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Operator
Good afternoon, and welcome to the Weight Watchers first-quarter 2016 earnings conference call.
(Operator Instructions)
Please note, this event is being recorded.
I would now like to turn the conference over to Corey Kinger, Investor Relations.
Please go ahead.
- IR
Thank you Emily, and thank you to everyone for joining us today for Weight Watchers International's first-quarter 2016 conference call.
With us on the call are Jim Chambers; our President and Chief Executive Officer; and Nick Hotchkin, our Chief Financial Officer.
At about 4:15 p.m.
Eastern time today the Company issued a press release reporting the FY16 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 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 Chambers, President and Chief Executive Officer of Weight Watchers international.
Jim?
- President & CEO
Thanks, Corey.
Good afternoon everyone, and thank you for joining us.
The Q1 financial results we're reporting today are largely a reflection of the recruitment trends before our partnership with Oprah and the successful launch of our new Beyond the Scale program.
Beyond the Scale and Oprah's involvement is a winning combination for our business.
In Q1, for the first time since 2012, we delivered positive growth across key volume indicators including recruitments, end-of-period subscribers and attendance, which will drive revenue and profitability growth going forward.
As a result, we are raising our guidance for the year.
Our first-quarter financial results are better than we expected, and consistent with the guidance we provided in February for a year-over-year decrease in both revenue and profitability.
This decrease in revenue and profitability is the result of declining member recruits we experienced through much of last year and don't fully reflect the turnaround we're seeing in the business.
We have returned to member recruitment growth, but it will take multiple quarters before we realize the full revenue impact and embedded profitability from this growth.
Given the lag in our subscription business model between member recruits and their full revenue and profit realization, we expect that we will report both top-line and bottom-line year-over-year growth beginning with our second quarter and continuing through the remainder of the year.
In a few minutes Nick will more fully explain this lag between member recruitment growth and the full impact on our P&L, but let me emphasize that we are already seeing the start of the flow-through.
An important milestone of note is that our North American business swung to positive revenue growth in the first quarter, following declines in the high teens and low 20%s throughout 2015.
In fact, we're ahead of the plan laid out in February, and as I said today are raising our full year EPS guidance to a range of $0.80 to $1.05.
So let me summarize the first-quarter performance highlights.
We ended the quarter with 3.1 million subscribers worldwide, a 5% increase year over year.
Meeting subscribers totaled 1.3 million, up 8%.
And online subscribed totaled 1.8 million, up 3%.
Total paid weeks, which is the sum of paid membership weeks during the quarter, were up 2% year over year in Q1 with meetings up 3% and online up 1%.
Global member recruitment was strong in the quarter led by our largest market, North America, which makes up roughly two-thirds of our business.
In fact, in North America we saw a double-digit growth in online member recruits and even stronger growth in meetings.
Overall, member retention continued steady in Q1 at an average of eight months for meetings and nine months for online.
We also seeing good transit engagement, measured by usage of our mobile tools and attendance at weekly meetings.
Globally, attendance per meeting was up double digits, with North America showing particular strength.
We believe the significant focus we have put on improving the meeting experience is translating to increased satisfaction and higher word-of-mouth buzz about Weight Watchers.
We successfully launched our new holistic consumer program, Beyond the Scale, into all of our major markets.
Beyond the Scale includes our new food plan called SmartPoints, as well as a more integrated role for fitness, increased personalization, and a more implicit focus on helping members find the inner strength that contributes to higher levels of engagement.
In addition we launched Connect, a social media platform embedded in our app, where in a uniquely positive space members provide encouragement, share experiences, and results and ideas about how they are living the program.
Connect has been a home run with nearly 500,000 members actively participating on the platform since launch.
In the US alone, each day members connect with more than 9000 posts, 40,000 comments, and 200,000 likes.
The launch of Beyond the Scale has been amplified by Oprah's involvement with our Company, particularly in the United States, Canada, and Australia.
Our winter TV campaign in the US and several other markets highlighted Oprah's Come Join Me invitation, which brought waves of renewed interest in our brand.
In addition, Oprah's been engaged with her fellow members in the Weight Watchers community, sharing her experiences through mega conference calls, e-mails, and by posting on Connect.
And recently she attended a Weight Watchers meeting in New York, surprising and delighting the members who were unaware that she was going to join them.
If you haven't seen the Facebook live video, which had 1 million views within 24 hours of the meeting, I recommend it to see the genuine reactions of our members and the energy and welcoming spirit of our meeting rooms.
