WW International Inc (WW) 2018 Q2 法說會逐字稿

Good afternoon, and welcome to the Weight Watchers Second Quarter 2018 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.

Thank you, Brian, and thank you to everyone for joining us today for Weight Watchers International's Second Quarter 2018 Conference Call.

As of 4:15 p.m.

Eastern Time today, the company issued a press release reporting the second quarter 2018 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 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.

Joining today's call are Mindy Grossman, the company's President and CEO; and Nick Hotchkin, CFO.

I will now turn the call over to Mindy.

Thanks, Corey.

Good afternoon, everyone.

It's great to be speaking with you today.

We had another quarter of strong performance in Q2, with momentum that continued in the spring and throughout the summer, following the global launch of Invite a Friend and our first Summer of Impact marketing campaign.

We ended the quarter with 4.5 million subscribers worldwide, an increase of 1 million subscribers from a year ago, due to continued double-digit member recruitment growth across all of our major geographic markets.

And importantly, our average retention continues to be at record levels of well over 9 months.

These results demonstrate the global appeal of our WW Freestyle program, supported by strong, integrated marketing execution and a robust and engaging digital platform.

By presenting WW in new ways, we're starting to attract a broader and more diverse audience, bringing in many new members who may not have considered Weight Watchers as a program for them in the past.

Similar to what we saw in the first quarter, in the U.S., more than 40% of our member signups in Q2 were new to WW, an increase in the proportion of first-time members compared to recent years.

On a year-over-year and constant-currency basis, revenue was up 18%, gross margin expanded 430 basis points and operating income increased 30%, demonstrating the power of our high-margin subscription business model and impressive flow-through to profitability.

This summer, we launched our first Summer of Impact campaign, and we are pleased with the lift it has given our performance, with signups improving significantly in what has historically been offseason for WW.

People want to get healthy around, not just in January.

And as we move to WW 365 mindset, we will begin to have activations and events year-round.

This summer, we're doing exactly that in a global campaign, celebrating the Freestyle view, highlighting food, family and fun and showing how WW can be a powerful partner for health in people's lives year-round, encompassing digital marketing, eCRM, social media, unique video content, public relations, and in the U.S., TV advertising, Summer of Impact is globally coordinated effort, and one that has engaged our ambassadors and members alike.

For Father's Day, we launched a dad-style social media campaign with videos from DJ Khaled, Kevin Smith and Chef Eric Greenspan, which delivered 1.2 million views and 1.4 million engagements.

Summer of impact is appealing to a younger audience who are participating in the conversation via social media and sharing their enthusiasm for WW.

Anyone who has looked at Connect, our in-app members-only social media platform knows that Better Together is one of our most popular hashtags, and for good reason.

When you're following the program with a friend, you're more likely to encourage and motivate each other, leading to better engagement and success.

To reward members for referring family and friends to the program, this summer, we added an Invite a Friend feature into our mobile app.

When an invited friend signs up for WW, both members receive 1 free month added to their membership.

So far, the program results are highly encouraging.

In the U.S., more than 70% of those referred by Invite a Friend have signed up for membership, with over 70% of those referred becoming first-time WW members.

Weight Watchers has always been about community, and as a global purpose-driven brand, we have the ability to make communities healthier and make healthy habits accessible to all, not just the few.

This summer, we launched WW Good, an inspiring initiative to unite our global community.

Through a series of 6 free mini festivals happening over the course of this summer across North America, we're bringing people together in fun events, featuring inspirational speakers, interactive group fitness activities led by motivational fitness trainer Holly Rilinger, healthy food, and more importantly, free engagement opportunities for all ages.

For every person who attends an event, we are helping 1 local family in need, via a month's worth of fruits and vegetables.

We've already [possibly] impacted thousands of people with our effort, with over 2,500 families receiving fresh produce for a month, and in addition, 2,000 pounds of produce donated to food banks so far.

And we still have 3 more festivals ahead.

Please join us for our WW Good events in Los Angeles, Toronto and in Union Square in New York later this month.

As we have said previously, our aspiration is for the Weight Watchers app to become the world's everything app for wellness.

All of our 4.5 million subscribers have full access to our highly rated WW app, providing tools, content, connection and inspiration anytime, anywhere.

And we will continue to add content and features such as Invite a Friend, to make our app even more engaging and rewarding.

Looking at the WW app usage more closely for the first 6 months of 2018, on average, each month, approximately 1.3 million unique members have synced a fitness device; 1.8 million unique members engage on Connect, our digital social network community; 2.6 million unique members used our convenient bar code scanner; and 280 million [times members] tracked food.

