Good afternoon, and thank you for joining the third quarter 2020 earnings conference call for Herbalife Nutrition Ltd. On the call today is Dr. John Agwunobi, the company's Chairman and CEO, John DeSimone, the company's President, Alex Amezquita, the company's Senior Vice President of Finance, Strategy, and Investor Relations, and Eric Monroe, the company's Senior Director, Investor Relations. I would now like to turn the call over to Eric Monroe to read the company's safe harbor language.
Before we begin, as a reminder, during this conference call, we may make forward-looking statements within the meaning of the federal securities laws. These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated. For a complete discussion of risks associated with these forward-looking statements in our business, we encourage you to refer to today's earnings release and our SEC filings, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. Our forward-looking statements are based upon information currently available to us. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any future events or circumstances, or to reflect the occurrence of unanticipated events.
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 comparing 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. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release submitted to the SEC. 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.
I will now turn the call over to our Chairman and CEO, John Agwunobi.
Good afternoon, everyone. Thank you for joining us on the call today. During the 3rd quarter, we achieved another worldwide sales record, with reported net sales exceeding $1.5 billion and growth of 22.3% compared to the prior year. Three of our six regions, North America, Asia -Pacific, and EMEA, along with 24 countries, set new quarterly net sales records. Volume points grew for the 10th consecutive quarter, and for the third quarter in a row, we set a new record high. The success was broad-based, as we had volume growth in all six of our regions for the first time since 2013. We have also seen growth in our sales force, which is now the largest it has ever been. In the third quarter, new distributors and preferred members grew 57%, with increases in every region.
Approximately 65% of these new distributors and preferred members are Millennials or Gen Z, part of an increasingly health-conscious and younger demographic. We believe that an increased interest in health and wellness is continuing to drive demand for our nutrition products. Our products and our innovative direct sales channel allow us to help consumers reach their nutrition goals through education and community, healthier eating, and a more active lifestyle. Technology has been key during these times. We have seen our distributors turn to social media in higher numbers to reach new customers and to stay connected. We are empowering our distributors with enhanced technology tools for ordering, analyzing business performance, and customer retailing. The combination of our traditional business methods and a more advanced digital infrastructure creates a more resilient sales force and channel.
Additionally, our training activities have shifted to a virtual online format, which has extended our reach to an even larger audience. At some of our larger events, attendance has been well above prior year levels. We expect to utilize an efficient hybrid event model in the coming years. I now want to pivot to our outlook for the future. For the fourth quarter, we expect the momentum to continue, with net sales growth in the range of 10%-20%. Looking ahead to 2021, we expect to build off this year's 13% year-to-date net sales growth and project full-year 2021 net sales to increase between 3% and 11%. Alex will provide more details on our guidance.
We also announced today a distribution of warrants to our shareholders in an effort to provide the potential for enhanced value to all of our shareholders. Alex will also provide additional information on these warrants, and you can also find a Q&A document available now on our Investor Relations website. Let's dig a little deeper into our regional results. Starting with the U.S., where volume points were at an all-time high and grew 50% for the quarter. We continue to see strength across all our channels in the U.S. led by customer direct shipping, which increased approximately 90% compared to the prior year. Sales coming from nutrition clubs also increased for the third quarter, including more home deliveries from nutrition clubs to their customers, an approach that has seen increased use as a response to the pandemic.
Over the past two quarters, we have seen a material acceleration in new distributors in the U.S., with year-over-year growth of 75% in Q2 and 85% in Q3. Our analysis into the behavior and ordering patterns of this new distributor cohort show similar trends to distributors that entered the business prior to the pandemic. The activity rates and productivity of these new distributors gives us confidence in the future retention rates of the U.S. business. In China, volume points grew 1% compared to the third quarter of 2019. Although meeting attendance is not back to historical levels, we are encouraged that certain cities in China are beginning to allow larger in-person group meetings to take place. These types of large gatherings have not taken place in China since last year's 100-day celebration, and we expect to utilize a combination of in-person and virtual meetings going forward in China.
India returned to growth in the quarter, increasing by 16% compared to the prior year. Restrictions imposed in the market due to the lockdown continued to ease. By the end of the quarter, our company locations were open to take orders, receive payments, and to pick up product. However, we continued to see our members favor home delivery, where volumes still exceed pre-pandemic levels. The growth in India contributed to a record quarter for the Asia-Pacific region, which increased 10% versus the third quarter of 2019. In Mexico, volume points were up 7% in the quarter, following five quarters of single-digit declines. New members in Mexico grew 26% during the quarter, with 58% of new members coming from the Millennial and Gen Z demographics, compared to only 51% at the end of last year.
