Weight Watchers International, Inc. CEO Discusses Q1 2011 Earnings Call Transcript

| About: Weight Watchers (WTW)
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Weight Watchers International, Inc. (NYSE:WTW) Q1 2011 Earnings Call Transcript May 6, 2011 8:00 AM ET


Sarika Sahni - Director, IR

David Kirchhoff - President and Chief Executive Officer

Ann Sardini - CFO


Greg Badishkanian - Citigroup

Chris Ferrara - Bank of America

Kurt Frederick - Wedbush Securities

Ken Goldman - J.P. Morgan

Bob Craig - Stifel Nicolaus


Ladies and gentlemen, welcome to Weight Watchers International's first quarter 2011 earnings teleconference call. (Operator Instructions). At this time, I would like to turn the call over to Sarika Sahni of Weight Watchers International. Please go ahead.

Sarika Sahni

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

At about 7 a.m. Eastern Time today, the company issued a press release reporting its financial results for the first quarter of fiscal 2011. The purpose of this call is to provide investors with some further details regarding the company’s financial results as well as to provide a general update on the company’s progress.

The press release is available on the company’s corporate website located at www.weightwatchersinternational.com. Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP 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 risks and certainties of such statements.

All forward-looking statements are made as of today and except as required by law, the company undertakes no obligations 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 us as we review Weight Watchers International's performance for the first quarter of fiscal 2011. Benefiting from a powerful combination of affective marketing, extensive PR coverage and a strong new program launch, Weight Watchers enjoyed excellent Q1 results.

We saw robust enrollment levels in all of our English speaking markets, and weightwatchers.com business reached new heights with surging sign of volumes, particularly in the US. This more than compensated for our anticipated soft results in our continental European business.

Before I review our numbers it’s important to note that our year-over-year operating results benefited from comparing to a weak Q1 in 2010.

On a constant currency basis, Q1 2011 revenues grew 28% over the prior year period with meeting fees of 22% and meeting product sales of 25% and internet revenues growing 65%. This increase compares very favorably to the 16% total revenue growth we saw in Q4 of 2010.

From a volume perspective, combined global online and meeting paid weeks grew by 40% in the first quarter of 2011 versus the prior year period. This 40% growth was a clear acceleration over the 13% growth rate enjoyed in Q4 of 2010.

Q1 2011 paid weeks for our global meetings business grew a robust 23% versus the prior year quarter. Paid weeks for our Weight Watchers Online product grew by an unprecedented 72% versus the same period last year.

Q1 2011 EPS was $1 compared to $0.58 for the same period in 2010; a growth rate of 73%.

I will now briefly review our results in our major geographies and business unites.

First; our North American meetings business. Total NACO revenues which includes the US and Canada were $252 million in Q1 2011, up 34% on a constant currency basis versus the same period in 2010.

Suffice to say, this is strongest growth we have seen in NACO in many years, and it represented a clear acceleration over the trend in Q4 of last year. NACO meeting fees grew by 32% in Q1, 2011 versus the prior year period, entirely driven by volume growth.

In-meeting product sales grew by 46% versus the prior year quarter, driven by volume growth and robust sales of enrollment products.

NACO Q1, 2011 paid weeks and attendances both grew at 33% versus the prior year period, driven by higher active base of members flowing in to the quarter and strong enrollment throughout the quarter.

Enrollment levels in the quarter were not only up significantly versus Q1 2010, but were also significantly above 2009 levels. Importantly enrollments have never-members in the quarter were also substantially higher than 2010 and 2009.

Early last year began to implement our strategy to re-energize our brand in the US. It is important to share the sequence and steps we undertook which helped to drive our strong volume performance in Q1.

First; we refocused our message on our brands core strength plus intensity. After a very weak Q1 2010, we took a new and more aggressive approach to raising the visibility and vitality of our brand in the marketplace.

Beginning April 1, 2010, we began to execute our strategy of showing the Weight Watchers brand in a new and much greater light. As a first step, we launched a new campaign featuring Jennifer Hudson, who shared her success as a Weight Watchers and followed this with the stories other members in Weight Watchers Online subscribers.

The authenticity of their stories and experiences with a lifestyle based approach, clearly resonated with the public. As a results, we saw a gradually building strength in enrollments and meetings and surging growth in our Weight Watchers Online business throughout Q2, Q3 and then in to Q4.

Second; we launched a major new program. With a reenergized brand and a foundation beginning to form, we then launched the new PointsPlus program in 2010 at the end of November.

This new program capitalized on 10 years of advanced nutritional science, while building on the strong equity of POINTS, completely revamping our highly successful program of 13 years, and rebuilding the POINTS plan from the ground up.

While based on the familiar methodology of budgeting and tracking, this new program much more directly encourages and nudges our members to make healthier and more satisfying choices.

Despite the lack of advertising at that time, the program innovation launch gained considerable buzz, largely benefiting from strong press coverage at both the national and local level. As a result we saw significant growth in both never-members and rejoining members in our meeting business throughout December of 2010.

Third; Ignition. Beginning December 27, we launched a new advertising campaign featuring Jennifer Hudson along with several Weight Watchers members who all had terrific success with beta testers of the PointsPlus program.

Recognizing the strength of the advertising campaign, and the buzz around the new program, we increased our media weight in January by over 15% versus the prior year period.

This advertising campaign combined with the already strong buzz around the brand coming in from December, resulted in full ignitions for the both the meetings business and the brand during the all-critical month of January.

Finally, we’ve sustained our presence with strength and visibility around the brand; continued at a sustained level throughout Q1 as a result of our advertising and PR coverage.

Jennifer Hudson enjoyed significant media attention over her weight loss success and her talent; and she enjoyed exposure in key events including both the Grammy’s and Oscars.

Further, she had the opportunity to demonstrate her success on the Oprah Show in February. Even better, the Oprah Show showcased the success of her extended family who were also following Weight Watchers and as of February had lost a collective 1000 pounds.

Finally taking advantage of the late Easter, we also extended our TV presence to two additional Q1 weeks beyond our typical campaign period.

The cumulative effect of all the above was strong enrollment growth in every month of the quarter.

For the last few years the growth of our NACO business has been constrained by the declining levels of never-member enrollments. We finally saw a complete and full reversal of that trend in Q1 of this year.

In fact, never-member enrollment growth in Q1 2011 was actually somewhat higher than rejoining member enrollment growth. This was certainly not the case in our program launched in Continental Europe last year.

We believe that the growth in never-member enrollments in Q1 2011 was a clear indication that our new communications strategy is working, and that the Weight Watchers brand had gained significant social currency in the mind of the public to levels not seen in many years.

