WW International Inc (WW) 2013 Q4 法說會逐字稿

Good afternoon and welcome to the Weight Watchers fourth-quarter and full-year 2013 earnings conference call.

(Operator Instructions)

Please note this event is being recorded.

I would now like to turn the conference over to Corey Kinger, please go ahead.

Thank you, Laura, and thank you to everyone for joining us today for Weight Watchers International's fourth-quarter and full-year 2013 conference call.

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

At about 4.00 pm Eastern time today the Company issued a press release reporting the FY13 results for fourth quarter and full year.

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 measures are also available as part of the press release.

Before we begin, let 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 statement and the risks and uncertainties of such statements.

All forward-looking statement 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.

Thanks, Corey, and good afternoon, everyone.

Today Nick and I would like to do a few things, update you on our Q4 and full-year 2013 performance, tell you how 2014 has started and the implications for 2014 guidance, and as promised on our investor day three months ago, share with you our progress against our transformation plan.

At a high level, our Q4 performance of $0.54 per share was in line with expectations as good cost management was partially able to offset a deteriorating top line, which included the first-ever quarterly decline versus prior in Internet revenues.

Furthermore, the start of our year is proving to be every bit as challenging as we thought, if not more so.

The headwinds from free apps and activity monitors have only continued to intensify, and are significantly impacting consumers.

And our marketing efforts in the early part of this year have been less effective than we had hoped, putting our top and bottom lines under greater pressure.

During our investor day on November 6, we shared our assessment of the state of the Weight Watchers business.

We were frank about the challenges we face and clear about the strengths we have to work with to turn around our business.

I'd like to recap that story starting with a three-point summary of our situation assessment.

First, our offerings have become less appealing in this changing market, largely because our innovation approach and our approach to the consumer in general have not been sufficiently market-driven.

In addition, we have a big task at hand to modernize our technology architecture, and create a more efficient product development engine.

Second, our costs have increased over time particularly G&A and technology costs, but also our meetings business operating expenses, where we have not been quick enough to flex down the cost structure as recruitment trends turned negative.

Third, on the positive side, we have a lot of strengths to build on.

The Weight Watchers program works.

We have a great brand with high awareness and deep trust.

We have a large community of past and present members, and our organization is passionate and mission driven, including many thousands of talented service providers supporting our members' weight loss efforts in the field on a weekly basis.

In response, we shared the four strategic pillars that make up the transformation plan that we are aggressively pursuing.

First, we must improve our immediate performance in tough competitive conditions.

We need to deliver every bit of top line we can and work hard on our cost agenda.

Second, we need to create product advantage through reimagining our offering, building more quickly, and constantly validating at a consumer level.

Third, we must expand aggressively into healthcare.

And, finally, we need to continue to strengthen our organization, building capability and increasing agility.

We remain confident in these strategies to transform this great Company, and we are making progress against key elements of our multi-year transformational plan.

To add to our update, I'd like to outline the tactical priorities we have under each strategic pillar and detail our current efforts therein.

First, as you recall is improving near-term performance.

As Nick will discuss in more detail, we are seeing softness across all of our largest markets.

With respect to this year's program enhancement, our marketing has failed to generate the expected interest in Simple Start.

As a result the take-up rate has been slower than expected, but from those who have pursued it, the feedback is positive.

As a product enhancement, Simple Start has more potential than last year's innovation, but the marking introducing it has been less effective.

The net of this is that we have not been able to combat the increased pressure on consumer consideration from free apps and activity monitors.

In this context, the first pillar one priority is to maximize our consumer activation.

In nearly all markets, we are changing up our advertising rotation and introducing re-shot or re-cut ads that focus on what has resonated better, a mixture of a more direct focus on Simple Start as a new program, and here in the US, launching new Jessica Simpson ads starting next week.

The second pillar one priority is cost management.

We continue work on our cost agenda, on which, despite progress in 2013, we have further work to do.

While Nick will go into our plans in more detail, 2014 will include a more significant effort on G&A expense.

In fact, after four years in a row of significant increases in the G&A expenditure, we will be reducing total G&A in 2014.

And this is despite making substantial investments in healthcare and in our product innovation and development capability.

As you saw in 2013, we will continue to reduce spending on outside contractors, while ensuring that we are building strength within the organization where it is most needed.

Our third pillar one priority is to re-plan our marketing investment to efficiently break through a busy consumer activation environment, influenced by heightened interest and engagement with free apps and activity monitors.

