WW International Inc (WW) 2014 Q1 法說會逐字稿

Good afternoon and welcome to the Weight Watchers first-quarter 2014 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, Ed.

And thank you to everyone for joining us today for Weight Watchers International first-quarter 2014 conference call.

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

At about 4:00 PM Eastern time today, the Company issued a press release reporting the FY14 first-quarter results.

The purpose of this call is to provide investors with some further details regarding the Company's financial results, as well as to provide a general update on the Company's progress.

The press release is available on the Company's corporate website located at www.weightwatchersinternational.com.

Reconciliations of non-GAAP financial 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.

Thanks, Corey.

And good afternoon, everyone, and thank you for joining us.

Since our last earnings call on February 13, we've been focused on advancing our transformation plan.

And my remarks today will cover our progress.

In addition to taking you to through the details of our Q1 financial results, Nick will give you a progress update on our cost management initiatives and review our outlook for 2014.

Also here with me today is our Chief Technology Officer, Dan Crowe, who joined the Company late last year.

As we indicated on our last call, we've asked Dan to speak directly with you today about our technology reinvention, with an emphasis on how it relates to creating new products.

I'll get started with the progress update on our transformation plan.

To recap, our four strategic pillars are: one, driving immediate performance improvement; two, reimagining our core offering; three, growing our healthcare business; and, four, strengthening our organization.

Turning to our first pillar, driving immediate performance improvement, the competitive frame of the weight loss market continues to evolve, as free apps and activity monitors generate significant consumer interest and influence the trial dynamics in the category.

In that context, our pillar one performance priorities for 2014 are centered on consumer activation, member engagement, and cost reduction.

Q1 revenue of $409 million and net income of $21.5 million, or $0.38 per share, came in better than expected.

The continued significant year-over-year declines reflect the fact that we're still facing serious challenges, especially in North America and the UK, which saw declines in paid weeks, both in meetings and online.

That said, our recruitment trends, while still negative are no longer getting worse.

In response to continued weak recruitment performance early in Q 1, our business units took quick action, which helped our results somewhat as we moved through the balance of the quarter.

New advertising creative helped in a number of markets, most notably North America and the UK.

North America shot new ads featuring Jessica Simpson, while the UK created new ads highlighting the power of food and food choice.

Adapting our advertising continued in Q2 as we rolled out fresh creative with markets benefiting from each other's learnings.

The US and Germany, for example, added food-focused ads modeled on the UK approach to their rotation to begin the spring campaign.

The teams also have been exploring new promotional tactics, with discounts on long-tenured packages in North America, and group buying discounts moving the needle in the UK and Continental Europe.

Here, too, the activity continues into Q2.

Our retention performance in the quarter remains in line with the past.

We continue to focus on member engagement, and our efforts to connect more directly with members early in their tenure are showing promise.

While it's still too soon to fully read results, we are learning more about how to help members get off to a strong start with our program, leveraging increased contact with service providers in person and through digital sport.

In addition we are opening up our platform for integration with leading activity monitors and expect our implementation to begin in Europe in the middle of this year.

Expense management remains an important focus for the Company, and one to which we are fully committed.

Nick will expand on the details but highlights include exiting select money-losing international operations, a restructuring of our headquarters and field organizations, and better alignment of our meeting network.

Our transformation plan calls for $150 million in gross annualized cost savings across 2013 and 2014.

And we are on track to hit this target.

While we continued to take costs out, we are also investing in the future, most notably in our forward product strategy and in our healthcare initiatives.

Which brings me to pillars two and three.

Pillar two is our product strategy and it calls for reimagining our core offering.

While the bulk of our effort is focused on prototyping changes for 2015 and beyond, we are addressing near-term opportunities, as well.

In 2014 we are expanding our program instructions through webcasts, improving our search and tracking performance, and opening up our platform to integration with leading activity monitors.

Looking ahead, we are implementing fundamental changes in how we define and present Weight Watchers.

Our future product road map and the positioning of our brand will be underpinned by five tenets, which I'd like to share now.

First, we will always retain our leading position with respect to efficacy and trust.

Satisfaction and proven results are critical to a successful weight loss program.

The second product tenet is leveraging community and person-to-person interaction.

We have always had this in our meetings business, and have confirmed that tools alone, technology alone, food programming alone will never reach the levels of success that are possible when they are combined with human engagement to guide and provide accountability.

The strength of the Weight Watchers brand is and always will be in the human connections that make a weight loss journey successful, between members and their service provider, between members and other members, and between members and their social circles.

Moving forward, we will be bringing this to the digital environment, adding human interaction to the online model.

Third is personalization.

