Welcome to the WW International third quarter 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 will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. At this time, I'd like to turn the conference over to Corey Kinger of Investor Relations. Please go ahead.
Thank you, Allison, and thank you to everyone for joining us today for WW International's third quarter 2019 conference call. At about 4:05 P.M. Eastern Time today, we issued a press release reporting our third quarter 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 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. We ended the third quarter with 4.4 million subscribers, up 6% from a year ago, demonstrating positive momentum from our second quarter, where we reported end-of-period subscribers up 1.5% year-on-year. This is the highest Q3 end subscriber level the company has ever had, the result of our progress in returning our recruitment trend to a positive trajectory and increasing member retention. This strong performance drove Q3 revenue of $349 million, operating income of $95 million, and EPS of $0.68. As a result of the improvements we've been making across the business, across all aspects of our advertising campaign, search, ECRM, WW Studio engagement, and more, I'm proud to say that we had positive member recruitment on a global basis in the third quarter.
Sign-ups for digital memberships continued to post year-over-year gains, and the sign-up trend for studio continued to improve. We expect recruitment growth to accelerate in the fourth quarter. Our average retention has continued to increase and is now just over 10 months globally. This is a significant milestone for our brand, reflecting the intense focus we have had both on improving our studio business experience and on providing a market-leading digital ecosystem that our members engage with each day. While retention trends can be choppy during a new program launch, we're confident that these retention gains, driven by our engagement strategy, will hold during the winter season. As we have been discussing throughout the year, we've had five key priority areas for 2019 that all align with our key objectives of recruitment, retention, and elevating the WW brand.
They are marketing execution and strategy, studio strategy and future experience, 2020 innovation, personalization, and global community activation. Our teams have done a tremendous job at enhancing our marketing execution since the start of the year. The results are showing up in our sequentially improving subscriber and revenue trends. Our fall marketing campaigns drove momentum across all our global markets, with September being our best year-over-year recruitment month so far this year, bolstered by TV advertising in our major markets. Our U.S. advertising creative featured the experience of 10 of our members visiting Oprah Winfrey at her home in Maui and sharing their WW stories. Social and digital were also highly effective in driving increased traffic globally. The power of our science and also injecting some fun into our creative is resonating well with audiences.
We continue to be nimble and flexible, adjusting our mix in real time to efficiently drive both traffic and conversion. In addition to recruitment-focused marketing, our teams are doing an excellent job of communicating with current members, which improves user experience and is driving retention. Across all our member touchpoints, we're focused on engagement and measurement. We've enhanced our email marketing capabilities to now include more personalized and differentiated content in our monthly member newsletter, which is driving greater click-through rates. Members appreciate and respond to more personal content. In August, I launched a personal monthly newsletter, giving members a behind-the-scenes peek at what's happening at WW, and also sharing my experience as a member, as well as sharing my family life, my social life, and how I live my WW life. In addition, I'm frequently communicating with members directly through Connect and other social channels.
Having this ability has been fantastic for keeping a pulse on and being an authentic member of the WW community. Our member marketing efforts also increased visibility for our loyalty and rewards program, WellnessWins, both in-app and in email and social marketing. Our current focus is to help drive increased food and activity tracking, even during the busy holiday season, and expanding our rewards catalog of member incentives. Since launch a year ago, members have earned 6 billion wins. Donations to WW Good, our social impact initiative, where we provide fresh fruits and vegetables to families in need, continues to be one of the top redeemed prizes, showcasing the pay-it-forward effect in the WW community and raising close to half a million dollars. These wins are providing our members with positive reinforcement and the motivation to stay on their journey.
We have always been consumer and brand obsessed, and as we focus on elevating the perception of relevancy of WW, we continuously monitor brand perception and awareness. Across most markets since winter, awareness of the new WW logo as Weight Watchers has grown or maintained, and brand relevance continues to improve. We are focusing on elevating perception of brand modernity, particularly among prospective members, and WW being recognized as a plan for me. With our new program innovation launch coming soon, we believe we are in a good position to make notable gains in those areas in 2020. Trends in NPS, which is a metric for customer satisfaction, are nicely positive for both our Studio and our digital experiences across our geographic markets.