The EMEA region set another volume point record and grew 34% in the quarter, the 42nd consecutive quarter of growth dating back to 2010. The growth came from countries such as Spain, which was up 43%, Turkey up 137%, increased 82%. Members are turning to social media to connect with their customers and are using technology to carry out their sales and training activities. South and Central America returned to growth and were up 16% in the quarter. This was led by double-digit increases in Colombia, Chile, and Peru. Brazil was down just 1% in the quarter. Sales have rebounded as product access challenges from the pandemic have eased. We're seeing distributors utilize virtual events similar to what we've seen in other regions to improve the reach of their training. We have two leadership changes to share.
Effective November 9th, Bosco Chiu, who has been with Herbalife Nutrition for 27 years, has assumed the new role of Chief Risk Officer, where he will work across all business units to lead our enterprise risk management, internal controls, ethics, and compliance strategy. In conjunction with this move, Alex Amezquita, who celebrated his three-year anniversary with the company this week, will become our company's new Chief Financial Officer. He will now be responsible for all corporate financial functions at the highest level. Both will report to me, and with these executive leadership transitions, we strengthen an already strong and high-performing senior management team. I look forward to working closely with Bosco and Alex as they assume their new responsibilities. What you've heard today is that in the third quarter of 2020, Herbalife Nutrition continues to set records.
I am confident in the resilience and in the innovation of our distributors, the future of our business, and our continued growth potential. I now turn the call over to Alex to review the financials.
Thank you, John. Third quarter net sales of $1.5 billion represented an increase of 22.3% on a reported basis compared to the third quarter in 2019. Currency normalized during the third quarter, but still drove a headwind of approximately 280 basis points. Adjusting for the change in foreign exchange rates, net sales for the quarter increased 25.1%. We reported net income of approximately $138.1 million, or $1.04 per diluted share. Adjusted earnings per diluted share were $1.15, an increase of approximately 60% compared to adjusted EPS of $0.72 for the third quarter last year. The impact of currency fluctuations represented a year-over-year headwind of approximately $0.12 on results for the third quarter. Note that our reported and adjusted results this quarter include expenses related to the China Growth and Impact Investment Program of approximately $3.2 million.
Reported gross margin for the third quarter of 78.8% decreased by approximately 165 basis points compared to the prior year period. The decrease was primarily driven by the unfavorable impact of foreign currency fluctuations and increased freight costs related to orders being shifted to home delivery versus member pickup as a result of COVID-19 that we called out a quarter ago. Third quarter 2020 reported SG&A as a percentage of net sales was 34.8%, and adjusted SG&A as a percentage of net sales was 34.6%. Adjusted SG&A excluding China member payments was 26.5%, approximately 240 basis points lower than the third quarter 2019. This was largely driven by a decrease in member promotion and event costs as a result of delays, cancellations, and reformatting of promotions and events due to the COVID-19 pandemic.
A significant amount of the underspend on these items from the first three quarters of the year is projected to be spent in the fourth quarter. Our third quarter reported effective tax rate was approximately 19.5%, and our adjusted effective tax rate was 16.3%, which was lower than the prior year, primarily due to favorable changes in the company's geographic mix of income and a reduction in the income tax rate of certain foreign jurisdictions. As John mentioned, we are issuing guidance for the remainder of 2020 and providing initial guidance for 2021. While there is still uncertainty related to the impact that COVID-19 might have on the future performance of the business, we have gained increasing confidence in the business and operational trends in response to the impact of COVID-19 throughout 2020. For the fourth quarter 2020, we estimate volume point growth in a range of 10%-20%.
Net sales are also expected to be in the range of 10%-20% growth, which includes an approximate 350 basis points currency headwind versus the prior year. Fourth quarter reported diluted EPS is estimated to be in a range of $0.45-$0.75 and adjusted diluted EPS to be in a range of $0.55-$0.85. Reported and adjusted diluted EPS includes a projected currency headwind of $0.10 compared to the fourth quarter of 2019. The sequential reduction in EPS from Q3 to our fourth quarter guidance is primarily driven by the previously mentioned increase in SG&A due to advertising and promotion that was deferred from the first three quarters of the year. Fourth quarter adjusted diluted EPS guidance implies full year 2020 adjusted diluted EPS guidance of $3.48-$3.78, which implies 23%-34% growth over 2019.
