WW International Inc (WW) 2008 Q4 法說會逐字稿

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  • Operator

  • Ladies and gentlemen, welcome to the Weight Watchers International fourth quarter and full year 2008 earnings teleconference call.

  • During the presentation, all participants will be in a listen-only mode.

  • Afterward, you will be invited to participate in a question-and-answer session and instructions will be given at that time.

  • As a reminder, this conference call is being recorded March 4, 2009.

  • At this time, I would like to turn the call over to Sarika Sahni of Weight Watchers International.

  • Please go ahead.

  • - Director, IR

  • Thank you, and thank you to everyone joining us today for Weight Watchers International fourth quarter and full year earnings conference call.

  • With us on the call are David Kirchhoff, President and Chief Executive Officer; and Ann Sardini, Chief Financial Officer.

  • At about 4:00 p.m.

  • Eastern Time today, the Company issued a press release reporting its financial results for the fourth quarter and the full year 2008.

  • 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 at www.weightwatchersinternational.com.

  • 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.

  • The Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

  • I would now like to turn the call over to Mr.

  • Kirchhoff.

  • Please go ahead, David.

  • - President, CEO

  • Good afternoon, and thank you for joining us as we review Weight Watchers International's performance for the fourth quarter and full year 2008.

  • Before I review the results of Q4 2008, I want to remind everyone on this call that we will be providing a full presentation of our business and 2009 strategic initiatives tomorrow morning at 9:00 a.m.

  • in New York City.

  • It will be webcast on our corporate website, whose address is www.weightwatchersinternational.com.

  • This will provide an opportunity for management to discuss a much richer analysis of our business, as well as to review a number of new initiatives which will benefit our business in 2009 and beyond.

  • Therefore, tonight's call will focus primarily on the business results of Q4 and fiscal 2008.

  • In some respects, the fourth quarter was relatively stronger than our expectations, given the trends we observed through Q3.

  • Nonetheless, the difficult economic climate has continued to impact our business trends, as the consumer faces ever-increasing stress.

  • It has become clear that this recession is fully global in nature and is, therefore, affecting all of our major markets.

  • As we noted last quarter, the primary impact of the economy has been on our meetings business, specifically on enrollments, while retention in our meetings has been stable.

  • In addition, in-meeting product sales have begun to soften, particularly in the U.S., which we believe is also a result of consumers tightening their spending.

  • We did see some benefit from the soft launch of our new program in the U.S., U.K.

  • and Australia in December.

  • As I begin to review our financial results for comparability I would like to remind everyone that fiscal 2008 ended on January 3 and contained a 53rd week.

  • This means we had 14 weeks in this year's fourth quarter versus 13 weeks last year.

  • Also, the results I am about to discuss exclude the Q4 benefit from the reduction of the U.K.

  • VAT liability, which Ann will cover in more detail later.

  • Total Company Q4 revenues declined 2.1% versus the same period in 2008, as our non-U.S.

  • business was significantly impacted by unfavorable changes in currency exchange rates.

  • The effect of a stronger dollar reduced our non-U.S.

  • revenues by $22 million in the fourth quarter versus prior.

  • On a constant dollar basis, total Company revenues were up 4.4%.

  • Without the 53rd week and the currency effects, fourth quarter total revenues were up about 1%.

  • Meeting fees were flat.

  • Internet revenues were up 16%.

  • And in-meeting product sales declined 5%.

  • As reported, global paid weeks in our meetings were up 8.3% while global attendances were down 1.6% for the quarter.

  • Without the 53rd week, Q4 meeting business paid weeks were up 3% while global attendances were down 4.8%.

  • Global paid weeks for our meetings and Weight Watchers online offerings were up a combined 11% and were up 7% without the benefit of the 53rd week.

  • After a relatively soft fall campaign for 2008 versus 2007, the Weight Watchers.com business improved toward the end of 2008.

  • For the fourth quarter, the Weight Watchers.com business unit, whose results did not contain a 53rd week, saw an increase in revenues of 11% on an as-reported basis, and 16% on a constant currency basis.

  • Weight Watchers online paid weeks were up a strong 19% for Q4 2008 versus Q4 2007.

  • For the full year 2008, total revenues were $1.5 billion, an increase of 5% versus 2007.

  • Without the impact of the 53rd week, as well as prior year's impact of the adverse U.K.

  • VAT ruling, which was recorded in 2008, total revenues for the year were up 5%.

  • 2008 meeting business paid weeks were up 8%, while attendances were down 4.3%.

  • Turning to EPS, excluding the benefit from the reduction of the U.K.

  • VAT liability taken in the fourth quarter, Q4 2008 EPS was $0.54, an increase of 8%, or $0.04 over Q4 2007.

  • For the full fiscal 2008 year, reported EPS was $2.60, which includes a net charge of $0.17per share related to the prior year's impact of the adverse U.K.

  • VAT ruling versus $2.48 per share in 2007.

  • Excluding the prior year U.K.

  • VAT charges from 2008 and the early extinguishment of debt charge of $0.02 from 2007, full year 2008 EPS was $2.77, an increase of $0.27 versus 2007, or 11%.

  • It was gratifying in this difficult economic environment that we were able to deliver significant EPS growth and to finish the year in the middle of the EPS range we provided last February of $2.69 to $2.89 per share after taking into account the current year impact of the U.K.

  • VAT ruling and the cost of our China JV.

  • As you may recall, these two items were not part of the original guidance we had provided in February 2008.

  • I will now briefly review our results in our major geographies and business units.

  • As is our usual practice, I will provide all of the growth statistics outside the U.S.

  • on a constant currency basis.

  • First, our North American meetings business.

  • Total fourth quarter NACO revenues were $190 million, an increase of 1% versus the same period last year.

  • Without the benefit of the 53rd week, NACO revenues in the quarter were down 4.2%.

  • For the full year, NACO revenues were up 2.3% versus fiscal 2007.

  • Without the 53rd week, full year NACO revenues were up 1%.

  • Product sales per attendance were down 1.2% compared with Q4 2007.

  • Q4 paid weeks were up 3% on an as-reported basis and down 3% without the 53rd week.

  • As reported, attendances were down 1.4% in Q4 2008 versus Q4 2007.

  • Without the benefit of the 53rd week and prior period acquisitions, NACO attendances were down 8.2%.

  • While this is comparable to the trend we saw in Q3, the fourth quarter attendance had had actually been tracking at somewhat weaker levels prior to the soft launch of our new program, Momentum, in early December.

