WW International Inc (WW) 2013 Q2 法說會逐字稿

Ladies and gentlemen, welcome to Weight Watchers 2013 earnings teleconference call.

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

Afterwards, you be will invited to participate in the question-and-answer, and instructions will be given at that time.

As a reminder, this conference call is being recorded today, August 1, 2013.

At this time, I would like to turn the call over to Lori Scherwin of Weight Watchers International.

Please go ahead.

Thank you, operator.

Thank you to everyone for joining us today for Weight Watchers International second quarter 2013 conference call.

With us on the call are Jim Chambers, our newly appointed President and Chief Executive Officer and Nick Hodgkin, Chief Financial Officer.

At about 4.00 p.m.

Eastern Time today the Company issued a press release reporting the second quarter financial results of fiscal 2013.

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 www.weightwatchersinternational.com.

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.

I would now like to turn the call over to Jim.

Please go ahead.

Thank you, and good afternoon everyone.

I'm happy to be with you on the call today, and forward to meeting you in due course.

I've enjoyed partnering with Dave since I joined this January, and would like to congratulate him on his longstanding contributions to the Company, and wish him all the best.

His leadership at the Company will be missed, and we value the seeds he has planted for our growth agenda.

I am also honored by the Board's confidence in my ability, and am thrilled by the opportunity to lead this Company forward with the talented team by my side.

I trust that you have seen our earnings announcement.

Current results and the near-term outlook, which Nick will walk you through in more detail, fall short of our aspirations.

While I am proud of the progress the team has made on the cost front, we need to be more aggressive and more innovative in our efforts to drive recruitment and top-line results in what is proving to be a very challenging operating environment.

While we are still evaluating elements of our long-term strategic plan, which we will be prepared to share at a November 6th Strategic Outlook Investor Day, I am pleased to have this opportunity to discuss my early observations with you today.

Appreciating I have been at the Company for a little over six months and am brand new to this role, I will not be sharing a detailed strategy blueprint on this call, but look forward to doing so in November.

I would like to start by sharing some perspective on my background and relevant experience.

I spent my entire career in or supporting consuming-facing businesses.

Although nearly half my experience has been in general management, I have worked in multiple functions, from marketing to operations to corporate planning, and even spent a couple of years as head of information technology a while back.

I have had the privilege of leading some wonderful organizations in a variety of segments from food to beverages to market information services.

I have been accountable for developing winning strategies and driving execution for some of the worlds largest and best-known brands, including Oreo, Trident, and Remy Martin.

For most of those years, I have worked in companies that were dependent on large field organizations, and I am a deep believer in the power and strategic potential of an aligned and well-supported field-centric model.

I joined Weight Watchers for two principle reasons, mission and business potential.

I have a personal alignment with the mission of taking the best science has to offer and translating it into something that works for consumers in their daily lives.

And I believe deeply in the potential of this Company and the power of the Weight Watchers brand.

Six months in, my alignment with the mission and belief in the potential of the business are even stronger now.

I also want to make a few comments on my high-level learnings to date.

Despite the current tough climate, I have enjoyed my time at Weight Watchers and am encouraged by the prospects to build the business going forward.

Over the last six months, we focused on three things.

Dealing with our near-term performance, defining our strategic agenda, and strengthening our organization.

Nick will take you through our current performance, as well as our projections.

But to repeat my earlier comments, we are pleased with the focus we have brought to our cost agenda, and are working hard to set the stage for future top-line growth.

While our strategic assessment is not yet complete, I've spent enough time with the business to understand the current situation and broad themes that the team needs to focus on to deliver on our potential.

Let me share my initial observations in three key areas.

First, there are compelling reasons to believe in the existing core consumer business.

Obesity is unfortunately a large and growing issue globally, but fortunately one that is addressable.

Our program works, and has been validated by over 80 clinical studies to date, fortifying our position as the world's leading provider of weight management solutions.

In addition to the scientific support of our program, the potential of our core consumer business is bolstered by the strength of our brand, our very large community of Weight Watchers members, and our incredibly talented service providers in the field.

