Welcome to WW International Fourth Quarter and Full year 2019 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there'll be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Corey Kinger of Investor Relations. Please go ahead.
Thank you, Kate, and thank you to everyone for joining us today for WW International's Fourth Quarter and Full Year 2019 Conference Call. At about 4:05 P.M. Eastern Time today, we issued a press release reporting our fourth quarter and full year fiscal 2019 results. The purpose of this call is to provide investors with some further details regarding the company's financial results, as well as to provide a general update on the company's progress. The press release is available on the company's corporate website located at corporate.ww.com. Supplemental investor materials are also available on the company's corporate website in the Investors section under Presentations and Events. Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are also available as part of the press release. Before we begin, let me remind everyone that this call will contain forward-looking statements.
Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are all explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today, and except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Joining today's call are Mindy Grossman, President and CEO, and Nick Hotchkin, CFO, Operating Officer, North America, and President, Emerging Markets. I will now turn the call over to Mindy.
Thanks, Corey. Good afternoon, everyone. Thank you for joining our call today. I am thrilled to say that 2020 is off to a strong start. The global launch of the new myWW program is resonating in every market. The WW Presents Oprah's 2020 Vision Tour has attracted sold-out crowds to arenas across the U.S., our global marketing efforts have had great impact, driving member sign-ups and reinforcing our position in weight loss and wellness. I'll review our actions against our 2019 priorities shortly, first to highlight our results. For the full year 2019, we delivered revenue of $1.4 billion, operating income of $288 million, and EPS of $1.72, in line with our guidance. We ended 2019 with 4.2 million subscribers, up 8% from 2018, an all-time record for year-end.
Sign-up trends have accelerated in 2020, with early January having many of our top sign-up dates of all time in both the U.S. and in our international markets. Right now, we have over 5 million subscribers for the first time in our history. Retention is over 10 months globally, which is also an all-time high. Community and engagement are at the heart of everything we do, because we know that the more touchpoints a member has, the more likely they are to continue their journey and have even greater success. Member engagement in our 4.8 star-rated app continues to be strong, with good trends in the percentage of members who are tracking food, logging weight, using Connect, and syncing a fitness device. In January alone, 3 million members used Connect, creating nearly 1 million posts, making over 5 million comments, giving 27 million likes.
The number of members syncing an activity device was nearly 2 million in January, a new record, and up over 30% from last January. In 2019, we saw improved year-over-year performance each sequential quarter and entered 2020 with momentum by focusing on five key priorities: our marketing execution and strategy, studio strategy and future experience, 2020 innovation, personalization, and global community activation. Starting with marketing, we take a data-driven approach across all channels, TV, digital, social, ECRM, and more, informing our creative, our call to action, and promotional offers. Our learnings throughout 2019 informed our marketing strategy and our 2020 winter campaign. The global marketing campaign, which kicked off on December 26th, is centered around the guiding insight of myWW. When it comes to losing weight, everyone's needs are different. Across all markets, we featured almost two dozen members, including multiple celebrity ambassadors who shared their success stories.
This global, diverse, and not to mention fun campaign, features over 100 pieces of content targeting both new and lapsed members with a fully integrated approach encompassing TV, terrestrial and streaming radio platforms, social media, search, high impact digital, print, local media, custom content, and PR. This winter, we tested various formats for introducing people to WW, including two appearances on QVC, 48 pop-up locations in Kohl's stores across 12 markets, supper club events in the U.K., a targeted men's campaign in Canada, content partnerships, and hundreds of ambassador activities across all our global markets. We had new ambassadors join WW this past winter. The U.S., Daphne Oz, Josh "Fat Jewish" Ostrovsky, Annaleigh Ashford, and Adamari López. International, Vicky Pattison in the U.K., Christian Tews, Mimi Fiedler, and Sila Sahin in Germany, Jonas Hallberg in Sweden, Valérie Damidot in France.
We're incredibly honored to be U.S. News & World Report's Best Diet for Weight Loss for 10 straight years. This accolade has been featured prominently throughout our marketing, as we know efficacy and credibility is important to anyone looking for a weight loss program. Turning to Studio, a major focus of 2019 was to return our Studio business to growth, and I'm happy to say that Studio sign-ups were solidly positive year-over-year in Q4. Our initiatives to reinvigorate Studios, including workshop attendance challenges, Studio open houses, and adding more member milestone awards together enhanced the member experience, fostered positive word of mouth and perception. In addition, we tested various sign-up offers, putting greater emphasis on Studio to further encourage incoming members to choose a Studio experience. On innovation and personalization, myWW, which launched in mid-November, is our most customized and flexible program ever.
