Good afternoon, and welcome to the WW First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Corey Kinger, Investor Relations. Please go ahead.

Thank you, Andrea, and thank you to everyone for joining us today for WW's first quarter 2019 conference call. At about 4 or 5 p.m. Eastern Time today, we issued a press release reporting our first quarter 2019 results. The purpose of this call is to provide investors with some further details regarding the company's financial results as well as to provide a general update on the company's progress. The press release is available on the company's corporate website located at corporate.ww.com. Supplement and investor materials are also available on the company’s corporate website in the Investor section under presentation and events. Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are also available as part of the press release. Before we begin, let me remind everyone that this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today and except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Joining today's call are Mindy Grossman, President and CEO; and Nick Hotchkin, CFO, Operating Officer, North America and President, Emerging Markets. I will now turn the call over to Mindy.

Thank you, Corey. Good afternoon, everyone. I'm glad to be speaking with you today. I'm pleased to say that year-over-year member recruitment trends have improved in both February and March, but still below 2018 levels, we stabilized the business by taking quick action to improve and optimize our marketing effectiveness. This resulted in attending the first quarter 4.6 million subscribers, above our prior expectations and up 1% from the first quarter of 2018. As a result of these improved recruitment trends and strong cost management, we delivered Q1 results ahead of our expectation. As we discussed on the call in February, our 2019 winter campaign did not recruit to the levels we had intended. We attributed this to three main factors: First, we were lapping the phenomenal success of the launch of our WW Freestyle program last year and improved to be more difficult comp than we expected; second, the launch of our new global brand rollout and campaign needed a more overt bridge between WW and Weight Watchers and between weight loss and wellness; and third, as much as we are pleased with our heightened brand perception and relevancy, the campaign call-to-action did not recruit at the levels we needed. We responded immediately, conducted additional research, and again began optimizing and revamping all of our assets across every channel, TV, digital, social and eCRM in every geographic market. We then pivoted quickly, introduced new assets with fearer messages clear of bridge between WW and Weight Watchers and added more targeted offers, all of which together to have a step up in our recruitment performance. We then carried these learnings into the development of our spring campaigns in all markets. We developed a framework with a singular message, it works and leveraged the stories of our members as well as…

Thanks, Mindy. Before I discuss our results and outlook, I'd first like to say, how thrilled I'm to be leading our North America efforts. Our talented teams have really galvanized around driving performance across all aspects of the business, and it is showing in our improving trends. I'm already enjoying spending time in the field and hearing from other coaches. And with that, I'll turn to our financial results. We entered the first quarter with 4.6 million subscribers, up 1% year-over-year and slightly ahead of our expectation as the actions we took during the quarter helped stabilize the business. Recruitment channel such as Invite a Friend and in-app purchase are working well for us, and are effective and attracting first time members. In Q1, approximately 15% of our global recruits joined through these two channels. Despite that, Q1 member recruitment was down year-over-year across our major geographic markets, with the Studio business, in particular, being significantly weaker year-over-year. Total revenue in the quarter was $363 million, down 9% year-over-year on a constant-currency basis, primarily driven by declines in Studio revenue as well as product sales in other revenues. Digital subscription revenues increased 11% year-over-year on a constant currency in Q1, primarily due to the strong pull-through from a higher level of incoming subscribers at the start of the year. Gross margin rate was 55%, up nearly 130 basis points year-over-year on constant currency. Excluding the impact of inventory of lessons reserves taken in Q1 2018, gross margin would have been roughly flat year-over-year, a little better than we expected due to cost-reduction actions taken in the quarter. Operating income was $22 million, down from $62 million in Q1 2018, primarily driven by operating deleveraged on lower revenues and higher marketing expense in the quarter versus the prior period. Also, impacting…

