Weight Watchers' CEO Discusses Q4 2011 Results - Earnings Call Transcript

| About: Weight Watchers (WTW)

Weight Watchers International, Inc. (NYSE:WTW)

Q4 2011 Earnings Call

February 14, 2012 5:00 PM ET


Sarika Sahni – Investor Relations

David Kirchhoff – President and CEO

Ann Sardini – Chief Financial Officer


Charles Boorady – Credit Suisse

Jerry Herman – Stifel, Nicolaus

Chris Ferrara – Bank of America

Greg Badishkanian – Citigroup

Gary Albanese – Auriga

Anand Vankawala – Avondale Partners


Ladies and gentlemen, welcome to Weight Watchers International Fourth Quarter and Full Year 2011 Earnings Teleconference Call. During the presentation, all participants will be in a listen-only mode. Afterwards you’ll be invited to participate in the question-and-answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded today, February 14, 2012.

At this time, I’d like to turn the call over to Sarika Sahni of Weight Watchers International. Please go ahead.

Sarika Sahni

Thank you. And thank you to everyone for joining us today for Weight Watchers International’s fourth quarter and full year 2011 conference call. With us on the call are David Kirchhoff, President and Chief Executive Officer; and Ann Sardini, Chief Financial Officer.

At about 5 p.m. Eastern Time today the company issued a press release reporting its financial results for the fourth quarter and full year 2011. The purpose of this call is to provide investors with further details regarding the company’s financial results, as well as to provide a general update on the company’s progress. The press release is available on the company’s corporate website located at www.weightwatchersinternational.com.

Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measure 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 Mr. Kirchhoff. Please go ahead, David.

David Kirchhoff

Good morning. And thank you for joining for us as we review Weight Watchers International’s performance for the fourth quarter and full year of fiscal 2011. Weight Watchers ended 2011 with a strong fourth quarter and the best financial performance in the company’s history.

The combination of the launch of PointsPlus and hard hitting marketing benefited our North American meetings business throughout the year, but particularly in the first quarter of 2011 when we saw explosive growth. The WeightWatchers.com business surged to new heights throughout the year. Strong performance in the U.K. was sufficient to offset softness in our Continental European business.

In the fourth quarter 2011, our business delivered solid year-over-year volume growth and very strong financial performance despite beginning to lap the surge in volume we experienced with the new program launch that began in late November 2010. WeightWatchers.com remained at all time highs throughout the end of fiscal 2011.

On a constant currency basis, Q4 2011 revenues grew 12.5% over the prior year period with meeting fees up 11%, in-meeting product sales down 22% and internet revenues growing 60%.

From a volume perspective, combined global online meetings and in-meetings paid weeks grew by 34% in the fourth quarter versus the prior year period. Q4 2011 global paid weeks in our meetings business were up about 13% versus the prior year period, while paid weeks for Weight Watchers Online remain very strong at 67% versus the prior year period, almost exactly on par with the growth rates we saw in Q3.

Q4 2011 EPS was $0.86, compared with $0.66 for the same period in 2010, a growth rate of 30%. Included in the Q4 2010 EPS was a $0.02 benefit per share from the reversal of a prior year U.K. debt accrual.

For the full year, the company delivered revenue of $1.8 billion, operating income of $546 million and net income of $305 million. This translated into a 2011 full year EPS of $4.11 versus $2.56 in 2010, a growth rate of 61%.

I will now briefly review our results in our major geographies and business units. First, our North American meeting business, to put our fourth quarter metrics in context, as I just noted, beginning in late November of the fourth quarter we began lapping the launch for the PointsPlus program in 2010.

During that launch we experienced tremendous fear on bugs around the historic program changeover. This resulted in an unusual surge in enrolments in the last six weeks of fiscal 2010. Further many Monthly Pass subscribers who otherwise would not have attended it frequently during the seasonally low period, showed up in late November and December to learn about the new program. This resulted in a significant surge of attendances during this typically quite time of year.

Finally, as we switched over to the new program in the last six weeks of 2010, we experienced abnormally high levels of end meeting product sales per attendee as our entire install base of members bought the new tools and publications associated with following the new PointsPlus program.

For the fourth quarter of 2011, total NACO revenues were $193 million, up 7% versus the same period in 2010. NACO meeting fees grew by 16% versus the prior year period, driven principally by paid weeks volume growth.

In-meeting product sales declined by 22%, as we began to comp against the spike in product sales related to our PointsPlus launch in Q4 2010. As a point of reference, product sales in Q4 2010 were up 36% as compared to Q4 2009.

NACO Q4 2011 paid weeks grew 15% versus the prior year period, comparable to 26% paid week growth we saw in Q3 of 2011. NACO attendance sales for Q4 increased 6% versus the prior year period, slower than the 14% growth we saw in Q3 of 2011, but ahead of the expectations we communicated in our Q3 conference call.

The two test markets where we rolled out our new upgraded retail centers in 2011 showed enrollment lift of about 15%. In anticipation of tough comparables in the seasonally all important Q1, we made an all-out effort to open as many new upgraded retail centers as possible, prior January 2012 setting an ambitious objective of reaching 50% of our network by end of year.

Unfortunately, due significantly to unforeseen delays in achieving permitting due to the complexities of a widely varying municipal rules and ordinances, we were able to only open a total of 166 centers, half of our objective prior to the beginning of the January winter campaign. As of this call, openings of new locations have reached 239, a 35% of the total fleet of stores.

Importantly, we continue to get very positive feedback from our members on retail upgrades, but we’re disappointed we could get the full benefit of our planned number of openings in our Q1 enrollments.

Building our B2B capabilities have been a consistent source of effort and investment in NACO throughout 2011. At this point, it would be useful to provide a little more background and context on NACO’s existing corporate business.

In 2011, the corporate or as we sometimes refer to it, At Work business, accounted for roughly 12% of our meeting attendances in this market. Historically, the vast majority of this business has been a bottom-up grass roots regional business, consisting almost entirely of individual locations, in which an employee would gather interest from 20 to 25 colleagues at request for Weight Watchers’ leader to run a meeting on site. This has been a cash check business and the selling process was highly local with some additional support from tele sales representatives.

Beginning in 2011, we started in earnest to sell our programs at the corporate level to the heads of benefits in the chief personnel officers, larger employers, marking the first time we have sought to achieve top down selling to larger corporations with a professional sales team. This is what we refer to as our strategic or national accounts business.

Early results from 2011 have been very encouraging with recent examples announced of new accounts including American Express, NBC Universal and the New York Stock Exchange.

Employers, particularly those who are self-insured are encouraging their employees to seek a healthier lifestyle and in many cases are providing subsidies or reimbursements when they participate in Weight Watchers’ programs.

Key to supporting our efforts to bring in large accounts, the NACO team also began the process in late 2011 of converting the meetings product and payment methods, which we have historically used in our At Work business. From a fixed 17-week series, paid up front in cash to our corporate version of Monthly Pass for billing is recurring.

Having a corporate version of Monthly Pass is critical to supporting our larger accounts and those who offer a fuller partial subsidy to their employees. For the large corporate accounts, the transition was an important and well-received change.

