and the individual needs and personal differences among consumers. The distributor difference is especially important in weight management due to the behavior and lifestyle change consumers need in order to adopt a more healthy and active lifestyle. This is our competitive advantage over traditional and online retailing of nutrition products and one that we intend to continue to strengthen. Our extensive product lineup is also important in helping the customers of our distributors achieve their desired results. Our Seed to Feed program, where we've invested over $300 million since 2010, ensures we have traceability and control over key ingredients. And, today, we self-manufacture approximately 65% of our nutrition products in our state-of-the-art facilities, including our top products, to offer consumers more choice than ever before and provide us with the necessary flexibility and capacity to support future growth. Additionally, we are expanding our portfolio of products to help our distributors attract new consumers and retain their existing customers longer. In the first quarter, new products and line extensions contributed to our growth as we launched more than 65 products globally. Let me mention just a few to highlight our underlying strategies. In EMEA PRO 20 Select is off to a great start, launching in 12 markets in the region and ranking among on the top three selling SKUs in some markets. As a reminder, this product expands consumer choice in our protein shake portfolio, leveraging trends in the natural food and beverage market by offering a convenient, water-mixable shake with more protein per serving, lower sugar and no artificial colors or sweeteners. We will look to build on this product success and introduce similar products in other key markets in the next 12 to 18 months. Following our launch of the first new flavor of our top-selling product, NRGT, in Brazil last quarter, we introduced the second flavor, green apple, in Mexico in January. It has proven to be a popular product so far, ranking among the top 10 SKUs in the country. Based on this success, we are exploring similar opportunities in key markets to create and satisfy consumer demand and drive increased consumption of our top-selling products. Early in the first quarter, we introduced our first Formula 1 Shake made specifically for nutrition clubs and it's currently among the top 10 SKUs sold in Brazil. The product comes in an 80-serving size pouch delivering improved economics for our distributors. With the success of this product, we're evaluating and prioritizing additional markets to introduce a similar large format offering to help improve distributor economics for nutrition club operators around the world. In February, for the Chinese Lunar New Year, we launched a limited edition Formula 1 red bean and koi seed flavor. This flavor was developed locally and is in line with our strategy to develop flavors that resonate specifically with consumers in each market. This product had tremendous sales performance, selling out in only two months, further validating the success of this strategy and our ability to develop and manufacture local flavors of our top-selling products. In India, following the same strategy, we launched Formula 1 strawberry in January. It has exceeded our initial sales forecast and is the second most popular SKU in that country. We also launched a complementary product, Formula 1 Dinoshake Strawberry, for kids. And for the first time in India, we introduced our global top-selling Herbal Aloe concentrate to expand our digestive health offering. To wrap up the discussion on new products, let me give you one example of what we're doing and how we're working with our distributor leaders to accelerate new product introductions. In March, we hosted 2,500 of our top leaders from around the world here in Los Angeles. An exciting highlight for me was having our distributors experience our concept café where our marketing and R&D teams shared samples of new products and innovative product concepts. The reception to these new concepts was amazing and we're now working with our regional distributor product committees to prioritize many of the new products they sample. We anticipate that you'll see significant activity in the area of new products over the next 12 to 18 months, products that will expand our offering into new daypart segments along with products in new categories that will enable our distributors to attract new customers and extend the life cycle of their existing customers. Increasing our investments in education and training is another key strategy for our company. Working with our top distributor leaders, we've created a new, more personal and intimate educational experience. It was introduced at our premier leadership event in Los Angeles last month delivered via master classes and breakout sessions that enabled distributors to personalize their educational journey. We believe the more educated and better trained our distributors are, the more confidence they will have, and more value they will bring to their organizations and their customers. We've also been on a journey to educate key thought leaders and influencers about the value of what we bring to communities around the globe. This strategy is playing out in key markets where we do business and it is extensive and ongoing. On our last call, we talked about our participation in South by Southwest here in the U.S. So in this call, let me share an example of what we're doing in China. Our local team in China is continuing their outreach to thought leaders. And later this month, we will partner with the Chinese Nutrition Society on National Nutrition Week, the largest official nutrition event in the country. CNS is a non-profit organization dedicated to bringing together academics, research institutions and industries to advance the research and application of nutrition science for health, well-being and disease prevention. This year's event will be titled Healthy Weight, Eat Smart and Exercise Smart. As a major sponsor since 2015, our experts will be featured alongside CNS officials giving keynote presentations and conducting media interviews. This partnership in China is a key strategy to further strengthen our position as a premier nutrition company in this important market. And we believe our participation will help ensure we continue to be part of the conversation about the future of nutrition through our positive solutions to global megatrends such as obesity. As I look to the future, I'm excited about the possibilities we have as we invest in our high-touch, high-tech approach to nutrition and continually strengthen our distributor difference. Since 2010, we've invested over $300 million in technology, creating an enviable and leverageable global Oracle-based platform. A key element of our strategy to leverage our technology investments is the launch of HN-connect using Salesforce.com. Our beta test went live in the U.S. in January with a small group of distributors who are testing several journeys that have been developed with their help. These journeys include email campaigns that personalize the customer experience and automate task for our distributors based on the specific needs of their customers. Automating marketing tasks and personalizing the customer experience or artificial intelligence, including suggestive selling, gives our distributors the freedom they need to focus on the true difference they make in people's lives through personal support, coaching, other one-on-one relationship activities, and creating communities of like-minded people in person and online. HN-connect was first showcased at our kickoff leadership event in Orlando earlier this year and again in March at our event for global leaders in Los Angeles, where some of our investors also had a chance to experience these new tools. Early feedback from our distributors has been positive. As we move through the summer months, we will continue to build functionality working with our distributor leaders in preparation for a broad launch of Phase 1 later this year. Additionally, we're evaluating future market introductions after the U.S. rollout is complete. Before we move on to John and the financial update, I would be remiss if I do not publicly thank Des Walsh for his leadership as our President since 2010. On May 1, Des moved into his new role as Executive Vice Chairman. His dedication, passion and strong distributor relationships have contributed greatly to our success. And, more importantly, his development of our future leaders has set us up for an amazing future. Let me also congratulate again John DeSimone and Dr. John Agwunobi on their promotions to Co-President this week. In addition to our solid growth strategies, our quality products and our amazing distributors and employees, it's our incredible bench strength of talented executives that makes us also optimistic about our future. Additionally, the quality leaders who are willing to serve on our board of directors also makes us confident about the future. Last month, we welcomed four new board members whose expertise will help our company deliver on our purpose of making the world healthier and happier. They are