Within this effort, we will be reducing marketing spend this year, consistent directionally with our decreased revenue forecast.

Finally, we have made the explicit strategic decision to focus our resources on those markets with the highest near-term potential.

By way of example, since we last spoke, we have shuttered our China operations.

Our second strategic pillar is creating product advantage through reimagining our offering.

Our focus here is on creating strategic capability through more efficiently and with more confidence build things that consumers want.

This won't happen overnight, but we are making progress and are committing more resources to this effort.

We are fast cycling ideas through validation via customer feedback in real world conditions.

In particular we are building our learning in the area of support, not to mention critical to the Weight Watchers brand differentiation.

We are engaging consumers around channels of contact, phone, video, text.

We are finding out how they do and don't want to be contacted.

How much contextual prompting is preferred versus open-ended dialogue.

How aggregated content broadcast such as webcast are received and for what support objectives they are appropriate.

We've watched first-timers come to our digital landing pages and observed how confusing it is for them to learn about us.

We see how in this case we've been too focused on the repeat customer.

We have performed detail research comparing our digital offerings to emerging competitors.

We understand the performance of individual key features as well as overall perceptions around ease-of-use of reported weight loss.

We understand where we are strong and where we have opportunities and are actively working on improving our product.

We are learning a lot about how to add value to our offer.

Through this, we have already identified the direction of our 2015 winter diet season product innovation, with teams in place focused on the technology build, researching marketing positioning options and identifying the field of delivery capabilities required for success.

Our third strategic pillar is our expansion into healthcare.

The first priority here is to build the foundation, which includes investing further in HIPAA compliance, data capture and the systems required for eligibility verification, billing and reporting.

By way of example, we have designed a tablet -based system that will allow us to create an easy to operate platform for our meetings environment, as well as create a stronger and more modern member experience in general.

Our new CTO, Dan Crowe is playing a pivotal role in these efforts, and we are leveraging external domain expertise where most appropriate.

We expect that by the end of Q2 we will have selected the key technology partners for systems build out through the balance of your.

This brings us to the second priority within pillar three, establishing partnerships with health plans.

We are in discussion with a select number of health plans for launch of new or expanded benefit offerings for their members for potentially as early as the 2015 benefit season.

We are very pleased with the progress of these discussions, and are exploring a variety of approaches to leverage the evidence-based and consumer engaging strengths of the Weight Watchers program within a health plan benefit offering.

We expect to continue to update you on our progress on this front as we move through the year.

The third priority within pillar three is to continue to grow our strategic accounts direct through employer relationships.

Our fourth and final pillar is strengthening the organization.

The first priority here has been to build a strong senior team and model the culture we desire.

I'm encouraged by our progress here.

We have established a great team.

They are a team that is incentivized for success and can get us through the turnaround portion of our transformation and scale to growth beyond.

Within the last 12 months, we promoted our two best operators to run both halves of our international business, recruited a new head of human resources, a new CTO, and most recently as announced in November, Lesya Lysyj joined us to run our North America business from Heineken where she was CMO for the US.

I have worked with Lesya for five years at Cadbury, and I know she will contribute greatly to developing our brand strategy, improving our consumer activation, and delivering results in the North America marketplace.

The entire team is advancing a culture of empowerment, agility, collaboration, and results orientation.

Our second pillar four priority relates to efficiency.

As part of our commitment to reduce G&A expense, we are working hard on creating a more agile and efficient organization.

Our plans are not final, but we know this won't be a uniform exercise.

There will be additions and reductions, but overall we will be a smaller organization.

We will continue to add investment in healthcare and the product and R&D organizations charged with our core growth strategies.

In most other parts of the organization, we will reduce -- be reducing investment by eliminating redundancies, improving our processes, and getting smarter about setting priorities and making trade-offs.

For now, on technology, we are asking the team to focus its efforts on adding value to our core product offerings, including critical work on the 2015 innovation.

As a result, our commitment to reduce G&A this year does not include material net savings in tech, which represents a sizable portion of the totals expense.

Efficiencies in tech will come in 2015 and beyond as we improve our delivery model.

Before I hand it over to Nick, I will leave you with this.

We have a clear view of our situation.

We know what the issues are.

We don't like our performance so far in 2014, and we are working hard right now to improve it.

Our plans for the 2015 product innovation and healthcare initiative are on the right track.

I've got the right team, and we are motivated to deliver our transformation plan.

