Business

Herbalife Ltd. Said Active New Member Data Had Errors – Tilson

From an email Whitney Tilson sent to investors – we assume Tilson is still short Herbalife Ltd. (HLF)

This is unbelievable. Just when I thought I’d seen it all with this company…

 

Herbalife just confessed in an 8-K (see below) that on one of the most critical metrics (Active New Members) that investors and analysts use to evaluate the company, due to “database scripting errors” and “quarterly aggregation issues”, the numbers they reported in the last two quarters are wrong – and not by a little, but in most cases by A LOT! (And guess which direction almost all of the errors are…)

 

The highlights (lowlights):

 

Herbalife Ltd. In Q4 ‘15

  • The company reported that “Worldwide, active new members’ excluding China was up 16.7 percent in the quarter”. The actual number: +3.2%.
  • In the U.S., the company reported a 71.0% increase. The actual number: +30.7%.
  • In Europe, the Middle East and Africa, the company reported a 44.0% increase. The actual number: +17.7%.

 

Herbalife Ltd. In Q3 ‘15

  • The company reported “On a worldwide basis excluding China total number of new active members was up 21.0% compared to the prior-year period.” The actual number: +8.7%.
  • In North America, the company reported a 33.0% increase. The actual number: +1.8%.
  • In Europe, the Middle East and Africa, the company reported a 34.0% increase. The actual number: +10.2%.

 

Herbalife Ltd. For the entire year (2015)

  • The company reported that “[Worldwide active new members, excluding China] up 8.3% for the full year.” The actual number: +3.4%.

 

I’m sure Herbalife Ltd. bulls will say that: 1) the numbers are still positive; and 2) in two countries (Mexico and Brazil), correcting the errors increased growth.

 

But anyone who views this new disclosure as anything but terrible news for the company is kidding themselves, both because the overall numbers are much worse, but also because it calls into question the company’s systems (and perhaps integrity).

———————–

https://biz.yahoo.com/e/160303/hlf8-k.html

Form 8-K for HERBALIFE LTD.

3-Mar-2016

Regulation FD Disclosure
Item 7.01. Regulation FD Disclosure.

On March 1, 2016, Herbalife Ltd. (the “Company”) identified errant information regarding the Company’s new “Active New Member” metric that was provided on certain of the Company’s 2015 earnings calls, as outlined in greater detail in the tables below. The Company began tracking this non-financial metric in 2015 in connection with certain marketing plan changes and discussed it for the first time on its second quarter 2015 earnings call. However, database scripting errors led to both (i) the errant inclusion of additional categories of data in calculating the metric for parts of 2015 which were not included in the 2014 and prior period calculations and (ii) quarterly aggregation issues which created variances from period-to-period depending on when the greatest level of activity occurred during the relevant period. The Company did not discover these errors earlier because it had limited visibility into the likely rate of change in this metric upon its first use. The Company has taken corrective action regarding these issues. No information regarding this non-financial metric has been included in any of the Company’s periodic reports filed with the Securities and Exchange Commission and the errors do not impact the Company’s historical consolidated financial statements.

The tables below, organized by the relevant earnings call, provide more detailed information regarding the errant information provided with respect to the Active New Member metric and the information as corrected. Contemporaneous with the furnishing of this Current Report on Form 8-K, the Company is also posting to its Investor Relations webpage updated copies of the transcripts for the earnings calls referenced below with annotations identifying and correcting the errant information.

Earnings Call for the Fourth Quarter and Full Year 2015 held on February 25, 2016

                Information                         As originally quoted        Correct value

“Worldwide, active new members’ excluding

China was up 16.7 percent in the quarter” –

comparing the 4th quarter of 2015 vs. the

4th quarter of 2014                                        16.7%                    3.2%

 

“[Worldwide active new members, excluding

China] up 8.3 percent for the full year.” –

and comparing full year 2015 vs. full year

2014                                                        8.3%                    3.4%

 

“[U.S.] active new members up 71 percent

compared to the same quarter 2014”-comparing

the 4th quarter of 2015 vs. the 4th quarter

of 2014                                                    71.0%                    30.7%

 

“With respect to the trend of active new

sales members in Mexico, it improved

sequentially in Q4 and throughout the year

and was up 32 percent in the Fourth Quarter

compared to the Fourth Quarter of 2014.”                   32.0%                    34.1%

 

“[EMEA] active new members were up 44

percent” – comparing the 4th quarter of 2015

vs. the 4th quarter of 2014                                44.0%                    17.7%

 

“Excluding Korea, active new members in

Asia-Pacific were up 35 percent” – comparing

the 4th quarter of 2015 vs. the 4th quarter

of 2014                                                    35.0%                    30.4%

 

Earnings Call for the Third Quarter of 2015 held on November 3, 2015

 

 

 

Information                     As originally quoted     Correct value

“We’re also seeing growth in the number of     All regions saw growth   All regions

new members placing orders in all six                                   excluding APAC

regions.” – comparing the 3rd quarter of                                saw growth in

2015 vs. the 3rd quarter of 2014                                        the 3rd quarter

2015 vs. the 3rd

quarter 2014

 