We know that personalization is important to our members, now when new members sign up for WW, for the first time, they take an evidence-based personal assessment that matches them to a plan that works best for them. All three plan options, Green, Blue, and Purple, are rooted in WW's scientifically proven approach to weight loss. Of the members who joined since the launch of myWW, approximately 50% are on the Blue plan, 30% on Green, and 20% on Purple.
In a six-month clinical trial of the myWW program for all three programs, conducted at the Medical University of South Carolina's Weight Management Center, results indicate that the participants experienced benefits on and off the scale, including, on average, 8% weight loss, 2% decrease in systolic blood pressure, 24% decrease in hunger, 7% reduction in overall cravings, and when asked about the myWW program, 97% of participants agreed that myWW helps you learn healthy habits for the long term. In addition to the tailored ZeroPoint foods list and SmartPoints budget, members are receiving customized content based on the findings from their personal assessment. The personalized content includes recipes, activity recommendations, and mindset skills that are science-based, actionable, and practical. Personalization is an ongoing strategic focus, and we will be continuing to enhance and roll out more personalized content to our members that is data-driven and tech-enabled.
Our final 2019 priority, Global Community Activation. Throughout 2019, we launched this new initiative for WW with various special events around our global markets, galvanizing communities and reaching new diverse audiences through wellness events, activations, content, and experiences. This all built toward the WW presents Oprah's 2020 Vision: Your Life in Focus Tour in early 2020. I will discuss the tour more and outline our priorities for 2020 after Nick reviews our performance and outlook.
Thanks, Mindy. We ended the year with a record 4.2 million subscribers, up 8% from the end of 2018, with subscriber growth in all of our major geographic markets. Recall digital subscriber recruitment turned positive versus the prior year in Q2. Total global recruitment turned positive in Q3. I'm pleased to say that subscriber growth accelerated in Q4. Studio recruitment was also positive in Q4. This put us in a strong position headed into the 2020 winter season. Q1 is traditionally our annual peak in end-of-pay subscribers, sloping to a Q4 trough with an average 13% decline over the last five years. To further illustrate our progress, in 2019, our decline was only 8%, the best seasonal slope in our history. Reflecting our momentum, in Q4, we delivered revenue of $333 million, up 1.5% year-over-year on a constant currency basis.
For the full year 2019, total revenue was $1.4 billion, down 5% year-over-year on a constant currency basis. GAAP EPS for the year was $1.72, in line with our guidance, and EBITDA was $352 million in 2019, reflecting our highly cash-generative business model. Our tax rate for the year was 20.9%. At year-end, we had $183 million in cash and an undrawn $150 million revolver. During 2019, we voluntarily prepaid $100 million of term loans, and we ended the year with a net debt to EBITDA leverage ratio of 3.96 x. Turning to 2020, I'd like to spend a few minutes discussing our key assumptions around recruitment, retention, and channels. Recruitment growth year-to-date is up in the double digits in all our geographic markets. Based on this performance, for Q1, we expect end-of-period subscriber growth in the mid-teens year-over-year.
Our 2020 revenue forecast anticipates year-over-year subscriber growth every quarter, and we currently expect digital subscriptions to be about 75% of total subscriptions this year. Recruitment channels such as Invite a Friend and in-app purchases continue to work well for us, and they're highly effective in attracting first-time members. We expect that about 15% of our global recruits will continue to join through these two channels. On a global basis, average retention is over 10 months, a record level for WW. We are focused on continuing to expand our retention through member engagement initiatives. Overall, we expect subscription revenues to be approximately 85% of our total revenue in 2020. In product sales and other revenue growth is expected to accelerate in 2020, benefiting from our expanded line and increased availability of WW products.
We recently relaunched our e-commerce platform, and we will incorporate the WW Shop into our app during 2020. We expect full-year 2020 revenue to approach $1.6 billion, with similar year-over-year growth rates on a constant currency basis across each of our geographic segments. Our full-year GAAP EPS guidance range is $2.15 - $2.40. This guidance assumes 71 million shares outstanding for the full year, and this guidance incorporates the fact that fiscal 2020 includes a 53rd week, which bridges the last week of December 2020 and ends on January 2, 2021. Due to the heavy marketing activity during that week, this timing has an expected - $0.06 impact on the full-year EPS, and that's reflected in our EPS guidance. A few assumptions of note in our full-year EPS guidance. On December 16th, we announced the extension of our partnership with Oprah Winfrey through May 2025.
Upon approval of the associated $3.3 million share option grants at our annual meeting in May, we'll record a one-time charge in the second quarter of 2020. The actual charge, which would reflect the stock price as of the date of shareholder approval in May, is not reflected in our EPS guidance. Below the line, our guidance assumes a full-year effective tax rate of about 23%. Pending the finalization of regulations that could impact tax on foreign income, our full-year tax rate could be closer to 20%. Our guidance assumes full-year interest expense to be approximately $126 million, reflecting our current interest rates. Given our financial and balance sheet momentum and dependent on market conditions, we believe we may have an opportunity to reprice our term loan during 2020.
