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

Michael A. Swartz - SunTrust Robinson Humphrey, Inc. Timothy S. Ramey - Pivotal Research Group LLC Phil Terpolilli - Wedbush Securities, Inc. Ethan Seath Devine - Indus Capital Partners LLC Mark Fleischhauer - Owl Creek Asset Management LP.

Good afternoon, and thank you for joining the Second Quarter 2016 Earnings 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.

We do not undertake any obligation to update or release any revisions to any forward-looking statements 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, 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'll now turn the call over to our Chairman and CEO, Michael Johnson..

EMEA, United States, Mexico, and China achieved record-high volume points. This is a fantastic performance by our members and employees, and it continues the great momentum we saw coming into 2016.

As I'm sure you all remember, almost two years ago, we said that the marketing plan changes we committed to carry out would lead us to record volume and that's exactly what we are now experiencing. We are immensely proud of our members around the world who helped us deliver through their hard work and dedication to their customers.

Today, our members are bringing a range of nutrition products to more customers than ever before. As a result of this performance, our reported net sales for the second quarter grew 3.4% to $1.2 billion compared to the same quarter last year. This is year-over-year net sales growth for a second consecutive quarter despite ongoing currency headwinds.

Our focus on managing expenses allowed us to absorb the negative effect from currency swings and continue supporting volume growth, all the while keeping our gross margin essentially flat. We also recently announced our settlement with the U.S. Federal Trade Commission and the Illinois Attorney General, which included a payment of $203 million.

As a result of these regulatory settlements on a reported basis, we reported second quarter net loss of $22.9 million or $0.28 per diluted share. This compares to a net income of $82.8 million or $0.97 per diluted share for the comparable quarter last year.

However, our adjusted earnings for this quarter grew 4% to $1.29 per adjusted diluted share, compared to $1.24 per diluted share for the second quarter in 2015. The adjusted EPS of $1.29 exceeded the high end of our guidance of $1.20.

Like many multinational companies with a majority of their sales outside the U.S., currency exchange rates have really worked against us over the last few years.

The combined effect of currency headwinds over the past three years has negatively impacted our full-year 2016 adjusted earnings projections by almost $3 per share, including Venezuela, and $2 per share, excluding Venezuela. During the second quarter alone, reported diluted EPS was negatively impacted by $0.32 and adjusted diluted EPS by $0.31.

Our CFO, John DeSimone, will talk about our strong financial performance in more detail in just a minute. While our earnings are the reason for this call, I know you are interested to hear more about the FTC settlement, so let me address that as well.

John will go over a lot of the details, but let me take a moment to explain why these changes are good for our company, for our industry and, most importantly, for our customers. As we announced on July 15, we reached a settlement with the FTC.

We also reached a settlement with the Illinois Attorney General and with this closure the company is not aware of any active investigations by any other state attorney general.

With these settlements behind us we can now put the full power of our more than 8,000 employees and 4 million members into building an even stronger and more focused nutrition company that meets the needs of consumers in our 94 markets around the globe. There are many reasons why this agreement is significant, but let me highlight just a few.

First, our agreement with the FTC requires us to categorize our members as either preferred members, those who only desire to buy products at a discount; or distributors, those who are interested in selling our products to earn supplemental income. Distinguishing customers from business-building distributors simply makes sense.

It is something our management and our member leaders have been contemplating for a while because we know that it will allow us to better tailor our products, training and services to meet the distinct needs of each of these groups.

A second important element is that the distributor compensation will now be paid based on their sales to customers, along with an allowable level of personal consumption. We are already developing apps and tools to help our distributors track their customers' activities and submit their customer sales receipt.

These new capabilities to record and track sales data will provide valuable customer information that will provide better support to our members, and we believe it will help our distributors build an even stronger business and enhance their understanding of their customers to a level similar or even better than consumer packaged goods companies.

After more than two years of working with the FTC, we have the greatest confidence in our ability to comply with the agreement and continue to grow our business in the U.S. and around the world, and we believe that this will be proven over time.