Over to Nick.

Thanks, Jim, and good afternoon, everyone.

For FY13 our reported EPS is $3.63 as compared to $4.23 in the prior year.

Included in our FY13 EPS is a $0.24 charge associated with our April 2013 refinancing.

And included in FY12 is the $0.07 benefit from an accrual reversal related to our UK tax settlement.

Excluding these items, we delivered 2013 EPS of $3.87 within our guidance range of $3.85 to $3.95, and compared to our prior year EPS of $4.16.

All of my subsequent remarks today will exclude both of these items from P&L comparisons.

The major theme of 2013 was consistently weak and deteriorating recruitment performance, resulting in paid weeks and revenue trends that became progressively worse throughout the year.

As expected, Q4 was our weakest quarter.

Total Company revenue declined 11% in Q4.

Fourth-quarter total paid weeks were down 8.5%, with declines in both our online and meetings businesses.

Despite continued nimble cost management, these top line trends put substantial pressure on the P&L resulting in Q4 operating income declining 26.7% to $79 million.

Q4 EPS of $0.54 included $0.04 of costs associated with the shutdown of our China operations.

Now onto fourth-quarter business performance, starting with weightwatchers.com.

As Jim mentioned, our Weight Watchers online business had its first-ever quarter of declining revenue in Q4.

Fourth-quarter Internet revenues declined 5.2% ( technical difficulty) end of period global active online subscribers declined 7% to $1.7 million from $1.9 million at year-end 2012.

Moving to meetings, end of period global monthly (technical difficulty) declined 11%, (technical difficulty) $1.2 million from $1.4 million eight year-end 2012.

Our North American meetings business remains under pressure, and in the fourth quarter total NACO meeting fees declined 13%, paid weeks declined 11% and attendance was down 13%.

In meeting product sales declined 29% with product sales per attendee down 19%.

The franchise acquisitions we have completed in the past year contributed about 3% in NACO's topline results in the fourth quarter (technical difficulty).

Within B2B the strategic business grew 10% in Q4.

Key new account wins in Q4 2013 included Coats USA, the University of Colorado, and Winn-Dixie.

However, the regional at-work business, which is not subsidized, followed similar trends as our B2C business.

Next, UK meetings, in the quarter, paid weeks and attendance were down in the low 20s, finally in our Continental Europe meetings business, paid weeks were down 2%, and attendance was down 6%.

Globally, our other revenues, which include franchise commissions and licensing revenue, declined 10% in the quarter.

Now, I will review some key financial metrics for Q4 2013.

In the fourth quarter, gross margin declined 170 basis points to 55.1%, with full-year gross margin of 58.1%, 60 basis points below the prior year.

There were declines in both the meetings and weightwatchers.com segments.

For both segments operating cost deleverage was a key factor.

For meetings there was the additional impact of our US service provider compensation changes.

Q4 marketing spend was down over $11 million versus prior.

For the full-year, marketing spend was $296 million, down $58 million versus 2012.

Note during Q4 we implemented a new accounting treatment for marketing support received from vendors, whereby this funding is recognized as Weight Watchers' revenue and also reflected as gross marketing spend.

For the year, and the quarter the impact of this change was $11 million and $1 million of marketing respectively.

The marketing spend decline for the year was driven by reductions in TV production and digital spend, as well as the absence of a men's specific US campaign in 2013.

Q4 G&A expenses increased $8.7 million versus prior, largely driven by one-time expenses, such as the costs associated with shutting down our China business.

For the full-year 2013, G&A spend was up $15 million.

Our Q4 tax rate was 41.4%, higher than normal, driven by the China closure and some other one-time adjustments.

In the quarter, foreign currency impact on our results was negligible.

In 2013, cash flow from operations remained strong at $324 million.

We ended the year with $175 million in cash, and $2.4 billion in debt, which has no restrictive financial covenants.

Now, I will discuss our outlook for 2014.

As Jim said, while we have strong confidence in this team's ability to execute a successful transformation, we knew that 2014 would be a very challenging year.

We were hopeful that our Simple Start program would have a positive impact on our recruitment trajectory.

Unfortunately, due to the competitive forces that Jim has discussed, and the campaign that under-performed, our recruitment trajectory worsened.

Given the lowest starting active space versus prior and the weak recruitment environment, we now expect revenue to decline in the high teens and are forecasting revenue of roughly $1.4 billion for 2014.