From our prior calls, you may recall that throughout 2010, the NACO management team took steps to consolidate its meeting network to allow us to focus our energies on the strongest locations, leaders and time slots.

As a result, our meetings network excluding our at-work meetings was 12% smaller in Q1 2011 than in the prior year quarter. The combination of this plus 33% attendance growth in Q1 2011 resulted in meetings that were on average 15% dizzier than in the prior year period.

We saw average meeting attendances at their highest levels since 2003. This resulted in vibrant bustling meetings, more commission for our service providers and set the stage for gross margin improvement for the NACO business.

We continue to be pleased with the adoption of the PointsPlus program and the NACO meetings business. Weight loss results have been good despite the newness and the inevitable transition challenges associated with the program change of this magnitude. Similarly NACO monthly pass retention was consistent with the prior year period.

Anecdotally, we continue to see numerous examples of our members leveraging the new program to make more helpful choices in their daily lives more consistently.

Our new program seems to have finally accomplished what none before was able to. Get Americans to eat more fruits and vegetables. Our opportunity now is to seek ways to build on the early word of mouth to continue the buzz of this important new program platform.

With regards to Q2, 2011 Easter came three weeks later this year, so we had not yet completed the second week of our 2011 spring marketing campaign. We are comping against the launch of our new marketing strategy; therefore we would not expect volume growth through the remaining quarters of the year to come close to the explosive results we saw in Q1.

Nonetheless, based on the strong Q1 recruiting trends and the very early positive data from our spring campaign; as we look at the remaining three quarters of the year, we expect paid weeks growth in percentage terms in the low-20s and attendance growth in the mid-teens.

This would translate to full year paid week’s growth in the 20s and attendance growth in the high-teens to low 20s.

Now on to the international meetings business. Like NACO, the UK entered the New Year with both the new program innovation per ProPoints and the new advertising campaign.

As a result, in Q1 this year, the UK saw a significant growth in its meetings business. As a reminder, the UK had a particularly weak Q1 in 2010 due to extremely bad weather in the first two weeks of the year, last year.

Q1 2011 meetings business revenues grew 29% on a constant currency basis, with meeting fees up 29% and in-meeting product sales up 33% versus the prior year period. Both attendances and paid weeks were up 23%.

For the full year, we expect the UK to continue to see good volume trends in its business. Due to the timing of Easter and the royal wedding, it is important to note that the UK spring campaign got off to a four week later start compared to 2010.

This will have a negative impact on Q2 volume trends versus Q1, but we nonetheless expect very solid results for the full year, inline with mid-teens paid weeks’ growth in percentage terms and low teens attendance growth.

Moving on to Continental Europe. As expected, our Continental Europe meetings business had a tough first quarter as a result of lapping the ProPoints innovation launch of last year.

Overall, the CE meetings business revenues contracted 16% on a constant currency basis in Q1 versus the prior year period driven by softer volumes. Paid weeks for the first quarter of 2011 declined by 13% compared to prior, while attendances declined 20%.

As we shared on prior calls, the CE business launched its new program in Q1 of last year. The marketing program surrounding the launch were now able to grow never-member meeting enrollments, but were successful in growing rejoining member enrollments.

This resulted in a temporary bump in volume in Q1 and Q2 of last year that did not sustain throughout the rest of 2010. This combined with soft enrollment volumes in Q1 of this year, drove our weak performance as we had no product news to repeat the recruitment drive of rejoins.

Given all of this success of our NACO business in attracting never-members, we are aggressively looking to benefit from the learnings of that market and apply them towards the in-meeting business.

Concurrently, the CE teams are working on a significant version upgrade to the current ProPoints program that will give that market much needed product news.

We believe that this news combined with more affective advertising and PR will allow us to return volume growth to this important region, as we move in to 2012.

As we continue in to the year, we expect these negative meeting enrollment trends to begin to moderate following the humps of Q1 and Q2 2010 rejoins. We expect paid weeks and attendance trends to improve throughout the year.

Further, we are already starting to see strengthening volumes in our online subscription sale in CE, which we take as a very good early indicator of recovering brand strength.

Moving on to weightwatchers.com; the weightwatchers.com business had its strongest quarter by far in its 10 year history. Q1 internet revenues of this highly profitable business were up 65% on a constant currency basis versus the prior year period, building on the plus 32% revenue growth we saw in Q4 2010.

Paid weeks for the Weight Watchers Online product were up 72% for the firs quarter, 2011 versus the prior quarter; and End-Of-Period active online subscribers were up 87%.

We ended the quarter with 1.8 million active subscribers versus just under 1 million at the end of Q1 2010. We saw robust growth and signups in the UK and Australia which benefited from new program launches.

Despite some of the challenges of CE, we saw double-digit growth in that region as well. However the highest growth rates by far were in the North American region where we saw historic growth rates despite online being a relatively more mature product in this market.

The combination of greater media weight, highly effective advertising, brand buzz and the new program innovation all combine to create a compelling growth opportunity in our largest market, North America.

We find this particularly encouraging, as we have not yet begun to advertise Weight Watchers Online nearly as aggressively in our international markets, creating a nice additional growth opportunity for this product in 2012.

We are using the strength of the results in this business to invest back in to product development and growth. By way of example, we recently expanded our mobile footprint with the launch of a beta version of the Android tracker application in the US.

We are looking to further expand our mobile footprint in terms of both geographies and platforms. We view our combination of mobile and web applications to be unbeatable when combined with our cutting edge food and activity programs.

This value proposition is strengthened even more in our Monthly Pass commitment plan, which brings all of these technology tools together with the tried and true meetings experience.

For the remaining three quarters of the year, we expect paid weeks growth of over 50% for Weight Watchers Online. As we enter the spring campaign, I am pleased to announce that we are now beginning to advertise behind our US Weight Watchers Online for men product.

We plan to invest up to an additional $15 million to $20 million in television and online media this year, to support the expansion of our brand in to this important demographic growth.

While men currently represent less than 10% of our meeting members in online subscriber base; they give us high marks on satisfaction with their experience with Weight Watchers.

With this investment, we are taking our first serious step to begin the build awareness and relevance of the Weight Watchers brand to men. To be clear, this is an investment in our future, as we do not expect to see our traditional media efficiency as we go after this new demographic group.

Further, much of the revenue benefit from the incremental men we do recruit will be seen in 2012 and beyond. While all the advertising expenditures will be borne in 2011. As a result, we are forecasting an approximate EPS hit of about $0.10 associated with this new initiative. This was not part of the original earnings guidance we provided at the beginning of the year, but is incorporated in our updated guidance for the year.