Throughout the negotiation process, we discussed the details of the settlement agreement with select member leaders under a confidentiality agreement.

Their overwhelming support and the desire to continue evolving and improving this great company provides us with the confidence that our distributors will embrace and maximize these changes to further improve their own businesses.

In fact, we have heard from members around the globe who are now asking if they, too, can have access to some of the tools being developed because they want access to this type of customer insight.

We feel strongly that once we have an opportunity to learn more from the experience in the United States, we will likely roll out certain aspects of the agreement globally, such as segmenting the member base and providing our members with the ability to collect customer receipts and thereby access enhanced customer purchasing insight.

Also, it should be noted while we have 10 months to implement some of these changes, we plan to roll out systems, for example, to help our members track and submit their customer sales receipts in the fourth quarter.

We anticipate that we will have the tools in place in advance of the deadline and expect that we will be testing these systems in parallel in early 2017. Our members' enthusiasm and support were demonstrated fully at our North American Extravaganzas in July.

Extravaganzas are sales events where members learn more about our products and receive business training that help them build their businesses. Approximately 32,000 members attended our events in Long Beach and Atlanta, which was the largest attendance for combined North American Extravaganzas in Herbalife history.

Though the Atlanta event took place just a few days after the FTC announcement, our leaders initiated training on preferred members in modifying their lifestyle claims consistent with the terms of the settlement.

And since then, we have continued with those training initiatives, and we'll continue to provide more information so that our members can better understand and embrace these changes. Herbalife is really now at a very exciting inflection point.

We were founded 36 years ago on a vision to change the nutrition habits of the world, to put a canister of Formula 1 in every single home. The opportunity is bigger today than ever before as more consumers seek better nutrition. Last year, we served about 300 million Formula 1 shakes in the United States. Our ambition is to grow that substantially.

We envision our shakes and boosters will be part of people's daily lives, as routine as a morning orange juice or a cup of coffee. And through that daily consumption experience, we can introduce a customer to our broader range of nutrition options for all stages of life.

What makes Herbalife such a unique and interesting business is that our product comes with a knowledgeable member coach and a personalized nutrition support structure. These critical differentiating factors are just not available at traditional food, drug or mass retailers.

Our members help customers to incorporate positive nutrition habits into their everyday routine, educate them as to what it means to live a healthy active life, and support them as they adopt these changes. This happens in our nutrition and fitness clubs and customer homes and increasingly on social media.

Our quality nutrient dense products and our distributed health network through our distributors gives us a huge competitive advantage. It is the ability to give a voice to our products through a conversation with the customer about nutrition that makes us the ultimate last-mile in the distribution chain.

It builds our product into people's lives and enables their results. This establishes customer loyalty and sets us apart from other nutrition products found on an impersonal store shelf or on a page on the Internet. Our product is alive.

Our direct selling model allows enterprising people who's sharing our mission and who love our products to shape their own health community and earn supplemental income from it. And we have never been more confident or excited about our business model. And thanks to our customers and our products, we are achieving record volume here in the U.S.

As you may recall during the last six years, we have invested over $250 million in our Seed to Feed program to ensure we can continue to innovate and support growth in global demand.

We have five Innovation and Manufacturing sites worldwide, producing nearly 70% of our products, and all of our quality labs around the world have achieved the prestigious ISO-17025 certification, supporting our quality, regulatory and product development activities is our staff of more than 300 scientists including 36 PhDs who are committed to put Herbalife at the forefront of nutrition.

Two years ago, we opened an 800,000 square foot state-of-the-art facility in Winston-Salem, North Carolina. While this facility continues to scale up, it already produces the largest output of any of our Innovation and Manufacturing facility. Once fully operational, it will support our growth in the foreseeable future and will allow us to export U.S.

made nutrition products to over 50 countries. In July we started operations in Nanjing, China. Our Nanjing facility located in the Jiangsu province produces Herbalife dietary supplements and food products and will provide the necessary capacity to support our ongoing growth in China.