Initial guidance for 2021 builds off the double-digit top-line growth implied in our full year 2020 guidance. 2021 worldwide volume points are estimated to be between flat and 8% growth, with worldwide net sales growth of 3%-1 1% on a reported basis, which includes an approximate 80 basis points tailwind due to currency. Constant currency net sales are expected to be in a range of 2.2%- 10.2% growth. Full year 2021 guidance for reported diluted EPS is in the range of $3.50- $4, with adjusted diluted EPS in a range of $3.65- $4.15. Reported and adjusted diluted EPS are expected to be currency neutral compared to 2020. EPS guidance excludes the impact of any future expenses related to the China Growth Program, share repurchases, and excess tax benefits from equity exercises. Turning to cash flow and our share repurchase activity.
During the first three quarters this year, we generated over $500 million in cash flow from operations, and we currently have over $1 billion of cash on hand. During the third quarter, we also completed $800 million in share repurchases, which included $750 million from the modified Dutch auction self-tender offer completed in August, followed by $50 million of open market repurchases over the remainder of the quarter. We have approximately $700 million remaining on our existing share repurchase authorization, and we will prudently return excess cash to shareholders on a consistent basis. To potentially unlock additional shareholder value, we are making a pro-rata distribution of warrants where shareholders of record will receive one quarter of a warrant for each common share held. The warrants provide all of our shareholders the opportunity to potentially take advantage of the option value embedded in the warrant.
The exercise price of the warrant is $67.50 with a maturity of seven years in which the warrant will only be exercisable at maturity. Should the warrants be exercised at maturity, the company has the ability to net settle the warrants and shares, which minimizes any impact on our diluted share count. The record date for the distribution is November 16th, and the payment date will be December 14th. We continue to believe the repurchase of common shares, along with the distribution of warrants, is consistent with the company's long-term goal of maximizing shareholder value. This concludes our prepared remarks. Operator, please open up the line for questions.
Thank you, sir. As a reminder to ask a question at this time you will need to press star one on your telephone. To withdraw your question, press the pound key. Please standby while we compile the Q&A roster. I show our first question comes from the line of Doug Lane from Lane Research. Please go ahead.
Yeah, hi. Good afternoon, everybody. Congrats, Alex, on your promotion. Alex, can you elaborate on the warrants here and what the expected dilution is to your EPS count going forward?
Hi, Doug. Thanks for the well wishes. Sure. The warrants themselves, so the exercise price is $67.50. The way that the warrants will be accounted for is effectively treasury stock method. While the share price is below the exercise price, there's actually no dilution at all to EPS. As our stock price becomes above the exercise price, again, we'll use treasury stock method, in which that means the value above $67.50 will be what is reflected into the denominator in calculating adjusted EPS. It's also probably worth noting that while there is that potential dilutive effect to EPS, overall, shareholders, if you receive this warrant and you're holding both the warrant and the equity that you had, there's no dilution to your equity value that you hold, because the dilution that is in EPS is countered by the accretion of the ultimate underlying shares that you're holding.
Effectively, if you hold the warrants, you're no different from an equity ownership in the company, and effectively, no different from a value perspective from that lens.
Right. No, that's helpful. Thanks. How have you calculated the impact of warrants to your EPS guidance for next year?
They have zero impact on the EPS guidance of next year because obviously we are below the stock price or the exercise price. That is a non-factor.
Okay, that makes sense. You mentioned $700 million left on your stock buyback. I assume that no stock buyback is factored into your EPS guidance for next year as of yet as well.
That is correct. As you probably heard in my remarks, post the tender offer, post the $750 million of tender offer, we did do $50 million worth of open market repurchases. I think going forward, again, I think this is a message we've been saying, the company generates a lot of cash. We typically don't have a lot of uses for those cash, so excess cash, returning cash to shareholders by way of a repurchase is a good way to do that. I think that $50 million level that we did last quarter is probably a good level generally speaking as we look forward. Obviously, it might be less, it might be more depending on the facts and circumstances of the quarter. Back to your original question, guidance does not have any of those repurchases factored into that EPS guidance for 2021.
Okay, thanks. Just lastly, the acceleration in growth here has been pretty astounding. I've dealt with these models for a long time, I just need help understanding how you expect this momentum, this acceleration that we're seeing to revert back to the single -digits so quickly in 2021.