However, when unforeseen consequence of this changed from a 17-week series to Monthly Pass has been series of implementation issues within the grass roots regional small account At Work business, which is still the significant majority of the overall At Work business. Unfortunately, these operational issues led to challenges in getting new At Work meetings open in the first quarter of 2012.

As I will discuss later, this will result in a significant volume impact in Q1 of 2012 and we are working full stream to fix the problem so that we can return the small account part of this business back to the appropriate volume levels.

Unlike the Monthly Pass transition in our traditional meetings business, which we manage seamlessly across various geographies, we did not fully appreciate the idiosyncrasies and complexities particular to converting the At Work small account business and as a result, did not properly plan and execute the transition.

Importantly, while the loss of volume is regrettable, especially in our peak season, it does not reflect any underlying erosion of demand for our services in this sector, but rather a purely execution issue that will be rectified in the coming weeks.

This past December, we launched PointsPlus 2012, the version upgrade of the program that enhances personalization in the process by which we help new members get started. With all the enhancements to the Monthly Pass value proposition over the past five years including technology such as website and mobile applications, as well as program innovations. We made the decision in Q4 increase the price of the Monthly Pass product for the first time since it was launched in Q3 2006 from $39.95 to $42.95 to properly reflect the value of all these improvements. All existing Monthly Pass customers were grandfathered at the old price, while new enrollees began paying the higher price.

Now on to the international meetings business, like NACO the U.K. began to lap the launch from its new program ProPoints in November. Despite this, the U.K. had a solid fourth quarter from a volume perspective.

Revenues were down 3.3% on a constant currency basis, with growth in meeting fees being fully offset by lower-end meeting product sales. Again, the U.K. was lapping a period of unprecedented product sales for attendance levels during the soft launch of new program in November 2010. Q4 2011 paid weeks were up a solid 17% versus the prior year period and Q4 attendances were up 13%.

In mid-2011, the U.K. began the development of an entirely new advertising campaign for the 2012 launch. As will be discussed in the guidance section later on, the campaign while compelling on many dimensions has been disappointing in its ability to get members to enroll in meetings thus far in the first quarter of 2012. The U.K. teams is highly turned the issue and is taking steps to evolve and improve the campaign to more effectively inspire new members to joining our meetings in this important market.

Moving on to Continental Europe, after a difficult year in 2011 we began to fully see the path to recovery in our CE business as we moved into the fourth quarter. Overall, the CE meetings business revenues contracted 5% on a constant currency basis in Q4 2011 versus the prior year period. A substantial improvement versus a negative 10% trend we saw in Q3.

Volumes also stabilized with paid weeks declining 5% and attendances declining 4% in Q4 2011 versus prior, a substantial improvement versus a negative 15% attendance decline we experienced in Q3.

As noted on previous calls, CE team was disappointed the one, it’s original launch of ProPoints in early 2010 did not meet its expectations and two, the marketing -- then it’s marketing executions were failing to ignite interest with consumers throughout the second half of the 2010 and all of 2011. Based on the success of an aggressive NACO campaign, the CE management team sought to apply the best learnings from that market to the respective launches of the updated program in 2012.

By way of example, Germany the largest of the CE markets secured two significant celebrity spokes people to carry its new meetings marketing campaign in a series of TV personalities for its Weight Watchers Online campaigns.

France also secured a popular local celebrity and it launched a unique and aggressive advertising platform. Similar strides were achieved in small markets throughout Europe.

In addition, CE launched ProPoints 2.0, its first version upgrade in two years with strong response from its members. As will be shared later, the early results of these efforts have been strong and the CE business is now back on the growth trajectory.

Moving on to WeightWatchers.com, despite camping the soft launches, a PointsPlus in North America and ProPoints in the U.K. in Q4 2010, the WeightWatchers.com business had yet another record quarter. New signups remain significantly above prior years for the fourth quarter of 2011. This combined with a higher starting active base resulted in total paid weeks growth of 67%.

This in turn drove revenue growth of 60% versus the prior year period, end of period active subscribers were up 50% versus Q4 2010, an impressive achievement given that the end of period active subscribers at the end of Q4 2010 were up 38% over Q4 2009.

As always, the WeightWatchers.com team remained busy on pushing new feature launches throughout Q4 2011. Of note was a barcode scanning app for the iPhone and Android platforms that allowed Monthly Pass on Weight Watchers Online subscribers to use their smartphones to quickly determine the PointsPlus value of any brand and product in the grocery store, which allows for easy comparison shopping, as well as easier tracking at foods.

In addition, the WeightWatchers.com team launched a complete revamp of the subscriber portion of the website which has been very well received by our customers.

Now, I’d like to turn the discussion over to Ann, who will elaborate further on our Q4 and full year 2011 performance.

Ann Sardini

Thank you, David, and good afternoon, everyone. Before reviewing some of the details of our fourth quarter results, I’ll provide a recap of our full year 2011 performance. Full year 2011 revenues were $1.82 billion, a 25.3% increase versus 2010, reflecting strong growth in our customer count. On Monthly Pass and Weight Watchers Online active basis grew 30.5% and 50.5% respectively from the end of 2010 to the end of 2011 to a combined $3 million.

In addition to the benefits from the higher customer base coming into the year, the NACO and U.K. meetings businesses and WeightWatchers.com experienced strong customer recruitment during the year, a result of the very positive response to the new program launch, coupled with the growing benefit of our effective marketing. These factors yielded annual growth versus prior of 38.1% in our principal volume metrics paid weeks.

The 38.1% growth in paid weeks for the full year operating income growth versus prior up 40% to $546.3 million on an as reported basis, note the 2010 included a $6.5 million charge, related to the settlement of the California labor litigation and a benefit of $2 million from the reversal of the prior year U.K. debt accrual.

Our operating income margin for the full year 2011 was 30% versus 26.8% in 2010.

Interest expense came down 21.5% or $16.4 million in 2011 versus 2010, as we deleveraged to a net debt-to-EBITDA level of 1.72 times.

Net income for the full year 2011 was $304.9 million, up 57% and EPS of $4.11 was 60.7% above the $2.56 prior year level and finally, the full year 2011 delivered $406.4 million of cash flow from operations, significantly exceeding the 2010 level of $313.1 million, which excludes a $31.6 million one-time payment made in 2010 for prior period U.K. debt charges.

Consistent with the rest of 2011, the fourth quarter delivered strong financial results as well, with strong growth rates in our key revenue and profit metric and significant increase in operating leverage.

Our fourth quarter revenues were $401.3 million on a consolidated company basis, an increase versus prior of 12.5%. The key drivers for increases in online and meetings paid weeks.

Operating income was $117 million, increasing by 21.4% and outpacing the 12.5% rate of revenue growth. We delivered 210 basis points of operating income margin improvement in the quarter primarily as a result of gross margin expansion. I’ll provide the details around our operating leverage later in this report.

