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Text: These reconciliations, together with additional supplemental information, are available at the Investor Relations section of our website, herbalife.com.
Additionally, when management makes reference to volumes during this conference call, they are referring to volume points.
Over the course of the global pandemic, we have delivered unprecedented business performance and growth.
Despite challenging comparisons in the third and fourth quarter, we remain on track for another record sales year.
The fundamental tailwinds driving the global nutrition industry, along with demand for our science-based nutrition products, continue to benefit the company.
In Q3, we reported worldwide net sales of $1.4 billion, a decline of 6% compared to the prior year period.
These results were in line with the updated guidance that we issued in September.
On a two year stack basis, net sales grew 15% compared to the third quarter of 2019.
For the third quarter, we reported earnings per share of $1.09 per diluted share and net income of $117.4 million.
Adjusted diluted earnings per share of $1.21 was above the top end of our revised Q3 guidance.
Adjusted EBITDA of $222.4 million also exceeded the high end of our guidance range.
Uncertainty in global markets fueled by the ongoing pandemic and the Delta variant has presented challenges in predicting behavior in our channel.
As we discussed at our recent Investor Day, we observed lower-than-expected activity rates during the month of August, which led to our revised Q3 and full year 2021 guidance.
The decrease in activity rates was primarily driven by fewer new distributors and preferred customers entering our channel.
This lower level of contribution from new entrants remained relatively consistent in the month of September and is reflected in our guidance for the remainder of the year.
For the quarter, the number of new distributors and preferred customers joining the business was down 19% compared to record numbers of new entrants in Q3 2020, but it was still up 28% compared to Q3 of 2019, excluding China.
Despite the slowdown in new entrants, we remain confident the foundation of our business is strong, and our long-term strategy is solid.
In Q3, the number of sales leaders actively selling in the channel was up 10% compared to the prior year period, excluding China.
Turning to our regional performance.
The Asia Pacific region had another quarter of double-digit net sales growth, up 11% compared to the prior year.
The region was led by continued strength in India, which grew 46%.
India set its fifth straight quarterly net sales record as well as a monthly net sales record in September.
Over 220,000 new preferred customers joined the business in India, a record number, and a reflection of the momentum that we are seeing in that market.
In Vietnam, government COVID restrictions forced our Nutrition Clubs to close for the quarter, which contributed to growth of 13%, which was lower than the growth rates we had recently experienced in that market.
Additionally, a third wave of COVID-19 throughout Indonesia resulted in community restrictions in all provinces, and impacted our nutrition club utilization, resulting in a sales decline of 10%.
Looking at North America.
We saw a decline in net sales of 11%.
This decline is up against an extraordinarily high prior year comparison period.
The two year stacked growth rate in the region increased 38% compared to Q3 of 2019.
We continue to see strength in our U.S. nutrition club business as many parts of the country returned to more in-person activities.
While we continue to closely monitor pandemic conditions, we kicked off a series of in-person distributor events in October, and are encouraged by the initial attendance and the excitement in the channel as we begin to once again meet face to face.
Similar to the North America region, EMEA experienced a challenging year-over-year comparison, resulting in a 4% decline.
However, in the region, we have seen a 16% year-over-year increase in the number of active supervisors, which reflects the continued strength and solid foundation of the EMEA business.
Looking at the two year stack in the region, EMEA grew 33% compared to the third quarter of 2019.
Although the combined new distributor and preferred customer numbers are lower than Q3 2020, we saw growth of 24% compared to the more normalized 2019 comparison period.
In China, net sales declined 30% compared to the third quarter of 2020.
During the second quarter earnings call, we outlined the actions that we're taking in the market.
Overall, we believe our strategic initiatives, which include a focus on our digital transformation and daily consumption at Nutrition Clubs, will improve the number of new entrants joining the business and create a more active base of service providers in the long term.
Although the impact of these initiatives is yet to be seen in our top line results, we remain confident, and expect these strategies will benefit our sales performance over time.
For the full year 2021, we are reiterating the outlook that we provided in September for the top and bottom line.
Alex will take you through our guidance in a bit more detail shortly.
We anticipate this to be our go-forward cadence, which will allow time for additional data to flow through our forecasting models.
Although the unpredictable and unprecedented nature of the pandemic and its economic impacts have resulted in near-term variability in our business, we remain firmly confident in the long-term growth strategy that we outlined in detail at our Investor Day.
One of the initiatives that we outlined at Investor Day to accomplish this growth was new product innovation.
And over the past several years, we have strategically built out our Herbalife24 sports nutrition brand through new products and global expansion.