And to meet this growing demand, we need to even hire more talented employees. We just announced new job fairs to help us hire approximately 175 people in Winston-Salem and California. And worldwide, we are adding more than 200 more positions to support our growth. Our board also approved last month the expansion of our shared service center in Mexico.

With the growth of the Americas region, expanding the shared services will ensure we can provide high-touch support to our members in the most efficient means possible. Globally, we are committed to doubling the size of our shared service operations in the next three years.

We are growing, hiring and helping more than ever before, and we're proud of who we are and where we are going. Like all companies, our employees are critical to our success, and we focus on recruiting the best and the brightest. We are proud that Forbes recently recognized Herbalife as one of America's Best Midsized Employers in the United States.

In closing, I would like to commend our members for their successful assimilation of the marketing plan enhancements that contributed to this quarter's record performance. As you can tell, we are really excited about this performance and the underlying metrics. We are performing incredibly well as this quarter shows.

With the FTC settlement now behind us, we can turn our focus entirely on our future and making positive health impacts across the world. John, will now walk you through our financial and performance metrics and expand on certain aspects of the settlement.

John?.

one-time implementation cost and ongoing operating cost. We estimate the one-time implementation cost to be approximately $15 million to $20 million for capital and $20 million to $30 million from one-time expenses, which is excluded from our guidance. The ongoing operational costs are estimated to be approximately $5 million to $10 million annually.

With respect to the implementation timeline, while the order provides us with 10 months, our goal is to have many of the key elements completed sooner and all the tools operational by the end of this year. This will enable us to run in parallel for the first four months of next year before going live in May 2017.

We believe this will provide some runway for our distributors to further embrace the receipt element of the order, gain a working knowledge of the tools in the reporting elements and allow us to make enhancements that will ensure success.

We believe that we will be able to implement these changes over the course of the next 10 months with minimal disruption to the business. However, as our members train, adapt and assimilate to the new tools and rules, any distraction could have a short-term impact to the U.S. business, not unlike the impact seen in recent marketing plan changes.

Like those past changes, we expect to cycle through any transition impact in a short period of time. As we implement key elements of the order and introduce new tools and begin to gather data, we will update investors accordingly.

Before turning the call back to Michael, let me conclude by saying we are fortunate to have an investor base that has dedicated significant time and effort to learning about our company, our products, our marketing plan and our distributor base.

In speaking to investors, I believe many have conducted their own work and are confident in knowing that we have millions of satisfied customers. We have amazing distributor leaders who we believe will embrace these changes and build their businesses even stronger. The strong growth we experienced in the second quarter in the U.S.

is a reflection of effectively implementing marketing plan enhancements over the past two years. I'm confident that once implemented, the changes currently being introduced will once again be a catalyst for growth. I will now turn the call back to Michael for opening up for questions..

Thanks, John. So once again, as you all heard, this is a fantastic and historic quarter for Herbalife. Our momentum and performance reflects the strength of our distributors' businesses. And with the regulatory settlement behind us, we've never ever been more focused. So let's go now to Q&A..

Our first question is from the line of Mike Swartz with SunTrust..

Just I guess trying to get a sense in some of these changes to the business plan coming from the FTC settlement, and they were all just trying to boil it down and figure out what exactly this means, and I think John, in your remarks, you had said we could see a period similar to the one you rolled out to 12 months qualification or the first order limitation, or maybe we get a slight plateauing or a temporary plateauing in the business.

So I guess just based on what you see today, I mean, is there any time horizon that we should be thinking of as to when we could see that?.

Mike, this is Des. So the analogy here, Mike, is that just as you saw it with the enhancements to the marketing plans, whenever there's change of this nature, our members take the time to train, to adopt, to assimilate, to incorporate these changes into their business. So we started that whole process early.

Obviously, as you would have heard Michael referenced, we began literally just a few days after the announcement with the beginning of training in Atlanta. So I think we're going to see that adoption, assimilation take place through the remainder of this year and obviously into early next year.

But most important thing is that we don't see any long-term impacts in our business, because we engage with our distributor dealers, and we only move forward with the settlement once we had their input that we could not only do well but, in fact, thrive under the terms of this settlement..