Net income in the quarter of $62.7 million was up 30.1% versus last year and EPS of $0.86 was up $0.20 from $0.66 from the fourth quarter of last year. Note that EPS for the fourth quarter of 2010 benefited from the $0.02 reversal of the U.K. bad accrual.

Now I’ll provide some of the details of our fourth quarter operational results. The significantly higher customer base at the beginning of 2011 and the strong customer recruitments that we experienced throughout the year positively impacted the fourth quarter, which saw 33.9% growth in paid weeks on a consolidated company basis, only slightly below the historically high growth level experienced in the first half of the year.

In our meetings business, fourth quarter paid weeks grew by 12.6% versus prior to $23.7 million. In Q4, paid weeks growth continued to benefit from 2011 membership momentum, but was partially tempered by its tougher prior year comp. Globally, in the quarter we had 11.4 million attendances, an increase of 5.4% versus prior.

In the WeightWatchers.com business, paid weeks increased by 67% versus the year ago quarter as a comparable rate in the third quarter. Signup growth continued to be strong and active subscribers to the online products were 1.6 million at the end of the fourth quarter, up from 1.1 million at the prior year end.

Looking now at the impact of this volume growth on our financial performance, with all the growth rates cited from this point forward on a constant currency basis and excluding the prior year $2 million revenue benefit of the VAT reversal.

Our consolidated company fourth quarter revenue growth versus prior was 13.1%. In the meeting business, meeting revenues including meeting fees and in-meeting product sales rose 4.2% in the quarter to $265.3 million. Meeting fees in the quarter grew a robust 12.3% versus last year to $218.4 million with NACO up 16.4% and the U.K. up 8.1%. Increases in these markets were partially offset by performance weakness in Continental Europe.

In-meeting product sales decreased to $46.9 million globally, down 21.9%. This is primarily a function of cycling against the soft launch of the new program in the fourth quarter of 2010, which prompted unprecedented purchases in enrollment products by current and returning members. Accordingly, global product sales per attendee decreased 25.9% in the quarter with NACO down 26.1% and the U.K. down 34.1%

In the WeightWatchers.com business, the 60.3% revenue increase in the quarter to $100 million was driven chiefly by strong signups in our two largest markets, North America and the U.K. But we also saw signup strength in Continental Europe led by double-digit growth in both France and Germany.

Our other revenues were $36 million in the fourth quarter, down $1.6 million or 4.3% versus prior. Other revenues include franchise commissions and sale of products to our franchisees. Franchise commissions were up versus prior but product sales were lower, consistent with the experience in the company-owned business cycling against the 2010 new program launch.

Licensing revenues decreased by 1.4% in the fourth quarter versus prior. Increases in U.K. and Continental European licensing were more than offset by declines in U.S., driven principally by one licensee.

Our reported gross margin increased by 330 basis points in the quarter, up from 52.9% last year to 56.2% this year. The primary driver of this was a mix shift toward the higher margin WeightWatchers.com business, but in addition topline growth in WeightWatchers.com drove gross margin expansion within that largely fixed cost business.

Now to wrap up, marketing expenses for the fourth quarter were $60 million, up 28.9% versus the fourth quarter of ‘10 with the lion share of the increase resulting from our investments in the men’s campaign and in early support for 2012. Marketing expenses as a percentage of revenues were 15%in the fourth quarter of ‘11, as compared to 13.1% in the prior year quarter.

SG&A expenses were $48.7 million in the fourth quarter ‘11, an increase of 5.9% versus the fourth quarter of ’10, expenses increased primarily in support of our growth initiatives, including technology for the development of our mobile platforms and add to staff and support of B2B, healthcare business development. Despite these investments, SG&A expenses as a percentage of revenues decreased 80 basis points to 12.1% in the fourth quarter of ‘11 and 12.9% in the fourth quarter of ‘10.

The combination of the growth in the business and operating leverage resulted in an increase in our reported operating income margin of 210 basis points in the fourth quarter to 29.1%, up from 27% in the prior year quarter.

Moving on to interest expense, which was $30 million in the fourth quarter. Interest expense declined by $5.9 million or 31% versus prior, a result of a lower effective interest rate and lower debt outstanding. Our effective interest rates decreased by 53 basis points to 4.47% in the fourth quarter ‘11 versus 5% in the prior year quarter. This is primarily a result of the decline in the notional value of our interest rate swap. Since the fourth quarter of last year, we have reduced our average debt outstanding by $332 million.

As we mentioned, for the full year 2011, our cash flow from operations was strong at $459.2 million before interest payments. After capital expenditures of $49.3 million we had $409.9 million of free cash available to focus our capital structure and to return cash to our shareholders.

During 2011 we paid quarterly dividend totaling $51.6 million. We made interest payments of $52.8 million. We reduced our debt by $313.3 million.

Our debt outstanding at the end of 2011 was $1.05 billion and at the end of 2011, our net debt to EBITDA was 1.72 times, down from 4.33 times level following the refinancing we undertook to fund our last tender offer in January 2001.

Now, I’ll turn it back to David.

David Kirchhoff

Thank you, Ann. 2011 was an important year for Weight Watchers on a number of critical dimensions. A brand has never enjoyed the participation it has seen this past year. The combined ranks and people attending meetings and participating via the online product represent the highest level of engagement that we had seen in our almost 50-year history.

The brand has commended significant attention, interest and buzz throughout the year. Weight Watchers received due credit for its highly effective weight loss system in several clinical trials as reported by marquee academic journals such as The Lancet and British medical journal.

We have been able to continue to demonstrate that we are unique suited to deliver excellent weight loss outcomes cost effectively and a scale that is unmatched by any competitor. We are committed to build upon this momentum before we realize our role the leading frontline defense against the obesity epidemic.

As we look to 2012, we will build upon this foundation by pressing forward in our key strategic areas. Innovation, as an organization we succeed when our members succeed. Given the inherent challenges of losing weight sustainably we see numerous opportunities to help our members by aggressively innovating our offering.

Innovation can come in the form of program changes, the most extreme example being a platform change such as PointsPlus. However, innovation can and should also come from areas such as technology and service innovation.

We have an ongoing comprehensive effort to identify and develop significant innovation territories and expect some of these to be implemented for January 2013. In the recent announcement by U.S. News naming Weight Watchers, the best weight loss and easiest to follow diet is one sign of our innovation success.

Marketing, we’re continuing to refine and improve upon our marketing playbook. We have been seeing strong results in many of our key markets such as NACO and more recently Germany, France and Belgium.

We will continue to pursue improvements in these already successful markets, while also seeking to raise the bar in countries as marketing strategies maybe not yet be fully connecting. We would continue to anticipate leverage in the voice of our successful members whether in the form of celebrity and ordinary person or both.

WeightWatchers.com, growth in this business will continue to come from technology and product innovation, and a combination of expanding audiences and we’re continuing to increase product awareness among these audiences.

Weight Watchers Online which delivers excellent consumer satisfaction at a very competitive price point continues the successful convert, record numbers of self-help dieters to the Weight Watchers franchise and we expect Weight Watchers Online paid weeks to equal and surpass meetings paid weeks for the first time in 2012.