That said, there are things we needs to do to more fully capitalize on these assets, places where we need to get better, stronger and fill capability gaps to more consistently deliver on consumer needs and to respond more nimbly to opportunities in the marketplace.

Our marketing and engagement with consumers must continue to evolve.

We need to more aggressively innovate and evolve our offerings to improve the relevancy and expand their consumer reach.

As such, over the past several months one of my priorities has been to further immerse the team in the understanding of the consumer in our category, both members and non-members.

We believe there is an opportunity to reimagine our core offering to better deliver on what consumers need, and to evolve our brand to become even more inclusive.

Second, there are also reasons to believe in the B2B healthcare opportunity.

This is a great story which you have heard much about on prior calls.

I won't repeat everything you have heard in the past, but feel that it is important for me say that the efficacy of our program, coupled with strong interest we are seeing today in the marketplace, strengthen my belief we can emerge as a leader in this space.

To enable this business to realize its full potential, we need to move from strategic evaluation mode to implementation.

What is new is that we are now committing resources to this implementation with a focus on building out our capabilities in technology and people.

We will share more of the blueprint and milestones for B2B healthcare with you in November.

The third area of observations I want to share relate to our organization.

I'm a firm believer in the principle that structure follows strategy.

While I have indicated that we are still finalizing elements of our strategy, I have developed enough confidence in key strategic directions to implement some high-level structural changes.

As you heard referenced in our last quarterly call, I have concluded that running our businesses in an integrated fashion, not as separate dot-com and meetings businesses, can release tremendous value, allowing us to better innovate against consumer needs and leverage our significant assets.

Accordingly, I will be realigning our business to eliminate the boundary between the meetings and online divisions.

In the future, this means the businesses will be managed by the regions, such that the GMs and local business leaders will have clear accountability for the entire region performance, including the accountability for all consumers across all product offerings.

In addition, we have appointed Catherine Ulrich to the newly created position of Global Chief Product Officer to lead the integration of our offerings into a seamless set of choices for consumers.

We have also created a separate business unit for health solutions led by Colin Watts to insure the appropriate focus on implementation and execution of our B2B healthcare strategy.

We still have is a few key positions we are working to fill, most notably a head of our North America business and a Chief Technology Officer, but we are focused on filling these positions with the best talent, rather than the fastest solution.

My belief in our core Consumer business, our deliberate shift towards implementation mode on our healthcare strategy and the opportunity to realign and reenergize our organization are meant to give you a flavor of where I see potential.

Again, we will expand on these opportunities and others on our November Strategy Day, but it is important to note that while we have much more to do, we are up to the task.

I am excited for the challenge, and confident that we have the fundamental potential and many of the building blocks in place to enable a meaningful transformation and sustainable long-term growth.

I will now turn this over to Nick to discuss the second quarter results and to talk about the implications of our 2013 trends for 2014.

As Nick will explain, the recruiting challenges we have been facing this year mean that we will be starting 2014 with a lower active member base than we did in 2013, and give the nature of our Business, we expect our revenue and earnings base will be lower next year.

Nick?

Thanks, Jim.

And good afternoon, everyone.

The second quarter contains similar themes to the first quarter.

Namely, a very challenging recruiting environment, partially mitigated by good progress on our cost agenda.

Total Company revenue declined 4% on a constant currency basis, with total paid weeks down 2.5%.

We had disappointing top-line trends across both the Meetings business and WeightWatchers.com.

Operating income was essentially flat versus the prior year, with tight cost control offsetting our revenue decline.

Reported Q2 EPS was $1.15.

Excluding a $21.7 million, or $0.24 per share, one-time charge related to the write-off of fees triggered by a Q2 refinancing, Q2 EPS was $1.39 versus $1.36 a year ago.

The key challenge for our Business remains attracting new members.

This has been the case in meetings for some time, and during the quarter we experienced heightened pressure in our WeightWatchers.com business.

While our spring ad campaigns provided some early buzz, the benefit was short-lived.

Our prior forecasts had assumed the recruitment trend would improve, but the opposite has transpired.