And just a follow-up. In terms of the distributor base, I think you said you had some record attendance with some of your U.S. Extravaganzas. But you guys have typically had pretty good visibility into distributor engagement in volume trends. So I know this is only three weeks or a couple of weeks since the settlement.

But is there anything you can point to within the U.S.

business from an engagement or volume level standpoint to give us a little more comfort that this has been accepted, and we're starting to turn the page here?.

Yeah. So, Mike, I think that's very evident already. We saw it in terms of our numbers that for the Atlanta Extravaganzas, we obviously had a very strong showing at Long Beach before the settlement, but we actually had an even stronger attendance than in Atlanta.

Similarly, I think if you've been there, you would have seen the attitude of our distributor leaders is tremendous. They actually view many elements of this settlement being positive for the business.

Some of them we've spoken about for some time, the segmentation between preferred members and actual business builders are what we're now going to be resuming calling distributors.

They see the ability to actually have receipting tools, which will give them greater insights into customers, give some greater information regarding segmenting their customers, incremental sales opportunities. All these things are seen as positive.

And so, obviously, as with any change with a period of adoption but overall, certainly the attitude of our members and their engagement has never been stronger (39:01)..

Yeah. And Mike, if I can just add and you started off by saying recognizing, it's early, it's only been a few weeks. But there's been no change in the trends of starter kits that we've sold, so as an indication of engagement levels. So, again, early, but no signs of concern at this point..

Okay. And then one follow up, just in terms of the kind of self-consumption discussion that you had. I think you said there's some sort of threshold to whereby if a distributor goes over that they are or not compensated based on that volume.

Can you give us a little more detail on what maybe that threshold is?.

Yeah, sure. Mike, this is John. I'll do that. There's two types of threshold. So one is an individual distributor threshold where their purchases up to an allowable limit and for the first year, it's $200 can be rewarded. That's at the micro level.

At the macro level, the earnings that they receive no more than one-third of it can come from that limit, purchases within that limit.

So, the two concepts are one individual who is a business participant can buy and use as much product as they want, but only up to $200 is going to be rewardable and anybody who has a downline has to focus the appropriate amount of time on selling to customers as they do selling to internal consumption of the business participant..

Okay. Great. And then one more question if I may, just in terms of the – you outlined some of the costs associated with the program that you're rolling out. But I think you said $5 million to $10 million of that is ongoing costs.

Is that capitalized or will that be expensed?.

No, that will be expensed going forward..

That's all expensed. Okay. That's it for me. Thank you..

And let me also add by the way and this is not unimportant that – while internal consumption above the allowable limit isn't directly rewardable, the FTC and Herbalife recognizes that not all of our sales are going to fall within the limit, and not all of our sales are going to get receipted, and that's why there is the 80% rule.

So, there is no allowable if you want to call it breakage within the order. So that, in effect, the upline rewards can still be paid out based on purchases..

Okay. Thank you..

Our next question is from the line of Tim Ramey with Pivotal Research Group..

Hi, Tim..

Good afternoon. Thanks and congratulations. So I've got several questions. I didn't note anything in the Q on any changes or processes underway on the credit agreement.

Is there anything to say there, John, or is that just on the to-do list?.

Well, if it's a process, I think it's important to note that big picture, capital structure, as you know and investors know, and cash management strategies are important part of our company's vision. The management team, along with the board, have been and will continue to develop and evaluate all possible options.

And we'll make those decisions that we think is in the best interest of our shareholders long-term. And when and if there's something to announce, that'll be determined by management and board, and at the time, like our history in the past rolling out something..

Would you care to kind of restate what your goals would be for the capital structure, assuming that you have the covenants that would allow it? Mr. Icahn's statement was fairly aggressive in terms of leveraging the company it seems, doing acquisitions, perhaps.

What's your comfort level now assuming that you have the credit agreement in place?.