For the first quarter 2014, we expect weightwatchers.com paid weeks to decline in the mid teens versus prior, and high teens for the full-year.

For meetings in North America, we anticipate that full-year and Q1 attendances in paid weeks will decline year-over-year in the low 20% range.

In the UK, we expect attendance and paid weeks declines versus prior in the 20s for both the first quarter and the full-year.

Finally, for CE, we anticipate paid week and attendances is to be down mid- single digits in Q1 and the year.

Now some color on costs: our philosophy is to invest in key areas in support of future growth but to cut aggressively elsewhere.

As Jim mentioned, headcount reductions will be part of our plan.

In FY13, we made good progress towards the $150 million annual gross savings goal we announced at our investor day.

This goal included approximately $60 million of marketing spend right sizing, which we realized in 2013 and approximately $90 million in gross annual operating expense and G&A efficiencies to be achieved between 2013 and 2015.

As we see it now, we will meet this savings goal by the end of this year.

Moving to gross margin, despite expected operating expense savings, gross margins are anticipated to decline roughly 400 basis points for the full-year 2014, with Q1's decline in the same neighborhood.

This decline is driven primarily by operating deleverage across both our meetings and online businesses, and also includes the incremental expense in 2014 related to our new US service provider compensation program.

In line with Jim's remarks, our Q1 marketing spend will be broadly in line with prior.

We are currently anticipating that marketing expense for the full-year 2014 will decline by roughly $20 million.

As you would expect, given our intensified scrutiny on all areas of expense, in 2014 G&A will decline for the first year since 2009.

We expect 2014 G&A to be down low single-digit percentage versus prior despite our plan to spend up to an incremental $20 million on the combination of healthcare and new product development.

Absent this planned investment, G&A is expected to decline by double-digit percentages in 2014, and our go forward plan calls for further double-digit [assensus] reductions in G&A in 2015 driven in part by the opportunity to reduce our tax spending once we have revamped our technology model.

Below the line for the year we expect interest expense of approximately $125 million and at tax rate of 38.5%.

For 2014 we expect to spend about $50 million on CapEx with G&A for the year of about $45 million.

Generating cash to pay down debt is our clear capital structure priority.

Our 2014 earnings guidance reflects the fact that the revenue decline puts substantial stress on our P&L.

It also reflects a continued aggressive focus on cost.

However, while reducing costs is a necessary building block of our transformation, by itself, it would be insufficient.

That is why we are investing in support of product innovation particularly for the winter diet season 2015 and healthcare.

Therefore, we are providing EPS guidance for the year of $1.30 to $1.60 with the lower end assuming no change in current recruitment trends.

Note that this guidance incorporates the fact that FY14 includes a 53rd week, which bridges the last week of December 2014 and the first week of January 2015.

And this 53rd week has than expected negative $0.04 impact on our full-year EPS.

Also, during the first quarter, we intend to finalize plans to re-size the organization, and one-time costs associated with this plan restructuring are not included in this guidance.

We expect Q1 2014 to be our toughest comparison, given that marketing spend will be broadly in line with the prior-year quarter, and not all of our cost efforts will have kicked in.

We will now open it up to questions.

(Operator Instructions)

Meredith Adler, Barclays Capital.

I would like to just start by talking a little bit about what you saw happening in the fourth quarter as the quarter progressed?

And then what you have seen in the first quarter in terms of both paid weeks and online sign-ups?

Meredith, of course since we last spoke in our November 6 analyst day, of course 2014 is worse than we thought.

And that is reflected in both our Q4 results that showed continued strain on our topline business, including weightwatchers.com turning negative for the first time, and into the winter diet season.

So, it really is that tough recruitment environment.

I think as we have said that was based on the fact that, while we feel Simple Start a better innovation the last year, our marketing could've been more effective to support it.

That is why you see us moving quickly on all fronts, launching new Jessica ads for example next week to get as much topline out of this year as we can.

And then -- Maybe -- Sorry?

When we spoke back in November, I think we were continuing a consistent diagnostic observation about what was happening around the free apps and activity monitors space, which have always been closely related to the consumer's perception of weight management.

And we admitted at the time that the hardest thing to project would be coming into the key diet season, whether the rising interest in these devices from a trial perspective was going to have a bigger impact than the trend had suggested.

And we have seen that.

If you look at everything from Internet search trends to App Store rankings to share of voice and social media you can see that it was indeed a very crowded and noisy environment within which we saw trial as we started this year.