Our app experience continues to receive high marks across our member base, demonstrating that the digital experience, in combination with high-touch, in-person community, provides tremendous value for members. Member app engagement continues to be strong, with solid trends in the percentage of members who are tracking foods, logging weight, using Connect, and syncing a fitness device. In September alone, nearly 2 million members used Connect, and in Q3, our members created nearly 2 million posts, 13 million comments, and gave over 60 million likes. The number of members syncing an activity device each month was over 1.6 million in Q3, up from approximately 1.3 million in the year-ago quarter. Community and engagement are at the heart of everything we do. The more touch points a member has, the more likely they are to continue on their journey and have even greater success.
When we impact the life of one person, it creates a ripple effect, touching their family and friends, spreading healthy habits, and creating lasting change. I'll now hand the call over to Nick to discuss our financials and outlook, and then I'll come back to finish discussing our priorities and plans for 2020.
Thanks, Mindy. Before I discuss our initiatives around our studio strategy and future experience, I'll review our Q3 financials and provide an update on our full year outlook. We ended the third quarter with 4.4 million subscribers, up 6% year-over-year, ahead of our expectations. End-of-period digital subscribers were up 13% year-over-year to 3.1 million, an improvement from a gain of 8% in Q2. End-of-period studio subscribers were down 7% year-over-year to 1.3 million, an improvement from a decline of 11% in Q2. Total global recruitment was positive versus prior for Q3, with September trends accelerating with the start of our fall marketing campaign and staying strong in October, which we believe puts us in a good starting position for our innovation launch in the winter season.
Recruitment channels, such as Invite a Friend and in-app purchase, continue to work well for us and are highly effective in attracting first-time members. In Q3, about 15% of our global recruits joined us through these two channels. Total revenue in the third quarter was $349 million, down 3% year-over-year on a constant currency basis. Digital subscription revenues increased 9% and studio revenues decreased 13% year-over-year on constant currency. Continental Europe was our best performing segment, with total revenue increasing 3% versus prior. Gross margin rate was 56%, down 300 basis points year-over-year on constant currency due to lower revenue, preparations for the winter launch, as well as higher inventory reserves versus a year ago. Operating income was $95 million, down 19% year-over-year on constant currency, primarily driven by operating deleverage on lower revenues versus the prior year period.
Our Q3 tax rate was 22%, which was lower than we had previously anticipated. Q3 GAAP EPS was $0.68. This compares to GAAP EPS of $1 in Q3 2018. EBITDA was $109 million in Q3, compared to $135 million in the year-ago quarter. Turning to our outlook. We expect our business trends to continue to gain momentum in Q4. We continue to expect full year 2019 revenue to be at least $1.4 billion, despite increased foreign exchange headwinds in the back half of the year. Our revenue guidance now assumes an estimated foreign exchange negative impact of $28 million, compared to the $20 million we anticipated on our August call, and the $12 million on our May call. This guidance also assumes a continued mix shift towards digital subscriptions and anticipates further improvement in recruitment trends in Q4.
While product sales have been down year-to-date, we expect product sales to turn positive in Q4 as we benefit from our expanded line of offerings and improving studio attendance trends. Overall, we expect subscription revenues to be about 85% of our total revenue in 2019. We continue to expect North America and the U.K. full year revenue to be down in the mid-single digits year-over-year on a constant currency basis, and we now expect Continental Europe full year revenue to be slightly up year-over-year on a constant currency basis. Our full year GAAP EPS guidance range has increased to $1.63-$1.75, and this guidance assumes 70 million shares outstanding for the full year. For the rest of my comments, I'll speak to the midpoint of our full year EPS range and on a constant currency basis.
We expect Q4 gross margin to decline approximately 300 basis points, reflecting upfront investments to support the upcoming program launch. We expect gross margin rate to decrease by about 150 basis points for the full year 2019. Marketing expense in 2019 is expected to be approximately $245 million. We'll continue to be flexible and agile in our approach, investing behind initiatives that produce results, and we'll launch our Winter TV advertising campaign after Christmas. G&A expense in 2019 is expected to be slightly north of $250 million. Below the line, we now assume full year interest expense to be approximately $136 million and a full year effective tax rate of approximately 23%. Pending the finalization of regulations that could impact tax on foreign income, our full-year tax rate could be as low as 20%, which is reflected in the high end of our EPS guidance range.