Now I’d like to turn the discussion over to Ann, who will elaborate further on our Q1, 2011 performance.

Ann Sardini

The first quarter of 2011 was a high water mark for revenue and net income for Weight Watchers. Our first quarter revenues reached 503.4 million, an increase versus prior of 29.8%. Favorable foreign currency exchange added 1.4% to our revenues in the quarter.

Net income in the quarter grew by 65% to 73.6 million, an increase of 29 million above the Q1 2010 level; and EPS in the quarter was $1, up $0.42 from $0.58 last year.

Looking at an overview and then at some of the details of our operational results. Our operating income growth exceeded revenue growth in the quarter, with operating income of 135.7 million increasing by 48.5% or 47% in constant currency over the prior year quarter.

Our operating income margin grew by 340 basis points in the quarter to 27% versus 23.6% last year, with the following as key drivers. Volume growth in our businesses enabled gross margin accretion of 170 basis points.

Our marketing worked hard for us, driving significant volume growth at lower cost per acquisition in both the meeting business and the online business; and we gained operating leverage at the G&A level despite investing in business development areas.

Looking at our global volume trends and their impact on our financial results. As David noted, we came in to the first quarter of 2011 with a significantly higher customer base than at the beginning of 2010.

Our Monthly Pass customer base was [16.5%] higher, and our end of year 2010 Weight Watchers Online actives were up by 38.2%. Recruitment in the first quarter was exceptionally strong as well. As a result, global paid weeks increased by 39.7% in the first quarter versus prior, reaching 48.5 million.

Q1 2011 was the fifth consecutive quarter of global paid weeks growth. Global attendance was up 20.3% versus prior, spurred by strong recruitment of both new and returning members.

The new program launched in other initiatives drove NACO attendances up 33.1% and UK attendances up 22.2% for the quarter.

The online end-of-period active subscribe base which has been growing steadily in 2010 had reached 1.8 million by the end of the first quarter, 2011; an increase of 86.6% over the Q1 2010 level.

The impact of these strong volumes was to drive constant currency revenues growth of 22.8% in the total meetings business and 64.9% in the weightwatchersl.com business; and to increase gross margins to 56.2% up 170 basis points.

In the discussion that follows the growth percentages that I site will be on a constant currency basis. Meeting fees and in-meeting product sales combined rose 22.8% in the first quarter to 370 million, driven primarily by the innovation launches and successful marketing campaign in NACO and the UK.

Meeting fees were 268.9 million, 21.9% ahead of prior. NACO’s meeting fees were up 31.6% on paid weeks growth of 32.6%; while UK meeting fees rose 28.6% with paid weeks growing 21.9%. These increases were partially offset by performance weakness in Continental Europe.

In-meeting product sales benefited disproportionately from the new program launches. Because many existing members purchased program guides and starter kits, which are typically sold primarily to new enrollees.

Per attendance, in-meeting product sale rose 9.5% in NACO and 8.6% in the UK. In total, in-meeting product sales were 101 million globally in the first quarter, up 25.2% versus prior.

Revenue in the weightwatchers.com business grew 64.9% in the first quarter to 92 million on the strength of 72.3% paid weeks growth. Signup growth was particularly strong in North American and the UK. But we had growth across all major markets.

Our other revenues are comprised primarily of licensing and franchise royalty revenues; revenues from the sale of our products outside of the meeting room; and revenues from our publication.

Our other revenues were 41.5 million in the first quarter; an increase of 7 million or 20.2%, 18.6% in the currency neutral basis versus the prior year quarter. Most of the increases in other revenues resulted from benefits of the program innovation.

Franchise commissions and [standard] products to our franchises were up a combined 2.7 million or 38.9% on the strength of the North American progam innovation.

Our by mail products and revenues from our publications rose 28.4% or 3.5 million over the prior year quarter level; also spurred by the new program innovations around the world.

Licensing revenues were 16 million, an increase of 1.8%. While licensing revenues did increase in the US and the UK, Continental Europe’s licensing business lost ground.

Our gross margin was 56.2% in the first quarter, 170 basis points above last year’s levels. The increase was driven by gross margin accretion in the weightwatchers.com business where robust growth such as we experienced in the first quarter comes with minimal variable cost, as well as by differential growth in this higher gross margin business.

In the meetings business, we experienced an increase in our average attendance per meeting of 22.3% which drove meeting gross margin accretion, despite some actions that we took in the quarter to ensure a successful launch of the new program.

Among these were temporarily increasing staffing levels in our meeting rooms and call centers to enable us to better explain the new program to our existing as well as new members.

We also upgraded meeting collateral, and in addition the quarter included non-recurring expense as a result of the niche to distribute new program material to existing member, rather than just to new enrollees because of the program change over.

While net of these expense items gross margin excluding product sales expanded; the impact of our innovation product sales strategy further reduced meeting growth gross margins, with the results that in total it was effectively flat to prior year.

We temporarily discounted products to encourage the purchase of enrollment related items by all members in the innovation market. The temporary discounting strategies were effective, as it reflected in the growth in in-meeting products [build] for attendance in our innovation markets. These actions were related to the innovation launch strategy.

For the rest of the year, we expect the meeting gross margin to expand in comparison to prior.

Marketing expenses for the first quarter at fiscal 2011 were 95.7 million, up 27.7% or 20.6 million versus the first quarter of 2010. We increased our offline marketing spend by 20.8% across all of our key markets, with particular focus on the innovation launch countries. This proved to be a successful strategy in driving recruitment of both customers new to Weight Watchers and returning members.

In the US meetings and online businesses for example, we increased marketing investments in support of our program innovations by upgrading during the Winter TV Campaign and by adding TV continuity weeks.

Our internet marketing spends increased by 58.6%, driving increased traffic to the website. This resulted not only in significant growth in Weight Watchers Online signups, but it also contributed to growth in the meetings business, and generated higher exposure to the brand generally.

Despite increasing our marketing globally, our cost per customer acquisition declined by 19% in the meetings business and by 31% in the online business.

Marketing expenses as a percentage of revenues were 19% in fiscal 2011 first quarter, as compared to 19.2% in the prior year period. Selling, general and administrative expenses were 51.7 million for the first quarter of 2011, an increase of 11.5% versus the first quarter of 2010.

We incurred higher consulting fees associated with business development, higher technology related expenses including for the development of mobile applications and higher salary expenses associated with business performance and growth, including higher bonus expense.