On April 3 our spring marketing campaign launched in the US and it's off to a strong start.
It builds on the buzz that Opera has brought to Weight Watchers by further driving awareness of the benefits of our new Beyond the Scale program and SmartPoints food plan, which delivers a better value proposition than simple calorie counting.
SmartPoints simplifies eating healthier by nudging our members towards more healthful choices like lean protein, fruit and vegetables and away from less healthful choices like sugar and saturated fats.
Combined with continued promotions that leverage the power of urgency, we're executing against the formula of effective TV marketing and compelling offers that drive interest and increase new sign-up conversion.
And earlier this week we launched a referral campaign where current members, who encourage others to join them at Weight Watchers, have the chance to win a luxury retreat in California joined by Oprah.
Oprah is committed to the new SmartPoints plan and has shared how this has shifted her mindset about how she thinks about food and weight loss, as well as the meaningful results she is seeing in her life.
She continues to engage with the member community, and plans to be a strong part of our next winter season marketing efforts.
Let me step back and put our Q1 performance in context of our overall transformation plan.
Recall that in 2013 we embarked on a multi-year transformation, confident that we could address our challenges, turn the Company around, and create a platform for sustainable growth for the future.
Our plan was centered on creating a consumer-driven Company, enhancing our insight capabilities and improving how these insights translate into an improved product offering and more effective marketing.
We committed to turning our technology environment from what was a legacy anchor into an enabling asset, improving our innovation capabilities and lowering costs.
Our strategy also included targeting ways to better empower our meeting leaders and coaches, a competitive advantage of thousands of dedicated, successful role models who have lost weight on Weight Watchers and kept it off.
We undertook this transformation with the goal of improving our offerings, capabilities and execution to enhance our relevance and competitiveness, thereby returning the Company to growth in 2016.
Given Q1, we're confident we will deliver on our 2016 transformation plan goal by generating member recruitment growth and delivering full-year growth in both revenue and profits.
And now I will turn it over to Nick for a review of our financial performance words and then I'll come back and discuss our longer-term vision.
- CFO
Thanks Jim, and good afternoon everyone.
Let me start by highlighting a few key items in our Q1 financial performance.
Global member recruitment was solidly positive in the first quarter, particularly in North America, driven by a strong response to our new Beyond the Scale program and our partnership with Ms. Winfrey.
This positive recruitment drove an increase in the year-over-year end-of-period subscribers, with Q1 ending up 4.8% versus prior, which sets us up well for revenue growth starting in Q2.
For the quarter, total Company revenue declined 3% year over year on a constant currency basis to $307 million.
This is a significant improvement from the trends we had throughout 2015, with revenue declines in the 20% range.
With paid weeks up 1.7% year over year in Q1, services revenue was roughly flat compared to the prior-year quarter.
Q1 revenue was also impacted by lower contributions from licensing and product sales, which were down 10.7% year-over-year on constant currency.
While we saw soft licensing revenue trends which lagged the overall business trends by about a year, we see great long-term opportunities in licensing as we return to growth.
For those of you who are newer to our story, building on Jim's comments, I would like to take a moment to explain our business model, specifically the lag from member recruitment to revenue, the timing of recognition of revenue and expenses, and the strong operating leverage in our model due to the high value of an incremental new recruit.
As a subscription model business, there is a lag between recruitment growth and the associated revenue recognition and profit flow-through.
To illustrate using the US as an example, the average retention or length of stay is approximately eight months for a meetings member.
So the average revenue for that member comes to about $375.
Assuming that member joined in the middle of Q1, we would recognize only $70 of associated revenue in Q1, with the remaining $305 of revenue flowing in over the coming quarters.
Running the same analysis on a US online member, the average revenue is approximately $175 over nine months, with about $30 recognized in Q1.
And therefore about $145 to come during the following quarters.
Because of the negative recruitment trends from much of last year, we ended Q1 this year with a lower active space than we did in the prior year.
And as a result, our revenue from subscribers remain negative through much of this year's first quarter contributing to the Q1 revenue decline.
However, as our strong member recruitment continued through the quarter, our subscriber levels built, so that by the latter part of the quarter our total number of subscribers and thus revenues began to exceed prior-year levels.
Also, note that approximately 40% of our annual member recruitment occurs in the first quarter of the year.
And so as such, Q1 bears the lion's share of the costs of attracting those new members but captures only a portion of the associated revenue.