For the year, we expect CapEx, primarily driven by tech spend, capitalized software, and studio network improvements, to be in the $60 million range, and D&A is expected to be approximately $50 million. I'd like to spend a few minutes talking about our capital structure and our cash generation. Our liquidity position is strong. At Q3 end, we had $239 million in cash and an undrawn $150 million revolver. With business trends improving and strong cash generation, early in Q4, we elected to voluntarily prepay another $50 million of term loans, bringing this year's total voluntary prepayments to $100 million. We expect EBITDA of approximately $360 million for the full year, driving our continued strong cash generation. We have a covenant-light debt structure and the flexibility to prepay our term loan at any time. We ended Q3 with a net debt to EBITDA leverage ratio of 3.85 times.
Note that the leverage calculations used in our credit agreement are on a first lien basis, and at Q3 end, our consolidated first lien net debt to EBITDA leverage ratio was 2.92 times. With our highly cash generative business model, 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 franchises, such as our recently completed acquisition of the Las Vegas franchise in October. Looking ahead, we expect to end 2019 with more subscribers year-over-year, which, given the nature of our subscription business model, translates into a modest revenue tailwind entering 2020.
Note that this is only a starting point before factoring in the benefit from expected member recruitment growth next year. While we are not providing specific 2020 revenue guidance today. Given our momentum and successful initiatives this year, combined with our upcoming new program launch, we are planning to deliver higher recruitment, more subscribers, and increased revenue and profitability in 2020. Before turning the call back over to Mindy, I'd like to discuss our initiatives around our Studio strategy and future experience. Returning the Studio business to growth is an important part of our strategy. Intense focus on the business has led to consistently improving trends since the start of the year, and we expect year-over-year Studio recruitment to turn positive during Q4.
Despite these actions, the studio business continues to be a drag on our revenue metrics, given the price of a studio subscription is twice that of a digital subscription. Since we expect digital growth to continue to outpace studio growth, our studio strategy has both near-term and long-term components. In the immediate term, we're kicking off another workshop attendance challenge, encouraging members to stay engaged through the November and December holidays. We saw great success in our summer attendance challenge earlier this year and intend to keep the momentum going into 2020. In addition, we are adding more member milestone awards. These recognition and celebration moments are powerful motivators that are integral to the member journey. On the people side, we're very fortunate to have a passionate, engaged group of coaches and guides who provide inspiration and encouragement to members every day.
Historically, we have only recruited our coaches from our Studio members. We're now also hiring from our digital members who are just as passionate and engaged, and we believe this approach will be beneficial as we look to attract new audiences and further leverage our coaches in a digital environment as well as in Studios. In addition to these near-term actions, we are reimagining the Studio experience, and we see a pathway for a variety of experiences that fit the needs and demands of our members. 28 high-volume U.S. Studios now have a more full-time, always-on experience, complete with an expanded retail selection and a full-time Studio manager engaging with members, driving attendance and enrollments, and enhancing local community awareness.
We're also testing studio within a store in partner locations, like our recently opened pilot with Kohl's in DeKalb, Illinois. The early feedback has been positive and is helping drive studio enrollments from new members and upgrades to studio from digital-only members. To enhance our brand presence this winter, we will test seasonal pop-up shops in high-traffic locations where customers can learn more about WW and speak with a coach. At the same time, we'll continue to have a flexible footprint where we leverage third-party locations, which we call WW Studio, to reach communities where we host only a few meetings a week. Finally, we're currently piloting virtual group coaching in multiple markets.
We're very excited about it, and we plan a broader launch later in 2020, providing more ways for members to engage with our coaches as well as other members in whatever format fits into their life. With that, I'd like to turn it back to Mindy.
Thanks, Nick. 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. I am very excited to announce that next week we will be launching our new program innovation globally. As a reminder, our last program innovation was in December 2017. The full details will be announced on Monday, November 11th. To preview, this new program will be our most customized weight loss plan ever, leading to clinically significant weight loss and a healthier pattern of eating. We are constantly listening to our community, and we know our members want a more customized approach. We're excited and are looking forward to this program launch. As always, no foods will be off-limits on WW.