That's 280 million opportunities for engagement.

And as we know, engagement is correlated to both success on WW and longer retention.

2018 is on track to be an important and memorable year for WW.

Our business is strong, supported by a mobile-first technology platform and agile development approach, a test and learn mindset, focused on consumer insights and a brand-led culture.

As we make the next steps to move to a holistic wellness platform, we are modernizing our brand to be more culturally relevant to attract a more diverse audience and to drive continued engagement.

I am confident in our strategies to capture the growth opportunities ahead.

Now I will first hand the call over to Nick to discuss our Q2 performance in 2018, and then I'll join to talk about the future.

Thanks, Mindy.

We continued to have great business momentum throughout the second quarter with strong global recruitment and record retention driving top line growth and margin expansion.

Year-over-year recruitment growth rates in Q2 continued to be well above those obtained during Q2 2016 and 2017, bringing our end-of-period subscribers to 4.5 million, up 1 million subscribers or 28% from prior year, and this was driven by very strong WW online performance.

Total paid weeks were up 27% year-over-year in Q2 with double-digit gains in all of our major geographies.

On a global basis, average retention continues to be well over 9 months in both meetings and on online, which is an increase of more than 15% versus 3 years ago.

This reflects improvements in the member experience and increasing engagement with tools like Connect, our social media platform embedded in our app.

We also continued to have success with our longer-term commitment plan offerings.

Looking at our global signups in Q2, 21% chose an initial 6-month plan versus 14% taking the 6-month option a year ago.

Q2 revenue of $410 million increased $60 million or 18% year-over-year on a constant-currency basis, a continuation of the accelerated growth rate we saw in Q1.

The operating leverage in our business model is reflected in the strong flow-through to profitability in the quarter.

Gross margin rate was nearly 60%, up 430 basis points year-over-year on constant currency and the operating income of $128 million increased $29 million or 30% on a constant-currency basis from the prior-year second quarter, and that brought our operating income margin to 31% in Q2.

While marketing expense was higher on a year-over-year basis, it remained relatively flat as a percent of sales as we continue to focus on the efficiency of our spend.

To demonstrate the effectiveness of our marketing model, looking at our U.S. signups in Q2, the ratio of subscriber value to cost per acquisition was 5:1.

We delivered Q2 GAAP EPS of $1.01.

This compares to GAAP EPS of $0.67 in Q2 2017, which included a $0.01 benefit from the early extinguishment of debt.

At quarter-end, our cash balance was $168 million, up notably from Q1 end, and our revolver is undrawn.

EBITDAS was $142 million in Q2, up from $113 million in the prior year quarter.

Turning to our performance by geographic market.

In Q2, North America revenue increased 19% on constant currency and end-of-period subscribers increased 29%.

Continental Europe revenue increased 24% on constant currency and end-of-period subscribers increased 30%.

In the U.K., revenue was up 4% on constant currency and end-of-period subscribers increased 15%.

We are confident that our top line strength will continue for the rest of 2018.

We expect full year 2018 revenue to be slightly north of $1.55 billion despite the recent strengthening of the U.S. dollar, which has reduced our forecast by approximately $15 million.

For the year, our revenue guidance now assumes an estimated foreign exchange benefit of $20 million.

We are increasing our full year GAAP EPS guidance to a range of $3.10 to $3.25, representing the continuing strong momentum we are driving across all of our major geographies.

As noted versus our prior forecast, this guidance also reflects the recent strengthening of the U.S. dollar, which has negatively impacted our EPS outlook by about $0.05.

This guidance assumes 70 million shares outstanding for the full year.

For the remainder of my comments, I'll speak to the midpoint of our full year EPS range and on a constant-currency basis.

To provide a bit more color on our revenue forecasts, in North America, our largest market, we anticipate full year revenues to be up in the mid-teens.

In Continental Europe, we expect full year revenue to be up in the mid-20% range.

And in the U.K., we expect full year revenue to be up in the low double digits.

We expect gross margin rates to increase by up to 425 basis points in 2018.

This reflects operating leverage and the strength of our online business, partially offset by targeted technology and other investments that will advance our long-term business momentum.

Marketing expense in 2018 is expected to be approximately $240 million or flat year-over-year as a percent of sales.

This year-over-year increase in absolute spend is largely driven through investments in digital marketing initiatives and our Summer of Impact campaign as well as investments in evolving our brand.

We are pleased with the results we are seeing in our digital marketing channels and we've decided not to run TV advertising in our upcoming fall marketing campaign.