Now that I have framed the embedded profit that will flow through from these Q1 recruits, I would like to look at our business momentum.
Keep in mind we are a highly seasonal business, and given this seasonality we measure our sequential trends on a year-over-year comparable quarter basis.
The sequential quarter improvement in our end-of-period subscribers clearly demonstrates our transformation progress, which was accelerated by the announcement of our partnership with Ms. Winfrey late last year.
In Q1 2015 global end-of-period subscribers were down 20% versus Q1 2014.
This improved over the course of 2015, with the declines narrowing each quarter, down 17% in Q2, 13% in Q3, and 5% in Q4.
Then in Q1 2016 we turn solidly positive with 5% growth over Q1 2015.
In North America the sequential improvement is even more pronounced, with decrease in end-of-period subscribers narrowing from a decline of 25% year over year in Q1 2015, to down 20% in Q2, 17% in Q3, and 5% in Q4, and then turning completely by delivering 11% positive growth in Q1 2016.
As I will discuss in a moment, this has already translated into Q1 revenue growth in North America.
Now turning back to our Q1 results by geographic segments.
While North America was comfortably our best performing market, we also had very solid performance in Australia.
While the UK and Continental Europe had improved recruitment trends versus last year, their results were not as strong.
In the first quarter total North America revenues increased 2.3% with meeting fees up 5.4% and online revenue flat, all on a constant currency basis.
Meeting paid weeks increased 7.9% and online paid weeks increased 4.2%.
As our largest market, it's terrific to see North America return to growth.
On a constant currency basis in the UK, first-quarter total revenue was down 11.1% with meeting fees down 4% and online revenue down 8.3%.
Meetings paid weeks declined 3.5% and online paid weeks decline 12.1%.
This market remains highly competitive.
And we are working hard to improve our UK performance.
In Continental Europe total revenues declined 15% with meeting fees down 13.6% and online revenues down 11.2%, all on constant currency.
Meeting paid weeks declined 8.8% and online paid weeks decreased 4.2%.
Performance in Continental Europe varied by country, but both of our largest markets, Germany and France, had soft performance in the winter season.
In response, we changed our advertising, creative and approach which had an immediate effect in improving trends in Germany.
However, performance of France continues to be weak.
Now to the P&L detail on an adjusted basis.
In the first quarter gross margin was 48.7%, representing a decline from the prior year of 75 basis points on a constant currency basis, which came in better than anticipated due to strong operating leverage in our meetings business, primarily in North America.
Our marketing spend was $86.5 million, up $1.3 million versus the prior year on constant currency.
G&A expenses were $49.6 million, up $2.2 million versus the prior year on constant currency.
We are committed to maintaining stringent expense discipline throughout the organization, after having taken out $250 million from our cost structure versus 2012 levels, with $150 million coming out of marketing and the balance split between cost of sales and G&A.
Due to improved operating leverage and slightly lower marketing spend, EPS came in ahead of expectations at a loss of $0.17, which includes $0.01 of negative impact from foreign exchange.
Turning to the balance sheet.
We ended the quarter with $128 million in cash, which included $48 million from our drawn revolver.
Within the quarter we paid the $144 million remaining on our B-1 term loan using cash on hand.
And as a reminder, our $2 billion B-2 term loan is not due until 2020.
And there are no financial leverage covenants on any of our remaining debt.
And now I would like to update you on our outlook for 2016.
In measuring our performance this year, the milestones to look for include subscriber growth continuing on a year-over-year basis, paid weeks growth continuing on a year-over-year basis, revenue growth beginning in Q2 and for the full year 2016, gross margin, EBITDAS, and cash flow from operations expansion, EPS growth beginning in Q2 and it for the full year, further progress on reducing our leverage, and finally based on strong member recruitment growth and steady retention we will enter 2017 with a higher active space than we entered this year which will provide us with a revenue and EPS tailwind into 2017.
Turning to the details in our outlook.
Due to positive member recruitment trends and stable retention, we expect full-year 2016 revenue to be slightly north of $1.2 billion.
We expect to have a negative foreign exchange revenue impact of $14 million for 2016 versus 2015.
For 2016 we are raising our full-year EPS guidance to be in the range of $0.80 to $1.05, with the variance between the high and low ends of the range primarily being assumptions around member recruitment.
Given our loss in Q1, our guidance implies we plan to generate roughly $0.97 to $1.22 per share of profitability in Q2 through Q4 of this year against the $0.78 of adjusted EPS we reported in Q2 to Q4 last year.