Specifically, second quarter recruitment missed our going-in expectations for both meetings and online, and was significantly negative for the quarter in both segments.

We now expect these trends to continue for the remainder of this year.

I will now provide details of each segment's second quarter performance versus prior, as well as outline our updated volume outlook.

Starting with WeightWatchers.com.

While second quarter Internet revenues grew approximately 6.6% and paid weeks rose 4.4%, sign-ups were negative in our English-speaking markets, resulting in end-of-period active subscribers rising only 1.4% versus the prior year.

Importantly, while we are challenged in finding new subscribers, retention remains unchanged at nine months, which indicates no change in satisfaction with our WeightWatchers.com offering among current subscribers.

Given the weak sign-up trend, we now expect WeightWatchers.com paid weeks for the back half of the year to decline in the mid-single digit range.

Within the Meetings business, total NACO revenue in the second quarter decline 4.7% versus the prior year.

Paid weeks were down 10%, and attendance decline 14.5%.

In-meeting product sales declined 8.9%, the result of lower attendance, as product sales per attendee were up 6.6%.

The impact of four franchise acquisitions completed between September and March contributed 2.2% to NACO meetings revenue in the quarter.

In July, post-Q2 close, we completed the purchase of three additional franchise territories, the Columbus region for $23.5 million, West Virginia region for $16 million, and Reno for $4 million.

As a result of the seven acquisitions we have done over the past year, North America is now about 87% company-owned.

Within B2B, the Strategic business continues to perform well, with revenue up nearly 30% in Q2, and we see significant growth potential for this business.

The regional business, which recall is not subsidize by employers, continues to be impacted by the same recruitment dynamics as our overall business, and sales were down about 1%.

For the second half of the year, we expect continued softness in the NACO meetings business, with volume declines in the mid-to high teens for both attendance and paid weeks.

Next, the UK meetings business.

This market has been our most troubled, with significant revenue and volume declines versus prior.

The key factor remains an aggressive local competitor.

Note that over the past few weeks, both Jim and I have been to the UK to assess the situation firsthand, and the team is aggressively focused on what it will take to reverse the recent trend.

We have appointed Jeanine Lemmens, who previously led the turnaround of our Benelux operations and restored that region to growth, to lead the UK effort.

Second quarter UK paid weeks declined 19%, and attendance was down approximately 20%.

We expect mid- to high 20%s decline in both paid weeks and attendances for the balance of the year.

Finally, the Continental Europe Meetings business.

Paid weeks declined 1.6% in the quarter, and attendance fell 6.7%.

While we continued to benefit from a higher incoming actives base from prior year, enrollments are challenged in light of the broader macro backdrop in that region.

Looking forward, we expect the back half of the year to be slightly softer than the first half.

Our other revenues, which include franchise commissions and licensing revenue, declined 11% in Q2 versus the same period last year.

Licensing sales were down in absolute terms, but up about 2%, excluding a prior year one-time benefit from a vendor termination.

In summary, we expect total Company year-over-year revenue to decline by low double digits in the second half, and high single digits for the full year.

For the full year, we expect total meetings revenue to be down low to mid teens, and online to be roughly flat.

For total Company paid weeks, we expect the second half to be down high single digits, and down mid to high single digits for the year.

Onto some specifics for our other key financial metrics for the quarter.

In Q2, gross margin was down 70 basis points to 59.8%.

This was better than our expectation, with mix and cost savings being the primary drivers.

Relative to the prior year, the 70 basis points decline was a function of mix and pricing benefits, more than offset by a lower meeting average, coupled with pressure on product costs, our retail upgrades, and the initial impact from our US service provider compensation changes.

Note that both the meetings and WeightWatchers.com segments saw declines in their gross margins, though the majority of the WeightWatchers.com decline is attributed to a change in managerial cost allocations, as it now absorbs a higher proportion of technology and call center expenses versus the prior year.

Meetings pricing as measured by lecture income per paid week was up about 3.9% in Q2, still benefiting from the 2011 price increases.

This metric also benefited from the fact that last year we ran a BOGO in the spring in NACO, while this year we did not.