Two particular areas of focus for 2012 include men. In the spring of 2011, we began marketing Weight Watchers online for men in the U.S. with a follow-up campaign in fall. During these periods, we saw the relative mix of male signups to Weight Watchers online rise from historic rates of 8% to 10% to 15% to 20%. Based on this success, we elected to build upon this strategy.

At the end of December, we announced that Charles Barkley would be the first male spokesperson for the brand. Response to this has been terrific and we have already been seeing men make significant contribution to the ongoing growth we expect to deliver in 2012.

Europe, we have not historically marketed Weight Watchers Online in a meaningful way in these geographies and above the line advertising mediums such as television. Beginning in January, we went on air for the first time with dedicated Weight Watchers Online advertising in Germany, France, the Netherlands and Sweden to help drive awareness and the results have been terrific.

Healthcare and B2B, as noted earlier, throughout 2011 we’ve been taking steps to position ourselves to capture the opportunity to bring the new customers via the healthcare channel. To dimensionalize a broader opportunity for our business, we currently see about 3% of the overweight or obese adult population in the United States in either our meetings or offline or online offering.

Given the relatively large number of people we see versus other commercial or healthcare-based offerings, this suggests to us that the vast majority of people with a weight problem are not getting help. We view the healthcare channels a critical new way to reach these people over the coming years. We recognize that pursuing the healthcare channel will take time and an additional set of skills. To this end we distinguish its opportunity in terms of near-term and medium-term.

Near-term, large self-insured corporations, as noted earlier, we began in earnest to some large corporations that had the benefits and/or CPOs beginning in 2011 where we hired a new VP of Sales. We further strengthened the team in early January this year when we hired an executive to lead all of our U.S. healthcare and global innovation efforts.

Colin Watts comes to us from Walgreen where we headed up their innovation efforts with a particular focus on healthcare. Colin will be focusing much of his time leading the effort to continue building capabilities, aptitudes and operational components to allow us to capture this opportunity at scale.

It is critical for us to execute well against this opportunity that we will be somewhat conservative in the rate in which we bring in new accounts, until we are fully confident that we can service at faster pace of new account additions.

We have already seen numerous cases where we can achieve penetration rates of 10% or more of employees when we execute well. So we view this as a critical challenge, develop properly to position us for accelerated growth in the latter part of 2012 and more fully in 2011 and beyond.

Medium to longer term, large corporations represent roughly 50% of the covered lives in the U.S. with private insurance, state federal government and CMS representing the remainder. We view these other payer channels as an excellent opportunity for us, given our unique combination of effectiveness, cost efficiency and scalability.

We will seek to take steps now in the form of pilots and/or partnerships to position ourselves as the healthcare industry increasingly shifts to preventive care through models such as accountable care organizations.

Retail infrastructure, while we would have liked to have had more remodeled stores open for the start of January this year, we will continue to push forward on new location openings with the goal of achieving 80% of our store transformation by the end of 2012.

Customer data, having spent the last five years completing the less glamorous work of implementing the ERP systems throughout WWI, that work is largely complete. This is allowing us to now open bandwidth, to focus on customer data and using it in ways to further enable our business.

We already capture real time data in all of our retail centers in North America and of course, with our online subscribers. We are now looking to begin doing the same and are travelling locations in the U.S., including At Work locations and in France, which is serving as a pilot country for our international business.

As we achieve broader customer data capture, we can then leverage this and the strategies to improve member retention by better predicting when members are at risk of dropping out and reacting appropriately. We can also use the data to further enhance our ability to win back, cross-sell and up-sell, as well as generally improve customer service.

Finally, this customer data will further enable our efforts in the healthcare space by ensuring that we can quickly and easily meet the data request of our corporate customers, as well as our future healthcare partners.

Guidance, in providing guidance for this year, our forecast reflect the reality of lapping Q1 2011, a period of extremely high enrollment growth in our North American and U.K. businesses, as well as our WeightWatchers.com business.

As we pass the hump of Q1 2011, we expect to return to a more normal business growth trajectory in Q2 through Q4 of 2012 that better reflects the two underlying strength of our brand and the effort of our strategies.

To this end, we are currently forecasting the following volume assumptions across our major lines of business. One, North America, volume levels in Q1 2012 will be adversely impacted by copy against the initial PointsPlus launch, as well as the impact of the execution issues with our small account At Work business and delays in our new upgraded store openings.

To be clear, our NACO enrollments for the first five weeks of this year excluding At Work are running comfortably above 2009 and 2010 levels. But as expected, they are running behind the supercharge levels of Q1 2011.

The shortfalls in enrolments in Q1 will flow through the paid weeks for the remainder of the year but will be largely offset as we stop lapping the Q1 hump from last year and the spring campaign this year.

We are forecasting Q1 2012 paid weeks declined from mid single digits returning to growth by Q3 and into Q4. Most of this decline is due to the small account network issue. We’re forecasting attendances of minus 10% in Q1 in 2012, again returning to positive numbers by the third quarter.

Two, U.K., as noted the marketing campaigns in the U.K. have not met expectations in this market is also facing difficult comparables particularly in Q1 2012. Given this we’re expecting U.K. to have a challenging 2012 with paid weeks declines in single digits throughout the year and attendance declines in lower double digits.

CE, the CE region is off to a solid start, we’re anticipating mid single-digit paid weeks growths in Q1 2012, followed by low-teens growth in Q2 through Q4. We expected attendances to follow similar trend.

WeightWatchers.com, the WeightWatcher.com business has continued moving to new heights with sign up levels exceeding the prior year period, despite the triple-digit growth we saw at this time last year. With the strong subscriber base coming into the year combined with continuing signup growth, we’re forecasting paid weeks growth of 30% to 35% throughout 2012.

Overall financial performance, given these volumes forecast we’re expecting flat revenue growth in Q1 2012 than rising the high-single to low double-digit growth for the remainder of the year. One additional factor leading to the flat revenue forecast fro Q1 2012 is the effect of lapping the extremely high product sales for attendance levels associated with the product launches in 1Q last year. The beneficial impact of our Monthly Pass price increase on revenue will become increasingly evident as we proceed throughout the year given our decision to grandfather existing members.

On the gross margin line, we expect continued expansion of 200 to 250 basis points reflecting the proportional mix shift to the higher margin WeightWatcher.com sales. More of that improvement will come in the second half of the year.

On the marketing line, we have a relatively heavier marketing investment in Q1 of 2012 significantly reflecting our investments behind men and raising awareness of WeightWatchers.com in our international markets.

As is our normal practice, we recognized all of our marketing expenses incurred with revenue benefits happening throughout 2012 and into 2013. As a result, marketing as a percentage of revenues will be up significantly in Q1 2012, roughly 750 basis points versus prior than dropping significantly to more typical levels in subsequent quarters.

Keep in mind that as we continue to invest behind our WeightWatchers.com business, it has the effect of increasing gross margin while also increasing marketing as a percentage of sales, given the current CPAs and the relatively low revenue per cycle as compared with the meetings business. For the full year, we expect marketing as a percentage of revenue to be up roughly 200 basis points.