[John G. DeSimone:]

Thank you, Rich. Today, I will start by discussing the company's first quarter 2018 reported and adjusted results which will include key market highlights. I will then review the second quarter and full-year 2018 guidance, and conclude by providing a brief update on our share repurchase program. First quarter reported net sales of $1.2 billion represented an increase of 6.8% compared to the prior year. Volume points for the first quarter were $1.4 billion. And despite a very challenging comparison, it nearly matched the prior year's first quarter led by the U.S. returning to growth ahead of plan. This is also the third quarter in a row where five of our six regions showed sequential improvements in volume point trends. We reported net income of $82.1 billion or $1.08 per diluted share for the first quarter of 2018, compared to a reported net income of $85.2 million or $0.98 per diluted share for the first quarter of 2017. Adjusted earnings per diluted share were $1.40, compared to $1.24 per share for the first quarter of 2017. The adjusted diluted EPS figures continue to exclude items we consider to be outside of normal company operations what, we believe, will be useful to investors when analyzing period-over-period comparisons of our results. Please refer to our first quarter 2018 earnings press release issued today for additional details on these adjustments. Our first quarter adjusted diluted EPS exceeded the high end of our guidance range of $0.90 to $10. This EPS beat was driven by higher-than-expected sales, as well as excess tax benefits from the exercise of equity grants, partially offset by lower gross margins. Reported gross margin for the first quarter of 79.6% decreased by approximately 180 basis points compared to the prior-year period. This decrease was driven primarily by foreign currency fluctuations and increased self-manufacturing costs from a planned inventory reduction, both of which were discussed on last quarter's conference call. Additionally, we experienced higher inventory write-offs in the quarter, partially offset by the favorable impact of retail price increases. First quarter 2018 reported and adjusted SG&A as a percentage of net sales were 39.1% and 38.5%, respectively. Excluding China member payments, adjusted SG&A as a percentage of net sales was 29.1%, approximately 50 basis points higher than the first quarter of 2017. The increase was primarily driven by a change in revenue recognition accounting rules implemented in 2018 that increased both net sales and SG&A by approximately $6 million. This accounting rule relates to the accounting of sales to importers, a model we use for approximately 3% of our net sales. This change in accounting rules had no impact to net income. Our first quarter reported and adjusted effective tax rate were 10.2% and 10.6%, respectively. This was significantly lower than our expectations primarily due to excess tax benefits from the exercise of equity grants generated during the quarter along with other discrete benefits. Excluding the impact of equity grant exercises, our adjusted effective tax rate would have been approximately 1,600 basis points higher. Shifting now to our regional market highlights. In the U.S., the momentum we previously observed continued as we returned to growth a quarter earlier than expected. We look to build off the strength in the first quarter and expect to see trends continue to improve during the second quarter. In China, Q1 2018 volume points decreased 22%. As a reminder, this decline in China was expected because volume points in Q1 of last year was higher than it otherwise would have been due to a price increase implemented at the beginning of April 2017, which resulted in our distributors and customers buying extra product in March 2017 in front of this price increase. Normalizing Q1 2017, for the impact of the price increase, China would have been relatively flat compared to the first quarter of last year. Turning to Mexico, we saw a meaningful improvement in trends in the quarter with volume points down just 2% coming off declines of 9% and 8% in Qs 3 and 4, respectively. During the first