Selling, general and administrative expenses as a percentage of revenues for the first quarter declined to 10.3% from 11.8% in the first quarter last year; providing 150 basis points of operating income margin accretion.

Moving now to interest expense which was 18.2 million in the first quarter. Interest expense was down marginally from the prior year quarter, by 0.5 million or 2.8%. Our effective interest rate increased slightly to 5.03%, up from 4.95% in the first quarter of fiscal ’10.

During the quarter, we reduced our debt by 114.1 million, bringing our debt balance to 1.25 billion and our trailing 12 month net debt-to-EBITDA to 2.48 times.

Our cash flow from operations in Q1 2011 was 201 million before interest payment. After capital expenditures of 6.5 million, we had 194.5 million of free cash available to service our capital structure and return cash to our shareholders.

We paid our quarterly dividends of 13 million and repurchased 34.9 million of our stock, leaving us with 73.7 million shares outstanding at the end of the first quarter. In addition, we made interest payments of 16.9 million and reduced our debt by 114.1 million.

Now I will turn it back to David.

David Kirchhoff

We are obviously very pleased by the results of our NACO UK and weightwatchers.com business in the first quarter. Of course we recognize that some of the strength is a reflection of having a weak comparable from the previous year.

Nonetheless, what we are seeing in these businesses is very encouraging and energizing for the Weight Watchers organization. Despite the success in Q1, our management teams continue to focus our attention on sustaining growth for the rest of 2011 and more importantly setting the table for strong growth in 2012 and beyond.

Growths in 2012 and beyond is going to come from a combination of one; product and service innovation, two; high impact in ever present marketing, three; retail transformation; four, opening the healthcare channel.

Here are some early updates on our progress on some of these key areas. Products and service innovation: We’ve see the value of providing innovation and product news to our business on full display this year. While we do not have any near term plain changes of the magnitude of the PointsPlus launch, we see multiple opportunities to make meaningful innovations across all of our lines of business.

On the program side; we are planning for a major upgrade to the CE ProPoints program and meaningful enhancements in version upgrades to the US and UK programs for January 2012.

Further, we are looking accelerate the pace of technology innovation and functionality platforms and geographic reach. Our new Android application is just one example.

Retail Transformation: With a successful launch of our PILOT markets in Tampa and St. Louis, we are now proceeding with the process of fully upgrading our entire NACO fixed retail center network.

We expect to have addressed approximately 60% of our stores by the end of this year, with much of the remainder being completed in 2012. We believe that these better retail locations, combined with strong incentive branding will be an important growth driver for us in 2012 and 2013.

We also believe that it will create new service offering innovation opportunities ranging from allowing wins during non-meeting times, to simple things like replacing foot charts with flat screen TVs, further increasing the appeal, modernity and convenience of our meetings.

Opening the healthcare channel: Weight Watchers has a big role to play in helping employers and other payers control the hundreds of billions of dollars of expenditures in lost productivity attributable to obesity and unhealthy lifestyles.

Over time we believe, we can continue to grow revenue from this channel from the tens of millions we have today to hundreds of millions. Much of the teams efforts so far this year has been to create the wide product offering as well as the right service and sales platforms necessary to position us for growth in this important new channel.

For example, we are actively working on a version of Monthly Pass specially customized for the corporate channel. We’ve also continued to build our sales capability with the addition of new national sales reps. We are also hard at work to ensure that we have the right [ITF] systems necessary to support the reporting needs of this channel.

In the interim, we continue to get excellent response from the major corporate prospects that we have contacted and we have already secured several promising new accounts despite taking a very conservative sales approach so far, while we develop our offering and systems foundation.

Guidance: With the strong financial results of Q1, we’ve taken the opportunity to make additional investments in the business to allow us to secure continued growth in 2012 and beyond.

Examples include the aforementioned marketing demand, the acceleration in technology development, and our center locations upgrades to allow us to more aggressively capture our growth opportunities.

Despite these investments, the strength of Q1 in improving expectations will result in full year financial performance above what we had originally forecasted.

Accordingly, we are raising our guidance range from $3.75 to $4 per fully diluted share for the full year versus the previously provided EPS guidance range of $3.50 to $3.85.

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

Question-and-Answer Session


(Operator Instruction). The first question is from Greg Badishkanian from Citigroup. Please go ahead.

Greg Badishkanian - Citigroup

Just as a follow-on David you talked about a lot of investments that you are making this year for 2012. Do you think you will be able to get some growth in 2012 off of the tough compares from 2011 with all investments you are making this year?

David Kirchhoff

Yeah, we feel very good. If you think about the things that we were doing this year; for example, when we went through that recipe or sequence of events to drive our really Q1 outcome; we look at that as sort of a good guide, if you will, to the way that we are going to continue approaching our business.

What we believe is that the combination of innovation combined with really affected marketing and strong customer in a way that’s sort of captures the uniqueness of the Weight Watchers approach is a process that we can continue repeating with each passing year; and that by itself is going to be an important way for us to continue pushing the business forward in both meetings enrollments as well as online signups.

But I think beyond that if you think about the work we are doing with the retail transformation, that’s going to create an additional growth opportunity going in to 2012.

Then as we get in to 2012, and in particular as we start pushing in to 2013, we really believe that this healthcare channel is going to open up an entirely new way of getting people engaged in the Weight Watchers process, in a way that we believe is sort of uniquely ownable and captureable by Weight Watchers.

Greg Badishkanian - Citigroup

It seems like you are investing a lot this year, because you can afford to do that, and you’ve raised guidance some, but may be not as much as I would have thought given the up sight for the quarter.

I am assuming you are really just using this year to reinvest back in the business for 2012, and now that necessarily that the momentum has slowed down significantly over the last month or two, right.

David Kirchhoff

Well, no. To be clear, if you heard in the prepared remarks, Q1 truly did benefit from a relatively weak comp in Q1 of last year. But nonetheless the results were good.

As you also heard, we had good expectations for the remainder of the year, particularly as we look at NACON to dotcom business. But as you’ve also heard, for example, we jumped in to opportunity to really begin pushing on our presence with men, which we’d never done before.

Knowing that, that just by itself was going to be a $0.10 hit on EPS, accelerating the rollout of our retail network, continuing to sort pushing more aggressively on top of our product development and a lot of others areas, we think is going to be critical for our growth.

So we are actively looking to make those investments, but we feel very good about the way that we see the earth shaping up and we feel better about what it looks like going in to the years that follow.

