Herbalife Ltd. said it misstated member growth figures in the past three quarters due to a database error. Herbalife shares dropped by 8.2 percent on Thursday after the database error announcement.
On March 3, the nutritional supplements company said it is correcting the non-financial "Active New Member" data that it provided in past 2015 earnings calls.
"The errors do not impact the company's financial statements in any way," said Herbalife in an official statement. The company added that the source had been identified and necessary corrective steps have been made.
The number of its active new members is indicative of Herbalife's performance because the company generates majority of its sales through its membership program. Herbalife members sell its products either as direct sellers or independent distributors.
The said data is not included in the Herbalife's official statement; it was announced during its earnings calls. However, the company did mention that the error didn't affect its previous financial statements.
Herbalife blamed "database scripting errors" caused the misstated figures. This error led to the inclusions of extra data categories for several parts of 2015. These said categories were not included in 2014 and past years.
When the error was fixed, the real numbers were lower compared to the figures stated by Herbalife in its previous earnings calls.
In particular, the company said its global 'active new members' (except for China) in February increased 16.7 percent year over year (YOY). When the error was fixed, the real figure was 3.2 percent YOY.
The company also fixed its U.S. fourth quarter active new member growth figure from 71 percent to 30.7 percent.
"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," stated Herbalife in the filing.
In 2012, short-seller Bill Ackman said Herbalife operates a pyramid scheme. In this system, members generate more money by recruiting new members rather than selling the products. Herbalife denied the allegations.
The company has been in constant scrutiny since. The Department of Justice, Federal Trade Commission, and the Securities and Exchange Commission started their investigations after Ackman's accusations.