quarter of 2018, we tested a small volume point value change on a few products in Mexico that benefited the comparison in the quarter by approximately 170 basis points. The Asia Pacific region showed 10% year-over-year growth with notable performances from India, Indonesia and Malaysia while EMEA grew 7%, its 32nd consecutive quarter of growth. Moving ahead to guidance, worldwide volume point guidance for 2018 has been updated to a range of 3% to 7% growth. This reflects the beat of volume point in the first quarter along with slightly higher expectations for the U.S. for the remainder of the year. Our combined volume point projections for the remaining markets are primarily unchanged from the guidance provided a quarter ago. For the second quarter 2018, we estimate volume points to grow in a range of 4% to 8%. With respect to full-year net sales guidance, we are raising previous estimates of 5.5% to 9.5% growth by 350 basis points to a range of 9% to 13% growth. This reflects the better-than-expected results from the first quarter and a favorable movement in currency since last quarter. Currency is expected to have an approximate 330 basis point tailwind to full-year net sales, which is 150 basis points higher than our previous guidance. For the second quarter 2018, we estimate net sales to be within a range of 8.5% to 12.5% growth, which includes an approximate 370 basis point currency benefit versus prior year. Our currency impact for the full year and second quarter both exclude Venezuela, due to the hyper inflationary impact of currency, rate exchanges and associated price increases in that market. Full year reported diluted EPS is estimated to be in a range of $3.95 to $4.35. And adjusted diluted EPS guidance is expected to be in a range of $5.05 to $5.45, up from the previous ranges of $3.82 to $4.22 and $4.60 to $5, respectively. Full-year reported and adjusted diluted EPS include a currency benefit of $0.26, an increase from $0.13 included in our previous guidance. Second quarter reported diluted EPS is estimated to be in a range of $0.90 to $1.10 and adjusted diluted EPS to be in a range of $1.15 to $1.35. Second quarter reported and adjusted diluted EPS include a projected currency tailwind of $0.07 compared to the second quarter of 2017. These estimates are all on a pre-stock split basis. And as a reminder, our shareholders approved the stock split effective May 7, with the stock split distribution date of May 14. We are also slightly lowering our capital expenditure expectations for the year to a range of $110 million $140 million. Additionally, second quarter capital expenditures are expected to be within a range of $25 million to $35 million. Full-year effective tax rate guidance remains unchanged at 30% to 35% on a reported basis and reduced 23% to 28% on an adjusted basis, primarily reflecting the excess tax benefits recognized in the first quarter. Second quarter effective tax rate guidance is 36% to 41%, while the adjusted effective tax rate is expected to be in a range of 29% to 34%. Lastly, I'd like to make a few comments in regard to cash, debt and our share repurchase activity. Since we spoke last quarter, we announced multiple strategic initiatives designed to enhance shareholder value. As part of this plan, in March, we completed a new convertible debt offering of $550 million that effectively resulted in a refinancing of approximately $475 million of our outstanding convertible notes that mature in 2019. Additionally, we announced a self-tender offer seeking to repurchase up to $600 million of common shares, which we expect to close on May 24. We believe the completion of the refinancing allows greater flexibility in our use of capital, while the tender offer is consistent with our long-term goal of returning value to shareholders. Our guidance assumes the entire $600 million tender is completed later this month. At the end of the quarter, we had $1.3 billion in cash, $2.2 billion in total debt, and approximately $900 million in net debt, all prior to the execution of the tender. Thank you, and this concludes our prepared remarks. Operator, please open the line for questions.