Beyond our 2020 food innovation, we're focused on continuously making the WW experience more personalized, so each member feels that we understand them, we know them, and we are delivering a program especially for them. Leading up to our innovation launch, we've been intensely engaged with our studio teams, ensuring our coaches and guides have the training and support to be knowledgeable advocates for the new program. Through a combination of in-person live trainings and virtual micro-learning sessions, our teams are well prepared and excited about the pending launch. While our program launch and messaging is just around the corner, the full force of our marketing amplification will commence post-Christmas.
This winter, we will be executing a focused campaign highlighting what's new about the WW program, weight loss results, and the success stories of individual members who have successful weight loss on the new WW program, including those of our global celebrity ambassadors such as Kate Hudson, Tamela Mann, Hélène Ségara, Robbie Williams, Sam Armytage, and many more. This will be a robust, integrated campaign across TV, social, digital, and PR. Oprah Winfrey will also be featured in our U.S. and Canada campaigns, along with a host of members, speaking to how the new WW program is customized for you. As we've talked about previously, one of our other key priorities is to galvanize communities and reach new, diverse audiences through events, activations, content, and experiences.
We kicked off this initiative with events around Global Wellness Day at Essence Fest, WW Good events, and a number of special wellness events across our markets. We will continue to activate in 2020 and beyond, fostering community and bringing people together in new ways. Starting in January, we have the extraordinary opportunity to do what both WW and Oprah Winfrey do best, bring communities together with a shared goal of health and wellness. Together, we will bring WW Presents: Oprah's 2020 Vision: Your Life in Focus, a full-day wellness event, to nine cities across the U.S. We are thrilled with the incredible response to the WW Presents: Oprah's 2020 Vision tour, the tour is already more than 80% sold out nationwide. Press coverage so far has been tremendous, yielding 23 million online impressions and nearly 19 million broadcast and radio mentions.
We look forward to announcing special guests and more details of the tour in the coming weeks. We're excited to bring this WW Presents: Oprah's 2020 Vision tour to more than 100,000 attendees, and with a ripple effect that will be significantly larger in the new year. Harnessing the incomparable power of an in-person experience and extending it to our global community is one of the many ways WW is inspiring community as the world's partner in wellness, making it accessible to all. People are seeking out experiential, creative, empowering, and fulfilling experiences. Creating and offering such events is now essential for reaching new and diverse audiences and having them connect with WW. We've also articulated that we want to own the healthy kitchen across products, food, content, and experiences.
As we elevate our brand, WW is showing up in new places, from cafe and menu items at the Barclays Center to our healthy kitchen tools and food products in 250 Kohl's stores. Now WW is at the airport. Our completely reformulated and repackaged WW On the Go snacks are now available in more than 80 CIBO Express Gourmet Markets in nine major U.S. airports, including JFK, LaGuardia, Newark, and Chicago O'Hare. As we look to make an impact in defining the healthy kitchen, in addition to our healthy meals with Blue Apron, we are now also partnering with Sur La Table, offering WW cooking classes in more than 80 of their retail locations. We're thrilled with the early fill rates on upcoming classes, with the Asian Favorites with WW class being the most popular WW cooking class so far.
We're also actively working on the complete transformation of our Health Solutions business. Our focus has been on forming an entirely new team, optimizing our program offer, and building out the necessary technology systems to enhance our processes and reporting. With a reinvigorated team, we are 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. We have a great roster of clients, are seeing greater engagement, and see a significantly larger opportunity in the years to come. We will be speaking in more detail about the near and longer-term opportunity for this business in 2020. There is tremendous excitement and energy amongst our teams around the world as we execute on our vision to inspire healthy habits for real life and deliver wellness to all.
With new leadership in many of our countries, our teams are energized and focused on improving trends in 2019 and executing on the priorities that will drive a stronger 2020. In summary, our third quarter results have clearly demonstrated our ability to restore momentum in the business, and WW is on track to return to a growth trajectory in 2020. I'm confident in our strategies and plans for elevating our brand, diversifying our audience, expanding our presence, and delivering long-term sustainable growth and profitability. We will have momentum heading into 2020, accelerated by our new program innovation launch, supported by a robust upcoming winter campaign, and the increased engagement and excitement across our reimagined studio experience. In addition, the WW Presents: Oprah's 2020 Vision: Your Life in Focus tour will amplify our message and foster community and enthusiasm throughout our winter season.