The WW presents Oprah's 2020 Vision tour and campaign has been a standout success in reinforcing our brand transformation and raising visibility in the U.S. From a GAAP accounting perspective, which only considers the direct tour and campaign financials, the impact will appear as additional service revenue and cost of services impacting gross margin. Our Q1 results are expected to include approximately $15 million in direct tour revenue and up to $20 million in expenses. As a reminder, about 40% of our annual recruits join us in Q1. To fuel these sign-ups, Q1 is our highest marketing spend quarter, and as such, Q1 bears the lion's share of the costs of attracting new members but captures only a portion of the associated revenue. Therefore, we anticipate having an EPS loss of up to $0.20 in Q1, driven by marketing spend and tour investment.
For the remainder of my comments, I am going to speak to the midpoint of our full-year EPS range and on a constant currency basis. We expect gross margin to increase up to 100 basis points for the full year 2020, reflecting operating leverage and the benefit from increased digital mix, partially offset by direct tour investment, studio sign-ups, and a lower contribution from licensing. We expect Q1 gross margin to be down approximately 400 basis points due to the myWW launch costs and tour expenses in Q1, then improving in Q2 and ramping throughout the year. Marketing expense in 2020 is expected to be approximately $275 million, the increase versus prior year primarily being driven by higher Q1 spend and the 53rd week investment.
We'll continue to be flexible and agile in our approach, investing behind marketing initiatives that produce results. G&A expense is expected to be approximately $285 million, reflecting added headcount, primarily in digital product and technology to drive future long-term growth. Both marketing and G&A expense are expected to be relatively flat as a precent of sales year-over-year. For the year, we expect CapEx, primarily driven by tech spend and capitalized software, to be in the $60 million range, and G&A is expected to be about $50 million. We expect EBITDA of about $400 million for the full year, driving our continued strong cash generation. We have the resources and flexibility not only to operate the business and reduce our debt levels, but also to continue to invest in the initiatives that will drive our growth.
Beyond direct investments into the business, we may also pursue select M&A in technology and digital product capabilities, and franchisees, such as our recent acquisition of the Las Vegas franchise. We expect to end the year with a net debt to EBITDA ratio of about 3x . In summary, I'm pleased that we've returned to a growth trajectory. The year is off to a strong start, putting us in a good position to deliver revenue and earnings growth in 2020 and beyond. With that, I'll turn it back to Mindy.
Thanks, Nick. I can think of no better way to kick off the new year than by joining Oprah Winfrey on tour. We just completed our seventh tour stop in San Francisco, and I have to say, the response has been incredible. Oprah's power to connect with people and inspire them to live their healthiest and best life is unmatched. To have Oprah not only tell her story and share her perspective, but also engage directly with audience members and lead them through a holistic wellness assessment spanning mind, body, and spirit, assessing and identifying their wellness focus, intention, and making a personal commitment is truly a powerful experience.
To have packed arenas of more than 15,000 people sold out, together participating in everything from a dance party to a mass meditation, to hearing from some of the most influential people in the world about their own wellness journeys, including Michelle Obama, Lady Gaga, Dwayne The Rock Johnson, and this Saturday in L.A., Jennifer Lopez, makes it an event like no other. These sold-out full-day wellness events, filled with inspiration, community, activity, and fun, demonstrate the power and appeal of our vision to make wellness accessible to all. A highlight of the day includes an on-stage moment with an inspiring local WW weight loss success story, showing how one person joining WW and transforming his or her life starts a ripple effect of wellness in their community. The tour is generating significant media coverage and has fueled overall interest and enthusiasm about WW.
The nine-city 2020 Vision Tour has generated over 24 billion media impressions across online, print, and broadcast thus far. For those of you who saw the Oprah and The Rock Super Bowl spot, that was a result of spontaneous creativity by the teams to reinforce our wellness mission. We believe this high visibility has had a halo effect well beyond those who are in the audience. In addition, the tour helped reinforce our brand transformation, showing how WW is your partner in both weight loss and wellness. For instance, in post-event surveys, we saw strong increases in attendees' perception of WW both as a plan for me and as a modern brand. WW and Oprah engaged with the local communities in each tour city with surprise visits to local restaurants participating in the WW Favorite Programs. Oprah joined local groups for their morning walks and more.
