Alan Quan - Vice-President Investor Relations Michael O. Johnson - Chairman and Chief Executive Officer John G. DeSimone - Chief Financial Officer Desmond J. Walsh - President.

Timothy S. Ramey - Pivotal Research Group LLC Scott Van Winkle - Canaccord Genuity, Inc. April Scee - CRT Capital Group LLC Michael A. Swartz - SunTrust Robinson Humphrey, Inc. Meredith Adler - Barclays Capital, Inc..

Good afternoon, and thank you for joining the Third Quarter 2015 Conference Call for Herbalife Limited. On the call today is Michael Johnson, the company's Chairman and CEO; the company's President, Des Walsh; John DeSimone, the company's CFO; and Alan Quan, the company's Vice President Investor Relations.

I would now like to turn the call over to Alan Quan to read the company's Safe Harbor language..

Before we begin, as a reminder, during this conference call, comments may be made that include 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.

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 and preparing period-to-period results of operations in a more meaningful and consistent manner.

Please refer to the Investor Relations section of our website, herbalife.com, to find our press release for this quarter, which contains a reconciliation of these measures. Additionally, when management makes reference to volume during this conference call, they are referring to volume points.

I'll now turn the call over to our Chairman and CEO, Michael Johnson..

sports nutrition. This quarter we unveiled an addition to our Herbalife24 line, CR7 Drive, our exciting new sports hydration drink, developed by our science teams in collaboration with global soccer superstar Cristiano Ronaldo, thus CR7.

We believe this product addresses a number of key customer growth segments, while demonstrating our leadership and innovation in the sports nutrition sector. Since its creation in 2011, our Herbalife24 SportsLine has attracted a new younger millennial demographic to Herbalife as both members and customers.

And CR7 Drive is a marquee addition to the Herbalife24 portfolio. Following its official launch at our EMEA Extravaganza in September, the excitement level among our members has been incredible, with sales already exceeding our initial forecasts. CR7 Drive is now available here in North America. And we have begun to roll it out globally.

We believe that combining the brand power of Cristiano Ronaldo with such an innovative product creates a unique competitive advantage for our company. We believe it will attract new members and have a positive impact on the engagement of our existing members.

It will open up new sales opportunities for our members to expand and grow their retail customer base. And it will further elevate our brand globally; nothing emphasizes this last point more than the impact of our social media campaign. In just the first week, the #CR7 Drive achieved more than 78 million impressions.

More than 12.5 million users were reached on Facebook and Twitter and the launch video alone had more than 2 million views. We're working hard to build our product portfolio by segment and to refine our marketing and messaging so that we can communicate more effectively with our members and their customers.

We are confident that this will lead to increased sales and even higher levels of customer and member satisfaction. Globally, we remain focused on building a brand that's synonymous with good nutrition and a healthy active life.

In September that message was heard loud and clear to our very visible presence in America, at triathlon events in Los Angeles, Washington D.C., Malibu and Chicago. In October, Herbalife was also the prominent title sponsor of the Bali International Triathlon.

Our sponsorship of these events as well as many others throughout the year reflects our ongoing global commitment to events and activities that support our message of a healthy active life. In Asia Pacific, we just held our Fourth Annual Wellness Tour.

Throughout the month of October, our nutrition experts spoke with scientific and health professionals in academics and governments as well as Herbalife members and consumers across 14 markets in 21 cities to increase the understanding of what can be done to improve one's wellbeing.

We also continue to forge relationships with organizations and groups that are aligned with our commitment to improving our communities through good nutrition.

Our previously announced partnership with the American Red Cross, through which we provide protein snack bars to blood donors around the U.S., continues to introduce our brand and products to hundreds of thousands of consumers, who might not otherwise be aware of the benefit of Herbalife products.

The launch this month, the cobranded protein bar will have a further positive impact on the awareness and the perception of our brand and provide a great opportunity for our members as they speak with existing and potential customers. This quarter was one of further steady improvement and continuing progress, along the path we set out.

It was a positive EPS performance against a backdrop of global macro challenges, most notably significant currency headwinds. We have more new members with volume, more sales leaders with volume and a record number of members purchasing directly from the company. In other words, we have more people buying Herbalife products than ever before.

Importantly, the improving volume trends, the underlying member metrics that we are seeing are consistent with what we expected, when we rolled out the changes to our business over a year ago. We believe these are reliable indicators of continuing positive future performance and this confidence is reflected in our 2016 guidance.