 

——————————————————————————–

Information                    As originally quoted    Correct value

 

“For example this quarter the number of               33.0%                 1.8%

active new members and our North American

region was up 33 percent” – comparing the

3rd quarter of 2015 vs. the 3rd quarter of

2014

 

“[North America active new members] a                 -16.0%               -15.4%

decline of 16 percent in the second

quarter.” – comparing the 2nd quarter of

2015 vs. the 2nd quarter of 2014

 

“This is good news as it represents the        First positive YOY     First positive

first time in North America since quarter      increase since the     YOY increase

one 2014 that new members with volume have     first quarter of       since the second

grown versus the prior year period.” –         2014                   quarter of 2014

comparing the third quarter of 2015 against

the prior quarter that had most recently

experienced positive YOY growth in Active

new members for North America

 

“On a worldwide basis excluding China the             21.0%                 8.7%

total number of new active members was up 21

percent compared to the prior-year period.”

– comparing the 3rd quarter of 2015 vs. the

3rd quarter of 2014

 

“This is more good news as it compares to              1.0%                 3.7%

just a 1 percent increase in between Q2 2014

and the second quarter of this year.” –

comparing the 2nd quarter of 2015 vs. the

2nd quarter of 2014

 

“Worldwide new members with activity,                 21.0%                 8.7%

excluding China, grew 21 percent in the

third quarter” – comparing the 3rd quarter

of 2015 vs. the 3rd quarter of 2014

 

“[Worldwide active new members, excluding              1.0%                 3.7%

China] compared to the prior-year period and

improve sequentially against an increase of

only 1 percent in the second quarter of

2015.” – comparing the 2nd quarter of 2015

vs. the 2nd quarter of 2014, and sequential

comparison between the 2nd quarter of 2015

vs. the 3rd quarter of 2015

 

“for the first time since the first quarter    First positive YOY     First positive

of 2014 active new members in the U.S. group   increase since the     YOY increase

versus the prior-year period.” – comparing     first quarter of       since the second

the most recent quarter which resulted in      2014                   quarter of 2014

positive YOY growth in Active new members

for the U.S.

 

“[U.S.] Active new members were up 33                 33.0%                 0.8%

percent compared to the same quarter last

year.” – comparing the 3rd quarter of 2015

vs. the 3rd quarter of 2014

 

“[U.S.] And this compares to . . . a decline          -28.0%               -27.1%

of 28 percent in Q1.” – comparing the 1st

quarter of 2015 vs. the 1st quarter of 2014

 

“[Brazil] new members with activity were 65           65.0%                71.9%

percent compared to last year.” – comparing

the 3rd quarter of 2015 vs. the 3rd quarter

of 2014

 

“[Mexico] compared to the prior year up from          14.0%                21.7%

14 percent growth in Q2.” – comparing the

2nd quarter of 2015 vs. the 2nd quarter of

2014

 

“[EMEA] new members with activity increase            34.0%                10.2%

34 percent compared to the prior year” –

comparing the 3rd quarter of 2015 vs. the

3rd quarter of 2014

 

 

——————————————————————————–

Information                    As originally quoted    Correct value

 

“[Worldwide excluding China is] active new            -4.0%                -1.7%

members in Q1 of this year was down 4

percent;” – comparing the 1st quarter of

2015 vs. the 1st quarter of 2014

 

“[Worldwide excluding China] in Q2 it was up           1.0%                 3.7%

1 percent;” – comparing the 2nd quarter of

2015 vs. the 2ndquarter of 2014

 

“[Worldwide excluding China] in Q3 of was up          21.0%                 8.7%

21 percent. So dramatic increase.” –

comparing the 3rd quarter of 2015 vs. the

3rd quarter of 2014

 

“In the U.S. in Q1 it was down 28 percent” –          -28.0%               -27.1%

comparing the 1st quarter of 2015 vs. the

1st quarter of 2014

 

“[U.S.] in Q2 is down 17 percent” –                   -17.0%               -16.0%

comparing the 2nd quarter of 2015 vs. the

2nd quarter of 2014

 

“[U.S.] in Q3 up 33 percent.” – comparing             33.0%                 0.8%

the 3rd quarter of 2015 vs. the 3rd quarter

of 2014

 

“New members with activity are up in every     All regions saw YOY    New members with

region both compared to prior year and         growth and             activity were up

sequentially.” – comparing the 3rd quarter     sequential             in every region

of 2015 vs. the 3rd quarter of 2014 and a      improvement.           with the

sequential comparison between the 2nd                                 exception of

quarter of 2015 vs. the 3rd quarter of 2015                           APAC, and new

members with

activity was

sequentially up

from the 2nd

quarter of 2015

to the 3rd

quarter of 2015

only in the

SAMCAM region.

 

Earnings Call for the Second Quarter of 2015 held on August 5, 2015

 

 

 

Information                    As originally quoted    Correct value

“New members [in Mexico] with activity                14.0%                21.7%

increased by 14 percent during the second

quarter” – comparing the 2nd quarter of 2015

vs. the 2nd quarter of 2014

Herbalife Ltd. HLF
Herbalife Ltd.

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