Thanks, Nick. As we have outlined previously, we have five key priority areas for 2019 that is all aligned with our key objectives of recruitment, retention and elevating the WW brand. First, our marketing execution strategy. Our approach to marketing is across the comprehensive member journey contemplation to sign up to on-boarding to motivation to engagement to success. Our cross-functional team is focused on creating experience, which understands, recognize and rewards our members so well it only come from WW. Our goal is to make us a first choice for consumers, who want to lose weight and get healthy. We are leveraging our data and learnings to further enhance our communication to drive engagement in everything we have to offer, nutrition, activity, mindset, motivation community and personal support as well as products, event and more. I'll discuss our actions around personalization in the member journey shortly. We also engaged with prospective members and current WW members alike in our influencer marketing. Our ambassadors are highly effective in helping people meet where they are, driving interest and engagement globally. For example, last month Kate Hudson shared her weight loss update to more than 10 million Instagram followers, that how she's close to reaching her goal weight and how WW's easy and livable program app and community has helped along the way. This is post drove over 300,000 social media engagements and editorial commentary, aspiring conversation and resulting in mass and well as broadcast and online news coverage garnering over 17 million earned impressions. Having a diverse combination of celebrity and non-celebrity member ambassadors is helpful in showing that WW is for everyone. We recently welcomed several new ambassadors to our family, including Grammy Awards Winning Gospel Singer, Tamela Mann and British TV personality, Alison Hammond and the response has been fantastic.…

We will now begin the question and answer session. [Operator Instructions] And our first question will come from Brian Nagel of Oppenheimer. Please go ahead.

Hi good afternoon.

Hi Brian.

Thank you for taking my questions. So my first question and I appreciate all the color and your comments with regard to subscriber growth. So as we look back now in Q1, may be with a clear wins. Can we talk more about with the weakness in recruitment, do you think now is more a function of say internal missteps versus external factors like some of the new guys could have emerged. How do you think about that split?

So what I think about is we can control what we can control and the reason why we have been a leader in what we do for over 55 years is because we lead in healthy weight loss and now in the ability to also help people lead better lives as wellness. So what I'm talking about is very specifically what we diagnose is what we could have done in a more effective way and that's why we're seeing the results of that in the improvement. Nobody is more disappointed than us that we didn't perform, but we immediately diagnose, we immediately responded, we created new assets, new ways to engage the customer and our focus is on absolutely controlling what we can control and do what we can do best.

Okay. And then if I can a follow-up question. Nick, you have mentioned in your financial commentary that how the trajectory in subscribers -- likely trajectory subscriber through 2019 and I think you said we expect a similar type phase if you will is in prior years, but the question I have is, if we think about -- the ways we’re think this, but weaker subscriber growth, we couldn’t expect subscriber growth in Q1 and arguably some of that was probably that recurring customer not coming back to the Weight Watchers brand. Could we make the assumption, if that's true then maybe there would be less follow of fade through this year. You have base -- potentially stick your base right now at the end of Q1?

Brian, like our guidance assumes the same seasonal trends that I said in Q1 as the peak over the year end as the low point. Now, of course, within that expected normal seasonal trend both with the WellnessWins and other retention driving activities, we're focused not only on continuing to improve our recruitment trajectory, but have people stay with WW for longer also.

Okay. Thank you.

Our next question comes from Frank Camma of Sidoti. Please go ahead.

Hey, thanks for taking the question. First question is just a clarification. Nick, did you say that there was $6 million in SG&A related to restructuring?

Yeah. There is a $6.3 million in total restructuring spend or $0.07 per share. The vast majority of that is about $5 million or so, Frank, SG&A, the rest hit OpEx.

Okay. So if we wanted to normalize your numbers, we could take out $0.07. Is that what you're saying for…

Yeah. The $0.16 loss that we reported had that $0.07 restructuring within that number, yes.

Okay. That makes you 250 for the year, more reasonable given what you said. Okay. The other question is just, sort of, products obviously not your big thing, but the product revenue was really the only big variance on my revenue line. Why would that be down so sharply year-over-year given some of those initiatives that you've been working on?