Greg Badishkanian - Citigroup

Also just on, looking at may be who you are taking share from, NutriSystem also saw a market share gain throughout the quarter and in April. Is it just from people who are doing it on their own that were not successful or are you taking it from other commercial weight loss programs. Where do you think those customers are coming from?

David Kirchhoff

The thing you always have to go back to, the fact that you always have to go back to is, eight out of 10 weight loss attempts are people just trying to do their own thing.

If you look at us from a competitive context with other commercial weight loss programs; what we have going for us now more than ever is that the combination of having a strong meetings business and a strong Weight Watchers Online business, and now that we are trying to push out for Weight Watchers Online for men, is giving us multiple opportunities to properly invest in marketing.

The net impact of this is that, if you look at our share of voice now in terms of our presence in advertising market place and certainly our presence in the media is, we probably have the strongest share of voice like this minute that we’ve had in quite some time; and we think that this gives us a very nice additional advantage over some of our commercial competitors, who we would also argue have lesser of a lifestyle based approach than we do.

So this really allows us to capture more opportunities and some of those potentially at the expense of our commercial competitors. But really if I had to estimate sort of where most of the volume is coming from in terms of new people coming in to the fold; I would suspect that a lot of it is coming from people who otherwise were doing their own thing, and it’s that 80% that really represents the biggest growth opportunity and that’s where we see our growth opportunities going forward.

Greg Badishkanian - Citigroup

Just finally, program makes a lot of sense; it’s a nice innovation from the last one, and feedback from your customers and their weight loss. Are you seeing some nice improvements in terms of weight loss versus the old program?

David Kirchhoff

Well what you heard in the prepared remarks is that we are satisfied with the weight loss results we are seeing. The important thing for us when we developed this program which I would argue was even more than nice, but actually quite important is that it allowed us to really much more push in to the future, which is around balanced nutrition, real food and directing people towards food that is more nutrient dense, less calorie dense and more satisfying.

We think that this is where the future is in terms of addressing the obesity epidemic, and we are absolutely in the center of that and we are in a far better position to be a good partner in addressing the obesity epidemic with this program than we were rest any previous program and certainly better than any other weight loss program accepted by far certainly compared to fat diets.

The thing when we design a program from a weight loss perspective is we were looking to increase the average weight loss per week. That was never the objective. It’s important that we continue to do what we’ve always done, which is direct our members and help them achieve sustained but appropriate levels of weight loss to ideally targeting one to two pounds per week, not more than that.

The markers frankly that we are looking for more and some of the things that you heard me reference in my prepared remarks, which is directing people towards more healthful choices; and in that case we are absolutely seeing over and over and over again.

Our members are saying that they instead of reaching for the 100 calorie bag of cookies; they are reaching for an apple. And we really believe that these types of changes are but going to be the ones that are most important in helping guide our members and everybody who comes to us, to more sustaining and more nutritional choices, so that they can once and for all forget the process of dieting and start focusing on the process of adopting a healthy life style.


The next question is from Chris Ferrara from Bank of America. Please go ahead.

Chris Ferrara - Bank of America

David you said something to the effect that recruitment was higher with never-members than rejoins; and I was wondering if you could put a little color on that. I suspect that’s a percentage right. I imagine there are still more rejoins in the meeting than there are never-members right, if you can talk about that.

Also can y you talk about what’s your sense of the retention level up in never-members, because presumably you are getting a whole new class of people in here obviously that have never been right. They behave the same way that your existing members do.

David Kirchhoff

Yes, in fact you interpreted my comments on the nevers and rejoins absolutely accurately. When you look at the growth rate of nevers; sure number of enrollments this year versus last year. When you look at that percentage growth rate, that was a little bit higher than the percentage growth rate on rejoins.

Rejoins mean - the fact to consider with the NACO business is that we have such a large installed base of people who know us and come back to us to get re-energized on the program that rejoins are still a relatively higher percentage of our total enrollments. But really we view never enrollments as a key catalyst to driving future growth.

One of the things you get with never enrollments by the way is that, if you can rebuild your base of never enrollments, those are people who often will come back for a recharge if you will in the following year.

So in other words, driving never enrollment growth is important for driving long term rejoin enrollment growth, and so it’s very much a mutually reinforcing model.

In terms of reaction to the program, interestingly, particularly with this new program, and as you heard me reference; any time you launch a program shift of this magnitude, its going to be a big change for example the people that were with us at the end of November who changed over literally in the course of a week-end, we are going from old points to new points if you will.

Whereas, people that were coming brand new to us had never known the old points program; and what we’ve seen is those people have really taken to the new program in a really nice way.

What we also tend to see is that retention characteristics for new people for never member, if you will, can often sometimes be a little bit stronger. Certainly you can have some people who come in, who may be less informed of what Weight Watchers is and everything else.

But again, if you look at net retention for Monthly Pass, the cohorts that we are enrolling during January, February, March of this year and you compare their retention patterns versus the cohorts that were enrolling January, February and March of last year, it’s very consistent, despite some of the temporary transition issues with rejoins.

Chris Ferrara - Bank of America

My guess would be that when never-members have come in they are more inclined to join on Monthly Pass, right, because you not only get the enrollment fee away. I am trying to going to just make sense financially.

If that’s the case, if you are trying to quantify the impact of the promotion that ran this period and you look at meeting fees per attendee that were flat in a period where I would have thought, may be Monthly Pass, [I am sure] would have gone off given the big influx of never-member.

Can you just talk a little bit about that and where I may be thinking about it incorrectly?

Ann Sardini

Realize though that if Monthly Pass goes up, you do get a discounted product. So you are going to get a lower meeting fee per attendee than all of the people who came in the door were pay-as-you-go people.

So what you do have in the early days if somebody signing up, they are attending all of the time. So you are going to get from a lecturing cum for attendee perspective, you are going to get a little pull-down on that.

David Kirchhoff

But Chris your other point is, I am not sure that there is a difference in Monthly Pass adoption rates between never-enrollments and rejoin enrollments. I don’t think that’s actually the case. It is fairly consistent.

Ann Sardini

You probably had people who are existing member also moving in to Monthly Pass, but that’s another piece of the puzzle.

Chris Ferrara - Bank of America

Finally over to the online business; can you put a little color around the differences that we see between paid weeks and revenues and then end-of-period online subscribers?

It would seem that the online [subsequent] end-of-period could be a leading indicator not a lagging indicator. I am just curious how you would think about that and how you reconcile the difference in the growth rates between the two.

David Kirchhoff

The end-of-period paid weeks is going to be a leading indicator. Because if you think about paid weeks for the entire period, its going to be the average on some level of what you start with and what you end with.