Yeah. It's a question I'm not sure this is the right time to answer. I think historically we have said we were willing to lever up to coverage ratio that's consistent with investment grade. That can mean different things for different companies; it doesn't mean we will be investment grade. That certainly hasn't changed....

And that's sort of 2 to 3 times, is that?.

Yeah. It's 2.5 times to 3 times is kind of where the management team historically have said they were comfortable. There is a Board of Directors that's involved in this decision and whatever ultimately is decided will be in the best interest of our shareholders long-term. And if there's something to announce, we'll announce.

So right now, I'm just giving you my opinion that's consistent with the historical opinion we've had..

And quick scan of your 100-plus page Q, it looks like you changed the language relative to any SEC investigation. I think it's sort of in the past tense now.

Is there a comment specific to that?.

No, I don't think we changed much in that language, Tim. I think what we removed or changed language relative to the FTC and the Illinois AG and that's really it; no other changes were made. We're a big company. We get questions and inquiries from time-to-time like all big companies do, and if there's anything material to disclose, we'll disclose it..

Okay. And Des, I wonder if you've given thought to what the preferred customer cost of entry will be? I assume that it would be in the company's best interest to make that a very low bar for someone to become a preferred customer de novo.

Is there anything you can shed light on there?.

Yeah. So, Tim, as you can imagine, it's certainly a subject of active discussion at the moment. But at this stage, we've no final determinations..

Okay. And, John, as you went through those four buckets of sales, I'm assuming that nutrition clubs basically fall into bucket four. What percentage of sales, if you can say, in the U.S.

now run through nutrition clubs?.

So, first, you are correct that nutrition club transactions in the field will be part of that fourth bucket. We are creating a tool for which nutrition club operators can track their members' entry into the club and consumption based on what they sell to those members.

That tool, which we've used in different respects in China, so it's got some testing already behind it, actually automatically integrates into our system. And so there's really no submission needed as long as the tool is used; it'll be automatically integrated.

As far as what percent of our sales are from those member fees is I think is what you're talking about, it's more than just take-home sales out of the nutrition clubs.

And just to be clear, the study that was done – and it's a couple of years old now, that was done by a third party that we engaged suggested I think it was 16% of our sales were done through that mechanism..

Got it. Okay. And on the cost to implement, I think you said $20 million to $30 million of operating cost. Is that sort of one-timey or – I missed part of what you said..

Yes. That's what I said. There were one-time costs to get this up, and then there's ongoing operational costs. And what you noted were the one-time costs, the operational costs to keep this functioning year-to-year is $5 million to $10 million.

And let me go back – I think maybe there's an important additional point to your last question, which is how much sales go through clubs? I think one of the benefits of what we're going to implement is a lot more visibility into the transactions that take place in the field that'll give us the actual retail profit, how much of our sales go through various mechanisms, various channels, a lot more data for us to be more effective with consumers and for our distributors to be more effective with consumers..

And it would be great to have that as investors as well, if we could?.

And investors, and anybody else who wants to know more about our company..

Great. Hey, thanks so much..

Our next question is from the line of Phil Terpolilli with Wedbush..

Thanks for taking the questions..

You're welcome..

Just a couple of things, sort of from a timing perspective, can you just walk us through some of those incremental changes? You mentioned a few things earlier, but I think a couple of times, I heard 4Q and then early 2017 for some others, so just walk through sort of what we should see from the FTC changes and kind of when with the cadence?.

Yeah. So the objective that we have is to make sure the segmentation is in place in the fourth quarter and that the receipting tool is in place in the fourth quarter, so we can start getting results in parallel, the compensation system for a few months, because the compensation programming is what takes the most time.

And that gives us some runway to see how people in the field behave to know where there needs to be more assimilation or how the tools are being adapted or how we can make the tools more effective before this goes live in May..

All right. Okay. That's helpful.

And I guess sort of from a bigger picture perspective, what kind of gives you confidence that you can implement these changes within the timeframe allotted? And I guess how smooth do you sort of expect this to be based on some things you've done in the past?.