Thank you for joining us on the call today. With that, we'll now turn the call to the operator for Q&A.
Thank you. 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 are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause for a moment to assemble our roster. The first question today will come from Edward Yruma of KeyBanc Capital Markets. Please go ahead.
Hey, good evening, guys, and thanks for the question.
Hi, Ed.
Hey, how are you? A couple of quick ones from me. I guess first, thanks for providing at least a little bit of thought process around how to frame the 2020 financial opportunity. I know historically when you've been on the upswing from a member recruitment perspective, the contribution margins have been kind of in the 50%-plus range. I know you're not giving guidance, is there anything that would cause next year to be different, one. Two, obviously lots to discuss on the new innovation on the program. As you think about kind of leading into the program, how would this launch differ from maybe what you guys did in 2017? Maybe from a financial perspective, is this a more extensive launch than then? Maybe contextualize how we should think about the uplift from it. Thank you.
Look, Ed, firstly, on the economics, look, we've got the same great business model we've always had, and very high incremental margins with growth, and we'd certainly expect that in 2020.
On the program innovation, what we're very excited about is that because of the customization nature of the program, we feel that this will not only appeal to new and lapsed customers, but definitely appeal to our existing base, which gives us a very broad spectrum of who the program's going to appeal to in an environment where people are looking for more personalization and customization. We're going to be able to deliver that with significant efficacy, clinical trials, and results across all areas of the program. I think you see our marketing efforts across platforms are consistent. We'll be able to launch our program innovation through all our marketing channels, and feel there will be very clear messaging going into 2020.
Great. Thanks so much, guys.
Our next question today will come from Alex Fuhrman of Craig-Hallum Capital Group. Please go ahead.
Hi, Alex.
Hey, Alex.
Great. Hi, Mindy. Hi, Nick. Thanks for taking my question. Wanted to ask a couple things. I mean, it looks like you might be by piloting or having already launched your new program in a couple of your smaller markets. Just curious how that's gone, if there's been any interesting learnings from that initial rollout. Just thinking a little bit more broadly, looks like it's a little bit earlier in the calendar than when you launched Freestyle a couple of years ago. Just curious if that was to give people more time to adjust. Just how you're thinking about the timing of the rollout of the new diet program, and then how that will spill into the busy season coming up in the next month or two.
Yes, Alex, we've taken a very structured and disciplined approach to the launch, clearly wanted to test pilot in certain markets to make sure all our technology was activating our messaging. You'll see some of that clearly around the world with everyone going live globally on Monday, which we're very excited about. As far as timing, the teams have been working on this for a very long time, we are further ahead than we've been. We felt going into market, certainly being able to galvanize our existing member base is a real positive. The thrust of our marketing efforts, including our broad scale mass marketing efforts, really occurs after Christmas.
Great. That's really helpful. Thank you. Mindy, I think you mentioned in the prepared remarks that you're pretty confident that you're going to be able to hang on to increases in retention that you've seen recently, that you'll be able to hang on to those through the winter season. Just wondering if you can elaborate on where that confidence comes from. Is it something you're seeing in the numbers today, or is that also related to rolling out the new program soon?
Yeah, I think it's really important. As you hear, every time I speak about retention, I'm maniacally focused on engagement. We measure that in every aspect of the business, digitally, physically engaging, and tracking, and engaging in community. A lot of the efforts and what we've delivered to people across the ecosystem of nutrition, activity, mindset, our WellnessWins program, and community really all have contributed to that. The measure of engagement that we're seeing is at an all-time high, and that gives us the confidence, along with the fact that we have the new program and we'll have kind of a lot of noise about the positivity of that.
That's great. Thank you very much, Mindy.
Our next question today will come from Olivia Tong of Bank of America. Please go ahead.
Great. Thanks. Good afternoon.
Hi.
First, on the test markets, if you could just talk a little bit about how you measure performance there. What are sort of some of the KPIs to influence your decisions? If there's going to be any pricing changes that come with the new innovation.