So if what you end with is higher than what you start with, it suggests that your base increased over the course of the quarter; and that is in fact what we saw Weight Watchers Online.

In terms of reconciling paid weeks to revenues, one of the sources of revenues that is included within internet revenues is advertising sales from our website. We are up very nicely in the quarter but not nearly to the same extent, as paid weeks were, and so that resulted in the growth rate of overall revenues being a little bit lower than the paid weeks growth rate.

Chris Ferrara - Bank of America

Following up on that, to the extent you had 86%, 87% online end-of-period subscribers. Why would online paid weeks decelerate over the rest of the year? Looks like we are walking into Q2 with a bigger population of people online now.

David Kirchhoff

That is absolutely helping, starting with our higher base of subscribers. There is a couple of things happening for example if you look at Q2. First up, there is the effect of Easter.

This means that we were dark, if you will, in terms of both advertising and promotion for a full two weeks. Where as by the time we turned advertising back on for Weight Watchers Online and promotions back on, we were already three weeks in to our spring campaign of last year. So that’s the first factor.

The second factor is, if you recall, if you go back to Q2 of last year, when we relaunched the advertising program for Weight Watchers Online. During that time will it be getting in Q2 going in and consistently for Q3 and Q4 we saw a huge shift in signed up growth rates.

It took a little longer for it to show up in the paid weeks because we were basically - signups are going to be the most leading indicator and it takes a little while to build your membership base back up.

But we are now at a point where we have online signups that are comping a much higher growth rate, a very strong growth rate in Q2 versus what we had in Q1.

In Q1 we had signup growth, but not nearly to the same degree that we had for us the rest of the year. So the fact that we are actually seeing growth rates continuing to sort of push nicely above what we have seen from the higher base of growth in Q2 of last year, early days we view it as a very good early indicator.

But as you get in to this sort of odd territory where 50% growth in paid weeks somehow feels like deceleration. But I think in the scheme of things, its still a pretty great growth rate.

Ann Sardini

Just to follow-up a little bit. We had online signup growth in the first quarter of last year of 6%, it went to 40% in the second quarter, and then 30% and then 60%. So the comps really changes dramatically when you get to the second quarter of the year.


The next question is from Kurt Frederick from Wedbush Securities. Please go ahead.

Kurt Frederick - Wedbush Securities

Could you discuss your plans in regards to the recent acquisition you did at the other half of your JV in China.

David Kirchhoff

Sure. We continue to believe, we say this over and over again that obesity is sadly becoming a health issue around the world, and its almost shocking to see the fact that obesity is even becoming an issue in impoverish nations and places like Africa.

Certainly as we look to places like China and we see other emerging economies, we see obesity becoming a bigger and bigger issue. As we look at that for the long term, we think it’s going to be very important for us to continue identifying ways of really being masters of our own destiny.

So it’s hard for me to imagine that anything its going to be more core to our future over the next 5, 10, 20 years in emerging markets. That’s going to be a somewhat different priority than for our excellent partners who help us get the JV started.

It’s not one of their core businesses, it is the service business and that’s generally not the business that they are in. So they’ve made the decision of focus on their key growth pillars. We are focusing on ours and this basically puts us in full control of our destiny.

Kurt Frederick - Wedbush Securities

Just moving on to Europe, the performance in France, is that still being impacted by the other diet, and is that diet impacting any of your other markets.

David Kirchhoff

The Dukan diet is still a factor in France in a timeframe that’s not in consistent with the atkins diet that we saw in the US back in 2003 and 2004. We would expect that overtime that particular will fad will go through the same path that it did in the US, and will eventually sort of recede if you will.

But for right this red hot minute, he is still very much on the scene in that country. In that context, our French team has done an excellent job for example, they’ve been very successful in getting growth back in to their online product.

They are continuing to put some great initiatives in terms of driving the business forward, even in the face of a fad like his.

What we also have seen is that more and more health authorities including the French government, British nutrition expert and then certainly as he has brought his books to the US, there has been a pretty steady chorus of nutrition experts and scientists who have really asked the question, why do we need another unsustainable fad diet.

We’ve already been through this process, and what we are seeing more and more is that there is tremendous need for programs of focus on balanced nutrition, not programs that ask you to wipe out entire food groups which we just know from history and from research, is just completely unsustainable.

The nature of the weight management world is that fad diets like these are a reality. They do come, they always have this immediate temper of [heal] that does tend to go away.

I have full confidence that our French team is going to weather the way through this and come out the other end even stronger. We certainly feel that our position is strong in all the other countries where we operate.

Kurt Frederick - Wedbush Securities

On the retail transformation, you said 60% by the end of the year. Previously you had talked about a couple of markets where you sort of left after that entire market was complete. We don’t know if there is any other market that are now done and that if you have seen the same phenomena.

David Kirchhoff

No, because we are not taking that approach to building it out. The reason we did the market test in Tampa and St. Louis was two-fold. First off, we wanted to see what kind of list we were going to get and get a sense of our OI, which is really hard to get a beat on until you do a full market conversion.

Secondly we also want to better understand the operational implications to converting over a almost unnatural number of centers in a given market to basically learn where all the [case] were in terms of executing that kind of program.

Now that we’ve gotten all those warnings, now that we know that the economic return is there, the approach we are taking is not flipping the entire markets over, but rather focusing on when leases are coming due and expiring, which means that across the rest of the country the full market conversions really wont happen by and large until the end of 2012.

So it’s not going to be apples-to-apples that way, its going to be more of a steady process as oppose to individual markets where they are breaking leases and thing like that.


The next question is from Ken Goldman from J.P. Morgan. Please go ahead.

Ken Goldman - J.P. Morgan

I had a couple of questions that are more of the financial variety. Number one, would you ever issue secondary stock to pay down debt. Number two, would ever split your stock, and number three, can you update us on the long term commitment of the folks to holding your stock.

It’s been a great investment for them recently and I am sure they are in it for the long terms. But it is something that some investors are talking about a little more right now.

Ann Sardini

Just to the questions that I can answer, I will just say that in terms of our debt we generate plenty of cash from operating activity. So there is really no need for us to take any other extraordinary measure to pay down debt.

In fact we are down to 2.5, 2.48 net debt-to-EBITDA, and by the end of this year we’ll be below two times. So I don’t think there any need to consider any other approach there. In terms of our tallest plans, I think you have to ask our [tallest]. What was your third question?

Ken Goldman - J.P. Morgan

Would you ever split the stocks.