Our members are as engaged and confident as ever about the future, as evidenced by the record numbers of them attending our events around the world. I want to recognize and congratulate them for the way they have embraced our transition so successfully.

Their resilience, hard work and energy is remarkable and is rewarded every day, when they see the positive impact that they're having on their friends, families and communities. They are helping customers improve their nutrition habits.

They're empowering members with new skills, and they are creating opportunity through our ongoing focus on setting and meeting expectations of those who come to Herbalife is building our brand and making our business stronger every single day.

And finally, we just completed our five-year planning process, where we laid out a strategy for continuing growth for the years ahead and we have never been more excited about where we are going as a company or more confident about the future.

Herbalife will continue to place the customer at the center of all we do with nutrition products that meet their daily needs and a unique social network that provides community, support, education and most importantly results.

We will continue to make a positive impact in communities around the world by bringing good nutrition and an opportunity for people to earn supplemental income or build a full-time business. And we will continue to build Herbalife on a sustainable growth platform to deliver long-term value for you, our shareholders.

John will now take you through a more detailed look at the financials and market highlights..

Thank you, Michael. To start, I will review the company's third quarter reported and adjusted results, which will include key market highlights. I will then provide an update on guidance for the fourth quarter and initial full-year guidance for 2016.

For the third quarter, worldwide net sales of $1.1 billion grew 5% in constant currency terms, while reported net sales declined 12% compared with the same period last year, with currency headwinds in the quarter resulting in a decline of 17%.

The 5% growth in local currency is a sequential improvement over the 1% growth in local currency experienced in Q2. Adjusted EPS of $1.28 per diluted share was significantly above the high end of our guidance range of $1.00 to $1.10. Reported EPS was $1.09 per diluted share compared to $0.13 per diluted share for the third quarter 2014.

Currency had a negative impact on the third quarter EPS of $0.42 compared to the prior year period and $0.03 compared to the guidance provided last quarter. For the full-year 2015, we are raising adjusted diluted EPS guidance to a range of $4.65 to $4.75 versus the previous range of $4.50 to $4.70.

Exchange rate movements, since the guidance provided a quarter ago have negatively impacted our 2015 EPS expectations by $0.14, $0.03 of which was realized in Q3 and $0.11 impacting Q4 guidance. I will provide further detail on guidance later in the call. For the quarter, we continued to see improvement in member trends across key markets.

The worldwide sales leader activity rate excluding China was 62% in the third quarter compared to 59% last year. And as Michael previously mentioned, we are excited by the trend of new active members, which continue to strengthen, showing broad-based geographic improvement in the third quarter.

Worldwide new members with activity excluding China grew 21% in the third quarter compared to the prior year period and improved sequentially against an increase of only 1% in the second quarter of 2015.

This shift is showing us that despite total number of new members being slightly down, those new members coming into the business are more engaged, active and productive. Turning now to market and regional highlights. Worldwide volume points declined 3%, an improvement from the 5% decline in the second quarter.

Approximately, 60% of our markets experienced volume point growth during the quarter. In the third quarter volume points in the U.S. declined 6% versus the prior year period, an improvement compared to a decrease of 9% in the second quarter.

Importantly, as Michael already mentioned, for the first time since the first quarter of 2014, active new members in the U.S. grew versus the prior year period. Active new members were up 33% compared to the same quarter last year. And this compares to a decline of 16% in Q2 and a decline of 28% in Q1. We continue to be encouraged by this trend.

Similar to the second quarter, volume points in Brazil declined 1% in the third quarter compared to the prior year and new members with activity grew 65% compared to last year. Moving on to Mexico. This market displayed tremendous resiliency during the quarter.

As noted last quarter, the company implemented a 16% VAT during the third quarter on many of its products. Despite the significant cost increase to customers, volume points in Mexico was down only 5% compared to prior year, similar to what we reported in the second quarter.

We expect the 16% VAT increase will continue to impact volume on year-over-year comparisons until it is annualized next year, and we have included the expected impact in our guidance.

Member trends in Mexico during the quarter continued to improve and in the third quarter, 83% of sales leaders qualified through the 4K cumulative method compared to 20% during the same period last year and 75% in the second quarter of 2015.

In addition, the percentage of volume from one-month and two-month qualifiers has decreased from 16% in 2014 to 2% in the third quarter this year, showing a continued acceptance of the changes implemented last year and earlier this year.