In addition, over $1 million of tour proceeds has benefited WW Good, our philanthropic arm that helps bring fresh, healthy food to underserved communities in each of these local markets. WW is now the wellness partner of OVG, the venue partner in most of our tour city arenas. Our partnership is continuing beyond the tour dates with WW signage, member recruitment offers, and WW healthy concessions to be offered at select venues, spreading our wellness message to their live audiences. We believe the tour has been fantastic for accelerating overall brand awareness and perception of WW. We are consumer-obsessed and continuously monitor brand perception and awareness. In January of every year, we conduct a brand perception study, and our 2020 results not only showed that consumers have a strong familiarity with the WW logo across all our global markets, but also have strong awareness of the new myWW program.
We see opportunities to advance these perceptions even further, including by highlighting our weight loss and healthy living leadership and by advancing areas such as personalization and gamification. Our journey over the past three years has been significant. 2018 was about forming and defining our brand and growth strategy. 2019 was launching as WW and presenting ourselves as a wellness company in addition to being the world's leader in weight loss. In looking at 2020, we have returned to a growth trajectory and are focused on accelerating our momentum. These past three years have been about strengthening the foundation of this company, enhancing our capabilities, strengthening our team, and modernizing the brand. These are investments that are only now beginning to pay dividends, but our work is not finished.
For 2020, our key objectives of recruit, retain, and elevate the WW brand will continue to guide all our actions as an organization. Within that framework, our key priorities for this year are focusing on growing and maximizing our core business in the immediate term and making the strategic investments which will fuel the business not only in 2020, but also in 2021 and beyond. Since 2016, we have innovated on our food program every two years, but know that we are always constantly innovating. As we move forward toward 2021, we are already focused on the value-added offerings and features we will bring to market for next year to sustain interest in the program and deliver sustainable business growth. Our 2020 priorities are being known for coaching and amplifying the power of community.
As we evolve and create more personal offerings, we're focused on providing solutions to our members in the formats that fit their lives best and see a range of possibilities to integrate our coaches in the WW experience, from 24/7 chat in our app to dedicated one-on-one personal coaching, from group workshops in our studios to virtual communities of members and coaches. We see coaching as an integral element of the WW experience. We will continue focusing on growing our studio subscriber base and amplifying the magic that happens in our studios. Studio member sign-ups so far in 2020 are up, and we are focused on delivering the inspiration and celebration our members crave.
Beyond the traditional studio locations, we are exploring partnerships, such as our relationship with Kohl's, where we can incorporate either full WW workshops or pop-up health hubs into high-traffic partner locations that are complementary to our brand and make WW more visible and accessible to various audiences. We are very enthusiastic about the future potential for virtual group coaching as a new subscription tier to drive revenue growth. With 75% of our members being digital only, we see an opportunity to upsell those members to an enhanced offering, bringing the inspiration and community of our workshops into a digital environment with programming led by our expert WW coaches. Virtual group coaching is in pilot now, and we plan to launch more broadly in late 2020.
We will continue testing and refining virtual group coaching, knowing its value as a market differentiator and its ability to modernize the brand while staying true to our foundation of community. We believe virtual group coaching will be a compelling offering and great way to connect more of our members with our extraordinary coaches, who we know have a positive impact on members' level of engagement and their wellness journey. Our wellness ecosystem and deepening the app experience and gamification is key. In addition to our leading weight management program, we will continue building features and tools to help our members improve their overall health and wellness, particularly in the areas of activity, mindset, motivation, hydration, and sleep, forming a deeper integration between all these important factors and nutrition and weight loss.
Our science team has completed a body of work on sleep, and we know our members have a strong interest in sleep-related, actionable content. During 2020, we will be launching sleep solutions, features, and functionality into the WW experience. I'm also thrilled to announce today that we are partnering with ClassPass to bring our complementary offerings to each other's members. ClassPass is a monthly subscription service providing access to the world's largest network of boutique fitness studios, spas, and gyms. In the coming weeks, U.S. WW members will receive a complimentary allotment of fitness credits, and ClassPass members will receive an offer for a WW digital subscription. This is just the first step of our partnership, and we see various opportunities where we can work together on content and integrations that benefit our respective members. We will also continue to elevate our digital experience.
As part of this, we will really zero in on using the app as a behavior change tool, along with gamification, to help our members succeed on their journeys. We look forward to introducing challenges, adding competition, and excitement to the experience. We recently tested a streaks challenge that rewarded members for tracking meals multiple days in a row, and the challenge resulted in higher overall levels of meal tracking and lifted engagement with our WellnessWins loyalty program. We will be launching the streaks challenge more broadly to iOS users next month. Consumer products and e-commerce growth, as well as product expansion. Reformulating and repackaging our products was a huge step for us, and we are going to continue supporting our members by providing the things they need to succeed, from cookbooks to kitchen tools, from SmartPoints-friendly snacks to meal kits.