While consumers continue to give us great credit for being a plan that works, we fall short on being, quote, a plan for someone like me, end quote, which is the number one driver of consumer interest in the category, and underpins much of what we know as the do-it-yourself market, the biggest component of the weight loss market.

Personalization covers our means of interaction, group, one-on-one, digital, and in person, as well as how we individualize our program and support model.

Fourth, and in some ways most important, is the opening up of the brand.

Weight Watchers has incredible potential to be a broader and more inviting brand.

It can represent an invitation to a movement, rewarding members for their participation and progress in addition to their end-state achievements.

Living a healthier life is not a sprint to a finish line but a lifelong journey.

Finally, we will be consumer-driven in everything we do.

We're listening to the consumer, we are learning, and we are leveraging these insights as we develop both the product elements and the marketing positioning of our offering.

These five tenets of our offer strategy are sound, but by themselves they won't transform our Company.

We need to couple them with the expansion of capability in our service provider networks, and the creation of an advantaged product development process with a particular focus on digital.

In our call on February 13, I indicated that internally we had chosen our direction for our winter diet season 2015 innovation.

I can add some color to the statement at this point by confirming, consistent with our longer-term product strategy that I just reviewed, we will be expanding the personalization content of our offer, and leveraging our service providers through tailored one-on-one member interaction.

We believe this represents a significant opportunity to reach new consumers and provide program guidance, inspiration and accountability delivered to their individual needs.

Let me turn to pillar three, growing our healthcare business.

We've known for some time that the healthcare channel represents a significant and logical opportunity for Weight Watchers.

We feel we can be relevant to both the wellness and medical subsets of the healthcare market, and create a significant incremental channel for the acquisition of new consumers.

As previously communicated, we are committing the resources necessary to deliver on the requirements of this channel.

These capabilities will also enable us to fuel growth in our existing strategic employer market.

In particular, we are making progress on our technology capabilities, including data management at an individual level, further enhancements to our privacy protection, and process improvements around such areas as eligibility verification, billing and reporting.

Over the past several months we have approved a significant investment to upgrade our systems infrastructure and core processes to help ensure that we are broadly capable of servicing the healthcare sector beginning in 2015.

Our discussions with interested healthcare companies are progressing well.

And as we outlined on investor day, we expect meaningful revenue contribution beginning in 2016 and beyond.

In the near term, we remain optimistic that with the supporting tech enablement we could have a partnership in place for market entry potentially as early as the 2015 benefits season.

In March, we launched Weight Watchers for Diabetes through our direct-to-employer channel, which serves unique needs of employees with Type 2 diabetes by integrating personalized coaching into the Weight Watchers proven approach.

In addition to attending Weight Watchers meetings and using our digital tools, participants are paired with a certified diabetes educator and dietitian who is specially trained in the Weight Watchers approach.

Orlando Health, one of Florida's most comprehensive private, not-for-profit healthcare networks, signed on as our first organization to offer Weight Watchers for Diabetes to its employees.

We have developed a unique employee marketing program for Weight Watchers for Diabetes, and have equipped our health solutions sales team with a strong sell-in story for current and new customers.

We have designed this program to handle a scale up of members over time, and expect that there will be a steady market adoption of the new offering.

Lastly, we continue to make progress on our fourth pillar, strengthening the organization.

We have built a strong senior management team which, with the joining of our new General Counsel, Michael Colosi, in a few weeks will be complete.

A recent organizational restructuring evidences the strong steps we are taking to improve the way we operate, both in terms of simplifying workflows and accountabilities, as well as reducing G&A spend.

We're excited about our new partnership with advertising agency Wieden+

Kennedy in the US, with whom we are working hard to understand the potential for repositioning our brand and supporting our new product strategy.

And we are hard at work bringing change to our technology capability set.

We have been constrained by legacy architecture and methodologies in our current systems, but that is now undergoing a complete transformation under Dan Crowe's leadership.

Now I will turn it over to Dan and let him share his views and provide an update on our technology strategy.

Dan?

Thanks, Jim.

I'm very excited to join Weight Watchers as the new CTO.

Technology is central to the Company's future.

I believe we have a great opportunity to uplift our technology capability and drive real product innovation, which, combined with our considerable assets, will help return this Company to growth and extend our leadership position.

By way of background, I have a broad technology perspective developed as a consultant with IBM, Deloitte and Accenture, and as an operator.

This is my third C level executive role leading a technology end product organization.

Previously I was Chief Information Officer and then Chief Product Officer at Autotrader.com, the leading online automotive marketplace.

My claim to fame there was that I helped to build a tremendous product development capability that jumpstarted innovation and propelled Autotrader to market leadership.