And then maybe I have a question about whether there are any limitations on your ability to provide support online, and actually get paid for it.

Somebody I think I have heard that there are in your contract with franchisees there are limits on how you do that.

Can you talk a little bit about how you think that is true and how you work around it?

I think there is a degree to which we can address this.

And I think fundamentally that we are seeing in concert with everyone who operate a Weight Watchers branded service in the country now that things that might've been true 10 years-- 20 years ago, things that might've been associate with choices we made 5 years to 10 years ago about how we offer our products are probably not what the consumer of today is looking for.

And as we work with our franchise partners, we are going to need to solve the consumer's problem.

And we think we can do that.

We know we have the assets to do that, and we think we have the operating flexibility to do that.

We are learning, and we are sharing with our franchise partners.

And we are looking strategically at the future hand-in-hand to make sure that we can bring everything Weight Watchers has to bear against the new consumer definition of the fitness and weight management market.

And my final question would be about right-sizing the organization, but I'm not exactly sure what that means.

You've obviously used outside contractors a lot.

You have to be very careful how you cut marketing.

So, what does it mean to right size?

Well, I'll talk about it Meredith in the terms of G&A.

It means that I think 2014 will be a watershed year for the Company that will reduce G&A after four years of increases.

We've locked in our G&A target and committed to reducing G&A.

The mix of headcount reductions and professional fees reductions is being finalized.

Both will play an important role in that 2014 exercise.

What I would like to stress, though, that as we manage G&A and frankly every other cost on the P&L, we would like to feel that we are being responsible and trying aggressive P&L management in the short term.

But it is within a long-term strategic focus.

That's because we are confident, as Jim has said, that we do have the right strategy to change the recruitment trajectory.

And that is why while we are managing costs tightly, we are continuing to invest in the future and that is reflected in the guidance that we've given.

Okay, thank you very much.

I will turn it over to somebody else.

Glen Santangelo, Credit Suisse.

Jim, I wanted to ask you about analyst day.

At analyst day you were willing to look a little bit beyond 2014 into 2015.

You seem to suggest that there was a possibility we would see some revenue growth out in 2015.

I'm curious if you are still comfortable with that.

And then as a follow-up, when I look at the structural problems created by the free apps and the activity monitors, it seems like maybe that structural problem is gaining a little bit of momentum.

And so, I appreciate all the detail on the four pillar strategy, but I'm curious, as you move forward, it feels like you are moving -- continuing down the same path with Jessica Simpson.

On the marketing front it seems like a little bit of more of the same to us.

And I'm curious to get your perspective and do you think if it's time to rethink the playbook on the marketing front, and also rethink the playbook on the way you distribute the product to your end consumers?

(multiple speakers ] during the analyst day I'm curious if there has been any change in your thinking given maybe the development of the structural issues.

Glen, I will take the first piece.

Basically, we said at analyst day that we were confident that our recruitment trajectory would turn during 2015, and that we would return to revenue growth in 2016 and become a $2 billion company in 2018.

We believe that as much as ever, and it is no single digit CAGR from the 2014 starting point to get there.

We are confident we can turn around the B2C business.

And Colin's making great inroads on the healthcare side of the house also.

And Glen just to confirm your second question had two pieces, essentially product strategy relative to free apps and marketing playbook and is the current tactical approach more of the same?

It feels like with respect to the marketing program coming you are going to rerun the Jessica Simpson ads.

And obviously that would help recruitment to some extent, but it feels like -- I want to get your perspective do you feel like the structural problems of the apps and activity monitors do you feel like its getting worse here in 2014 relative to what we experienced in the last 18 months?

And if so do you have to rethink the playbook on those fronts to try to deal with those pressures?

So I think tactically, we have reacted.

I don't know that I would say rethink the playbook, that's a matter of interpretation.

I will try to build on that.

But let me go back to the free app dimension for the moment.

What has gotten more challenging is reaching -- breaking through the consumer noise to present the message.

If you are in any space of consumer consideration around weight and fitness, it got much more active through the fourth quarter and into the first quarter so far this year.

And I think that means on one level we have to be louder, and we have to be more direct, and unfortunately that wasn't the tactic of -- with the ads that we ran initially.

I'll come back to the product side of this, but I'm going to bridge now to the marketing side.

So, we had through analysis understood that what was not working was the breakthrough and Association with Simple Start as a new way to join Weight Watchers.

For three of the four ads that was not breaking through, for the other it was just at a category norm.