We know our members want to have access to WW products beyond just the studios, and we've made huge strides in our e-commerce platforms. We'll focus on expanding this in 2020 and beyond, including through integration directly into the WW app. Our health solutions business is going to allow us to be the partner of choice. Our health solutions team has done considerable foundational work in building out the talent and technology to support and drive this business. We're focused on increasing awareness of WW as a wellness benefit and demonstrating the value of WW to strategic partners, representing employers, providers, physicians, and payers. I'm proud to say that our partnership with the City of New York will continue for three more years, making WW available at a special rate to New York City's more than 440,000 employees.
During our Brooklyn tour stop earlier this month, we were thrilled to invite on stage a group of NYPD employees. Since the start of our partnership with the City of New York, nearly 40,000 city employees have lost weight on the WW program, a clear demonstration of the positive impact WW can have on health and wellness. We see a significantly larger opportunity in the years to come. As we focus on adding more value to our offerings, from total wellness to diabetes, we intend to be the partner of choice for wellness and weight loss. Community activation events and creative content will allow us to diversify our consumer base and maximize engagement. Building on the success of the WW presents Oprah's 2020 Vision Tour, our newly created talented team will continue to produce inspiring events and experiences that will bring people together through WW across all our global markets.
With these event activations and by leveraging our influencer and ambassador community, we'll continue to focus on reaching new and diverse audiences. We are also leveraging the content from these activations to share with audiences worldwide. In addition to sharing select tour moments on WW's YouTube channel, WW Now Facebook videos have been viewed 5.2x million . Our recently launched WW Now Instagram has already 120,000 followers. We will continue building our content network throughout the year. As we bring the WW Impact Manifesto to life, we're creating new experiences and places where people can become inspired, connect with others, and advance their wellness journey. Finally, I'm excited to welcome Jennifer Dulski to WW's board of directors. Jennifer served in leadership roles at Facebook, Google, and Yahoo, as well as founder, CEO, and COO roles at both early-stage and scaling startups.
I look forward to working with her and know her experience in scaling organizations, transforming technology, and building communities will be invaluable. With the addition of Jennifer, I'm proud to say that WW's 12-person board of directors will now include six women. Our executive committee also have 12 members, with six women. It is rare for companies to have 50% female representation at both of these top levels. We are proud that our commitment has been recognized with WW's inclusion in the 2020 Bloomberg Gender-Equality Index, the gold seal for companies to publicly demonstrate their commitment to equality and advancing women in the workplace. Gender equality is a fundamental value in fostering a creative and innovative environment in the workplace. At WW, we make it a priority to cultivate not only a wellness ecosystem, but one of diversity inclusion.
We also know that business success is closely correlated to diversity, because when we have diversity of our leadership and employees, we also create diversity in thoughts and ideas. In summary, I am confident in our strategies and plans for broadening our reach and expanding our impact, which will drive sustainable growth and profitability in both 2020 and beyond. As a purpose-driven organization, we are focused on providing members with a deeply human and personal experience, powered by technology, and with a foundation in a science-based effective program that delivers sustainable results. We believe that healthy living is a human right, and we aspire to make wellness accessible to all. Thank you for joining us on the call today. With that, we'll now turn the call to the operator for Q&A.
We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, press star, then two. Our first question is from Olivia Tong from Bank of America. Go ahead.
Thanks. Good evening. Wanted to talk a little bit about the subscriber growth and then also the cost of driving that growth, because that 5 million number, obviously a big number for current subscribers. It's great, and the mid-teens growth that you're looking for, also fantastic. Looking at Q1, the expenditure is pretty high. Can you just talk about the cost of driving that growth? In terms of the Oprah tour, can you talk about the effectiveness of the tour? It's great to see that attendees were energized around wellness and all that, but how much of that actually resulted in member sign-ups at the various tour stops or cookbook sales or anything like that? Did you see more substantial sign-ups in the cities where you had events? Is this something that you hope you can do again? Thanks.
Hi, Olivia. Thanks for that. Marketing expense in 2020, $275 million increase versus prior year, bear in mind that 53rd week impact. You know that's the heaviest marketing time of the year for us. Beyond that, be it in our winter campaign or our spring campaign, we're investing behind the integrated marketing initiatives that are working for us, and you see those paying off in our double-digit recruits so far and anticipating end-of-period subscribers to be up in the mid-teens and getting to that milestone of over 5 million members. We'll always be nimble managing our marketing spend. I think the team's doing fantastic work globally right now. We're firing on all cylinders across all channels. A good TV campaign, great work this year in digital and social, ECRM, et cetera.