For G&A, we expect full year costs to be approximately 50 basis points higher on a percentage of revenue basis than prior year, reflecting investments behind our customer data initiative and our healthcare efforts. For the full year, we’re issuing EPS guidance of $4.20 to $4.60 per fully diluted share.

Now before I open it up for questions, let me briefly review our plans for our self-tender and a related share repurchase which we have also announced at the close of the market today.

As those of you who follow the company know, our business generates large amounts of free cash flow and over the years we’ve used a significant amount of this cash flow to pay down large amounts of debt leaving us at the end of 2011 with a debt-to-EBITDA level of less than 2 times, a debt level which we believe is suboptimal for our goal of maximizing value creation for our shareholders.

With debt markets once again open for business and interest rates of historically low levels, our Board has approved a plan to recapitalize the company. This plan will increase the total debt level for the current, approximately $1 billion to approximately $2.5 billion or 4.5 times trailing EBITDA and use up to $1.5 billion to fund our tender offered to existing shareholders and our share buyback at the same price per share as paid in the tender from our Artal Holdings, our controlling shareholder, who would maintain the same percentage ownership post buyback as it holds now.

We expect this tender to take the form of a modified Dutch auction similar to what we did in January 2011, and that we will tender for up to $720 million of our outstanding common shares with a price range between $72 and $83 per share.

The tender offer, which will be subject to the successful of the financing and other customary conditions, is expected to commence next week. While not included in our 2012 EPS guidance I just gave, based on our current expectations regarding the terms of the related financing and assuming the mid-point of our guidance range, and that the tender offer is fully subscribed and successfully closed by the end of Q1 2012, these transactions would be highly accretive and we estimate would add approximately $0.45 to $0.60 per fully diluted share to our 2012 EPS, excluding any one time charges.

At this time, Operator, we would like to take questions.

Question-and-Answer Session


Thank you. (Operator Instructions) Our first question is from Charles Boorady of Credit Suisse. Please go ahead, sir.

Charles Boorady – Credit Suisse

Thanks and good evening. My first question is if you can just quantify for us, the signup growth rates for the online business kind of quarter-to-quarter for 2011?

David Kirchhoff

We tend not to release specific signup growth rates. What we do instead is we report paid weeks growth for the quarters and then typically as we’re going through the quarters, we will talk about end of period active subscriber growth. But again the paid weeks volume growth we are looking for the global online businesses pretty consistently between 30% and 35%.

Charles Boorady – Credit Suisse

Okay. Great. So the seasonality on that business Dave, is that more consistent growth throughout the year than what you see in the meetings business?

David Kirchhoff

Well, I think part of what’s affecting, if you look at the seasonality of that business is, it’s not totally different from the meetings business particularly in other way we have Monthly Pass. The way that business scales up is we tend to see a lot of people as you would imagine signing up in the first quarter and that’s what we’re seeing literally as we speak.

And while that’s happening the subscriber base continues to build and in generally peaks sometime kind of mid Q2, late Q2, then you will see it dip a little bit during summer when not that many people are signing up, but people may still be treating then it usually picks up a little bit with increasing signup volumes during our fall campaign and then it usually drops a bit during the sort of traditional holiday period, Thanksgiving and Christmas, and then the game starts to move as we began the next New Year.

Charles Boorady – Credit Suisse

Got it. My second question is just on the B2B and also the business to government potential and thanks for the added color on your initiatives there. The sale cycle is usually pretty long in that business from what I have seen on the health plan side and so it’s a bit surprising given that you started in 2011 that you signed up few big trophy accounts and I’m wondering if you can…

David Kirchhoff


Charles Boorady – Credit Suisse

… give us a size of sort of what your backlog looks like, how many employers you’re talking to right now, what the interest level is that we can gauge the trajectory of growth in that B2B business?

David Kirchhoff

I think once our sales engines starts getting up to kind of more of a predictable and regular pace as we kind of workout some of the operational things in the business, we’ll be in a better position to start giving kind of I think more clear indications of what backlog looks like.

That said, one point I’d like to make as a distinction is that, the large accounts business that I was referring to, in other words, large corporations, they are relatively feel of our large accounts and I only mentioned three because those are the three that have given us permission to use their names as we have discussions like this one, we obviously have others.

That a lot of times were not actually part of the health plan, this is Weight Watchers is provided to employees as a separate benefits and so it can be provided off cycle a little bit and so, usually if there is a sales cycle issue, it would be equally if not more like to come up with respect to budget considerations and where the HR department budget might be in any given point in time, there are number of other different conditions. And so it’s not explicitly defined to a sort of hard set health plan benefits calendar.

I think as we continue evaluating ways to partner and work with insurance companies, you can imagine circumstances in which that might come in to play and should we has success in the coming years of presenting our offering successfully for inclusion and programs like Medicaid, Medicare via CMS, that would obviously have its own sort of cycles and timings, but that’s kind of for the future, so right now we’re not heavily dependent on those types of cycles you might imagine.

Charles Boorady – Credit Suisse

Okay. Great. Thanks.


Thank you. Our next question is from Jerry Herman of Stifel, Nicolaus. Please go ahead.

Jerry Herman – Stifel, Nicolaus

Hi, guys. Good evening, Ann.

Ann Sardini

Hi, Jerry.

Jerry Herman – Stifel, Nicolaus

I guess the first question I just wanted if you would be willing to share the year end membership on Monthly Pass and just the notion of the price increase and just to verify that, if a individual disengages that when they come back that that happens at the higher price and what sort of motivation was that to keep them engaged at the time of the December price increase?

Ann Sardini

I can give you the Monthly Pass end of period, the end of year we had about 1.4 million Monthly Pass subscribers globally, if they were to come back -- if they were to…

Jerry Herman – Stifel, Nicolaus


David Kirchhoff

Go ahead.

Ann Sardini

If they were to come to cancel the membership and then come back the likelihood would be that we would charge the higher amount unless there was some circumstance that as far as not doing that, but typically would do that, I mean, if you…

David Kirchhoff

Yeah. I mean, Jerry, if I understand your question correctly and I may not, we did not try to time the price increase as a way of sort of artificially keeping people retain longer at the end of the year by giving them an encouragement. I think that the distinction between sort of the price $39.95 and then they come back and have to pay $42.95, I just -- I doubt that that’s significant enough to have a significant impact on the decision making of any existing customers.

So, I suspect -- so I don’t suspect there was much of that going on. Frankly, the decision around just had as much to do with the number of other operational considerations and the fact that we had felt like with all of the enhancements and improvements we’ve been making including some of the ones we watch in the fourth quarter that it was appropriate for us to take that action.

Jerry Herman – Stifel, Nicolaus

Great. Thanks. And then just a follow-up, can you talk conceptually about the rationale behind the Dutch auction vis-à-vis the issuance of the dividend growth opportunities, just sort of general uses of cash and maybe you can share some of the high level highlights of the Board discussion there?