We won many JD Power awards for our consumer experience.

And we were able to compete and win against other nimble startups, as well as free alternatives like craigslist and Google organic search.

I'm bringing that same commitment to innovation and startup energy to Weight Watchers.

We need to uncork the pent-up demand for innovation and I feel confident that we can do so.

I've been here five months now and I feel like I have my arms around the situation.

It's obvious that Weight Watchers has had success in the past with technology.

The online offering had been successful in what I would characterize as a mid-2000s technology model.

And when I arrived the team was still working on that model.

We should all appreciate that Weight Watchers technology runs on large-scale operation, supporting millions of members, millions of downloaded apps around the world, and tracking over 1 billion food items in our database.

But that is not enough.

The great commercial success of our WeightWatchers.com products led us to behave as an incumbent, and, as a result, we were slow to adopt the technology capability that is required to meet changing consumer expectations and compete in the digital era characterized by mobile, social, connected devices and open API.

Technology plays a central and enabling role in the reimagining of our products.

And product development is a major focus area for us.

We are challenging the assumptions and approaches that drove our past success.

And we're accelerating our migration from the old technology models, which are now too slow and too costly.

We are widening our innovation pipeline to align with the rising expectations of consumers and partners in a rapidly changing space.

We are expanding our offerings to better serve current members and enhance our appeal to a broad set broader set of potential members.

We're becoming bolder and faster, to be more like the innovators who are entering this space.

We have an ambitious technology vision.

We will become a 21st century technology organization engineered for the digital era, whose innovative technology fundamentally improves the way people manage their weight, health and wellness.

We will be agile, service-oriented, data-driven, cloud-enabled and efficient.

We'll be a model for digital technology in the markets in which we compete.

And we will be a magnet for talented innovators, both inside and outside the Company.

Technology is essential to the Company's overall transformation plan.

The entire executive team is committed to a 12-month horizon for turning our technology base from a legacy challenge into an enabling asset.

When we get there, we'll be able to launch a product in a matter of months not a year, quickly learn from the market, and iterate in two-week sprints rather than release many months later, extend our offerings in both new and existing spaces with strategic partners, and become a strong player in the API economy.

No one is better positioned than Weight Watchers to be a hub of a weight loss, health and fitness ecosystem, fueled by the latest technology innovations.

Most importantly, we'll be able to say that we recognized the inflection point, and we transformed from being disrupted to being the disruptor.

In so doing, we will have returned this great company to growth.

In terms of specifics how will we fulfill this mission?

By pursuing six paths to technology transformation.

First, we are embracing the new economics of technology.

The world of technology has changed dramatically.

We're adopting variable cost models, including cloud and other as-a-service capabilities and open source.

Additionally, we've taken steps to contain legacy spending and restructure key vendor relationships.

Second, we are mobilizing for innovation and agility.

We're adapting agile development processes.

We're deploying joint product and technology teams highly aligned with Katherine Aldridge, our Chief Product Officer, and her team.

We're developing modern dev-ops processes to help improve quality.

And we're adopting a mindset of launch fast, learn fast, iterate fast.

Third, we're modernizing our architecture and platform.

It is essential that we move to newer, more modern technologies, including open source and cloud, and with upgrades to content management, search and database technology.

We've launched a new tech platform project, which we call the Chassis.

And we are taking big steps in our device integration capability, as well.

Fourth, we are strengthening the technology organization.

We are reorganizing the technology group, we're launching new innovation teams, which we call Green Teams, to drive improvements in our digital experiences.

It's essential that we instill a culture of innovation and performance, and adopt more of a startup mentality.

We will take advantage of our presence amidst the Silicon Alley hot bed in New York City, and add a footprint in Silicon Valley.

Fifth, we're building a data and insights engine.

We can take much better advantage of our vast data stores referenced earlier, which could be a significant source of differentiation.

We're evaluating new technologies like big data and advanced analytics, which can offer enhanced capabilities to better understand the needs of our members.

And, sixth, we're opening up to the outside world.

As Jim said, we recognize that we don't have to do it all ourselves.

Let's deploy the platforms and APIs that allow us to partner quickly and effectively.

Let's identify the innovators who can help us expand our offerings and our market spaces.

A good example of this last point is a recent acquisition.

Earlier this month we acquired Wello, a San Francisco-based startup that offers one-on-one and group fitness training online, delivered with leading-edge technology.

Wello leverages technology to offer consumers the convenience of working out when and where they like, plus the motivation and accountability of a personal trainer.

I'm impressed with Wello's talent, their technology and their platform for delivering personalized services, which is aligned with the personalization agenda that Jim mentioned earlier.