Yeah. Well, I think if you look at the guidance range that we have in Q4, right? Q4 is volume point growth between 10% and 20%. I think even in Q4, what we're effectively saying is, on the high end of the range, the business continues to perform as you've seen through much of Q2 and through Q3. In the low end of the range is a beginning of a deceleration to a more normal growth rate. Now obviously, we're still in a circumstance where there's not as much visibility as we have historically had. As we look at the sustainability metrics, as we look at the underlying metrics, we can see the top end of the range being a plausible outcome, and we could see the low end of the range be something as COVID might have some impact on the business.
Doug, this is John D. I'm gonna jump in and just add to Alex's comment. Look, the growth rates this year are tremendous, and you followed this industry for a long time, and there are spikes in growth and some leveling off. I like to look at our guidance and stack it up over two years to see that the sustained growth this year becomes part of the foundation. Once you start comping the numbers we've had this year, it gets a lot harder. I think the easier way is just look at two-year stack.
Okay, fair enough. Thanks, John.
Thank you. I show our next question comes from the line of Karru Martinson from Jefferies. Please go ahead.
Good afternoon. I'd like to offer my congratulations, Alex, as well on the promotion. In terms of the distributor growth, 85% in the U.S., what is the typical person coming in terms of their involvement here? You mentioned 65% globally, I think Millennial and Gen Zs. What are you seeing in the U.S. and how are they spending?
Yeah, this is John D. I'll take that one. The mix is mixing younger. It's skewing younger, which is exciting for us as a company. I know you're asking for the U.S. specific. I don't have it offhand, in general, across almost all of our markets, the new members coming in are Millennials or Gen Zs. Mexico was a market that was kind of further behind some of the other markets, in the third quarter, 65% of their new members were Gen Z or Millennials. That's a big pickup. There's strength in our distributor base getting younger, that's exciting. As far as their purchasing patterns, from an overall volume standpoint, not much different than what we had seen pre-COVID. We got a lot more people coming in. Productivity around those people are pretty standard, the activity rates are pretty standard.
That's also encouraging. It's not a short-term trial basis. We're seeing pretty good sustainability from those people coming in that's not dissimilar from what we've seen in the past.
Okay. When we look at the product mix that you guys have during the quarter, are you still seeing kind of the immune essentials and things that are more COVID-19 related, outpacing the rest of the portfolio or some shift on that? Or are you still seeing meal replacement and weight loss holding the bulk of the business?
Yeah, it's still broad-based growth across the product portfolio. I don't think one particular product sector is disproportionately or just making a material difference in the mix. We're seeing all boats rise here.
Okay. When we look at the guidance for next year, how much is built in in terms of new product introductions, or how should we think about that pipeline as we go out to next year?
When we build guidance, we don't necessarily build guidance from a product standpoint. We look more from the distributor and sales metrics. I don't have a great answer to that question in that way. I would say generally speaking, though, refreshing our product portfolio is instrumental for distributors to be successful out there in the field. That's part of their ability to be competitive and remain competitive. I would say generally, as we do product introductions, that is just an underlying assumption in the effectiveness that we see them out in the field. We continue to launch into different products as well, continue to penetrate different segments of the markets. As you know, we've been talking a lot about choice.
As we talk about clean label and those types of products, as we talk about further penetration into our sports line, and as we talk about further investing in localization of flavors specific to different markets, all of those aspects help our distributors be successful out there.
Thank you very much, guys. Appreciate it.
Thank you. Our next question comes from the line of Hale Holden from Barclays. Please go ahead.
Thank you for taking the call. I had two questions for you. Alex, I was just wondering the thought pattern behind the warrants. I'm sure you had multiple different things on the whiteboard that you were considering and why you thought the warrants were the most efficient sort of shareholder distribution method.
Sure. There's no judgment on most or least. To me, the warrants become just another lever in unlocking shareholder value or the potential to unlock shareholder value. Obviously, there's a lot going on in the business. We had a great Q2. We continue to have a great Q3, and as we look into guidance of next year, the business is going to continue to grow. From a company standpoint, the biggest way that we can return shareholder value is to make sure this business continues to grow. There are other things that the company can do with its capital structure in the form of share repurchase, which is a lever. Now we have this warrant distribution, and candidly, the warrant distribution provides an opportunity, not an obligation, but provides an opportunity for a shareholder to potentially take advantage of the option value embedded in the warrant.
I don't think it's mutually exclusive. It's just another lever in the set that a shareholder may or may not take advantage of as we move forward. That's sort of the rationale on how I would put the warrant in context with all of the other things available to a shareholder investing in Herbalife Nutrition.
