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).
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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 |