G&A expense in 2018 is expected to be approximately $245 million and slightly down as a percent of sales.

The increase in the dollar spend is primarily due to higher investments in revenue-driving areas, particularly tech and product capabilities, in addition to higher equity compensation expense.

Our business has strong flow-through to operating income.

For the full year, for each incremental $1 of revenue we expect to generate at least $0.50 of incremental operating income.

Below the line, we expect full year interest expense to be $144 million versus $113 million in the prior year.

The increase is a direct result of the refinancing we completed in Q4 2017 to extend the maturities of our debt.

And given our financial and balance sheet momentum, we believe we may have an opportunity to reprice our term loan later this year.

We are currently assuming a tax rate of about 15% for the full year, which implies an approximately 22% tax rate for the remaining quarters of this year.

For the full year, we expect EBITDAS of approximately $470 million, up from adjusted EBITDAS of $337 million in 2017.

Our balance sheet continues to improve quickly.

Our leverage is expected to be below 3.5x net debt-to-EBITDAS at the end of 2018, down another 0.5 turn from 4x leverage at the end of Q2.

And while we continue to be highly focused on reducing leverage, we may consider small acquisitions with a good strategic and financially attractive rationale, including those that could enhance our technology and product capabilities.

We expect CapEx, primarily driven by tech spend, helped by software and office space investment, to be in the $60 million range.

In addition, we also expect to have an approximately $10 million investment for intellectual properties related to our brand in this year.

And G&A is expected to be approximately $45 million.

Based on continued year-over-year recruitment growth and the current retention, we anticipate exiting 2018 with approximately 4 million end-of-period subscribers, up 800,000 or about 25% from where we ended 2017.

Given the nature of our subscription business model, we anticipate this higher level of subscribers, when entering 2019, would alone translate into an EPS tailwind of approximately $0.50 in 2019.

Note that this $0.50 positive EPS impact is independent of any member recruitment assumptions for 2019, effectively assuming flat recruitment year-over-year, and so it's just a quantification of the starting point to assist with modeling.

We are making solid progress towards our 3-year goal to increase our revenues to more than $2 billion in 2020.

We expect about 80% of this revenue growth to be driven by continued positive recruitment and improvements in retention, with opportunities in products, licensing, partnerships, B2B and new geographies also contributing to the overall growth picture.

As you can see in our performance, recruitment growth results in gross margin expansion, and we are managing the business to keep marketing and G&A expenses as a percent of sales relatively flat.

Therefore, we believe we have future margin expansion upside and we expect our growth rate of profit to continue to exceed our growth rate of sales.

With that, I would like to turn it back to Mindy.

Thanks, Nick.

As I look back on my first year at the company, I am so impressed with all of the work our global teams have accomplished in this short time.

From the launch of WW Freestyle to our partnerships with new WW ambassadors, including Hélène Segara, DJ Khaled, Chef Eric Greenspan, Kevin Smith and others.

From the development and creation of our impact manifesto, to broadcasting its launch to employees worldwide and being joined by Oprah Winfrey, who is such an invaluable partner for WW for this momentous event, which we also made public.

From bringing WW 365 to life with Summer of Impact, launching WW Good to rolling out new digital features and bringing more inspiring content to our global community, and to our highest subscriber base retention and engagement in our history.

These are among just a few of our highlights from this past year, and we are only at the beginning of our evolution.

We've embarked on an exciting journey.

From being the global leader in weight management to becoming the world's partner in wellness.

To be the brand that democratizes wellness for all and the embodiment of our purpose.

We inspire healthy habits for real life for people, families, communities, the world, for everyone.

It is our intention to bring science and scale not only to weight management but also increasingly to activity and positive mindset through partnerships and collaboration.

To live up to that purpose, our brand needs to evolve as well.

The look, the feel, the expression, the articulation in every aspect of how we show up in people's lives globally.

Our brand has become a trusted mark that exemplifies the brand and which speaks to both the sustainability and the efficacy of what we could bring to all people, regardless of their personal wellness goals, whether that's losing weight, eating healthier, moving better or having a positive mindset to live a better life.

We believe in heritage and legacy.

And from the day Jean Nidetch gathered a group of women in her kitchen, we've brought the best science of eating healthy and the inspiration of community to millions and millions of people around the world.

We're proud of that legacy and embody that to this day, but now we can be so much more.

At our February 7 global event, Oprah said it best, "Healthy is the new skinny.

We can be more holistic, more diverse and reflect what people want today and in the future in a partner for health and wellness."