And this has contributed to impressive growth in the energy, sports and fitness category, which has increased at an 18% three year CAGR from 2017 through 2020 and growth of 31% year-to-date.
We anticipate new products will be a long-term growth driver in our business, and accelerating new product development will be critical.
Currently, products introduced in the prior three years represent only 14.5% of volume points in 2020.
Our strategic objective is to increase sales attributable to new product development within the last three years to 25% over the next five years by localizing product development and improving speed to market.
We hope that you were able to attend our Investor Day where we outlined additional aspects of our growth strategy, and shared our vision on the future of the company.
For any of you that were unable to join, a full replay of the event is currently live on our Investor Relations website.
Third quarter net sales of $1.4 billion represents a decrease of 6% on a reported basis compared to the third quarter in 2020.
This was in line with updated guidance we provided in September, and a 15% increase on a two year stack basis compared to Q3 2019.
We had year-over-year net sales growth in three of our five largest markets, consisting of the U.S., which decreased 11%.
China, which was down 30%.
And Vietnam, up 13%.
Currency was a tailwind to net sales in the quarter, representing a benefit of approximately 165 basis points, excluding Venezuela.
Reported gross margin for the third quarter of 78.7% decreased by approximately 10 basis points compared to the prior year period.
The decrease was largely driven by unfavorable country mix, primarily from China, representing a smaller portion of our overall company sales.
The decreases were largely offset by the impact of routine price increases.
Third quarter 2021 reported and adjusted SG&A as a percentage of net sales were 34% and 33.6%, respectively.
Excluding China member payments, adjusted SG&A as a percentage of net sales was 27.6%, approximately 100 basis points unfavorable compared to the third quarter 2020.
Although this level of SG&A spend is still below our historical levels, it was an increase compared to the prior year where costs were significantly disrupted by the global pandemic.
For the third quarter, we reported net income of approximately $117.4 million or $1.09 per diluted share.
Adjusted earnings per share of $1.21 was above the high end of our Q3 guidance, and was an increase of approximately 5% compared to the prior year period.
Currency was a benefit of $0.04 in the quarter versus the prior year period.
Adjusted EBITDA of $222 million also exceeded the high end of our guidance range.
Over the first nine months of the year, the company has generated over $409 million of net income and $740 million of adjusted EBITDA.
Our adjusted diluted earnings per share and EBITDA figures continue to exclude items we consider to be outside of normal company operations and provide measures we believe will be useful to investors when analyzing period-over-period comparisons of our results.
This quarter, you will notice we have a new exclusion item for onetime expenses related to transformation initiatives.
Management has begun efforts to design and build to reorganize both front and back office operations.
We continue to assess scope, and will update investors in February.
We are reiterating our fiscal year 2021 guidance for the top and bottom line.
Across the guidance ranges, this implies annual records for net sales, adjusted earnings per share and adjusted EBITDA.
Our fiscal year 2021 capex guidance has been updated to a range of $145 million to $175 million.
Currency remains a tailwind, and we project an approximate 200 basis points tailwind due to currency for the full year compared to the expected 220 basis points benefit from a quarter ago.
For the full year, our guidance includes a projected currency tailwind of approximately $0.11 per diluted share, which is $0.04 lower than the currency benefit included in our prior guidance.
As John referenced, we are expecting to provide guidance for 2022 on next quarter's earnings call.
We will also be monitoring potential inflationary impacts on our business.
Like many other companies, we have started to observe higher-than-usual cost increases in our supply chain with respect to raw materials, shipping costs and labor at our manufacturing facilities.
Now we will turn to our cash position, capital structure and our share repurchase activity.
Through the first nine months of the year, we have generated approximately $375 million of operating cash flow.
During the third quarter, our cash flow was negatively impacted by timing on several working capital accounts.
Given this unfavorable timing, we no longer anticipate operating cash flow to be higher in 2021 than 2020.
However, we expect these items to net out in 2022, and results in a relatively more favorable cash flow environment next year.
At the end of the quarter, we had $678 million of cash on hand.
During the third quarter, we completed approximately $162 million in share repurchases.
Given the level of our share price, we were able to opportunistically accelerate our repurchases ahead of our initial expectation of $100 million for the quarter.
Our fully diluted share count as of the end of Q3 was approximately $105.3 million.
We expect to complete approximately $100 million of share repurchases during the fourth quarter, which will result in just under $1 billion of share repurchases for the full year 2021.

user
q3 sales fell 6 percent to $1.4 billion.
q3 earnings per share $1.09.
reiterating fy 2021 outlook for top and bottom line.
q3 adjusted earnings per share $1.21.

assistant