Further, Wello helps us establish a foothold in the Silicon Valley technology community, and they will help us develop strategic opportunities.

We're very pleased to welcome Wello into the Weight Watchers family.

In summary, we have a big task at hand, but we have a huge prize that lies before us as we follow our new path and achieve our vision.

I look forward to taking your questions and providing future updates.

Thank you.

And now I will turn it back to Jim.

Thanks, Dan.

To repeat what Dan said, we are all committed to a 12-month horizon for turning our technology base from a legacy challenge into an enabling asset.

We have the resources and I'm confident if we are resolute and act with urgency the team can do it.

Now I'll turn it over to Nick for more detail on our financial performance and a look ahead to the balance of 2014.

Nick?

Thanks, Jim.

And good afternoon, everyone.

As previously discussed, at the start of 2014 we realigned our organizational and reporting structure, shifting to geographic segments, reflecting the managerial integration of our meetings and online businesses.

We now have four reportable segments -- North America, United Kingdom, Continental Europe, and other.

Reported EPS was $0.38 compared to $0.87 in the prior year's first quarter.

My remarks regarding Company performance will exclude both the acquisition-related Brazil gain and the Q1 restructuring expense.

Excluding these two items, which I will touch on a bit later, we delivered EPS of $0.31.

Total Company revenue declined 16.6% in Q1.

Meeting fees and online revenues experienced declines of 16.5% and 11.7%, respectively.

In meeting product sales declined 25.3%, and all other revenue declined 17.4%.

During Q1 we saw some signs of stabilization in our top-line trends, as we made some adjustments to our advertising, which had a positive impact on recruitment trends relative to what we have been seeing prior to the advertising changes, particularly in the UK and in our North America meetings business.

First-quarter total paid weeks were down 13.9%, primarily driven by declines in meetings and online in the UK and North America.

End-of-period total global active subscribers declined 13.7% to 3.6 million from 4.2 million a year ago.

Monthly pass active subscribers declined 12.6% to 1.5 million, and active online subscribers declined 14.5% on a year-over-year basis to 2.2 million.

Despite nimble cost management, our lower revenue put substantial pressure on the P&L, resulting in a Q1 operating income decline of $52.1 million, or 50.5%.

Turning to our results by geographic segments, which I will discuss on a constant currency basis, our North America business remained under pressure, and in the first quarter total North America revenues declined 20.6%.

Within this, meeting fees declined 20.3% and online revenue declined 16.9%.

Meetings paid weeks declined 18.3%.

Online paid weeks declined 16.5%.

In meeting product sales declined 33.6%, with product sales per attendee down 16.5%, primarily driven by lower sales of enrollment products.

Our UK business also remained under pressure.

And in the first quarter total revenue was down 19.2%, which includes meeting fees down 18.2% and online revenue down 12.4%.

Meetings paid weeks declined 17.6%.

Online paid weeks declined 12%.

In meeting product sales declined 27.6%, with product sales per attendee down 16.4%.

During the quarter we did see improving recruitment trends in the UK as we revamped our marketing approach.

In Continental Europe, total revenues decreased 1.3%.

Online revenue increased 9.4%, but was partially offset by a meetings fee decline of 3.3%.

Online paid weeks increased 6.6%, benefiting from a higher active subscriber base at the beginning of the year as compared to the beginning of FY13, partially offset by negative recruitment in the quarter.

Meeting paid weeks declined 3%, and in meeting product sales declined 7.9%, with product sales per attendee down 5.4%.

Within Continental Europe, France was a notable highlight for the quarter, with strong performance driven by effective promotional activity.

Now, I will cover recent geographic portfolio developments.

Towards the end of last year we assessed our portfolio and made the decision to focus our resources on markets with the highest near-term potential.

Since we last spoke, we shut down our operations in Denmark and took a controlling position in our Brazil partnership.

We will continue to assess our portfolio.

But with these changes, in addition to the closure of China at the end of 2013, we do not expect additional portfolio actions in the remainder of 2014.

During the quarter we acquired an additional 45% equity interest in our Brazilian partnership for $14 million, thereby increasing our equity interest to 80%.

We had been a minority owner in the partnership, which is the number one weight management brand in Brazil, for more than 40 years.

While not currently a big contributor to our financial results, Brazil represents an attractive growth opportunity.

The business is profitable.

It has local management and team members in place who have been operating the business with a successful track record of growth.

As a result of this Brazil transaction, we recorded a pretax gain of $10.5 million or $0.11 per share in Q1.

Now I'll review some key financial metrics for Q1 2014.

We incurred a pretax restructuring charge of $3.7 million, or $0.04 per share, in connection with the first phase of our previously disclosed plan to resize the organization.