Yeah. Look, I think some unique -- Frank primarily the fact that we set our studio business and therefore, attendance in meetings was so weak during the first quarter, particularly in January new members to WW tend to spend more on that products when they're in our workshops. The other factor was the fact that we're just really ramping up globally that's wonderful new line that comes through the products and that's why we certainly expect year-over-year trends and product sales to improve as we go through the year and our guidance assumes that they dip.

And you will see over the course of the year more and more new product introductions, particularly in the food space and other categories and also continued focus on in addition to the sales that we're doing in our workshop, our e-commerce platform I think you saw we launched our first dedicated store on Amazon and we continue to add our products as they've been developed and formulated within that.

Bear in mind in the tail end of last year, we were ramping down the tail off of our old products as we thought it ramped up this new product lines. So we've got easier comps in the back half of the year or so.

Okay. Just remind me that's where you put royalties as well, right, but those are well down from historical year. Is that correct?

Yeah. Royalties licensing business, relatively flat year-over-year.

The way to think about it is we've said back, as you know, and done a full assessment, what our opportunities are within the product space. Certainly, our first priority was to have the products out there that we sell be consistent with who we are as a brand, which is why all we formulated, all back out in the market across every product we have. We also brought in new Head of Product and Licensing and we are looking globally, particularly in areas of healthy kitchen where you've seen -- focused our efforts. So you'll expect to see product expansion, particularly around those areas of business.

Okay. That’s helpful. Thank you.

Our next question comes from Jason English of Goldman Sachs. Please go ahead.

Hey, good evening folks. Thank you for squeezing me in.

Good evening. Hi, Jason.

I want to drill a little bit deeper on the meaning subscribers in North America, because it was certainly a little larger than we expected and given your initiative on trying to dig into satisfaction, it sounds like it's also an area that you guys are focused on. Any early indications of what drove the relatively sequential step up in North America new subscribers? And is it fair to assume that this cohort of consumers is the one where rates are highest, mean they generally come in; they leave with satisfaction and then come back a year or two later?

So to your point, last members, particularly early in the year, normally first to come back. If you think about it, we were also lapping a year of a huge new news innovation, which tends to drive lapsed members even more, so a combination of those things. So you're right. So we definitely know that even from a targeted marketing point of view working both on certainly new and lapsed members as we look for the business. But then also looking at things like new studio format, new partnerships to attract new members. So for example, we announced that our partnership with Kohl, we're building a 1,600 square-foot studio and a flagship in Chicago and have other efforts. So you'll see diversification of how we're looking to recruit, not just former members within our existing environments, but also expanding our opportunities where we can recruit new members.

Okay. And in terms of let's -- just a broader on recruitment then, you mentioned that retention still high tracking over nine months. You gave us some great little data points in terms of engagement, which hopefully should intuitively would translate into retention. But recruitment is clearly the soft point here. Do you think you're doing enough from recruitment? And you mentioned that you've seen sequential improvements in the quarter? Is there any quantification, any data points you can give us to grasp to contextualize the improvement that you talked about?

Yes, so it looks sequential improvement during the quarter and frankly continuing into the launch of our spring campaign also and that's reflected in our guidance. So I wouldn't expect Q2, our guidance doesn't assume that Q2 has positive year-over-year recruitment, but we would expect to cross that hurdle sometime later in the year.

Okay. Thank you.

Our next question comes from Vincent Sinisi of Morgan Stanley. Please go ahead.

Good evening guys. Thanks very much for taking the question here.

Hi.

Hey. Wanted to ask about the data analytics that you mentioned you said on -- and especially on the back of the new ad campaign. Can you give us all just a little bit more sense kind of some of the things that you're looking at, what you're seeing? And maybe also with some of the kind of mitigation of some of the missteps from a few months ago like do you have a sense for whether those things kind of reversed and you saw impact on most?