We will be evolving the articulation of our brand to present ourselves in a modernized and even more culturally relevant way that highlights wellness.

Our brand expression will be a better reflection of who we've become and where we want to go.

For what everyone has loved about us will always be true, we will always be about real, about livability, about community, but we will have elevated our look, our feel, to reflect a new maternity.

We look forward to bringing this to life in the next couple of months.

We are implementing a brand-led culture.

Everything we do is screened through our purpose filter and through the lens of member recruitment and retention.

All of our decisions, from marketing, creative, to products, to content, to partnerships, are guided first and foremost, by our purpose.

And if something doesn't fulfill our purpose, we shouldn't be doing it.

To be a partner to all in wellness, we need to evolve all aspects of how we integrate into people's lives.

WW will always be the global leader in healthy eating, informed by the best of science, but now we will also be a partner in activity and mindset, and we're choosing partners who have the same goal as we do, to have a discernible and positive impact on people's lives.

In the U.S., we've recently launched a beta with Headspace, a global leader in meditation and mindfulness, bringing exclusive content to the WW app and into meeting rooms.

We are excited by the potential of offering a broader integration, and we have plans to add more and more wellness content this year.

We've previously stated that we wanted to own a healthy kitchen, in products, food, content, culinary experts and experience.

I'm excited to announce that by January 2019, there will be no artificial ingredients in any products that WW sells directly to consumers.

In addition, every product that will be in our meeting rooms, online, in-stores has been reformulated, developed and repackaged, which will be a reflection of the new brand across the world.

The speed with which our partners and teams work to reformulate and reimagine these products is nothing short of impressive.

As announced previously, in the U.S., we're working with Fresh Realm, who brings national scale and expertise in food logistics, to launch WW Fresh quick prep food portion meal kits and individual fresh food products.

We plan to launch later this year and are finalizing distribution.

We aim to expand this type and other fresh food programs globally.

In Sweden, for example, where we've had a WW grocery initiative since 2014, over 10 million WW meals have been sold to date and we believe that this is a significant global opportunity.

Our WW Cruises have been a fantastic way to showcase what we're all about, and to reintroduce WW to new audiences with a week of fun and wellness at sea.

Our next sailing in November is already sold out, and we look forward to more cruises in 2019, including our first launch from Europe.

We're also excited about WW's first rewards and loyalty program.

We provide members with a deeply human and personal experience, an experience where they are inspired, motivated and connected.

We are focused on making that experience even more rewarding.

We believe this will be the most innovative rewards program in the marketplace, rewarding healthy behaviors, creating motivation and empowering people to take actions that will enhance their health and well-being, yet another proof point of our purpose.

Unlike other loyalty programs, ours will not be about dollars spent.

We will be rewarding members for positive behavior and actions that we know will lead to healthy habits, recognizing success with WW curated products and experiences.

The testing results have been highly positive, with linkage to increased engagement, satisfaction and retention.

We look forward to launching rewards and are enthusiastic about its potential to motivate and engage members.

We have been executing while evolving, and our focus on organizing for impact.

We are strengthening our teams and putting the building blocks in place to have a world-class, tech-enabled global organization.

We're adding tech and digital product talent to fuel innovation, and in late October, we'll be moving into new San Francisco office space, as we expand our teams in this key market.

Across the business, we're deepening our talent bench, not only in technology and product, but also in other revenue-driving areas such as marketing and brand.

Importantly, we are attracting the right talent who are drawn to our purpose and want to join an organization where they can truly make positive impact.

Every day, I am more inspired and excited about my role, the brand and the business, and I really realize it's just early days, but I passionately believe we have tremendous opportunity to have great impact and truly live our purpose.

So thanks for joining us on the call today.

We'll now turn the call to the operator for Q&A.

(Operator Instructions) Our first question today comes from Alex Fuhrman with Craig-Hallum Capital Group.

I wanted to ask about the Summer of Impact marketing campaign.

It seems like it was pretty successful by all accounts and I was interested to hear in your commentary that it was really resonating with a younger audience.

I'm curious if that's what you were expecting at the beginning of the campaign.

And just as we think about these younger customers, are they behaving any differently?

And even as you look back against, not just with the summer marketing campaign but to the extent that you do have younger customers in their 20s or 30s, do they tend to stay on the program as long as older customers?

Just curious how we should think about your customer base as it presumably becomes more well-rounded, age-wise, over time.

We are very focused on all elements of diversity.

So we think about age, gender, ethnicity, geography, and very focused on areas of lifestyle and age.