  • We will be reviewing the details and value proposition of the Momentum program in more depth during tomorrow's investor presentation.

  • In brief, this program took the most compelling elements of both the POINTS plan and the core food plan and combined them into a single, more powerful plan.

  • Response by our service providers and members has been extremely positive.

  • Consistent with what I noted in the Q3 call, the economy continued to have a significant impact on enrollment levels in the NACO business in the fourth quarter.

  • Across the board, consumers have significantly curtailed spending, impacting virtually all discretionary consumer products and services.

  • While the economy has significantly impacted our enrollment trends, we have not seen any further degradation of our retention for Monthly Pass during Q4 2008 or during the first two months of 2009 versus what we've shared on our Q2 2008 earnings call.

  • Throughout Q4 2008 and for the first two months of 2009, we have seen no evidence of decreased usage of credit cards by our U.S.

  • customers.

  • In fact, during the first two months of this year, penetration of credit card-based commitment plans like Monthly Pass has increased.

  • As I wrap up NACO, it is clear that 2009 will be a challenging year.

  • Under the expectation that macro consumer trends will continue to be worse in 2009 versus 2008, we expect our attendance trends in 2009 to range from high-single-digit to low-double-digit negative.

  • Now on to our international business units.

  • For the fourth quarter, excluding the effect of the U.K.

  • VAT ruling, U.K.

  • revenues were up 8% driven by the continuing benefit of the Monthly Pass plan.

  • Paid weeks were up a strong 21%, while attendances were flat compared to the same prior year quarter.

  • Without the benefit of the 53rd week, U.K.

  • paid weeks were up 15% and attendances were down 1%.

  • The attendance trend was an improvement to the trend we saw in Q3 2008.

  • Like the U.S., the U.K.

  • market responded positive to its new program Discover, which was soft launched in December 2008.

  • But also like the U.S., the U.K.

  • market has slipped into significant recession.

  • While it was gratifying that we did not see any fall-off in attendance trends in the fourth quarter, given a weakening economy, we're planning for mid to high-single-digit attendance declines in 2009.

  • Continental Europe revenues were up 9% for Q4 2008 versus the same period in 2007.

  • As was the case in Q3, CE results benefited by the revenue and paid week lift provided by Monthly Pass in Germany and France.

  • Total Continental Europe paid weeks were up a robust 23% for Q4 2008 and up 18% without the benefit of the 53rd week.

  • Total CE attendances in the fourth quarter were down 4% on an as-reported basis and down 5.5% without the benefit of the 53rd week.

  • This was comparable to the trend we saw in Q3.

  • Again, as the global recession takes hold and without the benefit of an innovation in this year, we expect CE's attendance trends to weaken to high-single-digit to low-double-digit negative.

  • Moving on to Weight Watchers.com.

  • As we noted on the Q3 call, Weight Watchers.com had a difficult comparable because of the unusual impact of a Monthly Pass television spot that aired in September through October of 2007.

  • This resulted in a period of unprecedented exposure and media weight for the Weight Watchers Online product in 2007, which created a tough growth target for 2008.

  • As we move beyond the effect of that TV campaign, we saw the Online business return to its prior growth trends as we moved from November into December.

  • For Q4, Internet revenues were up nearly 16% on a currency-adjusted basis versus the same period in 2007.

  • Paid weeks for Weight Watchers Online were up a strong 19% and end-of-period active subscribers were up 16% at the end of 2008.

  • For the full year, Internet revenues were up 24% on a constant dollar basis and paid weeks were up 26%.

  • As a lower priced product, Weight Watchers Online is performing as a useful hedge against difficult economic conditions otherwise affecting our business.

  • In fact, we expect Weight Watchers.com to continue to show double-digit global subscriber and revenue growth in 2009.

  • Now, I would like to turn the discussion over to Ann Sardini, who will elaborate further on our Q4 and full year performance.

  • - CFO

  • Thank you, David.

  • Good afternoon, everyone.

  • Our fourth quarter 2008 financial results included a number of exceptional items that distort the comparison to prior year fourth quarter.

  • Fourth quarter consolidated Company revenues on a reported basis were $346.2 million, an increase of 0.6% versus $344 million last year.

  • On a comparable to prior year basis, revenues rose a similar amount, up 1%, but there were significant puts and takes.

  • Most notably, fourth quarter revenues were inflated by a $9.2 million reduction in our U.K.

  • VAT liability.

  • As you will recall, in the second quarter of 2008, we received an adverse ruling regarding the amount of U.K.

  • lecture income that can be deemed VAT exempt.

  • And as a result, we recorded a $28.5 million charge for multiple prior years VAT in that quarter.

  • We recently received notice that amounts for certain periods prior to Q1 2005 were no longer owed because the applicable statute of limitations had expired.

  • The associated $9.2 million benefit from the reduction in VAT charges increased our fourth quarter revenues by 2.7% versus prior year.

  • Three other noncomparable items reduced revenues by a net of $10.3 million, or 3%, in this year's fourth quarter versus prior as follows.

  • First, we had unfavorable foreign currency translation, which reduced our fourth quarter revenue significantly by $22.5 million, or 6.5%.

  • Second, the current year impact of the U.K.

  • VAT ruling reduced our Q4 net revenues by a further $1.4 million, and, third, and partially offsetting these, was a $13.6 million, or 3.9% favorable revenue impact from an extra week at the end of the fourth quarter versus prior year, week 53.

  • Because our fiscal year ends on the Saturday closest to December 31 rather than on that actual date, Q4 2008 was a 14-week quarter ended January 3, 2009.

  • To summarize, whereas reported revenues, excluding the prior period VAT adjustment, were 2.1% below prior year, adjusted revenues excluding these three items were up 1% versus the prior year quarter.

  • Reported net income of $47.6 million was up 19.7%, including the U.K.

  • VAT retroactive benefit and up 4% without it.

  • Reported Q4 EPS was $0.62, included $0.08 of benefit from the reduction of the prior year's U.K.

  • VAT charge.

  • Without this benefit, Q4 2008 EPS was $0.54, up 8% from $0.50 in the prior year.

  • In the operations commentary that follows, I will exclude the impact of both lowering the retroactive VAT assessment and the current year increase in VAT resulting from the negative ruling.

  • And I'll cover the impact of China separately.

  • As David noted, attendance trends picked up from the Q3 level.