Yeah, Phil. This is Des. So we're very confident about this, Phil, for a number of reasons. First of all, as you know, we consulted with some of our top leaders before we moved forward, and we moved forward having had their input regarding the likely business impact.

And so we were absolutely confident therefore that we could thrive under the proposed settlement terms.

I guess the second thing is that after years of studies, and our own extensive data analysis, we'll have to be confident that our business is probably based on a foundation of daily consumption and that we've had millions of satisfied customers out there.

And I think the third element is, it's just the advancement in terms of mobile technology and the proliferation of smartphones among our distributor base. And what that means is that, it is not practical for us to provide receiving tools to enable our distributors to effectively track retail sales and upload that data seamlessly to it.

So really, when you combine the consultation with our distributor dealers, our consumer base business, access to technology, and frankly, our internal resource of over 1,000 technology employees that we have in shared services centers around the world.

The combination of all those factors just give us complete confidence in our ability to successfully implement the agreement..

Got it. And then, just last thing for me. When you look back kind of pre-FTC, you guys had a dividend. Any sort of discussion with the board you had about bringing that back or potentially re-implementing the dividend policy? Thanks..

Yes. It's John, I'll take that. I'll just – it kind of dovetails into Tim's question about capital structure and cash management. We're just not ready to make a comment yet. I do want to point out that everything is on the table. And like I said, when the board feels the timing is right, we'll – I'm sure, make exposure..

Your next question is from the line of Ethan Devine with Indus Capital..

Follow-up on that line of questioning, but maybe more just philosophically and ongoing as opposed to talking about restructuring of balance sheet. So, let's say, the company is going to do something in the neighborhood of $500 million of free cash this year. Historically, the company has returned 100% of free cash to shareholders since IPO.

Is there any reason for us to think, going forward, that would be different? And then, philosophically, how do you think about buybacks versus dividend?.

Yeah. Great question. So, I think you're right on historical practice. Just some data points that I think put it in proper context. But since we instituted the buyback and the dividend in 2007, we've repurchased $3.1 billion in stock and a dividend at about $600 million to our shareholders. So, it's heavily weighted towards buybacks.

Our approach had always been as a growth company that buying back stock below the intrinsic value of the company was the best way to return value to those shareholders that stayed with us. We still continue to think we're a growth company. We've got some things to work out. We have a bank deal that's due in March.

That bank deal is not friendly to buyback. So we're not ready to discuss what our future options are. Once we clear up some of the restrictions in the current debt deal, we'll discuss (53:21) when we're ready, we'll discuss it.

But in the meantime, I think it's safe to say that as long as we're a growth company, we will, in all likelihood, overweigh the returns to buyback versus dividends..

And do you have a framework for intrinsic value?.

So I have a framework for intrinsic value. I have a few frameworks we use to kind of triangulate it. We do a five-year plan every year. Over that five-year plan, we come up – we try to be conservative. We come up with what we think the future value of the company is. We discount it.

We compare that to where the stock is trading at, and that is one way to compare what we think is an undervalued stock.

In other ways, as we look at multiples versus the group, multiple versus – and when I say the group, the groups are consumer products groups, direct sellers, but again, full of other different metrics we look at to determine if we believe our stock is undervalued. And so, those are the things that are part of the consideration.

Cash management is also part of it, right. When you get to do, we have a bank deal currently that's due next March. We have a bond deal due in 2019. So there is other considerations too. But relative to intrinsic value, it's probably not much different than the text book look at intrinsic value..

Understood. Okay. Thanks very much..

Our next question is from the line of Mark Fleischhauer with Owl Creek Asset Management..

Hi, guys. Congrats on the quarter.

Most of my questions have been taken, but maybe just given the strength that we saw in volume points this quarter and what's guided through the back half of the this year, could you just give a little bit more color, Des, as to what's driving this? Are we just seeing the anniversary of some of the business model changes? Are we seeing improved daily consumption? I mean, just any color as to what's driving this reacceleration of growth and how we can we think about sustainable organic growth on a volume basis going forward?.

Sure, Mark. So, look, essentially, the picture that we painted for you two years ago has come to fruition, right.