With our improved cost structure, revenue growth will translate into significant EPS growth going forward.
For remainder of my comments, I will speak to the midpoint of our full-year range and on a constant currency basis.
Total end-of-period subscribers is expected to continue its sequential year-over-year progress and be up in the mid to high single digits in Q2 compared to the prior-year quarter.
Total global paid weeks are expected to be up in the mid-single digits, with meetings outperforming online in Q2 and for the full year 2016.
In North America we anticipate Q2 and full-year revenues will be up in the high single digits.
In the UK we expect revenue for Q2 to be down in the low double digits and the full year to be down in the high single digits.
And for Continental Europe we expect Q3 and full-year revenue to be down in the mid-single digits.
Now some detail on expenses.
We expect our gross margin to be up approximately 125 basis points in both Q2 and for the full year.
We expect Q2 marketing spend to be approximately $45 million, which is about $5 million higher than in Q2 last year.
And the full-year marketing expense as a percent of revenue will be roughly flat year over year.
We expect G&A for the year to be flat versus prior on a percent-of-sales basis.
We expect CapEx, primarily driven by tax spend and capitalized software, to be a line with the prior-year levels in the $35 million range, and D&A in the $55 million range.
Reducing leverage is a clear capital structure priority.
The midpoint of our guidance implies EBITDAS in the range of $275 million for the year.
On that basis we would end 2016 with a cash balance approaching $150 million, excluding any revolver borrowing.
We expect any cash used for acquisitions to be very selective small tuck-in acquisitions that present a strong strategic and financially attractive rationale.
As part of our commitment to delivering, we're targeting a year end 2018 net debt to EBITDAS ratio of less than 4.5 times based on improved operating performance and cash generation.
It is important to note that due to the high margins and strong cash generation power of our business model, it would only require a revenue projection of approximately $1.4 billion, the same revenue level as in 2014, to achieve this leverage target.
Now, I will turn it back to Jim.
- President & CEO
Thank you, Nick.
We're thrilled with the progress we've made on our transformation.
The launch of Beyond the Scale was a significant and critical step in transforming our business.
Now our first priority is to stay focused on execution and to continue to build our momentum.
While we are thrilled with progress so far, we believe there is much more opportunity ahead.
By combining the brands and capabilities of Weight Watchers and Oprah Winfrey, we believe we can build our momentum into a movement, fully transforming our business and creating a bright future for our Company.
Our aspiration can be delivered if we evolve the Weight Watchers brand to represent a greater and more enduring benefit.
Make everything we do feel more personal and unique.
And do more to create living and breathing relationships within and beyond the meeting room.
We're working with Oprah within this framework on a range of initiatives that we believe will enhance the Weight Watchers experience, and could translate into extending the average length of stay of our members, which due to our high margin business model would deliver substantial economic benefits.
The last few years have not been easy for this Company.
But through the focus and the dedication of our team, we have turned the quarter.
I would like to thank the entire team at Weight Watchers, and especially our leaders, receptionists, coaches and other members of our extraordinary service provider organization for the amazing work you continue to do every day in inspiring and guiding the healthier choices that transform the lives of millions of Weight Watchers members worldwide.
We are turning the page on our history to a new chapter for Weight Watchers as a trusted holistic partner that helps many, many more people become their best selves.
Thanks again for joining us today.
And now I will turn the call to the operator for Q&A.
Operator
(Operator Instructions)
Trent Porter, Guggenheim Partners.
- Analyst
Hi, guys.
Congrats on the good quarter.
Just a couple of quick ones.
The first one, with your meeting attendance and paid up in North America, I note product sales were still down.
And I was just wondering, how we should think about that?
I would've thought they would have been -- the product sales would have been correlated.
And the second thing, have you seen any traction from your online marketing of the product sales?
- CFO
Hey, thanks Trent.
Product sales in North America, we had a great reception to a new range of SmartPoints-friendly country snacks and chocolate bars that we introduce.
So product sales were certainly up in North America.
When you look at the trends in product sales and other as a whole, that was -- declined slightly in North America.
And product sales and other year over year declined in CE and UK.
But as we've said, there is a natural lag in our licensing business.
So we believe we've got strong licensing opportunities going forward.
- Analyst
Okay got it.
Then just if I can sneak two more in there.