In terms of the tour, look, the tour's been such a wonderful way to bring more exposure to the brand, and it's certainly had a halo effect on recruitment in the United States, given all the wonderful PR and buzz. It's been great to be in the tour cities and seeing people enjoying our studios. Actually, one of my favorite things is seeing people in the concourses signing up to do WW in breaks during the event. Roughly 10% of the attendees at each tour stop have signed up for WW while they're there, and that just shows how the brand and the tour is resonating.
Great. Thank you.
Our next question is from Jason English from Goldman Sachs. Go ahead.
Hey, guys. Thank you. Thanks for squeezing me in. To pick up on Olivia's question around marketing, to make it just cleaner for us, can you just give us the number for the 53rd week, how much it's adding to revenue and marketing so we can parse that out and get a cleaner underlying read?
It's in the teens. Yeah. It's mid-teens. Think about it in terms of it being $15 million.
Of marketing? Got it.
Yep.
Okay, that's helpful. Appreciate it. Then on the gross margin side, we've got the services gross margin much softer than expected in the fourth quarter, and I appreciate we've got some of the noise with the tour coming in the first quarter, it's going to keep it soft. You also made mention to the WW launch cost. Can you give us a little more clarity and color on what drove the margin softness in the fourth quarter, and then any sort of quantification on the WW launch cost and whether that's sort of a new cost base, or are there components of these launch expenses that fall away over time?
Look, we clearly expected Q4 gross margin to be down based on the launch costs and the field training expenses that have resulted in a good recruitment trajectory. Those are one-time costs in Q4 and some in January related to higher staffing levels for higher volumes of people in the studio. Look, the business model is performing with growth exactly how I would expect it to. We're seeing operating leverage, we're forecasting operating leverage, and we're benefiting from a richer digital mix. Bear in mind, within our 100 basis points of gross margin leverage forecast for 2020, that includes the direct tour expenses, which will be booked in gross margin. That's about 100 basis points for the year. We know there's wonderful benefits beyond those direct costs, but those are the direct costs. Another factor is licensing spend year-over-year.
That's about 100 basis points in that gross margin walk, too. That's why we're very excited to be introducing new partners to the brand and focusing on new revenue streams to offset that licensing business going forward.
Helpful stuff. Thank you. I'll pass it on.
Our next question is from Kara Anderson from B. Riley FBR. Go ahead.
Hi, good evening. Thanks for taking my question. I just was hoping that you could talk about how the broader shift to show up kind of holistically as a wellness company has translated into your subscriber base. Are you seeing a shift in the demographic or maybe even weight loss goals of the people that are signing up? Just curious if you had any thoughts there you could provide. Thanks.
Yes, Kara. We know from all the qualitative and quantitative research that definitely there's a shift in the brand perception across all markets. Over the course of the last couple of years, we have continued to see diversification, particularly in our digital subscriber base, as we have been focused on all elements of diversity, age, gender, race, ethnicity, geography, and very focused on life stage as well. We see that from our Connect Groups, which we launched last year. The engagement has been significant. That will continue to be a focus for us, and certainly being out in the community in the ways we have has contributed to that.
Thanks. If I could just squeeze one more in. If you don't mind, can you provide us an update on international growth plans? I know that's a growth lever for you. Just curious if you had an update on a timeframe for that or if you're any closer to sort of launching something like that.
Yeah, look, we're not anticipating launching in any new markets this year. One thing we are excited about is we're going to be launching myWW in our Brazilian business later this year. We're excited about that launch and rejuvenating that important business for us. Look, I think international market expansion is a natural long-term growth lever for this company, but no new countries planned right now. We're in the research and planning phase.
Actually, the way you can think about Brazil, it's a complete brand launch, not just the program launch. We're excited to be down there for that. As Nick said, we've been doing the planning stages on market growth and really looking at the timing, especially given a lot of what's happening right now externally.
Got it. Thank you.
Our next question is from Brian Nagel from Oppenheimer. Go ahead.
Hi. Good evening. Thanks for taking my question.
Hi, Brian.
Nice start to the year.
Thanks, Brian.
I had a couple questions. First off, and I know it's early, but as you look at this, the members signing up now under the new program, is there any indication yet, and Mindy, you had mentioned the retention now climbing to, I guess, above 10 months. Is there any indication yet in the early data that there could be a higher retention associated with these new members coming in with the new program?
Yeah. Here's why I'm excited about kind of the new program, because it's the first time in our history that we have launched a program that has appealed equally to new members, existing members, and lapsed members. Existing members were able to either transition into a similar program than what they had or be able to switch. Nothing was taken away from anyone. As much as Freestyle was very successful, there were people who were not as happy with it as their prior program. This has basically had incredibly positive impact across, and we would hope that that will have an impact on retention across, number one. Number two, the fact that everyone took a personalized assessment that this is a plan for them, we also believe will be a positive relative to retention.