[Operator:]

Our first question comes from the line of Doug Lane with Lane Research. Richard P. Goudis - Herbalife Nutrition Ltd. Hi, Doug. Douglas M. Lane - Lane Research John, just staying on the buyback here, you mentioned, you now have the full $600 million baked in your outlook this year. Before, I think you had $200 million. Can you give us an idea for what that differential will be impact to EPS is from the additional $400 million? John G. DeSimone - Herbalife Nutrition Ltd. Yes, around $0.08. Douglas M. Lane - Lane Research $0.08? Okay. John G. DeSimone - Herbalife Nutrition Ltd. For the rest of the year, right? That's not an annualized number. That's just the impact on the changing guidance for the year. Douglas M. Lane - Lane Research For this year? Right, right. I get that. And now stepping back, one number that really stuck out, and I know that China is a little bit tough comparisons from last year, but the average service providers for volume points was a big jump year-over-year and sequentially. Can you [Technical Difficulty] (00

[Operator:]

Our next question is from the line of Mike Swartz with SunTrust. Michael A. Swartz - SunTrust Robinson Humphrey, Inc. Hey, good afternoon, everyone. Richard P. Goudis - Herbalife Nutrition Ltd. Hi, Mike. Michael A. Swartz - SunTrust Robinson Humphrey, Inc. Hey. John, maybe could we take a step back on guidance and maybe you can just help us understand, I guess, the bridge between prior guidance and current guidance. It looks like you're picking up some in – obviously this – with the tender, a little bit with currency. And then I would assume there's a flow through of that tax benefit in the first quarter that benefits the full year as well. So maybe you can help us understand that better? John G. DeSimone - Herbalife Nutrition Ltd. Yeah. I think maybe the simplest way to understand it is focus on the high end of guidance. Previously, for the first quarter, it was a $1.10. We came in at $1.40 on an adjusted basis. That's a beat of $0.30. We've raised the range for the full year up $0.45, so that's a 15% incremental range to the positive side. The two key drivers on the positive side were FX another $0.9 and the share base from the buyback, which is another $0.8. And then we had kind of an offset of $0.5 from the new debt deal which has slightly higher interest in the convertible that we replaced. And then just some other ins and outs o, some minor stuff that'll get to right around the $0.45 incremental change in guidance. Michael A. Swartz - SunTrust Robinson Humphrey, Inc. Okay. That's helpful. Thanks for that. And then just, Rich, in your prepared commentary – and I noticed this going back a couple quarters, there's been more and more talk about product development and expanding the so-called arsenal at Herbalife. I would assume that comes with the stepped up cost in terms of product development R&D. Maybe can you give us a sense of how much incrementally you might be spending longer term around product development? Richard P. Goudis - Herbalife Nutrition Ltd. Well, that's a great question. I think what you're hearing right now is really just a reflection of the investments we've made, the tools and the technology we put in place, the prioritization efforts that we've been working on both internally and with our distributor leaders and also focus, right? We're more on the offense today than ever before. Our distributor leaders see the opportunity for us to get into new product categories. And the acceleration is just happening, so let me pass it back to John. John G. DeSimone - Herbalife Nutrition Ltd. Yeah. One of the things that – I think it's a great question because you know certainly the priorities for the company have matured over the last four, five years from changes that we had to make in – for a lot of resources on to something a little more proactive in driving growth. And so, one of the initiatives with the company this year heading into next year, it may not be exclusive around the world, but certainly within certainly regions incorporate is a zero-based budgeting approach so that we can figure out if and how we fund some of these new initiatives through defunding some of the other things that may not be as important going forward as they have been in the past. So that's something we're working on this year. Michael A. Swartz - SunTrust Robinson Humphrey, Inc. Okay, that's helpful. And then, John, just on Mexico, I think you said you're running a test program there in the quarter. Could you just provide a little more color on what exactly you were doing and then maybe quantify the benefit that you had in volume points from that? John G. DeSimone - Herbalife Nutrition Ltd. Yeah. I think it was 170-ish basis points to the volume point change in Mexico, maybe off by 10 to 20 basis points, but I think it was 170 basis points and that's from a change in volume point guidance. We did see two tests in the first quarter. One was margin, and we had almost no impact and that was in Brazil. We did another one in Mexico, and this was increase in the volume point value on certain nutrition clubs used in Mexico. It was our Formula 1, which is obviously our number one product, had a different volume point to retail ratio than some of the other products in the market. So we were testing to see if increase in volume point value in some of the nutrition club markets would make it easier for some of the nutrition clubs in Mexico to qualify. Along those same lines, in Brazil we launched a nutrition club unique SKU that was 80 servings. It's going to have higher volume point value per serving than the traditional Formula 1. And the reason is, we want clubs to get more into the C and D (00