We continue to expect to have a approximately $10 million in restructuring expenses this year, split fairly evenly between OpEx and G&A, with the majority of the remainder to be expensed in Q2.

In total, we will have reduced our global headcount, including in both headquarters and field management, by 250 positions, or approximately 15%.

We are implementing major field restructurings in the US and the UK.

And there have been headcount reductions in most countries and functions.

Our philosophy continues to be invest in key areas in support of future growth, but to cut aggressively elsewhere.

We continue to make good progress to our gross annual run rate savings goal.

And recall that we are targeting to reduce our cost base by $150 million as compared to the end of 2012.

And we are on track to achieve this goal by the end of the year.

To review the details of the $150 million cost savings plan, in 2013 we achieved cost savings of approximately $90 million by rightsizing our marketing spend by $60 million and reducing OpEx and G&A by a total of $30 million.

In 2014 we plan to further reduce costs by $60 million exclusively from OpEx and G&A savings.

While we do expect our marketing spend to be lower than prior, we are not relying on additional marketing spend reductions to achieve the $150 million savings goal.

Of the $60 million of OpEx and G&A run rate savings in 2014, approximately two-thirds is OpEx, and one-third is G&A.

Operating expense reductions include vendor efficiencies, reductions to the number of meetings we need, a drop in hours and field restructuring.

In G&A, we are building on our progress last year on professional fees and other corporate expenses, and also are implementing the headcount reductions that we've discussed.

Now to the P&L detail, excluding the impact of the restructuring expenses.

In the first quarter, gross margin declined 300 basis points from the prior year to 54.8%, primarily due to operating cost deleverage, as well as the impact of our 2013 US service provider compensation changes.

Q1 marketing spend decreased $6.9 million versus prior, to $115.3 million, primarily driven by lower production costs and continued focus on digital marketing efficiencies.

Q1 G&A expenses decreased 6.8% versus prior, to $54.4 million, driven by our cost savings initiatives and some one-time benefits, partially offset by ramping spend in connection with our healthcare initiative.

Our Q1 tax rate was 40.3%, driven by International timing issues.

And in the quarter foreign currency impacts on our results was negligible.

Cash flow from operations was $83 million for Q1, and we ended the quarter with $232 million in cash.

Our $2.4 billion outstanding term loans do not have any restrictive leverage related financial covenants.

And our next meaningful debt maturity is $300 million due in 2016.

Note that our revolving line of credit is undrawn and we have no plans to utilize this bank facility.

Now I will discuss our outlook for 2014.

While our year-over-year recruitment trends are weak, they are no longer getting worse.

As a result, our revenue is likely to be slightly better than our previous outlook.

But, nonetheless, we still expect it to be roughly $1.4 billion for the full year.

For Q2 in the full year, we anticipate year-over-year revenue an paid weeks trend to be down mid teens, roughly in line with Q1.

In North America we anticipate that Q2 and the full-year revenues will decline in the low 20%s.

And total paid weeks will decline in the high teens, with meetings paid weeks performing slightly better than online paid weeks.

In the UK, for Q2 and the year we expect revenue and total paid weeks to decline in the low teens, reflecting some improvement versus Q1, with online and meetings paid weeks performing similarly.

And for Continental Europe we expect revenues for Q2 and the year to be essentially flat and in line with Q1.

Total paid weeks are expected to be flat for the second quarter, and for 2014 as a whole, with online paid weeks performing a bit better than meetings paid weeks.

On to gross margin, as we move through the year we continue to expect gross margins to decline by up to 400 basis points, with Q2's decline being slightly less than that.

This decline is driven primarily by operating deleverage, and also includes the incremental expense related to our US service provider compensation program that we implemented in 2013.

We now anticipate that full-year marketing expense will decline by at least $25 million, with a substantial portion of the incremental savings coming in Q2.

For the full year we continue to expect G&A to be down low single digit percentages versus prior.

And as we move through the year, G&A will be impacted as we ramp up our investments in our strategic initiative.

Below the line, for the year we are expect interest expense of approximately $125 million.

And for the full year our tax rate will be approximately 36% as a result of an unusually low rate in Q2 of approximately 32.5% due to tax benefits from the write-off of inter-Company debt following the shutdowns of China and Denmark.

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

With the Company's $232 million cash balance and continued positive cash flow generation this year, the Company has strong liquidity.

As demonstrated by Wello and Brazil, we continue to pursue selective investments, but paying down debt remains our capital structure priority.

We are raising our 2014 EPS guidance to a range of $1.45 to $1.70.