Yes. So I'm going to bucket into a few things. We've really enhanced our talent and our organization in terms of strategic member marketing, data science, marketing analytics. And as Nick was asked a question about, we have made some organizational restructuring in how those teams are working together or based on the back of informing through data. So that was a work in process, but certainly we accelerated those efforts. The second is we really looked at the marketing mix overall. So, although you still see us doing television spots, you will see a lot more asset, particularly in the areas of direct response social, digital, et cetera. I use the example of a number of assets we have out there today that we're measuring to make sure that we have the ones that have the most efficacy and then the new assets are being created against that, so very structured process and that also goes through any of our ECRM SEO. So I would say, if you actually -- for now, if you look year-on-year, we have much more sophistication there. So we feel very positive about what we're being informed and the measures we're taking and what we're creating against those assets.

Okay. That's helpful. And then just more of -- just kind of a strategy question here. Kind of at a high level that you had some improvement later in the first quarter. But as you said in your comment of course, now looking forward to the next holiday season the 2020 innovation plan. Is it a fair thing to say that you'll continue to have things come out as we go through this year, particularly as it go into the fall. But is your mission right now to try to just kind of keep things stable for the majority of this year, and then essentially kind of come out with gun blazing as we get in toward the next holiday season. Is that how we should just kind of think about it at a high level?

Well, I think the way to think about the high-level is that we have an organization focused definitively on sequential improvement throughout the year, because I think you'll see, we have efforts whether they'd be around marketing efforts, studio efforts, influencer efforts, partnership efforts, that are all going to help to build to help us amplify the 2020 innovation. As I mentioned, we've been working on this for a long time. We have a very deep processes to make sure that we are going to deliver that in the most effective way. But there are certainly things that we're going to do throughout the year, both to improve performance, but also to help us amplify those efforts when we get to 2020 innovation.

Okay. All right. Great. Thanks very much, guys and best of luck.

Thank you.

Thank you.

Our next question comes from Mark Rosenkranz of Craig-Hallum Capital Group. Please go ahead.

Hi, Mark.

Hi. Good evening and thanks for taking my questions. You mentioned some interesting subscriber activity with the increased food and activity tracking. I was wondering if you've seen any type of demographic shift with this new recruitment class or type of learnings on what they're tracking or what activity they're logging that can perhaps benefit recruitment, retention, how you market reach these new recruits?

Yes. So what we find at least of the tracking -- what we're seeing in food, ever since we came out with Freestyle, is people really embracing the ZeroPoint foods. And if you look at any recipe that shared, food is a core component of what we do. So it really is relative to the program itself what's being tracked. I can't tell you that the number one tracked food is an egg, if that's interesting, it is ZeroPoint. Relative to activity, as I mentioned, we're seeing a lot of that activity coming from syncing of devices. We've seen an increase in that as well and it really is diverse across the population. It's a pretty diverse population of where they are in their health journey. So that's really relative to what the devices, but not surprisingly, energetic walking, running, they tend to be the highest as far as that goes. In terms of diversity of audience, we're starting to definitely see movement on the gender side, I mean, we feel are predominantly female. But we are pleased that, as a result of our targeted marketing efforts, more diversity in our –adds themselves. We're starting to see movement there, and we're also starting to see diversity overall and that has a lot to do with the expansion of our ambassador and influencer base. And so, you'll see continued efforts as it relates to that.

Okay. Great. That’s helpful. And then just quick follow-up. You mentioned 9% of Connect users are in groups right now. It seems like a pretty big opportunity to expand recruitment and retention. Does that give you more of 2019 opportunity, you can build into, as you enter 2020? Or is that potentially part of the 2020 program offering that you're looking to?

I think, it's relatively new. The groups are getting formed. I mean, people have engagement on the whole Connect. I think, it's just a matter of them recognizing and joining the groups. And I have to say, I belong to a number of the groups. And it really has made a difference for those people who really want to engage with people like themselves. The other interesting thing is that a lot of people still stay engaged in the broader connect, as well as in their groups. So we're actually getting additional engagement. So we'll continue to monitor that. We have other elements that we want to add into these connect routes to help foster the engagement. So we're very pleased with the initial response.

Okay. That’s great. Thanks for taking my questions and best of luck on the spring and summer here.

Thank you.

Thank you.

Our next question comes from Greg Badishkanian of Citi. Please go ahead.