Although we beat our gross margin forecast in Q2 as well as Q1, we don't expect to beat our forecast for the remainder of the year.

We expect our gross margin to be down significantly in the second half, due to a combination of further operating deleverage from a weaker top line and stepped up spend related to our US service provider compensation initiative, noting that over 75% of this 2013 spend will occur in the second half.

There will also be less benefit mix as the WeightWatchers.com business top line slows.

We expect gross margin for the full year to be down about 150 basis points versus prior year, with Q4 worse than Q3 in the second half.

Marketing spend was down about $18 million, or 22% in the quarter, to 14.1% of sales versus 17.3% in the year-ago period.

The decline was driven largely by the elimination of inefficient digital spend and the lack of a men-specific campaign in the US in 2013.

For the full year, we now expect marketing spend to be down by up to $50 million versus 2012, a further savings versus our prior guidance of a $40 million decline.

G&A expense rose 4% in Q2, or up 100 basis points as a percent of sales, to 12.6%.

This is an improvement versus our earlier expectation on the heels of better savings, some deferral of investments, and some one-time favorable items, namely lower stock compensation expense.

We had previously guided you that the full-year increase in G&A would be about $20 million.

We now expect a year-over-year increase of no more than $15 million, benefiting from better cost savings.

As a result of the factors I have just discussed, our total company Q2 operating profit was essentially flat, and the operating margin rose 140 basis points to 33.1%.

A few other metrics for the quarter.

Our tax rate in the quarter was 38.5%, which we continue to expect for the balance of the year.

Foreign currency had a negligible impact on results.

Turning to cash flow, Q2 cash flow operations was $64 million versus $76 million a year ago, with a 2013 we expect operating cash flow in the $300 million range, and expect to spend up to $65 million in CapEx, while we expect D&A to be about $45 million.

Turning to 2013 guidance.

Given the top line environment and our belief that this will not moderate for the remainder of the year, we are adjusting our EPS range for 2013 to $3.55 to $3.70 versus the prior range of $3.60 to $3.90.

We acknowledge we came in ahead of our Q2 expectations, and are pleased with the progress that we're making on the cost side to help defray the volume picture.

That said, the impact of weaker enrollments really starts to flow through to the P&L in the back half of the year and into 2014.

Before we open it up for questions, I'd like to talk about 2014 and to detail why we believe we will deliver lower profits and EPS next year.

We normally don't discuss forward-year guidance until much later, and have yet to launch our formal budgeting process, but given the 2013 recruitment reality, we believe we have enough visibility to make some general observations.

We are very focused on changing our recruitment trajectory in the January 2014 winter diet season, and are excited about what we are going to bring to market.

That said, regardless of the success of our recruitment drive, the reality is that we will have a much lower active space at the start of 2014 than we had at the start of 2013.

More specifically, for 2014 we expect the meetings active space will be even lower than it was at the start of this year, down in the mid-teens range, and we expect that we will also have a lower starting base in online in the range of low- to mid-single digits negative.

This is unlike 2013 where we entered the year with a higher starting active base in online that partially offset the drag from the lower active meetings member base.

Irrespective of 2014 recruitments, the financial impact of the lower 2014 starting membership base is an approximately $50 million headwind on operating profit for the year.

One other factor to consider for 2014.

As we look ahead to a potentially rising interest rate environment, we have entered into a $1.5 billion interest rate swap to manage our risk on our floating rate debt.

This swap will kick in in the first quarter of 2014 when our current swap matures.

It will lock in interest rates, and as a result, approximately 60% of our debt will be at a fixed rate.

While this is the prudent risk management step to take, overall interest expense will increase by about $14 million in 2014 relative to 2013.

Rest assured that as we plan for 2014, we will continue to hit costs hard.

In addition to the marketing savings which are more easily seen in the P&L, a few other examples of what we are working on include tight controls of discretionary spend, consolidation of vendors and consultants, and early work on supply chain initiatives.

We've saved over $20 million year-to-date, and expect us to end 2013 having generated in the neighborhood of $15 million in gross savings with progress from every region and functional area.