This guidance excludes the $0.11 Brazil one-time gain from Q1, the anticipated positive $0.07 Q2 tax rate adjustment, and the full-year $0.11 of severance costs related to our restructuring.

Thanks, everyone.

I'll now hand the call back to Jim.

Thank you, Nick.

In closing, we still have a lot of work ahead of us, but I'm encouraged by the progress we've made in our transformation plans so far this year.

The remainder of 2014 will certainly be challenging as we face a difficult recruitment environment.

But with a team that is energized, motivated and focused I'm confident we have the plan, people and tools in place to deliver into 2015.

Thanks for joining our call today.

We will now open it up for questions.

(Operator Instructions)

Glen Santangelo, Credit Suisse.

Jim, I just want to follow-up on some of the comments you've all made in your prepared remarks that your recruitment trends are no longer getting worse.

It sounds like, when we spoke last time in February you're clearly seeing year-over-year declines that, to some extent, were a little bit steeper.

More concerning than maybe what you had expected at analyst day.

Could you give us a better sense for maybe what changed in March?

And have you seen that continue throughout April here?

Basically, I think someone in their prepared remarks, suggested it was some of the advertising changes.

Could you just maybe give us a sense for what you're doing different that maybe drove that inflection point?

Because it certainly doesn't seem like the competitive landscape has really changed any.

Sure, Glenn.

I'm actually going to ask Nick to comment on that.

But, just to dimensionalize this, we're talking about smaller changes, not larger changes.

But, Nick, do you want to take that?

I think that's absolutely right, Jim.

The environment is a little bit better.

But the headline here is that we're still forecasting revenue of roughly $1.4 billion, so you're still $300 million below last year.

And that's what's driving the P&L.

But versus our analyst day, going into the year, first quarter, things started the first quarter, things deteriorate.

And we're pleased to see that they are no longer getting worse and we're seeing signs of stability.

As you mentioned, Glen, the competitive frame isn't really different.

So, what I think we're seeing in 2014 is what we hoped to see; is the Weight Watchers team translating the energy you saw on costs in 2013, into innovation and marketing, and to the tech innovation that Dan talked about.

We introduced the new ads with Jessica.

We mentioned in the call the new food-focused ads that are initiated in the UK, now that we've brought to the US for the spring campaign.

I think the business as a whole worked well on effective promotional tools, including CRM.

It was good local marketing in the UK.

There was a lot of little things.

But, I stress, it feels a little bit better but recruitment trends are still very weak for this business.

I appreciate the color on the recruitment side.

Jim, I think if I heard you, you said that the retention, what you're seeing has been in line with the past.

Could you maybe elaborate in terms of your customer duration?

It sounds like no changes to that eight month estimate.

And I'm just trying to figure out how, as we model out the water flow here for the rest of the year, basically should we assume that the retention, based on some of your efforts, should not really see any meaningful changes in retention at this time.

Is that a fair assessment?

As far as your modeling, that will be your modeling, obviously.

But we're seeing a stability in that statistic, that's correct.

Okay.

And then, Nick, last question, you obviously shut down Denmark.

Some of these closures of some of these money-losing operations, is that really helping EPS in any meaningful way that's worth mentioning?

No, they're really not a big driver of the year's results.

But we're pleased to be able to focus our activities on better near-term opportunities.

And that was the rationale behind increasing our investments in Brazil.

Okay.

Thanks for the color.

Jason Anderson, Stifel.

Thanks for all the color on the technology plan.

It seems quite like a tremendous task ahead.

You were mentioning a12 month plan.

I assume maybe not all of that is happening.

Or maybe could you provide some more color on maybe a little bit more what you expect in the 12 month?

I'm thinking you're meaning in 12 months you'll be able to address the healthcare opportunity more with your systems or technology platform.

Could you elaborate?

Sure.

This is Dan.

Actually, I think we can do a little better than that.

We need to have the platforms in place for our healthcare initiative by the end of the year, and we're targeting on that.

We definitely are focusing on product and innovation and the healthcare platforms to make that happen.

I do believe that a year from now we can say we have significantly moved away from our legacy systems.

We've developed a much faster, much more robust product-innovation-engine sitting on a new platform.

And, really, the investments in the core business systems underlying that are driven by our healthcare initiative will be in place.

Great.

Thanks.

And then could you provide any framing on maybe cost or the investment into that?

I know you guys have done a lot already, but it seems like there's still plenty more to go.

How should we think about that in relation to the cost cutting?

I'll jump in and Nick can help me out.

But we invest a lot in tech already, and we've approved a major investment in healthcare.

I think we have a fair bit to work with.

And we need to get more out of that investment.

What I'm trying to do is redirect legacy spend and shrink that down.