Hi, Chris.

Hi, Chris.

Hi, guys. This is actually Spencer Hanus on for Greg.

Hi, Spencer.

You just had a question. Yes. Hi. You just had -- or you just had -- you called out the 15% of recruits in 1Q came from Invite a Friend and in-app purchases. So just curious how the demographics of those recruits compare to the overall company?

Yes. Like, as you like -- those new channels, great tools, particularly in-app purchase for attracting younger audience. Invite a Friend has been a terrific success in terms of bringing more men into the brand and both of these channels are very highly incremental, a very rich mix of first time users to the brand, and so that is why I'm very pleased with these two new recruitment channels.

Okay, great. And then in terms of member retention. In the past you've talked about trying to get to 10 months in 2019. Do you still think that an achievable target this year? And how do we get there from, I think, you said, above 9 currently?

Yes. Look, well over 9 now, as you heard, say, working on great retention drivers, including WellnessWins, which we expect to have this same sort of ramp up usage curve as we saw in Connect know and the importance of the digital rewards and milestones that we mentioned in the call. So absolutely, we're certainly shooting to get to over 10 months as soon as possible.

Okay. Great. Thank you.

Our next question comes from Edward Yruma of KeyBanc. Please go ahead.

Hey, guys. Thanks for taking the question. I think first on the re-branding. I know that you kind of discussed some of the issues of the call to action as you transitioned in January. I guess you sit and asses it now, how was the re-branding gone and has it succeeded at least initially and kind of helping to modernize the branding?

So the answer on the modernization side, the brand perception, relevancy, absolutely. If you look at whether it's our products that are out in the marketplace, the consistency of our branding globally, the message that has absolutely -- and we measure that very, very specifically. And so that's why I talk about the proof points of relevancy and brand retention and what we're offering people. Now having said that, we needed a little bit more of a bridge for certain people to really understand and whether it was our former members or whether it was newer members. So we have done that and we will continue to monitor the brand, the recognizability, the understanding of WW, but we’re already seeing improvement of that, but I'm very pleased about the brand perception metrics, because that was a very big part of what we needed to do around relevancy.

Great. A follow-up, if I may. Obviously, trends improved from January, but just kind of curious in your survey work when you talked to consumers, did you notice that maybe those are joined in February, March, maybe attempted paleo and failed or you constantly kind of emphasized a healthy weight loss component of the Weight Watchers. So do you think that over time as people realized some of the other help downsides to paleo that that could be a positive for you overtime? Thanks.

Yes. We know for a fact and it's not anecdotal that there are people that come to us, particularly if they’ve been with us before and you say why are you back and they go because we know that if I come back here it will work, and I just have to learn that it's sustainable, because where that is what our entire program our science and everything our brand is built on. So we want you to continue to support people, no matter what their former efforts were. And that's why if you look at our campaigns that are out right now around it works. And my commentary before that one of the things that, we're very focused on in our communication is sustainability. And you’ll continue to hear us speak about that.

Great. Thanks so much guys.

Thank you.

Our next question comes from Michael Lasser of UBS. Please go ahead.

Hi, Michael.

Hi, Mindy. Good evening. Thanks for taking my question. Two; one, have you seen the improvement that you mentioned in February and March continue into April?

Yes.

And two, we have not seen such a wide divergence in your fee per subscriber between your studio business in North America and your digital business and the studio business that was down 4.4% and the digital business is up 4.2%. Can you give us a reason why we have seen -- there was such divergence trends there?

Yes. Given the weakness in our studio business, particularly right at the start of the year, while we were waiting to get the pixels in place that we’ve described and which have been successful. We did get more promotional for a period of time and that was reflected in the metrics that you are citing. We are on a better price realization track right now.

And on the digital business, were you less promotional because that metric that had been under pressure or declining the last five quarters?

Yes. The price realization was a little better on the digital side, absolutely versus figure.

Okay. Thank you very much.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over CEO, Mindy Grossman for any closing remarks.

Thanks, everyone. And we look forward to continue to update you on our progress.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.