The first one, I wonder if you could expand a little bit on the -- besides the popularity, relative popularity of Oprah, the differences between this market and what's going on in the UK and Continental Europe, and the difference in the competitive landscape there?
And then your plan to correct it going forward.
And the next one, you've gotten this IT completed, your big IT platform spend or transformation, if you will, and obviously the cost associated with that goes down.
But I was wondering if you could talk, in addition to, say, enabling e-commerce, some of the opportunities and benefits presented going forward in the near long term from this new IT platform?
And then I will get back in queue.
- President & CEO
Sure.
So to your first question, Trent, we have had two really potent growth levers in our business.
We have introduced, based on our new consumer strategy, we have introduced the Beyond the Scale program which has the SmartPoints food plan in it.
That has been met very well by consumers.
It's resonating.
And it has contributed to improving our trends at all of our markets.
And the second growth lever that we have had working for us has been Oprah's amplification and creation of awareness for Weight Watchers in general.
Looking to your question about international, what we have seen is where people are aware of the new program, it drives them to action.
They want to learn more, they want to sign up.
Where they are not as aware, obviously it does not.
And so arraying the markets by their level of awareness is critical and correlates with how well they are doing.
And particularly in, I will say France and Germany and UK, we have some opportunities to refine our marketing message and focus more directly on the fact that we have a new program and what the benefits of the program is.
So between our strength of communications around the fact that we have a new program, and as well as the strength of our promotions, you can see where those forces were working better, we did better.
And where they weren't, we did less so.
So the primary difference in the markets, this level that I'm describing, has to do with the execution of how we brought the message forward.
Repositioning a brand and a Company against a new program is not something that happens overnight.
But we have responded very quickly to get to the second part of your first question.
And pivot our ads a little less holistically and a little more towards the primary benefit that the consumers want that has to do with weight and has to do with food and what they are eating and how that relates to the food plan.
So we have tweaked the advertising, and we've also bolstered the promotions in those markets.
The other thing I'll mentioned is, in the US we've put in place a number of technology-driven enhancements to our visitor site, which makes the experience better and increases the level of conversion from visitors into subscribers.
We have yet to fully roll those out to the majority of our international market.
So that also accounts for a little bit of the difference that we're seeing in performance.
Your second question, I think in general how do we see the investments we've made in technology playing forward into our future strategies and into our offerings?
Is that close?
- Analyst
Yes, I think so.
- President & CEO
Okay.
- Analyst
And also -- I'm sorry.
As a follow-on to it, I am interested to know whether you have caught up with some of your -- some of the other competitors in terms of the APIs and uptake of your members with APIs, whether it's with the wearables or social media type stuff.
- President & CEO
Okay.
Let me hijack your question just a little bit and take a step back.
Our first quarter was very exciting for us and offered a lot of validation in our transformation plan, as we have seen our consumer momentum turn and our active phase grow, which is something that we've been focusing on for quite some time.
But the important thing about that is to know that it is rooted in fundamental strengths in our Company that point to future relevance.
When we put forth the transformation plan, we knew, and everyone knew, we were working in a huge market with unmet needs.
We knew and everyone knew that Weight Watchers as a program works, and it always will.
But the world was changing.
Frankly, I don't think we were quite keeping up.
And a big part of that had to do with technology and how that was having an impact on a our online business and our digital tools in general.
And so a big focus in launching our transformation and driving it to be a more consumer-driven company with the improved experiences was to bring ourselves up to speed, as you are referencing, and improve our digital offering.
And we've been working hard on that.
So on the meetings side, we have put a tremendous amount of focus over the last year, and changed a lot of things that we think make the meetings a more refreshing and energetic experience.
And that's our flagship offering.
What it also does is it provides us a great strategic advantage for understanding what really makes people successful in this more holistic pursuit of losing weight and eating healthier.
And that has to do with being connected to other people.
We are experiencing that every week in tens of thousands of places and learning from that in our meetings room.
And we are able to bring that towards our digital experience in a way that not only is it going to be a cooler app, but it's going to make it more successful, which is really what matters.
A great example of that is the Connect feature that we put into the digital app recently where, in a totally positive way, our members can reinforce each other, they can share what they're going through, they can share what has worked for them, and it's been hugely positive.
So on the one side we've improved our core technology and what it offers in allowing us to innovate more quickly.
And over time we will be lowering our costs.
And on the other hand we are leveraging into the digital realm all the strengths of what we have learned in the face-to-face business to make not only the digital product stronger, but the digital tools that they support, the face-to-face meetings business stronger.