And a lot of our legacy spend is somewhat discretionary because it is with professional fees, and we can dial that back or redirect it if we want to.

So, I think we have some degrees of freedom there.

I'm trying to work with what I have, and the additional investment that's been authorized for the healthcare initiative, and work within our existing plan.

I think that's absolutely right, Dan.

This year, as Dan said, the focus is on using tech reinvention to improve our innovation and product building capabilities.

Frankly, that's partly why we're forecasting G&A to decrease by low single digits this year.

Tech efficiency savings aren't a meaningful driver of our G&A forecast this year.

Going forward in the out years, as Dan pursues his reinvention, it could be a useful lever going forward.

Great.

Thanks for all the color.

Sean Crass, Barclays.

This is Meredith Adler from Barclays.

I'd like to talk about two things.

I think this question was sort of asked but I was hoping to get even a little more detail.

When you look at -- can you actually tie the behavior, recruitment behavior, to new ad that comes out?

Did weather have any kind of an impact?

And then what gives you the confidence that what we're seeing, you say it's stabilized, but how do you know that we're just not, I hate to say it, but just a fluke in the last month or two?

Look, there's certainly a lot of bad weather, particularly in the USA in the first few weeks of the year.

And we had a multiple of meeting closures versus a year ago.

But weather, I don't think, is a big driver of stabilization.

I think it's more the focus on having the ads connect better with folks on the promotional activity I described.

Just let me add, this is Jim, Meredith.

This is not a particularly easy business to forecast.

And, further, given the high variable margins, there's a pretty good flow-through if estimates go one way or the other.

So, we should take this as our best view, but it is a difficult business to forecast.

Yes.

And obviously, talking of forecast, just one thing I'd add.

I'm aware that Q1 results as a whole, of course, are ahead of consensus.

We acknowledge that results came in a little bit better than we were expecting.

But, of course, we don't give detailed quarterly guidance.

Things were a little bit better.

The fundamental situation of the business hasn't changed.

Okay.

And I have a much more big picture question.

I remember something you said, Jim, I think back in October about comparing WeightWatchers.com to match.com.

To really do something like match.com, you not only have to ask people the right questions, you have to be able to give them an outcome that is different and unique for each person.

And is it fair to say that that is the goal?

That you will have different, I think you also at the time used the word flavors -- that people will be able to go online and get guidance as to the best way for them, individually, to lose weight?

Meredith, first off please don't tell my wife I was on match.com.

(laughter) Second, I don't want to talk much more specifically than I did in the prepared remarks about the commercial direction, and particularly near term, as in January.

But strategically, and thinking of it in the context of the big picture, as you asked it, I think there's two ways to think about the strategic direction.

One is the content.

Do we bring something that is different for member A than member B that helps them with their weight loss journey?

And the second is the engagement model.

Do we bring that through connection with a Weight Watchers' service provider or do we bring that on a one-to-one model?

Do we do that from a group perspective or do we do that purely digitally?

But all of those things to me represent the potential for flavors, as you used the term.

And then my final question would be, well, never mind.

It's been a long day.

It just went completely out of my head.

I will turn it over to somebody else.

RJ Hottovy, Morningstar.

I just wanted to ask a question about the Wello acquisition, because I do think it's an interesting way to tie together the legacy business.

I was hoping to get a little more color about the actual rollout and how to integrate it with the existing business, how to communicate that to members.

And, more importantly, what are the opportunities to create new products based on some of the technology that they have?

Thanks for the question.

Just to go back and tie in a bit to what Dan said, there are three main areas of excitement around the Wello acquisition for us.

First of all, we should all recognize that this is, in a good way, this is a typical startup.

This is a small company.

But they've done some great things developing insights around how to serve a client base on a one-to-one model.

They have a great team, and pieces of their technology platform we think will be really significant for us as we evolve our products.

I don't want us to run too far down the road imagining exactly what the implications are.

And I won't comment more to them for the same reason I mentioned to Meredith.

We won't talk to commercial implications.

But those are the real reasons that we're excited about the Wello acquisition.

And then I had one follow-up question.

Jim, your line about not having to do everything on your own, struck a chord with me there; particularly with regards to integration with activity monitors, and some of the partnerships that you might have there.

I was just hoping to get some more details about what that might entail, the timing behind that.

And then as a follow-up to that, also, what kind of traction you're seeing with your ActiveLink program, mainly adoption and engagement with that program, as well?

Thanks.

We still see it strong participation with our members on ActiveLink.

And with no surprise.

We know from research that consumers view the process of managing their weight as one that's very closely related to how they think of exercise, how they think of fitness.

So this sits in a very close consumer space from an adjacency perspective.