So cohorts like young moms and young dads and broader audiences, that's been very important.

And it's evident in the 40%, or north of 40%, new into the program, which prior was significantly lower than that.

When we developed the campaign for summer, which as I mentioned, was 1 concept executed in 10 markets with specific local relevance, and it resonated everywhere.

If you look at the diversity that was pictured in the campaign, it really reflected what I was talking about in terms of the different cohorts.

The other thing that we really learned is with the efficacy and efficiency of our digital marketing spend in particular, we can really drive relevant content to different audiences.

And we definitely saw positive results with doing that to male audiences as an example.

And you're going to continue to see that as we move forward, both in our fall and then certainly into our winter campaign.

So for example, just, I believe, it was yesterday, it was International Friendship Day, and we had Kevin Smith and his best friend out there around, Invite a Friend and do this together.

So we're trying to really use our social platforms and our abilities to broaden audience, but in a very targeted, efficient way.

And then if I could just ask one follow-up, and you mentioned the strength of the returns on digital marketing.

Was that more than expected?

I was surprised to hear that you're not planning to run TV ads in the fall considering from where, we're sitting as investors, it certainly looks as though the winter and the spring and the summer TV campaigns were very successful.

Is it just that the digital marketing spend is that much more efficient this year?

Yes, so let me speak to it a little differently.

We believe, very strongly, in video content across platforms.

And we will be developing, prolifically, storytelling and digital video content from 6 second up across platforms.

And we have tested in a couple of markets where we had run TV, not running TV, but instead using very immersive video content very successfully.

So we feel confident that the marketing that we're doing, the creative that we're doing, the targeted cohort that we're doing, is really very strong.

But I want to be clear, it's still the tremendous development of creative video platforms across all our assets.

Yes, and Alex, the only thing I'd add is like, given the relative high cost of [GRP] for TV in the fall, it's a strategy we've been thinking about wanting to implement as digital marketing effectiveness has become much, much better.

Next question comes from Christina Brathwaite with JPMorgan.

I just wanted to follow up on the Summer of Impact campaign.

Comments that you guys made.

So it sounds like it's been performing kind of above your expectations so far quarter-to-date in 3Q.

Are you -- but then you maintained the 4 million subscribers by end of this year.

Are you embedding any new member increases related to the Summer of Impact campaign or is there some level of conservatism embedded in there?

Yes, let me start by that, adding we've been thrilled with the momentum, not only in winter but now spring and into summer.

And it's global momentum and our guidance now assumes that continues.

And you see that we are not only delivering good revenue increases, we're at 18% this quarter, but we're doing it in the context of very strong margin expansion also.

So we're excited about our plans for fall and winter, and that 4 million people in the brand at the end of the year doesn't assume any slowdown in our momentum.

And it'll be great to have that $0.50 tailwind heading into 2019.

Our business is following normal seasonal patterns.

I was thrilled the end-of-period subscribers stayed up so nicely, 4.5 million, a record for Q2, versus 4.6 million in Q1.

So no surprises versus where we expect it to be.

And bear in mind, that revenue guidance too includes that 15 million negative forecast or forecast foreign exchange impact.

And given that we actually started Summer [of campaign], a couple of weeks forward into the summer for timing, and it has just ended its TV in the U.S. but digital continues, and we were also lapping World Cup.

So we were actually really pleased when you look at the growth in every market, and even in markets, for example, like France or Germany with the growth that they had without running TV and really leveraging digital assets.

And as I said, for the first time, it was a global campaign integrated and executed together.

So all the countries were able to access more assets than they've ever had before, which actually increases the efficiency of the development of the spend and the campaign.

I just wanted to also ask a question on margins, if I could.

So you mentioned that there are going to be some targeted investments and some infrastructure projects that are offsetting some of the mix shift benefit for the gross margin this year?

So still an impressive 425 basis point guidance, increased guidance, for the full year.

So I was wondering if you could talk a little more about the investment you've alluded to.

Are there incremental investments that you're choosing to kind of pull forward in the year, given the margin performance?

Or have you always kind of embedded that in your guidance for the year?

Well, look, you see us delivering, I think, impressive margin expansion what, year-to-date 435 basis points of operating margin expansion, 31% operating margin in Q2 alone.

While at the same time, we're delivering that performance, we're absolutely investing to drive future growth.

If you look at the, just the things we've got launching now, and in the next few months from the Headspace beta, and further wellness opportunities, to rewards, to our brand articulation, to WW Fresh, to whole new packaging for our products, investments in our people and tech and products and brand.