Got it. My second question is, we've been trying to track you guys on WeChat, and the level of activity seems like it's very high. I was wondering with the resumption of the bigger in-person China meetings, if that would be a growth accelerator in 2021, or if alternatively, you guys think you did such a good job virtually this year that it was just sort of more additive, or how I should think that through.
Yeah. This is John D. I assume when you're talking WeChat, you're talking the personal stores that we've helped create for our members in China on WeChat. WeChat's used for a lot of things.
Yeah.
That personal store, the volume coming from that personal store in Q2 was in the low 20s. In Q3, it was in the mid-20s. It's building, it's still got a lot of growth left. Meetings, by the way, are not fully back in China. Not even close. The big cities, matter of fact, meetings still have a lot of restrictions. In some of the rural areas, which is where we're seeing some of the strength, is more in the rural areas and not in the big cities, is because the meetings are coming back. I suspect over time, next year and the year after, you'll see a big acceleration in the sales that are coming from the digital platform. As we enhance both the functionality, because it's a fairly new tool, and the training behind it.
Great. Thank you so much. I appreciate it.
Thank you. Our next question comes from the line of Sebastian Barbero from Jefferies. Please go ahead.
Hi, team. Thanks for taking my question, and congrats on a great quarter. Firstly, I was wondering if you could talk more about the trends in North America and Europe. I'm trying to understand what is leading to the sizable outperformance relative to other regions, and is it related to higher adoption of digital tools in these developed markets?
This is John D. I'll take that one too. It's really right back to, it's three things. It's, first and foremost, customer interest in the product. Okay. That's the foundation. Behind that, of course, is distributor engagement, which is incredibly strong right now. The third, which is how do you combine those two, it is the use of technology, a bunch of different technology platforms and social media platforms. In the developed markets, those are stronger. The infrastructure's stronger behind some of those tools, and certainly even the ability to deliver the products and things like that are easier in more developed markets.
This is John A. I'd just add that within the distributor engagement piece, there's also the fact that there are many potential distributors sitting at home looking for new ways to fill their day, to generate income for their families, to perhaps start new businesses. It makes it easier for distributors as they recruit their sales force, as they build their sales team.
Thanks. Switching on to China, I was wondering, what is your full year, or what is your 2021 guide in there for growth in the region?
No guideline.
Yeah. We don't provide guidance by region. Just generally, I'd just point you to the overall volume growth of 2021.
Okay. Any of your peers in the industry have cited issues with their supply chain. Anything to report here, or it's been pretty smooth for you guys?
Yeah. Look, it's been pretty smooth. It has not been entirely smooth. That was mostly a reflection of just substantial sales growth. It has created some out of stocks on some products, and it's been painful for some distributors who sell those products. It's been manageable. Certainly, we got an impact from it. It's tough to quantify. It's certainly something we've been able to overcome, but it's not nonexistent.
Okay. Last one on the CapEx for 2021. It's almost double what it was in 2019, but obviously there was a bit of underinvestment in 2020. Is that just a catch-up effect?
That's right. It's a bit of a catch-up. Obviously, the volume this year, part of it is going to be into our manufacturing to help with being able to sustain that volume, not only for next year but for our growth trajectory going forward. Part of it's for technology, continuing to invest in technology, particularly around distributor tools. Part of it is just spikiness.
Thanks.
Thank you. I show our last question comes from the line of Ivan Feinseth from Tigress Financial. Please go ahead.
Thank you for taking my question. Congratulations on another incredible quarter, and congratulations to Alex and Bosco on their promotions.
Thank you, Ivan.
Now, thanks. First of all, for the great growth, where do you see the drivers, or where did you see the drivers coming from, especially since you say that the increase in distributors is breaking more toward younger people, toward Millennials? Where do you see the key drivers?
Well, one thing, that's a broad question, and there's a lot of different ways we can take it, but I think a piece of the question could be answered in some of the product categories that we are going into to attract different demographics and different folks. Clearly our H24 sports line attracts a younger demographic, a healthy, active lifestyle demographic that seems to resonate with all demographics, but particularly with that younger demographic. We know it's a huge opportunity, and we're seeing that opportunity as we've rolled out that sort of sub-brand, if you will, really resonating with the younger generation.
Yeah. The other thing, by the way, Ivan, that we're pretty excited about on a go-forward basis is the fact that we've just launched in the U.S. two products that I think are going to appeal not only to Gen Z and Millennials, but perhaps even to older customers as well. This is less about the answer to your question on recruiting younger distributors and more to the fact that we're hoping to engage and retain a broad swath of customers as we go forward. In fact, we've actually launched a couple of, I think, innovative products in the U.S. recently. MemoryArmor, which is a 300 mg of Bacopa, which is an Indian traditional herb with actually a fair amount of science behind it, that is known to impact cognitive function and brain health.