The response from the Weight Watchers team has been tremendous, and Jim and I see further efficiency opportunities to explore.

But our broad assumption is that a substantial portion of these incremental savings will likely be used to fund the increase in US service provider compensation and our future growth initiatives.

While we have yet to build our 2014 plan, the factors we have discussed represent a 2014 pre-tax earnings drag of $64 million.

This is the expected earnings base onto which we will layer our 2014 volume plan.

We look forward to sharing more details behind our strategic plans at our fall Investor Day, which Jim indicated will be held on November 6. More details will be forthcoming, but please hold the date.

We would like to open this up for your questions.

Operator?

Thank you.

(Operator Instructions)

First question is from Glen Santangelo from Credit Suisse.

Thanks for taking my questions.

Jim and Nick, I am kind of curious.

Nick, when you gave guidance at the beginning of the year, you sort of laid out your expectations for sort of paid weeks as well as the online business.

And sort of looking at the first two quarters of results, I mean you did reasonably well compared to that initial guidance, and it just seems like the numbers are really falling off a cliff in the back half of the year, and yet you are sort of suggesting that, listen, there is nothing in the next five months we can do to prop up our -- any type of utilization.

It almost seems like you are giving up, to some extent, on the 2014 marketing campaign.

I am trying to figure out, relative to what happened in the first half, why the declines are so steep in the second half, and why do you have so little confidence in your ability to sort of influence your utilization with a marketing campaign in 2014?

Thanks, Glen, for that question.

You know, let me assure you certainly not giving up.

The whole team is applying the same intense focus on our commercial initiatives as we are on our cost-savings initiatives.

What you are seeing in the second half of the year is the natural flow-through of what has been a weak recruitment environment, a tough start to the year flowing through into paid weeks and revenues in the back half of the year.

Since we last gave guidance, what we've seen is deteriorating trend in recruitments, particularly on our online business.

And we feel that some of that is driven by the continued sudden explosion of interest in free apps and activity monitors.

Of course, we're very focused on making 2013 as good as it can be.

That's why we reacted nimbly to put new advertising in place in the United States with Ana Gasteyer.

That's why we are very focused on preparing for our fall campaign.

Realistically, as you know, Glen, in our business the big opportunity to change the trajectory of the business is in the winter diet season.

So frankly, what you are seeing in our second quarter forecast -- second half forecast more than anything is the natural math, if you will, of a very tough recruitment environment, and one which got harder since the last time we spoke flowing through to back half revenue.

Jim, maybe as a follow-up to that, I mean, I'm sure you don't want to share your 2014 marketing plans with us.

But, I mean, is it your anticipation in the back half of the year embedded within those expenses, you are going to ramp up to some extent the marketing expenses for January 1?

And at this point, I mean, even if you don't want it share the details, does the Company have a plan in terms of its marketing strategy for January?

Or is it a little bit too early in the process for that?

Well, I will pick up on your reference that I won't share too many details about our commercial plans, for obvious reasons.

But to repeat one portion of what Nick said, you should absolutely take away that we are intensely focused on improving our commercial operations, and particularly consumer activation.

With respect to January, we do have a plan, and we do have a consumer activation plan that we feel excited about.

We think it's rooted in something consumers will respond to, and we're going to pursue it aggressively.

Yes, one thing I want to stress, Glen, as we look to '14, we have discussed that the issue with free apps is that they're taking trial out of the market.

We view that as a temporary phenomenon, because we know that our program works.

We believe, as Jim has said, in the science behind our program.

And frankly, we know that when we get our program news and our marketing execution right, wonderful things can happen to this business.

So we haven't given any guidance today on what we think our '14 recruitment outlook will be.

But all we're talking about is the starting active hole that we face as a result of the '13 recruitment environment.

We are very focused on driving recruitments in this business.

Okay.

Thank you.

Thank you.

The next question is from Jerry Herman from Stifel.

Please go ahead.

Thanks.

Good afternoon, everybody.

First question.

I sense that there is a growing concern about online as you're talking through this conference call.