David Kirchhoff

Well, it goes without saying that the vast majority of the Board discussion would be quite confidential as you can imagine. But I guess just to your question. I think the way that we look at the share repurchase is that it’s tax efficient for us. It really does from our perspective allow us to have a much more efficient capital structure. It improves, frankly our tax efficiency, as a company, we pay relatively high taxes compared to most corporations.

And with the cash flow we generate and everything else, this was a very easy way for us to execute something like this that we thought would be beneficial both for the company and for shareholders.

Ann Sardini


David Kirchhoff

And it also make an obvious point it’s also highly accretive.

Jerry Herman – Stifel, Nicolaus

Okay. Thank you.


Thank you. Our next question is from Chris Ferrara of Bank of America. Please go ahead.

Chris Ferrara – Bank of America

Yeah. Hey. Thanks, guys. Hey, just on the guidance range, first of all, I understand that percentage range or the width of that range is similar to what you guys did last year. But I would imagine that the moving parts may not be a significant this year without an enormous launch that you had last year. Can you talk a little bit about the rationale with that range as wide as it is in the $0.40 area and I guess, what drives the low-end of that range versus what drives the high-end of that range?

David Kirchhoff

Yeah, I mean, if there is -- I don’t know that there is a tremendous science behind the range, part of it is, just historically to your point, 10% has generally been kind of the range that we provide at the beginning of the year. I always point out the fact that, we definitely know a lot more after five weeks than we knew before the year started but we continue to sort of improve our understanding of trends that are happening with the business, understanding kind of where the economy is going, how that affects the consumer, etcetera, etcetera.

And so from that point of view, we like to start here and then obviously as we get into reporting on Q1 what we typically do is we narrow the range and so on and so forth, so kind of our usual practice. In terms of what would necessarily drive to the upper lower end of the range.

As you know Chris, our business outcome in terms of EPS is generally going to be driven more by topline considerations than by anything else. Our costs are fairly predictable and we usually have good contingency plans and everything else worked in.

So really it is more a function of wanting to get better visibility and to how the volume trends are going. We have a pretty good sense of what the winter campaign is going to look like. By the time we will report our Q1 numbers, we’ll also – we’ll have the full winter campaign behind us, but we will also have a good indication of the spring campaign which by the way we’re feeling quite good about.

Chris Ferrara – Bank of America

That helps. And I guess speaking of that topline guidance, I guess, unless I missed it, it sounded like you basically said that attendance or revenues would be flat in the first quarter and then get to kind of high single to low doubles for Q2 through Q4. And if that’s right and we are talking about at the mid-point something I guess 7.5% range, 7% to 8%. I guess it looks like the dot com expectation or assuming that revenue growth in online mirrors or mimics in some way, paid weeks guidance. But it kind of looks like dot com is going to drive a lot of revenue growth based on that initial guidance assumption on the topline. So, A, is that right and I guess, is that to your point it’s early on and that’s the way you are looking at things. Just want to make sure that rationale is the way you are looking at it as well?

David Kirchhoff

Yeah. I mean, the dot com business is obviously going to be driving a lot of our value as we go throughout the course of the year in terms of revenue. As I said before, if you follow the guidance we provided on meeting volumes, we are looking in the first two quarters as negative comps in terms of overall attendances and paid weeks, but that goes into positive territory as we get into Q3 and Q4.

So, really that’s just a function of the significance of, A, the impact of the Q1 comp on the meetings business and B, some of the executional issues that I mentioned, for example, on the small account network business.

Whereas dot com has despite the fact it’s comping the sort of crazy triple-digit growth rates that we experienced last year still or signup volumes so far this quarter are still in excess of where we were prior year benefiting significantly by men as well as growth in our international dot com businesses.

And we expect to continue benefiting from that growth a little bit more consistently over the year. So that’s why the dot com pattern looks a little bit more uniform where the meeting business is more digging out a little bit from Q1 and then sort of getting progressively stronger as the year goes on.

Chris Ferrara – Bank of America

If you look at in the quarterly fluctuations to make sense, I guess what I’m asking is on a full year basis it kind of sounds like you guys are implying with your guidance that the meeting business won’t generate any revenue growth? And maybe currency is a factor in that but is that a misinterpretation because just based on the numbers you gave it sounds like that’s what it is and it’s very possible, I got that wrong, you get a lot of information early on, I just wanted to see if I got that wrong or right?

David Kirchhoff

Yeah. I think given the impact to Q1 that’s an accurate statement to make in terms of overall revenue growth over the course of the year. I guess my point is, as I look at the business and its underlying strength the fact that the meeting business will be sort of back-end solid revenue growth as we get into the second half. It’s a mere reflection of sort of where the meeting business really is from a structural point of view and the fact that dot com will be delivering strong growth throughout the year is obviously good news.

Chris Ferrara – Bank of America

Yeah. That’s perfect. Thanks a lot.


Thank you. Our next question is from Greg Badishkanian of Citigroup. Please go ahead.

Greg Badishkanian – Citigroup

Great. Thanks. Yeah. So just kind of going along those lines, the year is very heavily backend loaded. So how much of it’s due to tougher compares versus some of the other drivers that you’re going to expect to come in full force in the back half of the year?

David Kirchhoff

It’s really, it’s the tougher compare of Q1 significantly, because again it’s sort of that’s our heaviest environment period and the impact of having fewer enrollments, you feel it over the course of the year although the degree to which you feel it decreases as the year goes on because as you imagine, there’s enrollments that you might have liked to have had would have been a trading throughout the course of the year. So, therefore, their impact declines as you get into lighter quarters.

That, plus the fact that couple of the issues we had, for example, not having as many of the stores open as we would have liked, not obviously for the lack of effort but not having as many as we would have liked as well as the issue with the regional network business.

The timing of those two things not being there for us in Q1 kind of made it doubly difficult and so it was a combination of a comp but very significantly those two other factors, particularly if you look at the NACO business that had the impact or it did that they requires us to then sort of back out.

The good news is, is that because for example the regional At Work business was executional, it also means it is by definition very fixable which gives us a lot of confidence of returning it back to the right kind of trends as we go into Q2 and beyond and then obviously the comparable goes away as we would expect it to in terms of Q1.

Greg Badishkanian – Citigroup

Okay. Okay. And then, I know you guys gave out some good revenue guidance for the first quarter and you typically, I know you don’t give out quarterly U.S. guidance, but I’m just thinking because, it is pretty uneven. It’s getting pretty volatile throughout the year and low in the first quarter and kind of backend loaded. So is there any way we should think about margins in the first quarter and EPS around I think $1.13, just so we can model that right?

David Kirchhoff

Yeah. My advise on modeling is to listen very closely as you read back to the transcript to what we talked about in terms of the impact, for example, the fact that the gross margin would be picking up a little bit more as we get into the latter half of the year. But really the big story with Q1 is marketing.

And again, just to sort of reemphasize the point, if you look at the lot of the incremental marketing spend, which you can now back into given the 750 basis points I shared, 70% of that is coming on investment behind the dot com product. Of that investment, a significant amount of that incremental spend is coming against men, which is a market segment for which we are still building awareness, so the CPAs are relatively higher, as well as doing television and advertising, for example, in Continental Europe, Canada, a couple of other places, again where awareness of Weight Watchers online might be relatively lower, so therefore the CPAs are relatively higher.