So apologies for hijacking that question a little bit.
But it all relates to strategically what we're trying to do and how we're trying to leverage this incredible advantage we have of being rooted in the reality that what we do face-to-face and what we do through human connections and having a great program actually makes people effective.
- Analyst
That was a great answer.
Thank you very much.
Operator
(Operator Instructions)
Alex Fuhrman, Craig-Hallum Capital Group.
- Analyst
Great.
Thank you for taking my question, and absolutely congratulations on quite a transformation here.
Wanted to ask a little bit about the healthcare channel.
We've seen a number of announcements scroll over the past couple of months about new insurers that you've been partnering with.
It doesn't look like necessarily as big as the big Humana announcement from last year.
But can you talk a little bit about what some of these partnerships look like?
Are they similar to the Humana partnership but just with different insurers?
And are there other insurers that you are in talks with about expanding this program this year?
- President & CEO
Alex, thanks for the question.
This is Jim.
You know that we have been committed to healthcare as a strategy for a while here.
And we have right-sized our investment in pursuit of that strategy but remain committed that this presents an opportunity area for Weight Watchers over time.
Going against health plans as a channel was clearly a focus of ours.
And we have really enjoyed the Humana relationship, and we think it is successful.
It is growing and we're learning a lot about how to create value with a partner like that.
I think what you're referring to is that we are beginning to connect in other ways with some other players in the healthcare ecosystem that act in different ways.
And that reflects our strategy to offer ourselves as a point solution in a scaled model where that makes sense.
And so trying to capitalize on the emerging regulatory leverage behind treating diabetes and prediabetes by working with partners like Solara, who are concentrating efforts in building a technology to make it easier for providers like us to connect with consumers who are parts of plans of insurers and have the money and the information and flow and have that service be delivered well.
We are partnering with a few different kinds of players, because everybody wants to be with Weight Watchers.
Everybody understands it's a great consumer brand.
It drives engagement.
We just have to be ready to work in multiple ways with multiple partners as this environment continues to change.
But we're still excited about that.
I am not saying in the next six to nine months it's going to make a meaningful contribution to our revenue.
But we are committed to it strategically.
Nick, did you want to add anything?
- CFO
Just let me add to that, Jim.
Excited obviously about the B2C transformation.
We have mentioned long-term opportunities in licensing.
And as Jim said, healthcare is such a long-term growth lever where for this Company to -- and we expect the healthcare business in total this year to grow from about $56 million in 2015 to about $62 million or $63 million this year.
So good growth.
I think importantly, though, as we look at our future and the leverage target that we laid out to be less than 4.5 times levered by year end 2018, that only requires modest growth sustained in the B2C.
It doesn't assume heroic growth assumptions, either in B2C, and it doesn't assume an awful lot of growth in healthcare.
So we can get to year end 2018, be less than 4.5 times levered, and still have healthcare be comfortably less than $100 million business within that framework.
Obviously if it takes off, that's fantastic.
But our commitment to having sustained growth and delevering isn't dependent on it.
- Analyst
Great.
That's really helpful.
Thank you both.
And then Nick, I did want to ask a little bit more about that leverage comment that you made.
The path of getting to $1.4 billion in revenue, if you were able to do it, would you imagine that being fairly straight line in nature, as in $1.2 billion this year and then $1.3 million next year and then $1.4 billion in 2018?
And how should we think about plausible ways to get there in terms of recruitment growth?
And I think on the last conference call you'd said that if you end the year this year with a mid-single digit increase in customer count, that would set up about a $0.19 EPS tailwind for next year.
How does that tailwind look now, given that it sounds like you are probably going to end the year with a little bit better than that?
- CFO
Certainly we've reiterated that based on our growth this year that flows through into higher end-of-period subscribers and the brand at end of 2016.
And so gives us an actual revenue and EPS lift into 2017 for sure.
In terms of the cadence of the progression for that $1.4 billion in revenue, I am not prepared to lay out exactly what that could look like today.
But safe to say it doesn't require anything other than moderate sustained growth in our B2C business recruits.
And as you heard Jim say with the runway we believe we've got in our Beyond the Scale program, and of course the partnership with Ms. Winfrey, we think we are very well placed to deliver that.
- Analyst
That's terrific.
Thank you very much, and good luck.
- President & CEO
Thank you, Alex.
Operator
This concludes today's conference.
Thank you for attending today's presentation.
You may now disconnect.