  • Q4 attendances of 12.8 million were 1.6% below prior all-in and 4.8% below excluding week 53.

  • Paid weeks were up 8.3%.

  • Global meeting revenues, the combination of meeting fees and in-meeting product sales, were $257.8 million, a 2.9% decrease versus fourth quarter last year.

  • In constant currency, total meeting revenues rose 4%.

  • Constant currency meeting fees rose 5.5% globally on the strength of Monthly Pass in our international markets.

  • Meeting fees were down 0.9% in current dollars.

  • The difficult economic environment was evident in our in-meeting product sales performance.

  • Product sales per attendee, which had posted growth throughout the year, were flat to prior in local currency in the fourth quarter.

  • Total in-meeting product sales declined 1.6% in local currency, or 9.9% in current dollars.

  • Weight Watchers.com revenues were $43.6 million in the fourth quarter, an increase of 15.5% in constant dollars, or 10.6% on an as-reported basis, up from $39.4 million last year.

  • Weight Watchers.com paid weeks grew 18.8% and end-of-period active online subscribers rose by 16.3% to 679,000.

  • Across the Company, paid weeks rose 11.3% to $30.8 million.

  • Looking at the results by geography, in NACO, attendances of 7.8 million were down 1.4% versus the prior year level.

  • The paid weeks rose 3.1%.

  • Excluding acquisitions, paid weeks were up 1.8% with attendances 3.8% below prior.

  • Despite the attendance shortfall, NACO's fourth quarter total meeting revenues including in-meeting product sales were up marginally to $170.6 million, an increase of $0.6 million, or 0.4%.

  • The slight uptick in revenues is a reflection of the impact of the growth in paid weeks on meeting fees, which rose 1.1%.

  • In-meeting product sales declined by 3.4%, reflecting the movement of our members away from higher priced items.

  • In the international meeting business, fourth quarter meeting revenues including in-meeting product sales were $87.2 million, an increase of 8.6% in constant currency, but with the significant negative impact of currency translation, meeting revenues were down 8.6% on a reported basis.

  • Attendances of 4.9 million declined 1.9% in the quarter compared to prior year.

  • International meeting fees were robust, up 12.7% in local currency, driven by the 20.1% paid weeks growth attributable to our Monthly Pass market.

  • Monthly Pass is now in U.K.

  • and two of our Continental European countries.

  • On a reported basis, international meeting fees declined 5.3%.

  • As in the U.S., international product sales are softening consistent with the difficult economic climate.

  • The growth in international in-meeting product sales per attendee, which had been over 10% in local currency in the first half of 2008, decelerated in the fourth quarter to 1.2%.

  • Total international in-meeting product sales were down 0.7% on a local currency basis and down 16% in current dollars.

  • The U.K.

  • performed well given the economic climate, attesting to the increased acceptance of Monthly Pass in the market.

  • Local currency meeting revenues including product sales increased 8.6% on a comparable to prior year basis, with attendances of 2.4 million at the same level as last year's fourth quarter and paid weeks up 20.6% to 3.6 million.

  • U.K.

  • meeting revenues declined 15.7% in current dollars.

  • In Continental Europe, which now has two countries with Monthly Pass, meeting fees rose 14.8% versus the same period last year in local currency, despite a 4% decline in attendance.

  • There were 3 million paid weeks in the quarter and 2.1 million attendances.

  • On a reported basis, Continental Europe's meeting fees rose 4.8%.

  • In-meeting product sales were $13.5 million in Continental Europe and overall decline in local currency of 2.3% versus prior, but an increase of 1.8% per attendee.

  • This performance also represents a slower growth rate than earlier in the year, as we have seen in other markets.

  • Other revenues, which include franchise commissions, licensing, and revenues from our publications, were $25.3 million, an increase of 5.5% in constant dollars, and increases in licensing revenues more than offset lower franchise commissions.

  • On a reported basis, other revenues declined 1.6%.

  • Licensing revenues in the fourth quarter were up a strong 16.9% in local currencies to $15.8 million, with particular strength from our dairy product licenses in the U.S.

  • Licensing revenues on a reported basis were up 6.9%.

  • Franchise commissions were $3.1 million in the quarter, down 13.5%.

  • Excluding the impact of acquisitions made in 2008, commissions on the remaining franchises declined 6.9% versus prior year, with demonstrable impact from the weakened U.S.

  • economy.

  • Our consolidated gross margin in the fourth quarter, excluding the impact of the U.K.

  • VAT ruling, was 52.3%, down 10 basis points from the 52.4% in last year's fourth quarter.

  • Week 53 contributed 40 basis points to the gross margin in the quarter.

  • While margins remain strong given our variable cost business model, there was margin compression in the meeting business driven primarily by fewer attendances per meeting.

  • In addition, we incurred ramp-up costs for Monthly Pass in Europe, costs associated with innovation launches in U.S.

  • and U.K., and the products business experienced pressure from a change in the sales mix toward lower priced products and one-time supply chain costs in NACO.

  • Weight Watchers.com margins expanded in this highly scalable business, which carries a structurally higher gross margin.

  • Fourth quarter 2008 marketing spend of $40 million was virtually flat with prior year in constant dollars.

  • On that basis, Q4 marketing as a percentage of revenue was slightly lower than last year at 11.7% versus 12.1% in 2007.

  • Excluding the impact of the 53rd week in 2008, which resulted in a higher proportion of 2009 winter diet season marketing expense in the quarter than in the quarter a year earlier, the spend was down 9% on a local currency basis and down 4.1% on an as-reported basis.

  • G&A expenses in the fourth quarter, excluding expenses associated with the China JV project, were $42.1 million, a decrease from the prior year level of 7.8% in local currency, and 13.2% in current dollars.

  • This, despite increased depreciation resulting from our IT investment.

  • We reduced G&A spending in the quarter in response to economic conditions, including freezing hiring.

  • As a percent of revenues, G&A excluding China expenses decreased 12.4% of revenue versus 14.1% in the prior year quarter.

  • As noted on our prior calls, 100% of our China joint venture is consolidated into our operating income, with our partner, Groupe DANONE's 49% ownership deducted as minority interest before net income.

  • On an operating basis in the fourth quarter, the 100% investment in this start-up venture was $2.8 million of pretax expense, a combination of marketing and G&A.

  • The consolidated operating income margin excluding the current and prior year's impact of the 2008 U.K.