My point is, is that you kind of have this kind of double effect of relatively higher CPAs on a lot of those incremental marketing dollars then being applied against the Weight Watchers online product and the revenue that you get, for example, in Q1 for a Weight Watchers online signup. I mean, think of it this way. You are looking at average monthly price of like $18. So really the revenue benefit that you get from a signup, if you get them in the mid-point of the quarter, is going to be effectively $28, something like that, you could have CPAs sort of far in excess of that.

So what that does is basically then turns -- they’re kind of it turns into a negative contribution if you will in the first quarter, but then as you pass that initial marketing investment, you continue getting revenue benefit over the course of the year which is why the sort of upside down between revenue and marketing then goes away as you’re going to Q2, 3 and 4, so what it is, is just the shape of this given the intensity of the marketing spend behind Weight Watchers Online, it’s really just causing the nature of our quarterly financials to work very different than what you might be used to seeing in prior years.

So again my advice from an online perspective is to sort of pay close attention to the relative impact of this marketing being applied against dot com, given that for the first quarter and frankly for the full year about 70% of our incremental marketing investment is going against Weight Watchers Online globally.

Greg Badishkanian – Citigroup

Great. Helpful. And just finally, you had made price increases, what do you think the elasticity is there, and next year do you think you have the opportunity to raise prices again on probably not?

David Kirchhoff

I think over time, the elasticity we would expect from a price increase and based on what we have seen in the past for example with Weight Watchers Online, we have not seen long-term negative impacts in terms of raising price on Weight Watchers Online.

Now it’s important to note that the Weight Watchers Online is a fairly inexpensive product which I think is one of the reasons that we’re seeing in our portfolio that which is one of the reasons why it has been so successful in gaining traction and its self-help market if you will.

In terms of the price increase of Monthly Pass, I would expect if there has been any volume impact and I can’t rule out that it might have had some volume impacts in the first quarter, but if there has been any volume impact that will probably quickly go away based on our past experience and price increases with pay as you go.

Greg Badishkanian – Citigroup

Great. Thank you.


Thank you. Our next question is from Gary Albanese of Auriga. Please go ahead.

Gary Albanese – Auriga

Hi. Good evening, everybody.

David Kirchhoff

Hi, Gary.

Gary Albanese – Auriga

Hey, just a follow-up on the last question. You mentioned the marketing is going to be different from what we’ve seen in the past. But does that indicate, is this the kind of expenses we’re going to continue to see seasonally in the future like the first quarter of 2012, 2013, et cetera?

David Kirchhoff

I’m not sure and I’ll tell you why. For example, in spring of this year, we will be advertising Weight Watchers Online from that again, but we did that last year as well. In 2011, we did not have a men’s campaign during winter which we do this year. So that’s truly incremental spend.

In the case of the television advertising we’re doing in for example kind of in Europe and Canada and some of those places, we did not have that spend last year, we do this year. What it means is that we have caught up and this just a little bit of strategy on some of our Weight Watcher Online as we’ve been able to continue to very profitably increase penetration of Weight Watcher Online, although we still think it’s underpenetrated versus where it’s ultimate potential is, but we’ve been able to profitably increase penetration by increasing the number of weeks we’re on air, by expanding audiences and by selectively heavy up in terms of media weights and things like that.

So, I would expect that as we go forward we will be looking for -- in future years, we’ll be looking for new opportunities to find new ways of getting people into the fold i.e. move ways to invest marketing investment that we would expect would have a profitable CPA.

However, I would say that what you’re seeing this year in Q1 given those things, for example, men in Europe for the first time being on-air with two pretty sizeable investments that resulted in much more of a step up than what I would guess you would typically see.

And so I think that as -- no promises and I don’t want to get into forecasting 2013, but I can envision right this red hot second the kind of structural shifts in terms of new avenues of marketing Weight Watchers Online to the extent that we’ve had this year in 2012.

Gary Albanese – Auriga

Okay. That’s helpful. I appreciate that. Second, what’s the Monthly Pass for the grandfathered customers, do you have a percentage of those customers that are being grandfathered or rough estimate of how large that segment is?

David Kirchhoff

Yeah. I mean think of it this way. As you heard Ann referenced, the Monthly Pass subscriber base, now that was global but the Monthly Pass subscriber base at the end of this year was 1.4 million. So, you can estimate how much of that was North American.

Virtually all of those folks with probably 95% would be my guess at the end of this year were grandfathered. So, that’s like as of the beginning of January st1. But then now that you have new enrollments coming in, you’d gradually see that shift over which is why the benefit of the price increase and I think it was where you’re going, that’s why the benefit of the price increase from Monthly Pass you really don’t get anything from it in Q1, which is by the way, it’s another reason why Q1 revenues aren’t going up more. You begin to get more revenue as you get into Q2, 3 and 4 because of greater percentage of your North America Monthly Pass mix is on the new price versus the old price.

Gary Albanese – Auriga

And the second half falls with the basically the eight month retention you start to see more…

David Kirchhoff

Yeah. And the other thing I’ll say about the eight month retention is that’s mean retention. We do have a relatively long-tail. In order words, we tend to have -- the attrition tends to go down as we get into someone’s average duration. So it’s not a precise, at eight months everybody flips over, but it’s not a bad way of thinking about it.

Gary Albanese – Auriga

Okay. And one last quick question, with the estimates -- does that include the expected higher interest from the incremental debt?

David Kirchhoff

No. It does not. The $4.20 to $4.60 is exclusive of the tender offer and the financing associated with the tender offer.

Gary Albanese – Auriga

Okay. Thank you.

Ann Sardini

So, the accretion does include it.

David Kirchhoff

Yeah. The accretion that we provided at the end of my remarks is obviously net of financing cost.

Gary Albanese – Auriga

Okay. Great. Thanks you.


Thank you. Our next question is from Anand Vankawala of Avondale Partners. Please go ahead.

Anand Vankawala – Avondale Partners

Hi. Thanks. Good evening. I just wanted to ask a quick question regarding the store conversions. How do we get from 35% to 80% at the end of this year? Can you give us a little bit of an idea of the progression through the quarters?

David Kirchhoff

I think we would probably look to maybe get into a little bit more detail once we get into Q1, I mean, I think one of the things that we’re just working through is just sorting out kind of what we have right now given that January is typically a crazy time in our meeting rooms. But I think as we get into maybe first quarter release we’ll be able to give a little bit more specificity at the manner in which they are going to progress out.

That being said, I think that our expectation would be that we would make steady progress over the course of the year. So you can sort of use that as a kind of rough or some before I get a chance to give you kind of more precise estimates.

Anand Vankawala – Avondale Partners

Okay. And then just look like, I’m trying to understand with the online business and the active subscribers, I mean, it dropped off quite a bit in Q4 relative to the paid weeks and the online business. I’m having a little bit of trouble just reconciling the difference between those two metrics?