Diagnostically putting two pieces of information together when we watched the realtime relationship between Jessica on TV in her better PR environment doing a fantastic job talking about her real experience, we could see an immediate response in our side of the house with respect to people coming to the website and join the program.

And so the pivot that we made from a contingency perspective was to leverage that same communication environment and leverage out great she looks now and how honest her report is about her progress.

And that is essentially the ads you are going to see next week.

Stepping up a little bit from that, we have a giant opportunity with this brand.

We are a category leading brand that is so well known in a space that is really important to people.

And I think fundamentally it is a difficult category.

We have done lots of different things over the last five years, but what we need to do is we need to operate like that category leader from a brand aspiration perspective.

We need to build the brand architecture that is going to allow us to put our products and benefits underneath that, and shout like a category leader.

And a big move forward in that regard is having people who can do that, and I will put pressure on her and point to her at the same time, having worked with Leslie I know she can do that.

We are upping the challenge on ourselves to reframe how we approach the brand and reframe how we are going to leverage marketing inside the scattered.

We know when we get it right there is a tremendous consumer response, and we think we can do much better.

Finally, with respect to the free app from a product perspective.

What I have said is we certainly compete on one level for consideration with respect to all the noise that is happening there.

But on another level, free apps -- beating them -- it is just on our strategic objective.

This is an enormous market, and we are the leader.

We are focused on building this market by delivering results.

Delivering weight loss for people and making them feel better about their lives, making them feel healthier.

So, we compete with them for consideration, but that is not the strategic objective to beat the free app phenomena.

We can do much, much better.

Okay, thanks for the comments.

Jerry Herman, Stifel Nicolaus.

I just want to circle back to the right sizing or costs perspective.

Nick, previously you benchmarked what you thought the cost structure of an organization this size should be.

And I'm wondering if you could maybe update that to help us determine what incremental savings you guys might be looking at.

Yes, well certainly, Jerry, look, we upsized our cost saving goal on investor day to $150 million, and we are going to achieve that goal quicker.

And I stress within that $150 million cost savings goal, all it includes from a marketing standpoint is the right sizing of spend in 2013.

So it is taking out $90 million of cost across operating expense in G&A.

And operating expense is everything from looking at Bender efficiencies to the number of meetings we need to drop in ours, et cetera.

In G&A, it is building on our progress last year on professional fees, keeping doing that, but also having the headcount reductions that we've discussed.

So, of that $90 million of OpEx and G&A that we were going to achieve by the end of this year as part of that $150 million plan, that is probably split two thirds OpEx, one thirds G&A.

So big chunk set of both, and as we are stressing, we are deliberately preserving investment in tech this year so that we can use Dan and his expertise to revamp our tech capabilities.

But we will be focused on tech efficiencies going forward also.

Just a point to add about how we're doing this.

As Nick said before, but now in my words, we are working hard on the cost agenda, but we are protecting our path to growth and doing this very strategically.

It is comparatively easy to have a blind and blanket % cost challenge pushed onto an organization.

It is comparatively more difficult to at the same time want to build an organization that is cheaper, but it is also more agile and it's more fit for purpose.

And these are the puzzle pieces that we are putting together, and I'm confident we are doing that well, and the senior team is engaged on that.

And as I said the plan is not final, but that is our goal for the processes to come out of the other side of the exercise with an organization that is -- it is smaller and it is responsible from a P&L perspective, but it is also better.

Jim, question for you, I know you get this one a lot, but just wanted to get your updated thoughts here on your value proposition?

And when I think about that I think about what you charge in price and what it costs you.

And it sounds like your talking about some enhanced services perhaps that implies higher cost.

And likewise can you just address your most recent thoughts on price relative to competition?

I won't say too much about price.

Yes, we are looking at a range of very significant potential product enhancements.

Some will bring more cost and theoretically more pricing potential, but that's down the road.

We are not at that point of thinking about that, yet.

With respect to the other side of the value proposition, if you will, there is -- when we do the research looking at our products, looking at comparative products, clearly at the level of tools versus having a program and a plan, at the level of tools, there are things that are increasingly becoming available for free.

There is a piece of this that is becoming commoditized.

I don't think that is the piece that drives success, and therefore I don't think that is the piece that is going to determine the value proposition of our products going forward.

We have to put more of the enhancements that you are referring to into the products, but we have such a broad field of opportunity that I'm confident that we can do that.