  • VAT ruling and excluding the China investment was 28.1% in the quarter as compared to 26.2% last year.

  • As noted above, marketing and G&A as a percent of revenue were each below prior.

  • Interest expense in the fourth quarter 2008 was $24.4 million, down $2.3 million, or 8.5% versus fourth quarter 2007.

  • Our average debt outstanding in the fourth quarter 2008 was $1.66 billion.

  • In the quarter, we benefited from a 43-basis-point reduction in our average effective interest rate, down from 6.3% in fourth quarter last year to 5.87% in this year's fourth quarter.

  • This resulted from a combination of lower market rates and a stepdown in spread over LIBOR, which took effect during the first quarter of 2008.

  • Finally, I'll review in brief our consolidated cash flow for the full year and our balance sheet.

  • In the full year, we generated $337.9 million of cash from operations excluding interest.

  • Due to the timing of year end, the 2008 fiscal year included both payments for 2007 expenses and prepayments of 2009 expenses.

  • These amounted to a net depletion of approximately $40 million of 2008 cash flow.

  • After capital expenditures of $31.6 million, our 2008 free cash available to service our capital structure was $306.3 million.

  • With our available cash, we made interest payments of $96.7 million, paid our quarterly dividends of $55 million, and repurchased 2.8 million of our shares for approximately $116 million.

  • Fluctuations in the balance sheet between year end 2007 and 2008 primarily reflected an increase in current assets, a result of higher prepaid taxes.

  • In addition, the acquisition of three small franchises in the first half of 2008 resulted in a $19.4 million increase in franchise rights acquired.

  • Current liabilities reflect $117.5 million of our debt, moving into the current category.

  • A word about our debt.

  • Our required debt paydown in 2009 is $162.5 million, which we will fund with our free cash flow.

  • In 2009, 57% of our floating rate term debt is hedged.

  • Starting in January 2010, 90% will be hedged.

  • We continue to enjoy the stepdown in interest rate spread over LIBOR, which results from maintaining net to EBITDA (inaudible) below 3.5 times.

  • Now I'll turn it back to David.

  • - President, CEO

  • Thank you, Ann.

  • There is no doubt that the macroeconomic conditions of 2008 have created challenges to our business throughout this year and particularly in the second half.

  • As we enter 2009, we fully expect conditions to remain at least as severe, if not worse, and given further deterioration of unemployment and other variables.

  • The consensus view tends to not to expect the consumer to begin increasing spending levels until at least the second half of 2009 and more likely 2010.

  • As I noted before, the response to the new program from both members and leaders has been overwhelmingly positive.

  • However, given the severity of the economic downturn and how it is weighing on consumers, it is clear that our new program and advertising campaign have not had the impacts on consumers' minds that they would have had in more normal times.

  • In providing guidance for 2009, we believe prudence and conservatism is appropriate.

  • We're in the midst of a global economic storm, which few of us have experienced in our lifetime.

  • But despite this fact, the strength of our brand, the loyalty of our customer base, and the variable nature of our business model are serving us well in this environment.

  • In fact, although we expect fiscal 2009 to be a year in which revenues show modest declines as a result of the global recession and strengthening U.S.

  • dollar, we expect we will be able to hold our operating margin percentage this year.

  • Based on the trends we have seen in our business in the first two months of the year, we are projecting our global meeting room attendance to decline between 8% and 12% during 2009 versus 2008.

  • Furthermore, assuming that the U.S.

  • dollar remains at current levels, we estimate that unfavorable exchange rates relative to 2008 will have an approximate negative $100 million revenue impact from 2009.

  • Partially offsetting these trends will be an increase in the penetration of our commitment plans, double-digit growth in our high margin Weight Watchers.com business, and modest growth in our licensing business, as well as tight expense control.

  • On the point of expense control, we have recognized since the middle of 2008 that we were facing a difficult economic period.

  • Throughout 2008, we began taking an even more rigorous approach to managing our expenses.

  • For example, we instituted a hiring freeze beginning late summer.

  • As it became apparent that the economy would remain difficult throughout 2009, we tasked our operating leaders to identify ways of eliminating additional costs.

  • Each of our business units has worked very hard over the past few months to identify cost reduction opportunities that can both reduce expense, while simultaneously making the Company stronger in the process.

  • The initiatives they are taking will result in an organization that is leaner, more agile, and more efficient and ultimately more competitive.

  • This morning we announced internally a reduction in force that will affect approximately 140 positions, or approximately 7% of our full-time positions, most of these in G&A-related departments.

  • These reductions, plus other cost savings initiatives, will result in an approximate annualized savings of $17 million and a 2009 savings of $13 million.

  • We estimate the restructuring costs associated with this effort will be $4 million to $5 million in 2009, which will likely be charged in the first quarter.

  • Weight Watchers has a business model that is able to weather difficult economic periods.

  • The majority of our costs are variable in nature, which allows us to flex our business and match resources with demand.

  • We will continue to look at this equilibrium over the course of 2009 as trends move up or down.

  • With the aforementioned fixed cost reduction efforts layered on top, we believe that we can hold our operating margin percentage with historic levels.

  • Taking all of this into account for 2009 EPS, we're forecasting a range of $2.50 to $2.75 per fully diluted share before any charges associated with the reduction in force we announced today.

  • This range does include approximately $0.18 per share of negative year-over-year currency impact based on current exchange rates, and an expected increase in loss related to our China JV of $0.06 in 2009 from $0.03 in 2008.

  • At this time, operator, we would like to take questions.

  • Given that we will be making a full presentation on our business tomorrow, as well as leaving plenty of time for Q&A tomorrow, it may make sense to address some questions in greater depth at that time.

  • Operator?

  • Operator

  • Thank you.

  • We will now take questions from the telephone lines.

  • (Operator Instructions).

  • There will be a brief pause while the participants register for questions, and we thank you for your patience.

  • The first question is from Michael Binetti from UBS.

  • Please go ahead.

  • - Analyst

  • Hi, guys.

  • Congrats on getting through a really tough quarter there.

  • Just a couple of housekeeping questions.

  • First off, could you tell me where we sit today and what you have flowing through the P&L, what we could expect for acquisition-related boost to U.S.

  • attendance -- I'm sorry, North America attendance, maybe in 2009?

  • - CFO

  • Yes, probably in the range of 2%.

  • - Analyst

  • 2% lift?

  • - CFO

  • Yes.