Yes, we're absolutely investing with confidence, because we're very excited about what we want to deliver in this space.

Yes, and we have not yet really heavily rolled out kind of our Invite a Friend marketing.

And based on what we've seen for summer in the results, you'll see that as core to campaigns going forward.

Yes, frankly, if I was pleasantly surprised with anything in Q2, it was the response to that, Invite a Friend launch.

70%-plus conversion when folks are referred, and of those, 70% of the people joining by that program are new to the brand.

And of course, it's very cost-efficient marketing.

Yes, and it's very early days of, even marketing the program.

Next question comes from Olivia Tong with Bank of America Merrill Lynch.

Wanted to ask about your revenue growth expectations.

Obviously, 20% this quarter is clearly very strong, but it was a bit of a slow down across all the divisions relative to Q1.

So can you talk through what keeps momentum going, particularly as comps get materially tougher in the second half.

And also talk through, I think, Nick, you had said that the U.K. expectations were for double-digit growth, and if I had that correct, it used to be mid-teens.

So could you talk a little bit about what's driving that?

Yes.

No, look, thanks for that.

I mean, I would say, broadly speaking, I really view the 18% constant currency revenue growth this quarter in the context of what we did this quarter last year.

So it was 18% revenue growth on top of a 12% revenue growth in Q2 '17.

So I don't see the business slowing.

I see, as accelerating in the first half of this year versus where we were.

And we've just delivered the fifth straight quarter of double-digit constant currency revenue growth.

And our forecast for the rest of the year, you can tell we're excited about rewards.

We're excited about leveraging Invite a Friend.

So no change in momentum.

You mentioned the U.K. When we look at the U.K., I'd encourage you to focus on some of the metrics like end-of-period subscribers up 15%, paid weeks up 16%, and last, on the revenue, up 4%.

Because it gives a slightly warped picture of how the U.K. is performing.

So the U.K. revenue year-over-year was impacted by some onetime accounting impacts, which favorably impacted revenue last year.

So it's a tough compare, but equalizing for that, the U.K. is performing nicely to, as shown by those double-digit year-over-year growth in paid weeks and end-of-period actives.

I mean, overall, to your point, U.K. revenue, up in the low teens in this guidance versus up mid-teens in our prior guidance.

So on the margin, a little bit of change in our assumptions, but no change to the trajectory of the business.

Yes, and Nick and I just got back from a full week with teams in U.K. and France as well as the GMs from all of the countries.

And we came away, not only enthused by the teams themselves, but their execution around all elements of the Impact Manifesto and the moves that they have to make in each of their markets.

And are significantly aligned on what they will be delivering over the course of the next year and through what our aspirations are to end of 2020.

And I'd like to follow-up, just on your decision to forgo TV advertising during the fall.

I'm assuming you've never done that in the past, but how do you think about the effectiveness of the video campaign versus television?

Are these commercials in YouTube?

Is it paying for sponsored search?

Just provide a little bit more color on that.

Yes, right.

So to be clear, we are talking specifically about the U.S. and no other market, okay?

And we have been doing great work in the U.S. And they're actually leading relative to best practices for rest of world in their abilities to monetize both their social, digital, influencer, video content across a lot of different platforms, some with partners developing content and a lot of content we're developing on our own, so we feel very strongly about what we have going into the fall.

It's definitely part extension of the summer campaign, but really elevated.

And we have a number of different events that we'll be talking to as well.

So when we look at efficacy and efficiency, clearly, we have confidence that what we will do across platforms is going to deliver.

Next question comes from Frank Camma with Sidoti & Company.

Just a couple of quick ones.

First, specifically on retention, can you just give us a little more color, are you seeing anything breakout above that 9 months area, either online or in the meetings?

Yes.

Look, it's well over 9 months, and we're excited to see the launch of our rewards program as another catalyst.

So well over 9 months means closer to 10 than 9.5, so we're very pleased with how members are responding to engagement with our program.

Is that the same basically in online and meetings?

Like you don't find a difference?

Yes, they're very close.

Very close.

Okay.

Other question, just on modeling.

Did you lower your tax rate assumption to 22%?

Did you have 25% last quarter?

Or do I have that wrong?

Our tax rate forecast for the year is 15% versus 18% in our prior guidance and that's...

So you did lower it?

Yes, lowered it, and that's primarily driven by successful resolution of some audit work and also by the positive impact of employees accessing their equity grants at higher stock prices.

Next question comes from Michael Lasser with UBS.

Did you get the return on the marketing investment that you expected in the second quarter?