Ann Sardini

That’s certainly not something we talked about probably at all. So I really can’t comment on that either, sorry.

Ken Goldman - J.P. Morgan

Question for David. This is a nit-picky question on an otherwise outstanding period. I understand that meeting fees per paid week go down as interest in Weight Watchers rises, because you are discounting a bit to get people in as you mentioned and that makes sense.

But it’s a metric that’s been down for two or three years now. So is it possible there’ something else to consider in our analysis there. I am guessing it’s a result of some real unusual volatility in the economy and so forth and as things normalize your trends will improve.

Ann Sardini

Just to clarify for a second, meeting fees per paid week are not (inaudible), its meeting fees per attendance that you might see some decline in, because most people are taking up Monthly Pass. But even there we are really not seeing a decline.

Meeting fees per paid week are a function of the fact that more people are moving in to Monthly Pass discounted product. If you look at total revenue, you are getting a tremendous lift in total revenue from the fact that we have much longer retention on the Monthly Pass product.

So if you were to look at meeting fees per attendance, you would see the lift there, a function of people buying Monthly Pass and not attending every single week that they are paying for.

So basically I am not sure.

David Kirchhoff

What’s interesting Ken is that we’ve heard a couple of our commercial competitors commenting on our results in the beginning of the year had suggested that we’ve been and engaged in heavy promotional activities.

Let me just say right now that it’s absolutely not the case. We are running exactly the same promotion in Q1 that we ran in Q1 of the year before and frankly Q1 for 10 years before that, which is basically through registration.

So we have not been really abusing different promotional scheme for meetings with a couple of exceptions. But again as Ann gets back to really sort of some of the changing around has much more to do with Monthly Pass penetration.

Ann Sardini

Also the other piece is as you see the weightwatchers.com business growing and you look at total company paid weeks and you see a shift because the weightwatchers.com product is less expensive than the meetings product. So we might see a little bit of a shift there, just because you get a bigger uptick on the dotcom product as a percentage.

Kurt Frederick - Wedbush Securities

So its natural then as things progress for metrics such as that or things like attendance per paid week or the dollars per subscriber online, for those things to slip a little bit. It’s not something that you would look at as a concern at all.

David Kirchhoff

No, actually the dollars for online subscriber are not slipping. Let me just make sure that we are using all those same language. We are getting the same retention for Weight Watchers Online that we’ve always gotten, which give or take is nine months.

If anything we’d been taking price up, just a little bit, but we’ve been taking price up with Weight Watchers Online. So if you look at revenue recognized for a typical Monthly Pass subscriber to further their subscription cycle or revenue for a typical online subscription cycle, we are really not seeing tremendous difference in those in order that we expect to see going forward.

The only thing that you might see is that there has been this continuing shift that began in early 2006 and continued to this day, of people moving away from pay-as-you-go towards Monthly Pass.

Then online as a percentage of total corporate revenue is obviously greater, but if you look at revenue recognition for online revenue versus online paid weeks, you are not seeing tremendous difference.

Ann Sardini

Just as an example, online paid weeks were 35% of total paid weeks in the first quarter of last year, a 43% of total paid weeks in the first quarter of this year. So that’s going to have an impact.


The next question is from Bob Craig from Stifel Nicolaus. Please go ahead.

Bob Craig - Stifel Nicolaus

Just a couple of questions regarding the efforts to attract the male population. Is weightwatchers.com the primary vehicle by which you intend to do that, as oppose to the meetings, or is that not the case.

David Kirchhoff

Right now it is. We think that the Weight Watchers Online product is a very gateway product in to the (inaudible) for men. That being said, I’ve met more than a few men, in fact quite a few men who’ll go to Weight Watchers meetings who swear by it and have had a terrific experience.

They often go with their spouse, but we think overtime there’s a chance to change that. But I think the first step is getting men comfortable with the brand, and comfortable with the approach.

Again what we see is that, I’ve seen this personally over and over again. When men do Weight Watchers, when they kind of learn about the POINTS program, they actually start using it. They really take to it and they succeed on it and it makes sense to them. It’s logical, they get it.

Frankly by the time they come at the other end, they don’t understand how anybody could ever do anything else. It’s just that the historic brand association has been with women, and so it’s really a process of sort of changing and kind of getting pass some of those perceptions.

What we find is that the Weight Watchers Online for men is an easy way for them to kind of ease in to it. Over time we see tremendous opportunities to grow our appeal for men both with our online product and our meetings product.

Bob Craig - Stifel Nicolaus

I suppose you could start holding meetings in sports bars, but I don’t think that’s right. Any early reader, early results; I’ve seen the advertisements; anything to report there.

David Kirchhoff

Actually I was happy as I turned on CNN early this morning, I saw one too. It’s too early days, but I think as we get in to the next call, we’ll be able to report back.

I’ve met a few men already who have said they have recently signed up, so I think that’s a good indicator, but its not particularly statistically that.

Bob Craig - Stifel Nicolaus

A normal seasonal split to that 15 million to 20 million incremental advertising or is that front loaded here.

Ann Sardini

Well its pretty normal.

Bob Craig - Stifel Nicolaus

Dave you didn’t quantify, but I take that Continental Europe for the year is still expected to be down. I think your prior guidance was high single digit, low double-digit, is that still a pretty good read.

David Kirchhoff

Yeah, I think so.

Bob Craig - Stifel Nicolaus

The expenses associated with the real estate effort this year and next, care to quantify those?

Ann Sardini

As we said a couple of times, it’s more of a pulling forward cash to accomplish - in CapEx to accomplish more of the renovations and retail transformation. In terms of what you will see from the P&L perspective, because of the way we’ve reorganized our self, because of the fact that we are moving centers and we are probably going to fewer center, you shouldn’t see any impact on the actual rent expense as a percentage, so no margin impact.

Bob Craig - Stifel Nicolaus

Is there any way you could size up the corporate effort as it now stands and the growth rate of that effort.

David Kirchhoff

The way to think about our healthcare revenue is that we start with an existing book of business, which is our at-work meetings. As you know that’s historically been about 12% of our North American attendances.

As you’ll probably recall, the at-work meeting were sold kind of ground level telesales, 25 people of the company get together and give us a call and say, can we get a meeting at or Weight Watchers later to come in to our office and give a meeting onsite.

What we call our national accounts of which we have a couple of great examples and they are actually pretty sizeable accounts. It’s still such a nascent business and it’s such a relatively small portion that any of the growth rates that we would be experiencing now would look astronomical, but it’s off of a tiny base.