  • - Analyst

  • Okay, and then from where we sit today, I guess, could you walk us through how -- I'm really trying to beat up on the attendance numbers here.

  • Could you walk us through how the attendance numbers, how you see them playing out through the quarters, just so we have some idea of the cadence you guys are looking at?

  • And then just so that, I guess, we understand it, the run -- I'm just trying to understand the run rate that you guys expect and what your guidance implies?

  • David, it sounds like you were saying it could be at about today's run rate or maybe even worse, maybe you could just clarify that for us?

  • Thanks.

  • - President, CEO

  • You mean for 2009?

  • - Analyst

  • Correct.

  • - President, CEO

  • Okay.

  • As we express the guidance for attendances in 2009, it's an interesting exercise for the obvious reason being that the macroeconomic environment is, to say the least, volatile right now, and it's a little bit difficult to predict how the consumer mindset that we're seeing in Q1, which is as bad as it's ever been since it's been measured, what that's going to look like in Q2 through 4.

  • So what we did when we were forecasting our attendances for the year is we tried to come up with a reasonable range that somewhat reflected that inherent volatility and sort of the broader environment, but was based significantly on some of the trends we were seeing in the first two months of this year.

  • I don't have any reason to believe that we're going to see sort of degradation in the back half of the year, nor am I presuming we're going to see a sudden hockey stick in improvement.

  • I mean we kind of assume that what we're seeing now is probably going to be fairly typical of what we see over the course of the year.

  • And that's kind of how we approached our view of the attendance forecasts as we move through 2009, understanding that there is the usual things associated with seasonality.

  • For example, Easter timing will somewhat benefit Q1 versus Q2.

  • And there's some of the usual idiosyncrasies that at this point you're used to in sort of following Weight Watchers.

  • - Analyst

  • If I could just ask one last question, any way you can help us estimate the impact in the fourth quarter of lapping that 53rd week for attendance?

  • - President, CEO

  • If we can-- Ann will -- Ann, you want to take it?

  • - CFO

  • Yes, let me just calculate it, and go on to the --

  • - President, CEO

  • Let us get right back to you on that.

  • Ann is going to just do a quick calculation.

  • - Analyst

  • Okay.

  • Look forward to seeing you guys tomorrow.

  • Thanks.

  • Operator

  • Thank you.

  • Your next question is from Karen Howland from Barclays.

  • Please go ahead.

  • - Analyst

  • Thanks.

  • I was wondering if I could dive in a little bit more to the SG&A expense save that you had this recent quarter.

  • Obviously, very impressive, even presumably a lot of that is coming from FX.

  • Just wondering if you could give us a few more specifics of what was actually done this quarter and if you think this is a reasonable run rate for SG&A and then you'll layer in the additional $13 million on top of that annually, or for 2009.

  • - President, CEO

  • You know, I think when you look at the -- certainly you're right.

  • The G&A in fourth quarter of 2008 definitely had some benefit due to FX.

  • As Ann referenced during her remarks, we kind of saw what was happening with the economy and we started taking steps even beginning last year.

  • For example, a hiring freeze in terms of closing out a number of positions that were open.

  • And I think that also had some beneficial impact.

  • There might be some ins and outs as we think about next year, but certainly as you think about forecasting next year, some of the things that you should probably consider from a modeling point of view is that first off, the cost reduction efforts I mentioned are going to significantly impact the G&A line, kind of above and beyond what we've already talked about.

  • However, keep in mind that most of that benefit's going to be in quarters 2 through 4 and so we're not -- so you're going to have some timing issues in terms of forecasting G&A.

  • And I think as we sort of proceed throughout year, we can help you guys out in terms of sort of guiding through some of those ins and outs.

  • - Analyst

  • But the, the -- that $44 million or so that was reported this quarter, that's a reasonable starting point on a quarterly basis to assume going forward?

  • - President, CEO

  • I don't know if I would base it strictly on fourth quarter.

  • I mean I think that my advice always in modeling G&A is to look at, typically a couple of different quarters.

  • Because some of the things with G&A that also have to be factored in, inevitably if there's any sort of accrual reversal that might be in one quarter and not versus another quarter, as well, fluctuations in terms of IT spend and depreciation and amortization.

  • So I think if I were modeling, I might look over, say, a two-quarter period as a basis for forecasting forward.

  • - CFO

  • Right, and also when you're looking at the G&A, you have to just remember that it is impacted by the currency and currency impact is certainly stronger in 1 H than 2 H on expense and revenues.

  • So I would look at that as well.

  • - Analyst

  • And is the G&A, the currency impact, or I guess the G&A allocated similar levels to sales levels?

  • For different countries?

  • - CFO

  • Somewhat similar, but there is a headquarters component as well, so just bear in mind that it's a little more heavily weighted to U.S.

  • than revenue is.

  • - Analyst

  • Okay, and then turning to Weight Watchers.com and the Internet business, I apologize.

  • Did you say that the sales number that was reported, that 43.2, is that on a 52-week year?

  • - President, CEO

  • That's a -- yes.

  • Thank you for asking the question.

  • This is a vagary of the fact that Weight Watchers.com started as a separate company back in 2000.

  • Weight Watchers International has kept track of its books, if you will, on a weekly basis throughout its history.

  • When we started Weight Watchers.com back in 2000, we did the books on a monthly basis.

  • And so Weight Watchers -- so the issue with the meeting business is that you would periodically have this effect where the Saturday following ended up being, creating this sort of situation that's almost like a leap year, although not quite, where you would have this 53rd week pop up.

  • That was never the case with Weight Watchers.com.

  • It's -- so what you're seeing on the Weight Watchers.com revenue was sort of true comparability 2008 versus 2007.

  • Because we never put Weight Watchers.com, because it's a separate accounting entity we never put it on the same weekly accounting basis that we did with the meeting business.

  • - CFO

  • Just, well, sorry to interrupt, but while we're on this week 53, sort of tangentially, the impact on the fourth quarter of '09 is about 4% from a negative from week 53 being in 2008, and on a full year basis, it's just about a 0.5%.

  • - Analyst

  • So the -- I apologize.

  • On the Weight Watchers.com, it's on a different reporting period than the consolidated numbers are?

  • - President, CEO

  • Ever so slightly.

  • - CFO

  • Yes, by a couple of days.

  • It's on a calendar.

  • - Analyst

  • Okay, and then what percentage of Weight Watchers.com is from international versus North America?