[Operator:]

Our next question is from the line of Tim Ramey with Pivotal Research. Timothy S. Ramey - Pivotal Research Group LLC Thanks so much. I think this was the first time we had seen the revaluation on the CVR. And that might have been just because the only – I don't know, fourth quarter maybe it hadn't moved enough. How often are you going to have to revalue it? Is it a continuous thing or once a year kind of thing? John G. DeSimone - Herbalife Nutrition Ltd. Yeah. So Tim, A, it's every quarter... Timothy S. Ramey - Pivotal Research Group LLC Okay. John G. DeSimone - Herbalife Nutrition Ltd. ...B, it's kind of a Monte-Carlo revaluation approach to the third party who values it, right? So the reason why it appears to have more value is because the stock price went up right. Timothy S. Ramey - Pivotal Research Group LLC Sure. John G. DeSimone - Herbalife Nutrition Ltd. That doesn't change the probability of an event happening. So the reality is – we carve it up, because the reality is at some point in time if we don't go private between now and the end of the CVR, all of that balance sheet – I mean if product's going to come through the government bonds, it will come through as credit in the P&L and be income. We don't want to recognize that income just like we're not recognizing these spend, it's all just kind of just non-cash valuations just going to have it ins and outs. And so... Timothy S. Ramey - Pivotal Research Group LLC Sure. John G. DeSimone - Herbalife Nutrition Ltd. ...it has nothing else to it. I don't want you to think that it's more valuable because there's some talks going on or anything like that. That's not the case. It is strictly just a third-party valuation Monte-Carlo analysis. Timothy S. Ramey - Pivotal Research Group LLC Understood. And then on the China income, I assume that this just meant you had expenses related to the China investment thing, but no income this particular quarter or did I misunderstand... John G. DeSimone - Herbalife Nutrition Ltd. No, it's the other way around. So we need to start spending against the program, but we received another $15 million or so of grant money from the Chinese government in the first quarter. Timothy S. Ramey - Pivotal Research Group LLC Okay, all right. Will you net expenses into that single line when that happens? John G. DeSimone - Herbalife Nutrition Ltd. If we can, we will. If we can, we'll just identify it so you can get your op models appropriate. Timothy S. Ramey - Pivotal Research Group LLC Okay. And I guess that China investment thing was announced pretty late in the first quarter, but I'm surprised there was some investment. John G. DeSimone - Herbalife Nutrition Ltd. It was announced, like I want to say, in the middle of February. So there wasn't enough time to actually execute against it. Again, we're calling it a program instead of a fund so people aren't confused as to exactly what it is because the words investment and fund together can mean different things to different people. This is an investment program... Timothy S. Ramey - Pivotal Research Group LLC Right. John G. DeSimone - Herbalife Nutrition Ltd. ...that we have identified, okay. So that's starting in Q2. You'll see some expenditures against that. There are a really different programs that we're expecting to start in Q2. And so, on the next call, you'll hear some dollars and a little more specifics on the initiative that are being launched in that program. Timothy S. Ramey - Pivotal Research Group LLC And let's assume perhaps not even too aggressively that the stock trades above $108 tomorrow morning. Now, what do we do? I mean I'm hoping we don't go right down to the wire on the 24th before we say let's take another 10 days to adjust the range. Have we made a plan? John G. DeSimone - Herbalife Nutrition Ltd. It's not a topic I think we can comment on this call. Timothy S. Ramey - Pivotal Research Group LLC Okay. Thanks a lot. John G. DeSimone - Herbalife Nutrition Ltd. Thank you, Tim.