We've got most of the technology work done.

We anticipate that we're going to be live with a leading player in that category very soon, beginning in Europe, as I mentioned.

And throughout the balance of this year you should see quite a bit more openness, as in the ability for us to integrate with other API-driven devices, not just activity monitors.

I think that's about as far as I'll comment on that.

I fully agree.

The ActiveLink was always about good learning from a seamless integration experience, and the open architecture opportunities it could lead to.

But, yes, we sold over 400,000 ActiveLink devices, and the take-up rate and our monthly pass actives penetration is in the 10% range.

So, it's good learnings for us.

Thanks.

Alvin Concepcion, Citi.

I just wanted to follow-up on Wello acquisition.

It does sound promising.

Just wondering what your appetite for acquisitions are going forward.

Do you believe there are other areas you need to build out?

Or did this fill the need that you were looking for?

I think Wello and Brazil show that we will selectively pursue acquisitions that get us into good businesses or help us build capabilities faster than we might do ourselves on new capabilities.

I agree, based on what I know now, I would look at last year where we had several domestic franchise acquisitions, I would view as being less acquisitive this year, being selective and our capital structure priority is paying down debt.

Great.

If I understand it correctly, and correct me if I'm wrong, but it sounds like we shouldn't expect revenue growth for the full year 2015 but we should in 2016.

So, with healthcare coming online and being a more significant driver of revenues in 2016, how much of your ability to grow revenues in 2016 is dependent on that contribution from healthcare?

Healthcare is an important growth contributor for us overall.

As I said, we can grow it to a $300 million-plus business by 2018.

But the key towards returning to growth is, first and foremost, the B2C reinvention.

And, yes, at our analyst day we said that we'd aim to move to positive recruitment trajectory sometime during 2015, which would lead to revenue growth in 2016.

Obviously it's far too early to talk about what 2015 revenue might be, but I think you see from Jim and Dan.

that we're focused on preparing for the best winter diet season in 2015 that we can.

Clearly, as Nick said, in putting the thoughts together, these things, they sit together.

The strength of our B2B business and our healthcare business over time, is rooted in the strength of our B2C business.

It's part of what's attractive about us to that channel.

We're a known brand, we are a proven brand, we're a brand that can drive engagement.

So, the strategies by which we strengthen our B2C business plays straight into the B2B business, as well.

Thank you.

John Faucher, JPMorgan.

I wanted to talk a little bit about the guidance, because I think I'm having trouble trying to figure out, I understand that you think that things aren't fixed yet, and maybe there's a little bit of just a temporary tailwind.

But if I look at the upside in the quarter, and then look at, particularly the gross margin guidance, and try to align the year-over-year changes and things like that; I'm having a hard time seeing numbers going up by just a small increase that you ran through relative to the upside in this quarter.

Can you talk about maybe some of the other offsets that we're not seeing?

And then also just, particularly on the gross margin, your guidance would indicate, and I realize it's up to 400 basis points, I think was the language; would indicate, actually, things getting worse against easier comps in the back half of the year.

So, what's driving that in particular?

Thank you.

Thanks, John.

Let me walk through the P&L a little bit and give you some color on that.

Prior guidance, $1.30 to $1.60.

New guidance, $1.45 to $1.70.

So a $1.575 mid point of the range, a 9% increase in the mid point, increasing the floor by $0.15, the top end by $0.10.

Starting with the top line, the top line's a little bit better, as we discussed.

But still a $1.4 billion company.

Gross margin, previous guidance was 400.

Now it's up to 400, reflecting a slight improvement.

Q1 was a 300 basis point deterioration.

It gets worse through the year as we ramp up our investments and our strategic initiatives.

And also through the year, given the fact that our dot-com business is shrinking, our high-margin dot-com business will be down by $75 million or so year-over-year.

That mix impact hurts our gross margin performance as we go through the year.

Previously guided marketing to be reduced by $20 million.

Marketing is a little better here, say, we'll decrease marketing spend by at least $25 million.

And then, finally, G&A, the first quarter G&A blueprint was a little bit artificially low.

It was obviously accurate and correct but it was driven by some one-time items that won't be repeatable through the year.

And also G&A through the year will be impacted also by investments in our strategic initiatives.

So I'd expect G&A to be higher as we go through the year versus what we achieved in the year first quarter.

Okay.

Thank you very much.

This concludes our question-and-answer session.

I would like to turn the conference back over to Jim Chambers, CEO, for any closing remarks.

Once again, thank you all for your interest in our Company and for joining us on the call today.

Thank you.

The conference is now concluded.

Thank you for attending today's presentation.

You may now disconnect.