  • - President, CEO

  • We will actually be going through that for the first time in fairly gory detail tomorrow, and so you'll be able to see exactly how that plays out over the coming year.

  • So you might find the answer a little bit more rich when we go through the Power Point tomorrow morning.

  • - Analyst

  • You don't want to give us a quick preview tonight?

  • - President, CEO

  • I don't mind giving it to you.

  • I'm just trying to remember what the percentage is off the top of my head.

  • It's roughly -- let us get back to you with the precise number tomorrow rather than sort of giving you an estimate that's going to be plus or minus 2% or 3%.

  • - Analyst

  • Sure.

  • And then one last question, David, you mentioned that the fourth quarter came in in-line with your expectations.

  • However, looking at the paid weeks and the attendance growth that you had actually given rough guidance to, it appears that they actually came in quite a bit below those numbers and I was just a little bit confused of where the discrepancy was?

  • - President, CEO

  • Well, my recollection was, for example, in talking about NACO, we had suggested to look for attendance trends in Q4 that were similar to the attendance trends we saw in Q3.

  • Q3 organic attendance trends in NACO were about, on attendances, they were about minus 7%, minus 8%.

  • And if you looked at sort of organic, excluding 53rd week, excluding acquisitions in NACO in Q4 they were about minus 8%.

  • The trend that we saw in the U.K.

  • was actually a little bit better in Q4 versus Q3 and the trend we saw in CE was comparable.

  • - Analyst

  • And the paid weeks, somewhat, though, fell below expectations in the U.K.

  • and in CE?

  • - President, CEO

  • No.

  • Paid weeks in the U.K.

  • for the fourth quarter were pretty solid at 15%.

  • I don't think we guided on paid weeks in the last call.

  • We were guiding strictly on attendances.

  • And so let me answer the question differently.

  • In terms of how paid weeks came in versus expectations, they came in pretty much bang-on with what we were thinking about, given sort of the same reflective attendance trends for NACO, the U.K.

  • and CE.

  • In fact, if anything, paid weeks in CE might have come in just a little bit better than what I might have thought while I was sitting here in Q3.

  • And attendances for the U.K.

  • certainly came in better in Q4 than what I was expecting, given what we were seeing in Q3.

  • - Analyst

  • I apologize.

  • I must -- for some reason I had in my notes that (inaudible) paid weeks were 20% to 25% guide for U.K.

  • and CE, but I must be mistaken.

  • Thank you very much.

  • I look forward to seeing you tomorrow.

  • - President, CEO

  • Absolutely.

  • Operator

  • Thank you.

  • Your next question is from Christopher Ferrara from Banc of America-Merrill Lynch.

  • Please go ahead.

  • - Analyst

  • Hey, thanks.

  • Guys, can you talk about -- so the attendance outlook for next year, if we're talking about attendance being down sort of high singles to low digits what are you baking in on assumptions for potential degradation of Monthly Pass?

  • Are you assuming it still sees no degradation and what does it assume for retention in general throughout the year?

  • - President, CEO

  • When we provide the forecast, of course, when we're doing our internal machinations we're looking at a combination of underlying drivers, such as enrollments, retention rates, propensity to attend a lot of different metrics.

  • Historically, we have not broken those components out while providing guidance.

  • I think that when we were taking a recessionary view of the economy, we considered the potential for recessionary impact across the board.

  • I think that the hypothesis that, given how much of our business is on commitment plans that we could have some credit card exposure was not an unreasonable hypothesis and one we thought of.

  • We've certainly been gratified in the first two months that we have not seen any falloff on retention patterns for Monthly Pass.

  • So far, based on the first two months of this year, we're pleased with the results we're seeing.

  • I think if anything, as I said before, with the program and reflecting the fact that it's just been difficult to get the program to sort of penetrate the public consciousness, I think if there's one place where we have, we believe, are getting some benefit from the Momentum, Discover, et cetera, our new programs, has been possibly a little bit incremental in retention based on what we've seen so far in January and February.

  • And I think the good news is that if -- and the reason for that simply is that people seem to be really liking the new program and so that's a good reason to stay.

  • And I think that the nice thing about getting a retention benefit from a new program is that it doesn't require on the relative newness of the program, so to speak.

  • And so as I think about retention trends over the course of the year, I mean, again, with this kind of environment, it's difficult to predict what's going to happen.

  • If all of a sudden every third credit card in America were to get sort of destroyed, yes, that would have an impact on our business.

  • But I don't think anybody's forecasting anything so dire.

  • Nonetheless, it's going to be a trend that we're going to continue to watch closely.

  • But I think that the attendance trends were sharing with you reflect a sort of balanced view in terms of the combination of enrollment and retention activity.

  • - CFO

  • And when you look at the fact that we are giving you a range of expectations, of guidance for 2009, the lower end of that range assumes, obviously, some amount of degradation versus the upper end.

  • - Analyst

  • I appreciate the color.

  • And I guess kind of following up a little and, of course, appreciating you don't want to show all of this stuff at any given time, but I guess how does a recession -- how would you think conceptually a recession affects the components of your ability to recruit people, or of your attendance in general?

  • You have a new product out there.

  • I would imagine that you would be expecting enrollment trends to pick up for 2009.

  • Like, so do you think the recession in general would hit enrollment trends harder than retention trends in general, so maybe you're not looking for enrollment trends to pick up despite having a new product?

  • Is that the right way to think about it?

  • - President, CEO

  • Yes, I think the way we think about a recession because we're -- and, again, Weight Watchers hasn't seen a recession like this, I guess, possibly ever in the 50 years that we've been around, and certainly, nothing that's even vaguely comparable since the '70s and early '80s.

  • So it's been a little bit difficult to sort of estimate exactly how the business would react to this kind of consumer environment.

  • And as I look at the -- what we're now seeing, what we would expect is, think of it in terms of three components.

  • One is enrollments of people who have never been to Weight Watchers before.

  • Two is enrollments of people who have been before, in other words, lapsed members or rejoins.

  • And three is retention.

  • Based on a whopping two months this year and a few months last year, what I would expect is that the most significant impact of a recession is going to be on a [never] enrollment.

  • I think this is the kind of consumer -- and I'm sure you all saw the same surveys I did -- I think it was last week or the week before in the "New York Times," 55% of Americans were concerned about being able to make ends meet; 60% of Americans were concerned about either losing their job or someone else in their household losing their job.