It was up 3% per subscriber year-over-year and that compared to being down 11% in the first quarter.

Yes, look, overall, our global cost per acquisition was pretty much exactly in line with where we would've thought it would've been and in line with the [efficient] levels we saw in Q1.

And as a follow-up, can you give us some indication of the amount of discounting that you did in the second quarter versus where the trend had been in the last few quarters?

Yes, and I'm glad you asked that, because I think one of the strengths of this quarter was not only the 18% constant currency revenue growth, but doing that in tandem with 430 basis points constant currency gross margin expansion.

Obviously, that's partly online mix, that's partly operating leverage, but it's also very good work by the team on price realization.

So we weren't discounting more than we typically were.

No, and as a matter of fact that is a very, very big focus on us, is how we continue delivering more value for what people want and articulating that in ways around, I'll give you an example, Invite a Friend, obviously, drove a lot of efficacy and efficiency and that's not a discount, it's believing in our product.

And that's what we're very much focused on, not over discount.

Next question comes from Kara Anderson with B. Riley FBR.

So it may be too soon, but as we're approaching sort of the 9 month timeframe with the new more visible Freestyle program, just wondering if the narrative around why people cancel has changed at all?

And if I may, I have a follow-up to that.

If there's any new stride that are being done to sort of identify and target those who are about to cancel, maybe they're not tracking, and sort of action to get them back on track.

Yes, I don't think the reasons why people cancel have changed materially.

It gets to people having met the goals that they set for themselves, or whether there's been [a] discretionary product [then] choosing to spend their money on other things.

But I think that's where the shift to wellness gives us an opportunity because we look at these features we're adding to our program, and you see it driving our increased retention, be it Connect or [click] to chat [or our] further wellness initiatives in digital.

We're giving people more reasons to stay as their holistic lifestyle partner.

As you heard from Nick, what we're pleased with is people are signing up for longer times within the program.

We're also doing -- continuing to do a lot of work and investments around personalization and the capabilities to identify when people might fall off and being more proactive around ensuring retention.

So a lot of that in work and a lot of that being executed as well.

Next question comes from Michael Swartz with SunTrust Robinson Humphrey.

Just wanted to dig into the year-end member expectations a little more.

Nick, I guess, with a lot of the positive commentary that we've heard on the call, with retention, new subs, the success of Summer of Impact, I guess I'm trying to understand there, or at least reconcile why we should see maybe a steeper fall off in the back half of the year in terms of members than what we've seen in the past few years?

I guess is there something that I'm missing, or some offsets there?

Now look, I think we're certainly forecasting the business to follow the same seasonal pattern, and we're excited with what we've got coming this year.

Obviously, we're not giving guidance for 2019 today, it's August, it's just important for us to see, and let The Street know that given the momentum we have, we typically [do so on this call,] that based on those more people in the brand at the start of the year, we'll have that $0.50 tailwind.

So we're looking forward to what we'll be launching in December and delivering a great [door price] or tailwind into '19.

But certainly not forecasting or expecting a steeper drop off than normal.

And then, I think, Mindy, you mentioned that there were 1.8 million monthly unique users on the Connect app.

I hope I heard that number correctly.

I think you've said in the past that was around 1.5 million members.

So maybe I just want to understand a little better, what was the cause of that increase?

And then maybe longer term, how does that play into your thoughts around marketing investment, both, I guess, from an absolute standpoint as well as maybe seasonally?

Yes.

So I am a huge believer in the power of that Connect platform.

I've seen it, I know it's correlated to retention.

So people, even who've achieved their goals, feel they're going to inspire others.

We are actually seeing within that, if you look at the #1 hashtag on Connect, it's #NSV, non-scale victory.

So people really talking about the impact that we're having, not just on their weight -- in their life.

So the more people that we can be involved in the Connect platform, that feel that's going to be for them.

We are investing in new capabilities for people to form their own communities to be able to create their own member groups.

And we will continue to do that because we do feel it is such an asset to us.

Obviously, particularly in retention.

Now that does not mean that our other social platforms, whether that be Instagram, Facebook, et cetera, are not also very powerful to communicate to both our members and future members.

So social, as part of us, as a very powerful community, will continue to be where we're investing and whether that's full storytelling, content like Instagram Stories or what we're doing in 6-second video, all of that is going to be, and continue to be, very important.

Next question comes from Linda Bolton-Weiser with D. A. Davidson.

In the past, you've referred to the opportunity to bring more opportunity to have in-app sales of products.

And also, you've talked about the opportunity to bring more technology into the meetings.