The percentage of new members with activity in Mexico increased by 29% compared to the prior year, up from 14% growth in Q2. Volumes in Korea declined 45% compared to last year.

In addition to the impact from the global marketing plan changes implemented over the past year, this quarter presented a difficult comparison for Korea as it also implemented local marketing plan changes last August that had a similar effect to a price increase and resulted in an increase in volume to Q3 last year, while this year we announced a price increase in Q2 that we believe resulted in forward purchasing in Q2 and negatively impacted this year's Q3 volume.

Moving on to China. The focus on customers and daily consumption has resonated throughout our business in China, and it continues to show strength, despite ongoing macroeconomic challenges. For the quarter, China's volume points grew 24% compared to last year.

During the quarter, we also saw a record high number of average active sales leaders, which were up 31% compared to last year. For the quarter volume points in EMEA grew 10% compared to last year and new members with activity increased 34% compared to the prior year.

Russia, the region's largest market, returned to volume point growth in the third quarter. It reported a volume increase of 4% compared to the prior year and local currency growth of 19%. Despite the ongoing difficult economic circumstances in the market, we believe that the market has adjusted to the 14% price increase implemented earlier this year.

Moving onto our financial highlights for the third quarter. As previously stated, third quarter adjusted EPS was $1.28, which was above our guidance range of $1.00 to $1.10 and compared to $1.45 per diluted share in the third quarter of 2014. Third quarter EPS was negatively impacted versus the prior year period by $0.42 of currency movement.

Reported net income for the quarter was $93.6 million or $1.09 per diluted share versus $11.2 million or $0.13 per diluted share last year.

Our third quarter reported EPS includes additional items we consider outside of the normal company operations, or items that we believe will be useful to investors in analyzing period-over-period comparisons of our results.

These items include $0.03 related to expenses incurred responding to attacks on our company's business model, $0.05 for expenses relating to regulatory inquiries, $0.13 related to non-cash interest expense and the amortization of non-cash issuance cost, and two other offsetting items relating to Venezuela.

Adjusted results also exclude a $0.02 favorable impact related to the recovery of payments against defective manufacturing equipment at our Winston-Salem facility, which were previously impaired and called out. And also a $0.01 favorable impact resulting from a foreign exchange gain from the euro-U.S. dollar exposure on intercompany balances.

Our reported gross margins for the quarter increased by 150 basis points compared to the prior year period, and excluding additional items, we consider outside of normal company operations, gross profit increased by approximately 90 basis points.

On an adjusted basis, gross margins benefited 145 basis points from price increases and country mix, which were partially offset by the unfavorable impact of foreign currency of approximately 80 basis points. SG&A excluding non-GAAP items was 38.2% of net sales.

This represents an increase of 180 basis points compared to the third quarter of 2014, which is in large part due to the continued growth in China and the resulting increase in China member payments.

Excluding China member payments and other non-GAAP items, SG&A as a percent of net sales was 28.6%, a decrease of 90 basis points compared to the prior year period, reflecting the timing of sales events and the continued focus on cost management.

Regarding sales events, there are approximately $6 million in events that during last year were in Q3, but will be in Q4 this year.

Our adjusted effective tax rate for the quarter was 30.5%, which was at the high end of our guidance range and 60 basis points above our tax rate from the same period last year, primarily due to a decrease in net benefits from discrete events, which was partially offset by a change in the country mix of earnings.

Cash flow from operations for the third quarter was a $134.5 million, up 32% compared to the prior year period. At the close of third quarter, we had approximately $813.2 million in cash, of which $479.7 million or 59% was held in the U.S. At the end of the third quarter, the current portion of our long-term debt is $254.7 million.

Moving onto guidance, starting with the fourth quarter. We expect volume point trends to sequentially improve in the fourth quarter and estimate a range between a decline of 1.5% to growth of 1.5%. Net sales will continue to be negatively impacted by currency exchange rates.

For the fourth quarter, we estimate a decline of 5.5% to 8.5% in net sales, or an increase of 1.6% to 4.6% excluding currency. Adjusted diluted EPS guidance for the fourth quarter is estimated in a range of $0.85 to $0.95 per share.

Currency has negatively impacted the fourth quarter EPS guidance by $0.11 since rates assumed a quarter ago and $0.27 versus the prior year period. Full-year adjusted diluted EPS guidance is in the range of $4.65 to $4.75, which includes a $1.54 full-year unfavorable impact from currency.