  • And I think in that kind of an environment where people are sort of tightening down, where saving rates are shooting up and everything else and all the macro variables that you guys are aware of, it's very difficult to sort of break through to the person who has never been with us before, may not fully appreciate the value proposition, I think that's a more difficult environment with which to get trial.

  • I think that's different than with rejoins.

  • A lapsed member who has been to us before knows Weight Watchers, understands the value proposition, understands how it will help them, understands that it makes sense.

  • And so we would expect that we would see something a little bit better on that side and then retention, again, what we're seeing so far is that we've been feeling pretty good about those.

  • I think the other thing in a recession that's worth pointing out is that it's a business that sometimes we don't talk that much about.

  • But if you look at Weight Watchers.com, we're forecasting growth for 2009.

  • I mean granted maybe not at sort of 25% rates we were looking at in 2007, but we're still forecasting sort of good, solid low-double-digit growth for Weight Watchers.com.

  • And the fact that actually we're able to continue driving sign-up or enrollment growth, if you will, in a fairly horrendous consumer environment, we think is a good testament to the fact that in terms of people sort of continuing interest in Weight Watchers that it's still pretty strong.

  • I think literally in the meetings business, particularly with never enrollments we just seen more people deferring for the time being and waiting for sort of the dust to settle on the economy.

  • Again, our operating assumption, not knowing any better what the next few quarters have in front of us is that we would expect that that effect is going to continue at sort of current levels throughout the course of this year on the meeting side.

  • But again, that we would expect to continue seeing decent growth on the Weight Watchers.com business.

  • - Analyst

  • I really appreciate all the color.

  • Thanks.

  • Operator

  • Thank you.

  • The next question is from Greg Badishkanian from Citigroup.

  • Please go ahead.

  • - Analyst

  • Hi, this is actually Alvin Concepcion in for Greg.

  • You mentioned the effectiveness of your marketing has been impacted by the weak economy.

  • Have you seen any changes in the effectiveness ofo your marketing over the last couple months and also how are you looking at marketing spend in '09?

  • - President, CEO

  • We haven't -- if I look at the effectiveness of our marketing in Q4, to sort of more specifically parse the question, if I look at our marketing effectiveness in Q4, keep in mind that we just, frankly, don't do a lot of marketing in Q4, so it's a difficult period of time to look at.

  • If I look at our marketing effectiveness in the first quarter, all of the testing results, and we're going to share some of this with you tomorrow, all of the testing results we're seeing, for examples, of the new TV spots we've been running in January and February is that they are getting good response.

  • The copy test results are very positive.

  • In fact, in a number of dimensions where historically we haven't seen as good performance are doing very well.

  • I think that literally you're in an environment where trying to get a message out right now for many companies, it sometimes feels a little bit like shouting into the wind.

  • Nonetheless, we think that we are getting some benefit.

  • We are getting some sort of recognition of the advertising of the new product because we're getting feedback to that effect.

  • It just may not be to the degree that we would have gotten under normal times.

  • And in terms of marketing spend over the course of next year, our expectation is that first off, our competitors are going to be dealing with a similar situation and so everybody's going to be carefully monitoring their marketing spend over the course of the year.

  • So I don't anticipate a significant [share of voice] issue for any of us.

  • And what I would expect is that we would be able to hold marketing as a percentage of sales in 2009 versus 2008.

  • That means if we're, therefore, expecting some reduction in top line revenue, we would expect a similar amount of reduction in 2009.

  • The other point I also want to make about marketing spend in 2009 is that in any given marketing budget when you look at it, there are those spends specifically on media, in other words, working dollars, that we know to be high return on investment in terms of the enrollments per dollar spent.

  • And then there are going to be those marketing vehicles which are good ideas under normal times, but which under difficult times becomes, the ROI becomes increasingly difficult.

  • So when you're scaling back your marketing a little bit to reflect the new shape of the demand curve, what it allows you basically to do is to start reducing some of those things that were, frankly, maybe a little bit more incremental and a little bit more nice to have anyway.

  • So you can moderate your marketing spend without losing much of your enrollment effectiveness and you effectively put yourself in an environment where you really focus just about every penny you spend on marketing into things that you know drives business.

  • - Analyst

  • Okay, thank you.

  • Operator

  • Thank you.

  • The next question is from Bob Craig from Stifel Nicolaus.

  • Please go ahead.

  • - Analyst

  • Good evening, everybody.

  • Just a couple of quick ones.

  • Any planned pricing adjustments to either Monthly Pass or pay-go as you go through this year?

  • - President, CEO

  • No plans to take it up, given the environment.

  • - Analyst

  • Obviously, thinking the other way.

  • - President, CEO

  • I thought you might be asking the opposite question --

  • - Analyst

  • Absolutely.

  • - President, CEO

  • Which is are we planning to take prices down.

  • - Analyst

  • Right.

  • - President, CEO

  • Well, first off, we wouldn't take prices down per se, but a different question might be are we thinking about taking a more aggressive posture on promotions?

  • And to that end, we have not done so.

  • In the first two months of this year with respect to Weight Watchers, for example, Monthly Pass and Free Registration and sort of the usual promotions that we run.

  • We are looking at ways of making sure that our message is hitting the point of value and that in an appropriately strong way.

  • We will continue to evaluate different potential promotions to determine if we see something that we think is going to give us sort of a positive revenue lift, we will absolutely take a look at it.

  • But what we don't see is doing something radical that would somehow completely shift the economics of the business because then that would put us in potentially a more difficult position as we look to come out of the recession going into 2010.

  • So we will evaluate it, but we'll do it prudently.

  • - Analyst

  • David, any actions being contemplated to sort of bolster the product sales side, the introduction of any lower priced SKUs?

  • - President, CEO

  • We are going to continue to look for ways of bolstering product sales.

  • I think that is actually -- on the product sales side, I think that is a place where promotions can make a lot of sense.

  • It's a little bit of a different environment because at that point we're talking about a captive customer base because the products are exclusively available in our meeting rooms, and I think that affords us a little bit more flexibility on promotion schemes.

  • And so I think promotion schemes are potentially going to be more interesting on the meeting product sales side.

  • But the other important thing, on the product sales side is that it's an opportunity for us to be maybe even more aggressive in terms of getting some good new products out the door.

  • A good examples of this has been we recently came up with very simple device and it's not very expensive, it's $5, which it's -- think of it as just a little clicker that you can continue clicking and it sort of ratchets the points up, similar to like imagine a guy taking, counting attendance coming into, like, a concert venue or something.