Given the acceleration, or deceleration I should say, and negative comps in sign-ups, do you feel now that there is something that is structurally has changed?

In other words, are consumers now expecting free apps?

Does that necessitate price reductions?

How do you think about that?

Well, this is Jim, Jerry.

I think as Nick referenced, we think there is a lot of competition for trial and forces distracting the enrollment mechanism associated with free apps and with activity devices in general.

But I think it's critical to make a distinction between competition for trial and alternatives to our proven and effective program.

As a standalone activity with consumers, we're reasonable confident that these things are not going change the trajectory of the obesity challenge.

Turning that around and looking at them as the potential additives to a strong program like ours, we think through time there are real opportunities for us to strengthen our offering on the basis of what we're seeing have a real appeal for consumers.

So I think these are challenging forces in the short run that do affect the online business, but these are things that we feel strategically we can turn to our advantage.

I think that's absolutely right, Jim.

Look, we have experience in that regard in our own business with our successful active linked partnership with Phillips, and we are seeing those take-up rates in our meetings business, the power of seamlessly adding something new to our program offering and enriching our membership experience.

Just coming back to the free apps issue.

All of our research and our customer insights tell us that calorie counting just gets boring after a while.

Folks just can't stick on the program and don't learn any lifestyle change behaviors while they're on the free apps.

So it's taking trial away from our business, but we know that we have a holistic program that can work going forward.

Then a quick question about the compensation changes.

Could you maybe add some color there, and sort of the P&L impact of those changes?

Yes, I won't add too much detail because as you can imagine, I think it's very important for our service providers to hear those changes from the Company first, and we're in the process of rolling those out.

But let me tell you about what we're trying to achieve.

We're really trying to ensure that our service providers feel that they're getting fairly compensated for what they bring to Weight Watchers and the investment they make in Weight Watchers.

And in that regard, our compensation program, frankly, was a little complicated, and we're simplifying it.

As we simplify it, we are maintaining the performance elements of it, and we're maintaining the variability elements of it.

It's, as we said 75% of the cost of the program rollout is back half of the year versus first half of the year.

And if you look at our gross margin trend, it's one of the top three drivers of the deterioration in our back half gross margin trend.

The other two, of course, being the weaker revenue environment and the less mix benefit driven by the slower growing dot-com business.

If I could, I promise this will be my last question.

It's for Jim, and it's kind of comprehensive, but if you can, try and answer it in a succinct way.

Jim, the question is, how do you think about the growth rate for Weight Watchers?

You got this tremendous market opportunity, yet the key metric of measurement, i.e., attendance, hasn't really grown for the better part of a decade.

You have high margin, strong cash flows, much of which goes to deleverage the Company, which is in part reflective of your majority owners' action.

How do you think about the growth profile of Weight Watchers on going-forward basis with those inputs?

Yes.

I think if you look at a measure of engagement as we do, paid weeks, that has shown up to this year (inaudible) growth, I believe, for the last five years.

So I can turn maybe a bit to the -- what's beneath your question, less on a quantified basis and more in general as to how I see the forces that might affect growth in the future for the Company.

And I did mention them a bit in the earlier remarks.

I think there is an extraordinary opportunity here.

I don't think I have ever worked in a business before where the potential market is as enormous as this is.

I think it is a tricky category to market in, but as Nick said, when we get those variables right, we can have tremendous impact.

I think historically our product has been bifurcated between an online product and a meetings product.

And as we look to the future, and as we become much more consumer-driven in the way we construct our offerings, I think there is a real opportunity to innovate and to offer something that will be stronger in the market.

And my belief in that is strong and that, as a consequence, as you would imagine, translates into a belief that I think we can improve growth rates over the long term.

There is a lot of work to do there.

There is a lot of conceptual thought.

I hope to share more with you guys about that in November at the Analyst Strategy Day, but we have a lot of work to do, but I'm bullish, driven by the fundamentals that we can create a good long-term outlook.

Great.

Thanks for taking my questions.

I'll turn it over.

Thank you.

(Operator Instructions)

The next question is from Greg Badishkanian from CitiGroup.