Our capital expenditures for the fourth quarter are estimated in a range of $30 million to $40 million, and our effective tax rate guidance is 27.5% to 29.5% for the fourth quarter and 29% to 30% for the full-year.

With respect to cash flow, we are raising our free cash flow guidance for the year, defined as cash from operations less capital expenditures by $20 million to both the low and high end of previous guidance and now estimate full year free cash flow to be in a range of $490 million to $510 million Looking further ahead to full year 2016, our initial guidance for net sales growth is within a range of 4.5% to 7.5% on volume point growth of 2.5% to 5.5%.

Our adjusted diluted EPS guidance range is $4.35 to $4.75. We continue to face negative currency movements against the U.S. dollar, and as a result have estimated an unfavorable impact of $0.50 from currency movements versus 2015. On a constant currency basis guidance for adjusted EPS would be in a range of $4.85 to $5.25 per share.

Our effective tax rate guidance for the year is 28% to 30%.

Capital expenditure for 2016 is estimated within a range of $115 million to $145 million, of which $20 million is dedicated to the upgrade to our Oracle system and $22 million for the build out of our third manufacturing plant in China, which is planned to start production in the second half of 2016.

This ends my prepared remarks and we will now be happy to take your questions.

Operator?.

Your first question comes from the line of Meredith Adler from Barclays..

Hi, Meredith. Meredith? Operator, we must have lost her. Let's go to the next question and then we will come back to Meredith when she'll dial back in..

Okay. Your next question comes from the line of Tim Ramey with Pivotal Research..

Hey, Tim..

Thanks. Just wanted to get a little more color on the conservative guidance for adjusted diluted EPS for 2016. I'm basically looking at a flattish or perhaps even down year. I know you mentioned the $0.50 of currency, but the top line numbers are certainly favorable.

Is there anything else you can throw at that that would help us understand?.

Well, I think you nailed it. So I think from a volume standpoint, we're looking at low-to-mid single digit for the year, but that accelerates throughout the year with each sequential quarter being better than the last. The challenge is the currency headwinds, and it is a $0.50 headwind.

Most of that actually occurred in dollar movements since the last quarter. As you know in our call script, we have an $0.11 impact to Q4 of this year versus the guidance we gave just 90 days ago from movement in currency. And just for a little – maybe for your remodeling purposes that $0.11 I'll give you some of the key movers.

The Brazil currency was $0.03, the Mexican peso was $0.02, China was another penny that's $0.06 of the $0.11 and then it was spread out between a penny here for Korea, penny for Russia, and movement like that.

So it really is broad based with a little bit of an overweight towards Korean and Mexico, and that's really where are the key drivers for the currency headwinds next year also..

And John, also on the CapEx forecast, I think at the second quarter you had called it out as $110 million to $130 million and now you are calling for the full year to be $80 million to $90 million.

Can you give us some color on what's happened there? Did some project slip into next year or...?.

Yes, some projects slipped into next year. So the China factory, a lot of that spending is in next year. Well, some of it's still in this year and it's needed. We actually just took – we had to take a high-speed line out of Winston-Salem and ship it over to China to handle the needs there.

So that's one of the projects that got a little pushed, but is still needed for next year and then the Oracle upgrade, we're doing an Oracle upgrade, system wide upgrade, global upgrade that was going to start in Q4, but it starts next year..

Great. Okay. Thanks..

Your next question comes from the line of Scott Van Winkle from Canaccord..

Okay. Thanks. John, I want to explore that last question from Tim a little more on the guidance for next year. What kind of shocks me was the higher revenue dollar guidance than volume guidance, unless I'm reading that incorrectly. I would have thought the other way obviously with currency.

Is there a lot of price that's flowing through next year?.

Yes. There is significant amount of price, some of it actually came through the third quarter already and some more in the fourth quarter and then of course we'll have some next year to compensate for some of the currency movements. Now, again, we don't adjust price based on currency. We adjust price based off of inflation.

But as currency moves in some of these countries, it has an impact on inflation, so then we take a price increase. There's always a lag to inflation. It's always only a fraction of the currency movement. But that's part of what's happening between the volume points and net sales and then the other element is country mix is favorable next year..

You called out your price increase in Russia.

Are there specific markets where we should think about more impact from pricing?.