The way I would think about the corporate business is that, particularly that kind of selling at the corporate level and sort of bringing in large major accounts is that 2011 is really about building foundation.

So that’s getting the products right, getting the sales and operational aspects of that channel right, and making sure that we have the right reporting system.

So it’s a lot of foundation building this year with an eye towards allowing us to then kind of open this spigot if you will in terms of bringing in accounts as we go into 2012 or 2013.

Bob Craig - Stifel Nicolaus

You are contemplating any price adjustments, price increases.

David Kirchhoff

It’s a great question because if you look at Monthly Pass, we are at 39.95 which is where we were in 2006 when we first launched at the end of 2006. We haven’t done anything with that sense, particularly in our largest market, the US.

Certainly during the recession, we didn’t feel that it was prudent to take any actions like that. I have to say, I didn’t address it in my prepared remarks, but we are like everybody whose had a consumer facing business.

We continue to be a little bit concerned about what’s happening out there with gas prices and with food prices and a lot of other non-discretionary inflation items going up.

We are mindful of that, but over the long term and potentially medium term, we certainly see a lot of headroom for growth in terms of recognizing more value and potentially taking pricing. But we want to do it in a way that is in sync with where the consumer is.

Bob Craig - Stifel Nicolaus

Any thoughts on the staying power of a marketing campaign and/or the popularity of the spokesperson.

David Kirchhoff

When I look at the approach that we talk, which is a combination of combining innovation with strong marketing and powerful marketing. If I look for example in the innovation side, I see no shortage of opportunities of continuing to innovate and improve the things that we offer.

That can be in the program, that can be in technology, it can be different service configurations. So I think product news is something we can always have.

If you look on the marketing strategy, really the shift that happened last year or was us going back to our core historic roots of driving authenticity through the voice of our members.

We believe that in a way that really only Weight Watchers could do this that way, and so we believe that that is a recipe in a perch that works very well for us that we can continue to repeat and provide year after year after year, and we can continue to find new compelling ways of delivering that authentic voice.

Sometimes that’s going to be in the form of the celebrity, sometimes that’s going to be in other ways. But in terms of staying power frankly, we don’t have so many examples, but the Sarah Ferguson, the Duchess of York was a tremendous example for us and a tremendous help for our business for many years.

We continue to see lots of different ways, for example, we can work with Jennifer to find new ways of inspiring the population that they can make this amazing change in the life.

I had the pleasure and she actually came to the office yesterday and made an appearance at our own at-work meeting. Suffice to say it was the most populated at-work meeting that I’ve seen in our office in quite some time.

She talked about her experience striking points and she just does such a beautiful job in conveying it, and the reason is because she really does it. I think that the realness of her approach is the thing that connects with people.

Because she is a Weight Watchers person now. She thinks about points, she counts, she thinks about different food choices. I think that kind of authenticity does inherently have good staying power.


The next question is from Chris Ferrara from Bank of America. Please go ahead.

Chris Ferrara - Bank of America

David it sounds like to talked a lot about by region and with the dotcom about sounded like revenues expectations for Q2 through Q4 are higher. Can you talk a little bit about what your overall expectations are for revenue for Q2 through Q4? Even just directionally if you don’t want to go to numbers. It sounds like you expect those numbers to be higher. Is that right?

David Kirchhoff

Are you talking about Weight Watchers Online.

Chris Ferrara - Bank of America

I am talking about the entire business. It sounded like NACO rest of the year looks better, CE UK looks better and online, but just overall for the whole company does it all look better, Q2 through Q4.

David Kirchhoff

By definition with the guidance being higher, obviously some of that’s happening at the top line. If you think about it, when you had a great Q1 as we did, that certainly gave us $0.10 versus may what expectations was for Q1.

But really that recruitment drive delivers value throughout the course of the year in terms of top line and then bottom line growth. From Q1 recruitment trends alone, that by itself is going to drive top line. Ann I don’t if you want to add some color.

Ann Sardini

I was just going to say, the guidance that we gave last time was 15% to 20% on a full year revenue growth. I think now you can think about it at the high end of that range.

Chris Ferrara - Bank of America

Given the incremental investments you guys talked about, SG&A you said for the full year was going to be down as a percentage of sales but not all that much slightly, and you said ads would be or marketing would be flat year-on-year.

Given that you are thinking revenues are going to be high all right, but spending is going to be higher. Do those two data points kind of hold for here.

David Kirchhoff

If you look at marketing, I’ll give you good examples. We’ve able to be opportunities. So for example we found out that Jennifer was going to be featured on the Grammy’s and that she was going to be part of the opening act doing the Aretha Franklin respect song, and was getting good visibility. So we jumped at the opportunity therefore to invest some advertising at the Grammy’s.

So as we see these types of opportunities, we take them and we are continuing to be very aggressive of pursuing them, with the understanding and belief that they are going to be concurrently driving enrollments.

So as we see opportunities like that we will take them and so for that reason, it’s reasonable to expect marketing to stay fairly consistent as a percentage of revenue during the course of the year.

In some cases I can’t even rollout the possibility if we saw a greater opportunity and form. We might jump at that to bring in some additional volume in to the business, even knowing that the revenue that we get from some one we’d bring in form is mostly going to be in the following year, where we’d recognizing all the expense associated with form.

But as we get into those types of decisions, we’ll certainly share that with you guys on calls, similar to what we share with men, because that really has the same kind of affect.

In terms of G&A as we referenced on previous calls and you heard a little bit of today. The places where we are really investing in the business, again it really comes down to technology. There is not a single growth opportunity that we have that doesn’t have a meaningful technology component to it, either in terms of application development or supporting systems.

So we are looking for opportunities to increase the pace of technology investments. Certainly the retail rollout has some impact, not as much on an EPS perspective, because as Ann has pointed out, the overall rent footprint if you will is fairly consistent, because we are getting better terms, as well as having more optimized meeting network. But we are increasing CapEx associated with those centers.

The healthcare opportunity, we are going to have to invest in front of in terms of bringing in new team of people that allow us to build that opportunity out. So some of the incremental G&A is going to come in the form of bodies that are going to be hugely productive for us going forward in to 2012 and 2013.

Those are the types of places where we are making those investments. But I think still sort of a previous guidance with them providing is --.

Ann Sardini

And always mindful of not growing the core base of G&A, but always looking in terms of if we are going to increase G&A its towards growth in the future.


This will conclude the question-and-answer session. I would like to turn the meeting back over to Mr. Kirchhoff.

David Kirchhoff

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 has now ended, please disconnect your lines at this time, and thank you for your participation.

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