The third bucket of that is certainly all the elements that we continue to integrate into our app experience. We've been very focused on measuring engagement, as you heard from some of the statistics that I put forth. I think the combination of all those things gives us confidence that we can continue to see improvements on retention.
That's really helpful. I appreciate it. One follow-up question. Now as the tour winds down, which I think has clearly been a very successful event for you, how should we think about Oprah's involvement with the brand, and particularly the marketing following the tour?
Clearly, Oprah's just been a great partner, certainly to the company, certainly to me. She's incredibly engaged. This tour has been electrifying. I think how we really need to think about it, I think you saw that she's extended her relationship with us till 2025. We will continue to work closely with her where we can integrate into effective marketing efforts or the future of what we may do down the road. We work very closely on what's intuitive and what's going to make the most success. The other thing that I'm very excited about, clearly, I'm glad that the tour is doing well and Oprah is incredibly engaged and the business is reflecting it, I'm also excited that we're seeing double-digit growth in every single market around the world, and we've been engaging our ambassadors around the world.
Also, the team that is producing this tour that we have built is an incredible team. They are going to, beyond the tour, be working on activations and community events and content creation that we feel will be a vertical growth vehicle for us in the future. We think the combination of all these elements is very positive.
Thank you very much, and congrats again.
Thank you.
Thanks, Brian.
Our next question is from Alex Fuhrman from Craig-Hallum Capital Group. Go ahead.
Hi, Alex.
Hi.
Hi. Thanks very much for taking my question. I wanted to ask about just thinking about the 2020 Vision tour and how many tens of thousands of non-members there were at those events. Just curious what your thoughts are on ways that you can tap into how much engagement that there is and has been and continue to will be with Oprah and the brand, particularly amongst potential members who aren't necessarily looking for a commercial weight management program. What are some ways that you can tap into that engagement to benefit the brand?
Throughout the day of the tour, okay, there's a very big focus on everyone identifying where they sit in their own wellness ecosystem, almost like their wellness score. It's very focused on all areas of wellness. There are activations throughout the day. Oprah has a text number that people can text, and we can engage. Throughout the concourse, we have met with and talked to a lot of different people to explain the program. People are really looking at the brand in a new way. The way I talk about it, even at the tour, is those 15,000 people, most of whom are not members, are now going to go out back into their home and back into their community, and talk about their experience.
That's what really was what we wanted to do, and that's what Oprah wanted to do, was to create that ripple effect around the brand and get people to understand we are for everyone, regardless of your wellness goal. I've been seeing that in every arena on the tour. Obviously, every market is different. The personality of the market. Brooklyn is not St. Paul, is not Atlanta. I can say that the one commonality is people coming together around one key thing: how are they going to live their best life, and how can we help them do that?
Great. That's really helpful. Thanks, Mindy, and congratulations on a great start to the year.
Thanks.
Thanks, Alex.
Our next question is from Lauren Cassel from Morgan Stanley. Go ahead.
Great. Thanks for taking my question. I guess just following up on some of the earlier questions. Of the subscriber growth that you've seen thus far in 1Q, what % are sort of completely new to the brand versus lapsed? Then of the ones that are new, are there any specific demographic groups within that that you would call out specifically?
Yeah. The mix has been about 60% lapsed, 40% new, which is a good split for us. We're pleased with that. Again, within that, we are seeing diversification, across all of those elements that I described earlier.
Okay. Just a quick follow-up on the seasonality of the business that Nick called out. Any reason why the slope would decline further in 2020, worse than the -8% , or should we sort of expect further improvement in that trend going forward?
Yeah, like that, versus the 13% historical decline, it being 8% in 2019 was an important step forward for us, and it was driven by recruitment gains during the year, and also a focus on engagement and retention driving initiatives. We're going to continue those in 2020, of course. I'd expect the seasonal slope to be similar in 2020 versus 2019.
Great. Thanks so much.
Our next question is from Linda Bolton-Weiser from D.A. Davidson. Go ahead.
Hi, Linda.
Hi. How are you? I was just curious if you could give us. You said your third potential offering of virtual group coaching is in pilot testing. Can you give us a sense of what price point you're testing at and any early reads on that?
Yeah.
Yeah, go ahead.
Linda, I'm very excited about virtual group coaching on a number of levels. One, I think it really gives us the ability to meet people where they are and really give an alternative, particularly for our digital members or new members coming in, to have a different level of support and one-on-one interaction. Certainly, it doesn't take anything away from our face-to-face, which a lot of people want, but for people's lifestyle, this really gives us an alternative. We see it being priced in the midpoint between our digital membership and our Studio membership, and we're still doing testing within the pilots on pricing. Response to the pilots have been very strong. If you remember, our original pilots were started in Sweden and then Canada, but more through Facebook platform. All the pilots now are within our app.