Can you talk about your progress on each of those initiatives?

Yes, we have -- so let me talk about 2 different bodies of work.

One is, what we are doing in our products as a whole.

So I mentioned that every product we currently have has been reformulated, restrategized and will be, in January, available across all our platforms.

And so the second phase of that is what other products are we looking to develop to expand and then how are we investing in the technology to enhance our e-commerce and digital presence.

So that development is going hand in hand, and there's a global team that is working on that.

So you will continue to see, both from a product point of view and an experience point of view, whether it be on our site or in our app, develop.

In terms of, what was she saying was -- in-app purchase.

In terms of the in-app sales, I mean, we've got a great opportunity with this, our new products that we will be launching to look at Internet sales of those products.

In terms of in-app, our biggest opportunity is looking to increase the opportunity for people to go buy Weight Watchers subscriptions via in-app purchase as opposed to sales within the app, per se.

Yes.

And then, as far as, we've done a comprehensive diagnostic on our entire meeting business worldwide.

We have about 30,000 meetings a week.

We have about 1.6 million of those 4.5 million, 4.6 million in meetings.

And we are looking -- we have about 5 test sites where we're integrating technology in a new way from the end-to-end experience.

And we will be highlighting a number of those particularly as we go into January for a whole different experience.

Next question comes from Greg Badishkanian with Citi.

It's actually Fred Wightman on for Greg.

I think you mentioned some possible retention benefits from the loyalty program.

Can you just help us size the possible impact?

I mean, are we talking about a step function improvement?

Or sort of the continued slow and steady improvement you guys have seen over the past year or so?

We are very excited about the rewards program.

So when you think about it, if your reward is for every step that you take to take yourself further on your journey, so that's every food you track, every activity that you do, everything you do in support of your health and mindfulness or other areas, it could be meeting, it could be invite a friend, et cetera, I'm a big believer in the form of gamification that presents -- that's human behavior.

And when we tested this, we definitely saw increased retention from what would be the norm.

And so this combination of people being able to be incentivized to do these things, not only will that increase retention, it will make them more successful, in terms of what they're doing.

So the combination of that, we feel very strongly it's going to be a very important element going into 2019, even though it will be launching prior.

Great.

That makes sense.

Then if we just look at the shift you guys have articulated towards more of a digital first strategy, especially in the U.S. here, can you talk about how that can impact the speed you're able to enter new international markets?

I would think that would probably accelerate it, but maybe we're missing something.

Yes, look, with a leading global digital app and with a modern cloud-based tech architecture, we've certainly got international market entry opportunities that wouldn't have been easily accessible to us until recently.

And with just having a small Latin America business in Brazil but no presence in any other markets there and no presence in Asia Pacific, I'm very excited about those international market opportunities.

And the ability to enter a new market with our digital subscription offering, and while at the same time, providing some elements of human engagement, the thing that makes us really special -- I'm really having a good time working on that initiative with the team.

And the last question today comes from Edward Yruma with KeyBanc Capital Markets.

I guess, first, now that you're kind of 8 months into the new Freestyle program, have you seen any changes in terms of the actual health outcomes or weight loss outcomes from clients that are in that program?

Are they losing the same amount of weight as they would have in Freestyle previously?

And then, I guess as a follow-up, I know you've been targeting some new consumer cohorts, young fathers.

I guess, kind of help us break down if some of those initiatives have been successful.

Yes, so actually we're thrilled with Freestyle.

And as I said, it's something that we feel we have tremendous equity in as a brand in addition to our brand.

People are losing as much if not more weight than before the program.

But what they have really appreciated is the simplicity and the ease and the freedom of how this has allowed them to have a very livable program that they can do.

I mentioned before we're seeing more engagement with men, and again, we've not gone out and said WW for men.

It's not our strategy.

We've employed kind of diversity and strategic marketing efforts.

And in speaking with our members, it does relate back to that ease, that simplicity and that livability that people are really responding to, that they haven't seen from anywhere else that they had looked within the, let's call it, healthy living framework.

So we still see it as an opportunity to bring more people into the business.

At this time, this will conclude today's question-and-answer session.

I'd like to turn the conference back over to Mindy Grossman for any closing remarks.

So thank you, everyone.

It's certainly an honor to be part of a company that deeply impacts the lives of millions.

I also want to thank our global teams for everything you do.

And thank you for joining us today, your interest in Weight Watchers, and we will look forward to keeping you informed on this journey.

Thank you.

The conference has now concluded.

We want to thank you for attending today's presentation.

You may now disconnect.