  • But this is just a very simple way of sort of keeping track of your points in your pocket, if you will, and they are selling like hot cakes.

  • So I think those types of, like those types of product launches, plus some sort of good creative thinking in terms of promotions within in-meeting product sales I think can go a long ways in terms of reversing otherwise what I think would be a much more difficult trend to fight against in terms of product sales per attendance.

  • - Analyst

  • That's very helpful, David.

  • Thank you.

  • Operator

  • Thank you.

  • Your next question comes from Michael Binetti with UBS.

  • Please go ahead.

  • - Analyst

  • Hi, guys, can you hear me?

  • - President, CEO

  • Yes.

  • - CFO

  • Hi, Michael.

  • - Analyst

  • Just a quick follow-up from the last question there.

  • I think you mentioned on the last call and I couldn't remember if you said it today that you gave some specific product types that you were seeing slowdown at the meeting level, maybe some of the bigger ticket items, which seems pretty obvious.

  • I'm just wondering, based on what you're seeing today, the types of items you're seeing maybe slow down in the classroom as far as product sales go, does your guidance imply product sales to slow, to slow more than attendance in the year?

  • - President, CEO

  • Ann is going to take a quick look to confirm, but it's certainly our expectation as we look out over 2009 that we would expect to see a little bit of softening of product sales per attendance as we go into next year, sort of based a little bit on the trends that we're seeing right now in our current forecast.

  • - Analyst

  • Okay.

  • - President, CEO

  • However, I think that some of that slippage may not fully contemplate some of the initiatives that I was talking about in the previous question.

  • And so I think that it's a place where we might have a few more options in terms of reversing the trend, but Ann, do you want to build on that?

  • - CFO

  • There is a bit of slippage implied in our revenue numbers.

  • Not dissimilar to some of what we saw in the fourth quarter.

  • - Analyst

  • Okay, and then just a quick follow-up.

  • Could you maybe talk a little bit -- you guys gave some helpful comments on how to think about the operating margin for the year.

  • Maybe help us think about the gross margin a little bit better as far as what you guys can do to kind of combat deleveraging at the meeting level, and maybe just how that works on the ground, like how long it takes -- do you close down meeting areas, do you -- I mean what kind of room do you have to reduce labor in the existing meetings and what kind of time frames do you need to make those kind of moves if you were to see another leg down from the consumer in general here?

  • - President, CEO

  • Here's the good thing, to the extent that being in this environment can ever be a good thing.

  • But if I look at the flexibility of our business, one thing to keep in mind is that Weight Watchers has for a very long time, had a business model that understood the need to be able to vary and flex with changing conditions and demand.

  • And that's simply a function of the fact that we have a highly seasonal business.

  • So we have a long history of opening and closing meetings, as is appropriate to reflect the underlying demand.

  • And so we have a system that is very well attuned to making some of those adjustments.

  • And so on the variable cost side, which would be the most direct way of looking at it would be the size of the meeting base we have a decent amount of flexibility.

  • In fact, even where we have fixed locations, which is about two-thirds of our NACO attendances, by way of example, are in centers.

  • Even within centers, we have flexibility in terms of adjusting how many meetings per week are in that center, what day, what time, some of those types of things.

  • And so unlike a traditional retailer where they are sort of stuck with sort of the significant fixed overhead and it takes them a long time to adjust the size of their infrastructure, we actually have a lot more flexibility.

  • Now, if you look at the other elements of gross margin, there is a fixed component, to a certain extent that's rent, and then the other significant part of that would be local management, territory field management and that part would be more fixed.

  • But certainly if you look across the board, our ability to sort of reshape gives us a fair bit of flexibility.

  • Ann, do you want (inaudible) -- in terms of a way of looking at gross margin?

  • - CFO

  • Just what I was going to add is that even on the rent side, we do have an ability to look at what the real estate situation is in the various markets that we're in and either potentially renegotiate, or if not renegotiate, move to different venues that are less expensive because I think we can take advantage of the market right now.

  • - President, CEO

  • But what's also interesting, and you're going to have a chance to meet tomorrow our new president of North America, Steve McCormick, who is already making a terrific impact on the business, and not to steal too much of Steve's thunder, but we're also looking at this environment opportunistically.

  • If you look at it from an employment and from rent perspective, it's maybe a different way of looking at it and Steve will be able to take you through tomorrow some different ways of thinking about our location strategy.

  • - Analyst

  • If I was to look -- I'm sorry, I keep following up on this.

  • But if I was to look at the '03-'04 period, which were kind of the glory days of the Atkins diet in the U.S., and if I look at the cost of meetings line that you guys break out specifically, and if I look at that as the percent of the stand-alone, non-online revenues, in '03, you saw about 95 basis points of pressure there and then another 200 basis points in '04.

  • I mean what should I think about as far as -- what should we think about as far as what's different now versus then as far as trying to figure out where we want to come out in our models for that line, that margin line next year?

  • Is that a very similar thing, like we could see maybe get caught with a couple basis points of cost that you can't get out in a quick downturn or maybe anything you can help me think about on that?

  • - President, CEO

  • Well, first off, there's the overall gross margin for the business.

  • One thing to keep in mind is that one of the things that's working nicely in our favor is that if you look at our true growth vehicles, which is basically dot-com and licensing, they have extremely high gross margins.

  • And so the part of the business where you would really want to make sure that it's doing well from a mix point of view is doing, relatively speaking, much better and so that's one of the things as you model out gross margin for the corporation as a whole, that you absolutely should think about is that we're going to be getting lift from a mix perspective on gross margin on that side.

  • And I think it would be our expectation that that would probably be enough to relatively offset any slippage that we saw in the meeting side.

  • - CFO

  • Yes, I think there will be some compression in Q1, for example, but as we move through the year, the cost initiatives that David talked about will have an impact on our gross margin and I don't think that we're going to see too much deterioration in the meetings business gross margin.

  • - Analyst

  • Okay, thanks, guys.

  • Operator

  • Thank you.

  • There are no further questions registered.

  • At this time, I will now turn the meeting back over to you, Mr.

  • Kirchhoff.

  • - President, CEO

  • Okay.

  • Thank you for joining us today, and I look forward to sharing more with you tomorrow morning.

  • Operator

  • Thank you to our presenters.

  • This concludes today's conference.

  • Please disconnect your lines at this time, and we thank you for your participation.