We're actually expanding our coaching network for people who will be very specifically trained for virtual group coaching. We really think this is an important new revenue stream for us that we'll be launching later this year.
Great. Sorry if I missed this, Nick, but did you say how much of the $0.20 per share earnings loss in the first quarter is specifically due to the tour expenses?
Yeah, we said the tour had $15 million of direct revenue and $20 million of expenses. Think of the tour in the range of $0.05 or $0.06 of that up to a $0.20 loss in Q1. Obviously, it's a quarter where we invest in marketing to drive trajectory and revenue growth through the year.
Great. Thank you very much.
Our next question is from R.J. Hottovy from Morningstar Research. Go ahead.
Thanks for taking my question. Nick, this one's for you. Hey, Mindy. Big picture question. As we start to look beyond 2020 and theoretically start getting near those peak revenues of $1.8 billion, is there any reason to believe that you couldn't hit the same kind of margins at that level and that they were high 20%s, 30%? Just trying to think about the big picture in terms of the revenue mix, the customer mix, areas of investment, and how you're thinking about that in terms of future margin expansion opportunities with the business, especially as there's been so many changes and the business has evolved. Just I'd like to hear your thoughts on that.
Yeah. R.J., you see us investing for future growth, with things like opening a Toronto tech hub and hiring tech people and those digital product people in San Francisco, New York, and Toronto. Any future modeling, I'd assume that we'd continue to invest in those future growth drivers, both in G&A and marketing. I'd assume marketing and G&A as they are this year, pretty much flat on a percent of sales basis, but growing to support that growth. In terms of gross margin, look, the continued mix shift to digital has rate leverage implications, and as I said, when I look at our gross margin rate this year, 100 basis points, some one-time impacts, that's all 100 basis points, and licensing declines also about 100 basis points baked into that 100 basis points leverage.
That shows the sort of operating leverage that this company has with growth. That's why we're so focused in what's been a terrific start to this year, focusing on those strategic growth levers to drive growth into 2021 and beyond. To answer your question, yeah, I see further margin expansion opportunities for this business come with future revenue growth.
I had a follow-up question with respect to the health solutions business. It's been a while since we've had an update. It's exciting to hear that the New York City partnership is being renewed. Can you give us a sense of how much that is in terms of revenue? Once upon a time, you had a goal of $300 million for this business. I'm curious where it stands today and potentially if you have any new updates in terms of revenue potential. I know it's kind of a reset year or foundational year, I guess, is a better way to put it. Just kind of how you're thinking about that one over the next couple of years.
Yeah.
Let me just give you a perspective on the business, and then I'll let Nick chime in as well. When I joined the company, I looked at that business and said, "This is definitely an opportunity, but we have work to do to present ourselves in the right way to really be a valuable resource to all those constituencies," obviously starting with employers and going from there. We have built a new team, new leadership, across all areas of the business. We've built a new tech platform. We have focused on the dashboards and deliverables. We rebuilt the entire foundation of that business, and now we're going to focus on expansion. That's why I brought it up. I think it's an opportunity for us, also expanding in the diabetes space.
I think now was the right time to articulate that it will be a focus. We're being very strategic about that growth, with the right partners, but we have kind of the right structure in place today.
Yeah, I don't want to disclose a specific revenue number. I can say it's our largest partner in the health solutions business, the City of New York is.
Thanks.
Yeah, think of the health solution business, a little over $50 million of revenue, the City of New York being our biggest account, or one of a couple of hundred corporate accounts.
Yeah, we have great corporate partners. To your point, the runway for this business can be great.
This concludes our question and answer session. I would now like to turn the conference back over to Mindy Grossman for any closing remarks.
Well, thanks everyone. We're thrilled with our strong start to the year. We're focused on our priorities, which will enable us to recruit, retain, and elevate our brand and contribute to long-term sustainable growth. Just to reinforce for 2020, and we'll continue to update you on our progress against the core priorities of coaching as an integral element of experience, particularly the launch of virtual group coaching. Building out our wellness ecosystem through deepening our app experience and launching new pillars of wellness. Our consumer products and expansion of our e-commerce growth. Health solutions, as we talked about. Our community activation events and creative content, which will allow us to diversify our consumer base and certainly maximize engagement. Are confident that these strategic priorities will fuel the business not only in 2020, but also in 2021 and beyond.
Finally, I want to thank the incredible WW teams around the world for their passion and focus on our continued growth impact. Thanks for joining us today, and we look forward to updating everyone on our progress this year.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.