[Operator:]

Our final question comes from the line of Beth Kite with Citi. Richard P. Goudis - Herbalife Nutrition Ltd. Hi, Beth. Beth N. Kite - Citigroup Global Markets, Inc. Terrific. Hello, good afternoon. If we could just first start on the U.S. preferred numbers and strong growth of new joiners you saw in the first quarter of 2018. Were there any specific initiatives or sort of anything you attribute to that growth of preferred members? And then also, how was the renewal rate from the first 63,000 of last year's first quarter? John G. DeSimone - Herbalife Nutrition Ltd. Yeah. So I think the first part of your question ties very much into what I answered earlier on in the call which is what changed in the U.S., and there's a couple of things that changed. Some of it just the time since the structural changes were made where people have adapted both from a transaction standpoint, but also emotionally around that. But further, we changed the qualification in the U.S. that provided you submit documentation on your sales to third parties and also distributors. You can actually qualify with less volume than you could have in the past. And I think that's just all helped to reignite the market in the U.S., and that ties to the preferred number. And then on the second part, I don't have the status as to what the renewal rates are, I don't have that in front of me for new preferred members in the U.S., I'm sorry. I can get that. Beth N. Kite - Citigroup Global Markets, Inc. Okay. Very well. I can follow up with Eric on that maybe. The gross margin discussion that you had in sort of that puts and takes to the first quarter were really helpful? How much of that in terms of sort of the drag do you expect might persist here in the second quarter? or sort of I guess said a different way, how do you think sort of 2Q, 3Q and 4Q will shake out from sort of an expansion or contraction mode for gross margin? John G. DeSimone - Herbalife Nutrition Ltd. Well, we certainly expect an expansion of gross margin in Q2. Not all the way to what we would consider normal under the current FX rates, because again we talked about inventory reduction last year in Qs 3 and 4 and how that's basically a five to six month rollout before it hits the P&L, which is one of the reasons why FX can have a benefit to sales in one quarter and a detriment to gross profit because the cost of sales are always lagging five or six months. And so, by the time you get into May, you're almost at normal. So maybe half the quarter would be in a more normalized gross margin rate. So I think you're going to see meaningful growth in gross margins sequentially, still might be a little bit below last year. And then I think in Qs 3 and 4, it will go to the other way and you'll see growth versus last year. Beth N. Kite - Citigroup Global Markets, Inc. Perfect. Thank you. Thank you. And then two countries that maybe don't get talked about as much being India and Indonesia. You had really great growth in India, I see, in the Q, up 26%, and even Indonesia on a really tough comp I would say the 9% looks good. Are there any particular initiatives going on different in those countries? I don't think I recall hearing them getting new products per se in the first quarter? But anything specific you can talk to for growth in those markets? John G. DeSimone - Herbalife Nutrition Ltd. Yeah. So India is actually the more complex answer because it's been two consecutive Q1s, so last two years, each a very unique things going on in India. So if you go back to 2016, we had a really big price change in Q4 2015 which pulled a lot of volume out of Q1. And then last year in Q1, we were implementing bifurcation which was a new regulation in India. The last two first quarters, as complicated as that sounds, were artificially low. So this growth rate gets higher than it really is. So I hate to say, you've got to look at three-year growth rates. But if you (00

[Operator:]

And there are no more questions. At this time, I would like to turn the call back over to Mr. Rich Goudis for closing remarks.

[[05F4FP-E Rich Goudis]:]

Okay, thank you. Listen, this is clearly an exciting time for our company, and we look forward to updating you on our business in August. Thank you.

[Operator:]

And, ladies and gentlemen, this does conclude today's conference call. You may now disconnect.