Thanks.

Just thinking about, thinking out to kind of next year in innovation, are you planning to launch innovations in all of your markets, some of those, and have you done any test marketing that might give you some more confidence that, in terms of the potential success of what you're planning for the next year's diet season?

Well, I think that the general comment about information regarding future innovation is going to be that we probably wouldn't share too much about that.

Sure.

We will share more again in November.

I know you're going to get tired of me saying that not too long from now, if you haven't already.

But we will share more in November about our strategies and the directions of those strategies, and there will be a high complement of innovation driving our efforts as we go forward to meet the market.

So let me just leave it at that.

I think that's absolutely right, yes.

Are we looking at driving growth in all markets in '14?

Yes.

It's an international effort.

Yes.

Yes, good.

So the biggest driver do you think of -- that's impacting some of your metrics, do you think that's just, as you said, it's free apps and the trial that it's getting, but it's not necessarily going to be successful?

So eventually they will come back to Weight Watchers?

I guess similar to, you could say like the Atkins fad or the low carb fad, things like that where they try it, it has an impact, and then the next few years, you recover from it?

Is that what you think?

And is it impacting also your in-class business as much as the online business, or is it more of the online business?

Look, our recruitment, our profile on both sides of the house has been weak, specifically this year, as we've said, there's been a slowdown in the online business.

But you're absolutely right.

Weight Watchers has faced this issue before.

We, our sector, there is a slight fad nature, if you will, to the space in which we operate.

History shows that folks come back to the holistic program that works.

And if I could just add, it's a bit of a repeat, the flip side of this is that this is also evidence of a lot of consumer interest it in things that generally they feel might help their health and wellness and their lifestyle going forward.

So in the short run while we think there is interest that might not translate into medium-term success using those devices and using the free apps alone, that interest is a big factor for us to consider as we contemplate what components should make up our future offerings and as we contemplate our strategic stance for working with the marketplace.

Are we going to be a little more singular and a little more internally focused and do everything ourself, or are we going to open up the power of this multi-million member community to work with other partners in a way that strengthens the brand and strengthens our footprint?

As Jim commented in his remarks, is there an opportunity to reimagine our offering?

Absolutely.

I hope it's very clear that we don't like our recruitment environment right now.

But frankly, I'd be much more concerned if there had been any change to the satisfaction of the members on our program, or retention of members on our program, and it's very important to note that satisfaction remains very strong, and retention on the program is consistently as good as it's ever been.

Right.

One more question.

So, Jim, when you were, let's say, we're three years from it now looking back.

Would you say that the changes that you're planning to implement are minor tweaks when you look back on it, or are they going to be major -- some major, major changes that we should plan ahead?

Look, I think we're approaching this as a transformation on a strategic level.

On the short-term basis, as we deal with performance, which is one of the three priorities I mentioned before, I think we look at that, as Nick said, with the urgency on both cost and revenue.

That feels like turnaround in its effort, turnaround in its focus.

When we look longer term, to your question three years out looking back, that is a transformation.

I think the components of that are getting the right strategies, the strategies that relate to our commercial operations, the strategies that relate to the way we deliver our programs.

Very importantly, developing the focus and the ability to execute at a much higher level than we have in the past, and aligning the power of the mission and the focus of the organization against these opportunities.

So figuring out what are the short list of strategies that we really want it to align around, and then building the clear plans and accountabilities and metrics and all the things that are required to make a business go forward quarter after quarter, building that execution model.

That to me, if we look back three years out and we saw that in our rearview mirror, that's something I think we would be proud of.

Good.

Thank you very much.

And congrats on the promotion.

Thank you.

Thank you.

There are no further questions registered at this time.

I would like to turn the meeting back over to Mr. Chambers.

Well, thank you for your participation in today's call.

While disappointed with the near-term performance and outlook, we remain excited about the longer term opportunities in front of us, are working hard to transform the business and get the top line moving, and are confident in our ability to deliver.

We look forward to ongoing dialogue, sharing more of our plans, and providing progress updates over the coming months.

Thank you.

Thank you.

The conference has now ended.

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