So what we said, well, if we were going to go through a period of transition, as the members adopted and incorporated the new marketing plan and enhancements into their organizations, and that once we came through that, that we'd actually see a return to stable, combined with improved metrics. So that's sort of one key factor.

The second thing is that obviously what you is a reflection of growing consumer demand for our products. Herbalife, as you know, is number one in terms of meal replacement category, and that's reflected in terms of the sales that you see today. I think the third factor would be distributor engagements, right.

We have – following the successful adoption of the marketing plan changes, our distributors are feeling the confidence that comes with that. That translates to increased engagement, to increased activity, and you can see that reflected in terms of number of new numbers coming to the business, attendance to events, and so on.

And I think the last thing I would say is that, as always, our members are hugely entrepreneurial at embracing new ways of bringing our products to market.

So we have different programs that are in effect out there, that are driving increased level of customer-focused activity, an ambassador programming you've heard of, which is focused on creating more stable customers and introducing them to the business.

And then, combined with that, we have an active member program that has been very successful in terms of encouraging new members to focus on creating a solid, stable base of customers.

And then, you couple all of those with this sort of overall megatrends in the world, obesity growing and aging population, rising healthcare costs, rising demand for entrepreneurship. So you put all that together and that's what's reflected in these record second quarter numbers..

Great. Yeah and I echo the previous thought. So, we look forward to you guys getting back in the market and buying your own stock again, because I think it's your reaction post all of this news flow has been fairly muted. So, thanks. Good work..

Thanks, Mike..

And we do have a follow-up question from the line of Tim Ramey with Pivotal Research Group..

Follow-on on Ethan's question.

Do you believe your stock is undervalued right now, John?.

So unbiased, but yes, I do..

Okay..

What a surprise question..

Look, maybe I shouldn't answered it off (58:05). I think you guys are experts at this, you in the Wall Street and it's better off if you determine that, but .....

We'll work on it. And just another one on China. You mentioned the tough comp and that's true. But as I look back on the sequence from 2Q to 3Q last year, volume points took more of a sequential decline than sales did. And I don't remember what that was about at that time. Your guidance for the 3Q is what I would term muted.

What are you thinking about China on a sequential basis, 3Q versus 2Q this year?.

Sequential base, so on top of my head, if I think of comparisons to last year which is more than what comes to mind in sequential comparison..

Okay. That's fine..

China has some seasonality. Look, I think China is getting into – is getting to be more mature. The numbers are good and the growth rates are going to be more in line with growth rates you're seeing in other markets and not the kind of growth rates we've seen over the last couple of years.

And it's just – it's narrower than that (59:25) as the numbers get big..

Yeah. Okay. And then, Russia was remarkably strong. But I assume you've had a lot of drag from FX on the ruble there.

Is that a fair statement?.

Well, that is a fair statement, but it's not the driver. So, what happened in Russia is, we had a price increase of March of 2015, so last year, and that pulled volume into Q1 last year from Russia. So, Q2 suffered from that last year and made the comparison easier this year in Russia..

Got it. Okay. Thank you..

And that's all the questions we have in the queue at this time..

Well, this is Mike and I just want to thank you all very much for being on the call today, and we are obviously very optimistic about the future, and some of the good points that have come out of all this journey, and it's been a journey through the last few years here in dealing with our government, in dealing with all the issues that are – that they have raised and that we have accomplished and working together very, very closely with our distributor leadership.

And that's, I think, the key to our future here is that we've got a huge customer base. We have a very inspired, motivated distributor base. We have an energized management team and employee base in the company, and the need for our products has never been greater.

Last year, we sold the equivalent canisters of about 300 million shakes in the United States. While that number sounds big, 300 million shakes, we think we should be doing way more than that. Way, way, way more than that.

And so, all of our content, people are behind enhancing that shake line, all of our distribution team are behind, building a better opportunity for not only the business opportunity members, but for customer members and preferred members of Herbalife.

So, we're looking forward to a great future .Thanks for being with us, and we'll report back next quarter. Thank you..

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