So, Russia was one we did in March. We did a U.S. one in May of 2%, so that had about half a year this year. It will have a full year next year. And then throughout the world, we've done a number of price increases tied to inflation. I don't have all the increases off top of my head, but I'm happy to give them to you after the call..

Okay.

And then last point on that, so if we're thinking about mid-single digit revenue growth and kind of flat earnings year-over-year, where is the loss in the P&L from currency?.

Yes, well, actually I think on a constant currency basis, it's growth on EPS. So this year high end guidance was $4.75 on a constant currency basis. We'd be somewhere around $5.25, $5.35 next year at the high end of guidance on a constant currency basis. So it is in fact currency.

One of the elements that impacts margins next year is in fact country mix. So some of the more complex regions that are more expensive to run is where some of the growth is. Now one of the things I will point out on the mid-single digit volume growth next year, again, it is an acceleration throughout the year.

We end the year more to a high single digit volume growth..

Got you. Okay. And then a few others if I could, another financial one for you, John. The gross margin, you didn't call out self-manufacturing in that improvement year-over-year. It seems like every time we hear a number about what percentage of sales is self-manufactured it's going up.

Was that an impact?.

It was a small impact, but actually, so Winston-Salem was profitable this quarter and is expected to be profitable in Q4, but you don't see the impact of that until next year. It rolls out with an inventory turn. So it's not hitting the P&L yet. It's still a slight impact to gross profit, but it will accelerate a little bit more next year..

Okay, great. And then on the VAT Mexico, I remember talking about it last quarter, but I don't remember when was it put into place as far as during the quarter.

And I'm wondering if the impact is more significant in Q4 and going forward than we saw in Q3?.

So it was implemented during the quarter, all right. So this quarter did not start out with the complete implementation of the VAT. And by September and in the month of September about 76% of our products sold in Mexico had VAT.

So that's close to the 80% will have VAT when it's fully implemented, and September was not any meaningfully different from a growth rate standpoint than August or July..

Okay. And then can we talk a little bit more about Korea? You talked about the comparisons obviously with kind of pull forward in sales last year during the quarter and then maybe a little pullout this time around. But it seems to be the market that has had the most impact overcoming the marketing plan changes.

Is that right? I mean what's different? You called out four markets where we're going to see a big impact.

And Korea, is this the one that's having the most? Do I have that right? And then second, what's different and does it kind of turn later or sooner or anything you've got to kind of expand on that?.

Yes, Scott. This is Des. Let me take that one. So what we have in Korea is a situation where effectively we had two marketing plan changes, Scott. As you know Korea, because of local regulatory environment, has a slightly different marketing plan than the rest of the world.

So we had the same worldwide changes in terms of the First Order Program, in terms of the transition of 5K to 4K, and then we had local marketing plan change that was intended to add an additional discount level below the level of supervisor.

So it was really the accumulation of those changes, plus the addition of a surcharge in the middle of this year. And so, that's why you got this cumulative effect.

Frankly, our members are responding well to this and we certainly are seeing high levels of engagement, but the reality is because of the accumulation, Korea's return is going to be really a 2016 story..

Great. Thank you, Des..

Sure..

Your next question comes from the line of April Scee with CRT..

Yeah. Hi. Thanks. Just a question or two on the organic. First for the guidance for the fourth quarter, I just want to make sure that I understand it.

When you're looking at the range of 1.6% to 4.6%, how do I think about that when you are faced with an easier comp in the fourth quarter, and then also on a 12-month basis, when we are sort of plugging in the math, I have trouble getting to your numbers and conversely on the fiscal 2016 guidance. The 7% to 10% sounds like a pretty good acceleration.

I know you've talked about a lot of the things moving in the right direction. But what's driving your confidence in the 7% to 10%.

What would be the big risk there or the potential upside that we might be looking at from the moving pieces perspective?.

Well, I'll take it from end to beginning. I'll take your last question first. So for next year, we are seeing a dramatic improvement in engagement levels with our member base, which we plug into our models to use to project the next couple years of volume by country.

And it's based on active members and active members are dramatically improved in the third quarter from where they were in the second quarter and the first quarter, and I'll give you some big picture numbers. First I will deal with the whole company ex-China and then have some particular countries.

But active new members in Q1 of this year was down 4%. In Q2, it was up 1% and Q3, it was up 21%. So dramatic increase. In the U.S., in Q1 it was down 28%; in Q2, down 17% and Q3, up 33%.