But, I'm not going to talk too much to pricing in the short term.

I don't know, Nick, if you want to add to that?

I think the only thing I would add is that in every area of the business, I see the Weight Watchers team really being market facing and deciding what we need to do to have a winning value proposition for the customer.

So, for example during our winter diet season offer in our promotional approach we reduced the hurdle, the up front financial commitment if you will that somebody needed to pay at the moment of sign-up to join Weight Watchers online.

So that just shows the mentality of the market facing effort that Jim is bringing to the Company.

Great, thanks.

I will turn it over.

RJ Hottovy, Morningstar.

Had a question regarding the technology investments for not only 2014 and beyond.

Really wanted to get a sense for how you approach them make versus buy decision with respect to technology investments.

Or more directly have you evaluate certain mobile platforms that already exist and have proven successful with respect to recruitment efforts that you might be able to roll into the current Weight Watchers platform?

Have you evaluated that as potentially better use of capital then building something in house?

Just want to get your thoughts on that.

I think those are great questions.

The first part of this is a bit of a deferral, but in a good way.

The next call we will have Dan Crowe talk to you about -- he's our new CTO.

He will talk too about his vision and his direction integrating the technology environment with the product development environment here at Weight Watchers.

And I would say in crude evaluation, we know we have a significant opportunity to build things that are not only consumer validated, but they happen more quickly, and overall they happen more productively.

We know we have some challenges to work through, the historical technology architecture, and we will do that and Dan will share that as I said.

With respect to make versus buy, we are very open to both pads there.

In fact we will do a fair amount of our healthcare development on the outside with folks who have done that before and not pay to do the learning for the first time.

So, very open to that as a technical strategy, and we will talk more deeply about that on the next call when Dan shares his thoughts.

Yes, and maybe the only thing I would add to that of course with any definition of buy that can include partnerships to, so it's not like acquisitions are a necessary prerequisite of our strategy.

Lots of folks we can partner with along the way.

Thanks.

Matthew Jacob, ITG investment research.

Just a little bit ago you mentioned that you reduced the upfront hurdle to join online which I think referred to the elimination of the initiation fee during January.

I guess one thing is, it seems like that probably encouraged new members to sign up for a one month plan, which had the best value this year rather than a three month plan which traditionally had been the best value for new members.

So, wondering if you have a way to measure the engagement of these new one month members and any color on what you expect that promotion shift to be to churn and average membership duration for online?

Because last year you had these new members locked in typically for three months, whereas this year you only have them locked in for one month are now seeing them come up for renewal.

Look, it's a good question, and we look at retention curves across Weight Watchers online very carefully for every cohort.

As you would imagine with that offer there with the sizable shift in the number of folks that are not choosing that option somewhere in the range of close to half of the US subscribers.

I think it was a good play and some good learnings for us to apply to our commercial and strategy going forward.

I haven't seen it resulting in any material retention member loss issues so far, but we will continue to track it.

I guess its early to judge that given that a lot of people probably haven't had a chance to churn yet.

Is there higher churn or lower duration baked into your assumptions for this year?

That's a strategy is something that we tried previously in another market, so we had some familiarity with it so we are comfortable right now with our assumptions in that regard.

Okay, thank you.

Meredith Adler, Barclays Capital.

Yes, I just want to know whether you have actually sized the cost of what you will be doing in the first quarter?

How much are you going to spend on resizing the organization, or is it too early to say that?

Yes, Meredith, thank you.

But, I think it is too early to say, because our plans are not finalized, and that is why the guidance we've given excludes those severance costs.

But I would be surprised based on what I know today if the total cost of the plan wasn't mid- to high single digits.

Mid- to high single-digit -- ?

Millions, basically I believe it will be more than $5 million, the exact amount will depend on the finalization of the plant.

And then I would like to just follow-up on the last question before mine about what is built into your guidance.

You said that you have experience in other markets with the one month program.

Are you saying that you used the information you have from those experiences to embed in your guidance about how many people will not be retained after the one month?

Yes, I'm saying we use that experience to decide to try to use the approach in the United States, and our forecast includes our -- the right assumptions.

We know the model retention for one month sign up.

Okay.

Thank you very much.

This concludes our question-and-answer session.

I would like to turn the conference back over to Jim chambers for any closing remarks.

Yes, I would just like to thank everybody for joining the call today and thank you for your interest in our company.

The conference is now concluded.

Thank you for attending today's presentation.

You may now disconnect.