David Kirchhoff

Well, to be clear, paid weeks for Weight Watchers Online in Q4 were up 67%, but if you look at the end of period action subscribers and kind of where we ended the year. So end of period action subscribers were up 50% versus prior year. That’s comping against 38% growth over what we saw Q4 2010 versus Q4 2009. Here is what’s going on.

If you look at the end of 2010, those last four or five weeks Weight Watchers online in the U.S. in 2010 was beginning to benefit from the buzz around PointsPlus, as well as of the television campaign in that final week of the year. So that resulted in us having kind of a surge in the actual subscriber base.

So if you kind of look compared to that 50% versus 38% and you compare what that provision looks like, end of period action subscribers and one it implies about was using say 2010 as a proxy, it actually is quite strong from our perspective and so view Q4 for Weight Watchers Online is in absolutely excellent quarter.

Anand Vankawala – Avondale Partners

Okay. And then, I guess, last just also on the online business, do you have any thoughts on emerging competition in the online space, we’ve seen few online startups that have been popping up, that have been just going up in popularity. So just initiative that you have in place just to combat that?

David Kirchhoff

Yeah, I mean, of course, we’ve been saying online startup pop up actually for the past 10 years, so this is a new per say. The first point I would make in terms of structural advantages we have in this proposition is that first off we have the only online offering is apparently we’re paying for because the other apps I guess the people who wrote and don’t have sufficient confidence and then they think that they worth very much money.

But putting that aside, what I would suggest is that the average person who buys Weight Watchers online is not buying an online calorie counter, they’re not buying any particular at per se, they’re buying a proven program with the brand that they trust that they notably -- that they know will work. The fact that it supported by apps is what makes for compelling value proposition. So it’s not the application itself.

And a lot of these online apps that we’re now starting to see, for example, there is one type like, smart people has now been around for a bunch of years, it really hasn’t had any impact that we can discern on our business, apps that are now popping up on the iTunes store that are out there, but again we can’t say any discernible impact on our business and I think it’s because of the value proposition between them, it’s pretty different.

The other point that I would make though is that, while we have a lot of confidence and again inherent strength and competitive advantage of our brand or program in the fact that we have something that people intrinsically want, we also don’t resting our (inaudible) so literally we come the same universe, looking for any good new technology, any new good idea that we can find no matter who does it whether it has a million downloads or 100 downloads, we look it all of it and we take the best ideas we can get, we aggressively seek to roll it out.

The good example of that for example was rolling out the barcode scanner, which sounds like a really simple little application but if the barcode scanner in the context for following Weight Watchers is actually have turned out quite powerful, the barcode scanner in isolation just to show you a calories would be a little bit more beyond.

And so from our point of view, what we want to do is sort of take the best of the ideas that are out there but then ramp them into this broader value proposition of this highly compelling behavior modification program known as Weight Watchers.

Anand Vankawala – Avondale Partners

And I guess just one quick follow-up to that. How many -- what percent of your users are using the mobile applications?

David Kirchhoff

I don’t have that number off the top of my head, but it’s getting pretty high and the reason I don’t have it off the top of my head is that we have indications on what percent own a smartphone. But it’s a little bit trickier for us to say who is actively using the app versus the website at any given point in time.

Anand Vankawala – Avondale Partners

Thank you.


Thank you. Our next question is from Chris Ferrara of Bank of America. Please go ahead.

Chris Ferrara – Bank of America

Hey. Thanks for taking the follow-up, guys.

David Kirchhoff


Chris Ferrara – Bank of America

Dave, can you just give a little bit of a view, I guess what the signup growth in the meeting business might have been in Q4 and I guess how that would look into Q1? And then just give a little color on why that would change, what if the install base this year versus last year trend similarly because of the big Q1? Why would you have an opportunity to kind of change that trend as you get to the spring diet season, I guess it would be the different dynamic there. But the more important part is, can you talk a little bit about what the signup growth was in Q4 and what it trended like in the meeting business and make, I guess, in first quarter so far?

David Kirchhoff

Yeah. Sure. I’ll be happy too. We were experiencing enrollment growth up to the point of the soft launch of PointsPlus and we’re sort of copying that. What happened at the soft launch which is right after Thanksgiving in 2010, was this sort of somewhat bizarre experience, it’s almost like getting snow in Bermuda in which we saw a huge number of people enrolling, relatively speaking enrolling in the meeting business in November, late November of 2010 through December.

So obviously, while that was happening, we would never expect to see that before or after, it was just the uniqueness of all the buzz around PointsPlus and the PR, and everything else from this big moment of change, obviously, therefore during late November and December, enrollments were running behind from where they were in prior, but we expected that and we’ve been guiding to that and giving indications of that both before and after the fact, so that wasn’t any particular surprise.

And then if you look at the enrollment growth that we continue to see in Q1 of 2011 versus prior, there were some pretty impressive very significantly into sort of high double-digit numbers for a number of weeks versus 2010, which admittedly was relatively weaker quarter, but they were also sort of substantially above 2009 by kind of leaps and bounds.

What we saw last year, if you go back and look for some of the old scripts, was that relative enrollment growth began to moderate as we got into Q2, Q3 and to sort of more levels that we would associate with kind of just generally good and strong vibrant brand.

And so, if we reflect upon that pattern of enrollments that we saw in 2011 and we look at where we are right now and the things we have coming up, it’s what we used to form the basis of our forecast of the volume trends beginning to moderate from an enrollment perspective as we got into Q2, Q3 going into Q4.

Chris Ferrara – Bank of America

And I guess, in Q2 ‘12, I mean, do you have any -- can you talk about what the enrollment trends have looked like so far if you didn’t say that already?

David Kirchhoff

Yeah. I mentioned a little bit in the script and I’d be happy to repeat it a little bit to emphasize the point. Again, if you look at sort of what you would normally expect from a seasonal pattern and then you look at 2011. The degree of signups or enrollments coming in Q1 2011 was anomalous compared to a normal seasonal pattern if you index Q1 versus Q2, Q3 and Q4, and what we had seen virtually in any prior year and that’s the effect of a PointPlus launch.

If you look at kind of the enrollment levels we’re seeing right now. When I’m looking at weekly enrollments coming in, I’m comparing it both to where we were in 2011, in which case we are behind, as I have referenced, but I’m also comparing enrolment levels to where we were in both 2010 and 2009. 2009, by the way being an innovation year when we rolled out momentum, in both of those years, 2012 enrolment levels are running comfortably ahead of both 2010 and 2009, which I use as another good sort of touch point to demonstrate to me that I think where we are seeing overall enrolment levels in NACO, therefore it feels appropriate for where we should be, particularly in the non-At Work part of our business.

Chris Ferrara – Bank of America

Got it. Thanks.

David Kirchhoff



Thank you. We have no further questions. Please go ahead.

David Kirchhoff

Okay. Thank you for joining us today, and I look forward to speaking with you again at our next quarterly earnings release.


Thank you. The conference call has now ended. Please disconnect your lines at this time. Thank you for your participation.

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