So now when new members coming are engaged, there's a cycle in the model that pushes them up for at least a couple of years and you get the benefit for a couple of years. So this goes into next year's model.

Now some of next year is dealing with last year's new members, right, which is why next year, the beginning of the year, you get a balancing effect and you get more of an acceleration towards the back half of next year.

Is that...?.

Yeah. That's very helpful. And then just on the guidance for the fourth quarter and the full year. There is the comment about the Venezuelan price increases being excluded.

And sort of how do we think about that in relation to the fourth quarter guidance and then just mathematically how are we getting to the 1% to 1.7% for the full year?.

Yeah. So the difference for the math is that on the forward looking periods, we do not include the benefit from price increases in Venezuela in our constant currency guidance..

Okay..

Right, because you get these price increases because of the change in the exchange rate, right. And so without the exchange rate, you wouldn't have the price increase.

So that's why when you look at your projections in Q4, you can't do the math, but we provide that information in our website looking backwards, in our Investor Relations portion of our website. Now remember, so Q1 of this year had some decent volumes from Venezuela, but then it was a big drop off in Q2, Q3 and Q4.

So, it's really Venezuela is only going to impact the guidance for one more quarter and then the numbers are so small, it really doesn't matter after the Q1 of next year..

Okay. That's really helpful. And then just on some of the new initiatives, you talked about a lot of them this quarter, but just thinking about the savory and the hot, in the sports nutrition and the chicken soup stuff that you mentioned on this call.

When would you expect to have enough critical mass that they really start to matter to the representatives or the numbers, and how do you incentivize the reps to get involved with and to drive these new businesses?.

So, April, this is Des. So, we're already seeing the impact, April, in terms of new member engagement.

In terms of the profile of new members coming into the business, we're seeing a younger demographic attracted by the SportsLine, we're seeing the excitement that it creates having Cristiano Ronaldo and his activity on social media has been a tremendous boost in terms of confidence and engagement. So, I think we're already seeing that impact.

And you see it in terms of the sequential improvement in various metrics in terms of new member activity not just in the U.S., but in other regions of the world..

Okay. Thank you. That's really helpful..

Sure..

Thanks, April..

Your next question comes from the line of Mike Swartz with SunTrust..

Hey, good evening, everyone..

Hi, Mike..

John, just I have a question about the third quarter, the volume in the quarter came in relatively in line with your expectations that you gave a couple of months ago, and EPS came in well above the range that you had outlined for everyone.

Can you just maybe help us bridge the gap of, I guess, what came in better than expected?.

So, it's on the expense side and the expense side falls into two buckets, so it was the timing bucket of about $0.05 that got moved into the fourth quarter. So we still expect to spend the money. We just profiled (45:28) differently than we did a quarter ago. And then it's lower expenses. We are managing expenses.

I think we talked about that now for a few quarters and we'll continue to do that..

Okay. And then I apologize if I missed this. But just in terms of the 2016 guidance, it looks like you're looking for about 7% to 10% topline growth ex-currency, but then EPS ex-currency, you're looking for about 4% to 10% growth.

So, maybe, I guess, why aren't you seeing leverage there excluding the negative of currency?.

Yeah, that was a great question. So, there's two reasons, one is country mix, which I tried to describe earlier. So some of the countries, where the SG&A is higher, in some of the regions where it's higher is where the growth is coming from or at least with growth that's outweighing some of the other countries. So we got a country mix count.

That's about $15 million impact to the bottom line that makes up the majority of the difference and the other side is of course we've been controlling expenses very significantly this year and as growth starts to reappear during next year and exceeds that low to mid single-digit range, we're going to add some of those costs back that are needed to support the growth..

And did you say the country mix report or aspect of that was $50 million, or $15 million?.

I'm glad you asked clarification, $15 million..

$15 million. Okay..

It's my accent..

Thank you..

Yep..

Your last question comes from the line of Meredith Adler with Barclays..

Hey guys..

Yeah, welcome back, Meredith..

Yeah. I'm not great with technology. So, a lot of my questions have been asked. I guess, I would like to go back to talk about Korea just a little bit. It is your most established market. And obviously, it's a unique market, there've been a lot of changes.

Is there any reason to believe that what we're seeing there is tied to the majority of the market I think the, one-time, anyway volume point for (47:45) capital is pretty high there.

Is there any reason to see that as a problem now? And if it's true, should we be thinking about that for other markets?.