Our very first entry into the cannabinoid marketplace with two topical products, a balm and a serum for outer use on the skin, and containing, I think, a really material amount of cannabinoid hemp extract. It's the beginning of our journey into that space. It's called Enrichual, and I think it's going to be an amazing product in the U.S., and at some point, we'll take it to other countries as regulation allows.
I would like to get into more specifics on some of the nutrition, but I don't want to do it here. I welcome the opportunity to speak offline.
Absolutely.
Just two other things. When you spoke about there were some shortages of out of stock, do you think that the incredible results could have even been more incredible if the inventory was deeper?
Yes, there was some sales loss certainly when we were out of stock. I'm not going to get into quantifying it. I mean, the results are great, probably would've been immaterial to the overall performance, but definitely lost some sales.
What were some of the largest selling single items in the quarter? If you could just give some overview or quick highlights.
Well, it's still Formula 1, which is a meal replacement shake, our tea products, and our aloe products still represent a huge portion of our sales. Yeah.
Our Nutrition Clubs around the world have done very well in this last quarter, last two or three quarters actually. Those are products that are their mainstay, F1, aloe, and tea.
Yeah, adding on to that, Ivan, really across all of our categories, I mentioned this in an earlier question, all boats have risen. Weight management's up 18%, targeted nutrition's up 28%, our energy line is up 32%, that kind of gives you some perspective. It's really all boats rising.
Just quickly as an example, there is an article in The Wall Street Journal that is saying one of the even younger people who have had COVID are experiencing memory loss. Do you think that is the driver of this new memory product or helping it?
No, no. It's completely unrelated. We have actually very carefully thought to separate anything that we do from the pandemic. Our hearts go out to those that have lost loved ones, or those that are suffering, and we've been very clear, the team and our distributors, on focusing on our traditional business. It's the traditional business that's performing, and it's not about a direct response to COVID-19 in any way.
Okay, my last question, you keep talking about digital tools and investments in digital tools. What are some of the areas you're going to expand? Also, you have some great content that you have on this Herbalife fitness website with exercise videos. What are your thoughts? How are you going to be incorporating that more into your customer engagement and giving ways to monitor progress and things like that?
This is John D. I'll take that. First, on the technology side, they fall into a number of different buckets, by the way. Some of them is, in fact, capturing customer transaction data. Segmentation, as you know, has been rolled out in a number of countries. It's in eight countries as of today. Over the next six months, it'll be in eight more. By the end of next year, maybe an excess of 80% of our volume will come from countries that have the preferred customer program, and there's a lot of programming in there, and it's country by country. It's not something you just turn on a switch and roll it out. That's certainly one. There are POS tools that we will roll out. The U.S. has a version of a POS tool.
We will look to roll that out in countries that want it. There are a number of countries that want it, because we think that's an efficiency tool for distributors that have clubs. It can be used for more than just clubs, and I think it also can help increase the economic value of their customers. There's also just general online tools. We have tools that are online sign up, online ordering. Those are the best in class for us will get rolled out globally. There's just a whole host of tools that we're going to invest in over the next year plus. It'll take more of the year, by the way, a big investment comes next year.
There's, of course, on the sports side, we are going to look to make sure that that portal that's got all that information is easy to use and in different formats. It could be mobile and things like that. That, I think, not only ties into our Herbalife24 program in general, but even those who aren't on Herbalife24, there'll be a version on the fitness portal for them also to do some basic fitness.
Thanks for the question, Ivan.
Thank you, and congratulations again.
Thank you.
Thank you. I show no further questions in the queue at this time. I'd like to turn the call back over to the Chairman and CEO, John Agwunobi, for closing remarks.
Thank you. I'll keep this very quick. We're very proud of the work of our independent distributors around the world. They've really, I think, risen and grown their businesses and supported their customers in a way that makes us all extraordinarily proud. I'm also particularly proud of our team, and the way that it has responded to that growth and to that increase in demand for our services, our products. When all is said and done, a big congratulations from myself to Alex Amezquita, our new CFO, and to Bosco Chiu, who's transitioning from CFO to what I think is going to be a critically important role as Chief Risk Officer. Our goal being to be a model in that space in the future. The future is bright, and as we say around here, we all feel like we've only just begun. I'll end on that.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.