No, Meredith. We've no reason to believe that because as you know, we have other markets in the world with the comfort volume point per person. So what we see there really is a reflection of the cumulative marketing plan changes. And anytime you got that level of change in a certain amount of period, you've obviously have got distraction issues.

So we're very focused on that. We've got a very strong consumption based business with the clubs, but what we've seen is a significant reduction in terms of new sales leaders.

And that's really sort of the key factor, but again, nothing that would give us any thoughts for concern regarding the long-term health of the market, simply a longer transition and adoption of the marketing plan changes and moving beyond those..

And I know, Meredith, Des said this already, but it's worth repeating. Korea has a different marketing plan than the rest of the world and the changes made to that marketing plan was different than the rest of the world..

Got it. Okay. And then I have a question about you had a skincare line and I was wondering how that's done.

And do you think that relates at all to any say the soup product, how quickly it will get accepted and maybe even having to educate your members about it?.

Yeah. So, the skincare line has performed moderately well, and I think, from our perspective the primary reason for the updating of the skincare line with part of our initiative concentrate to be updating based on latest science, we took out phosphate, we took out sulphate. So, the line is a better line from that perspective and we're proud of that.

In terms of our core business, skincare is not really our core business. And so, that's why I think, from our members perspective, really they're focused on our nutrition, our Inner Nutrition product rather than Outer Nutrition. So, I think, it'll always remain an important part of our business, but certainly not one that we're highly focused on..

Okay. And then, I just real quick maybe simple questions, but you did say that you had to take a line out of Winston-Salem to send to China, which still means that China volume was outstripping the availability of capacities.

Did that have any impact on any other markets, having to take that out or was that's just underutilized capacity of at Winston-Salem?.

No, that was underutilized capacity, so we have 11 lines or we had 11 line in Winston-Salem, so we're down to 10 lines, 9 lines of which are running, the 10th one will come up next month. And we're running between 35% and 40%, maybe 35% to 45% of capacity based off of that equipment.

So, there was a plenty of room and that's why we chose to reduce lead time by just moving equipment we already had as opposed to ordering new equipment for China. Now, we will order the equipment for Winston-Salem to replace that line. And then, there's actually five clean rooms already built for five additional lines that we needed in Winston-Salem..

Got it. And then, actually my final question will be about raw material costs.

Are you seeing any changes in that?.

So, we're seeing – so it differs by commodity. So, in terms of commodities we've seen a little bit of a reduction, but nothing meaningful..

But nothing going up?.

Not – on a global basis when we look at overall material cost, it's a net slight decrease, going into next year we believe..

Great. Okay, thank you very much for answering my questions..

Thanks, Meredith..

I want to thank everybody for being on the call today. It's obvious that we have got some currency headwinds heading into next year and you're all focused on guidance as you should be. But let me just point out some things that I think are important to our company.

That members are simulating to these marketing plan changes as we speak; they are improving volume, the local currency sales trends are great. Quarter three improved over quarter two, we expect sequential improvements in quarter four and throughout next year. Engagement levels are incredibly high.

Average active sales leaders are up versus prior year, new members with activity are up in every region, both compared to prior year and sequentially. More people are ordering from the company than ever before. And finally, just as you know me – those of you know me, I'm very passionate about our company.

We got to start today with two pretty amazing calls, one to congratulate a 35 year employee of Herbalife and that is just amazing to know that the legacy of this company continues to be incredibly strong.

This employee started in a little tiny office on 251 Robinson, Boulevard here in Los Angeles and today we're in 91 markets, almost $5 billion in sales strong. And the growth that he has seen and the growth that we've seen in the company continue to give us an incredible confidence about the future. And the second call was something very special.

There was a call to recognize and congratulate a member in Scotland for his achievements and rise to president's team. His story is really one of engagement and activity and helping customers in his community improve their health through nutrition and healthy activity.

This former Royal Marine Commando, which is another wonderful story has changed his life and lives of the community through Herbalife. His story is inspiring and motivating to every single one of us. It just leads me to say and I'll say this all the time, Herbalife is a special company.

We're made up thousands of members and employees like the gentleman that we started our day with today. They work hard, they're resilient, they believe strongly in our mission. And I just want to thank all of you for your support. We look forward to reporting our fourth quarter and full-year to you on our next call. Thank you very much..

This concludes today's conference call. You may now disconnect..