A lot of the things we're testing are. We know the efficacy of the program, right. What we're really testing, as you can imagine, globally around the world, all of our technology changes. We're making sure that that's going to be a seamless experience for people, that they will be onboarded into whatever new program. Most of the attention is really being paid to the execution of the program, not necessarily marketing efforts, which really launch going forward. We're very pleased with what we're seeing. Now that we truly operate as a global organization, I think you've heard us talk a lot about tests in markets from our group virtual coaching that now will be rolling out globally. We're really leveraging our capabilities to test, accelerate, and roll out, and this is another great example of that.
Yeah. Olivia, on the price side, no price change, no change to our strategy there. As you've heard us say many times, our focus is really on delivering value to our members to attract more people to the brand and to have them stay longer, and that's what we'll plan to do this winter.
Got it. Thanks. That's very helpful. Just two follow-ups there. First, on the meeting biz. I guess I was a bit surprised how challenged it was this quarter. How does that, in any way, influence you as you prepare for the launch? What does it mean as you prepare that meetings decelerated that dramatically? If you could talk about things that you're doing to sort of prop that up as you go through.
Yeah. Just to say, this was the least deceleration in a very long period of time. We feel that we're making great progress in our WW Studio business, and we've said that we see that returning to growth. I just need to clarify that.
Look, Studio sign-ups, recruitment during the quarter was down year-over-year, but in the single digits, and marked improvement from Q2 and Q1. Revenue, look, it's still down 13% in constant currency in Q3. Bear in mind that our fall campaign happened in September, so that was our strongest month. We got some of that revenue in Q4. A decent improvement from down 17% in Q2. Good progress in the Studio business. A lot of focus, but obviously, we're delighted that we're going to have a new program to shout about here on Monday.
Great. Just one last thing. In terms of external partnerships, there's no shortage that you have of external partnerships, whether it's lifestyle services, workouts, food, Amazon, et cetera. The one area you haven't partnered so far is pharma. What's your thought there and partnerships overall going forward?
Yeah. I mentioned on the call our WW Health Solutions business, which is our B2B or, as I call it, B2B2C business to recruit. We're doing a lot of work there, particularly in areas of diabetes and other areas. We continue to look at partnerships across the spectrum, and we'll be sharing with everyone those that we'll be moving forward with into 2020.
Great. Thank you.
Our next question today will come from Jason English of Goldman Sachs. Please go ahead.
Hey, good evening, folks.
Hey, Jason.
Hey, Jason.
Hello. Thanks for slotting me in. I guess I want to come back to a couple of the questions that Olivia had. First, on the meeting subs or building off the topics, I guess. The meeting subs, the guidance for year-on-year growth in the fourth quarter, if I heard that correctly. Is that based on what you've seen so far this quarter, or is it based on an expectation of what the new program will bring?
We expect Studio recruitment to turn positive year-over-year during the fourth quarter.
Yeah.
Is that recruitment, or do you expect that to translate into overall subs being up year-on-year?
No, we're talking recruitment. As we launch a new program sometime during the quarter, we expect to turn positive.
Got it. That's helpful.
Yeah. As Nick mentioned, obviously with the campaign, we saw sequential improvement across the business. The one thing I want to talk about, and Nick talked to it in his discussion on the Studio business as a whole. What we're very focused on is really meeting people where they are. In today's environment, giving them the support they need, how they want their support. Every member we have has our digital experience. We still have one-third, approximately, of our members who still want that face-to-face physical experience, and we want to support them. We're looking at opportunities to do that while also exposing the brand to new customers, like the Studio that we have with Kohl's in DeKalb and some of the pop-ups that we'll be doing that Nick mentioned. What we're also very excited about is the launch in 2020 of virtual group coaching.
Now we'll be able to give people a digital experience, virtual group coaching, one-on-one coaching, and if they want, the physical experience of coming together, and then lastly, the community activation. We'll really be able to meet people where they are and how they feel they need the best support.
It sounds exciting. One quick follow-up on the pricing strategy question. I understand as we look at revenue per sub or revenue per user, that there's a mix component here of the digital outpacing meetings. Even when we cut through that and just look at the rev per sub for meetings, it continues to fall quite a bit year-over-year. I know this was a topic on the last quarter call too, and you mentioned that pricing comps or promo comps actually ease in the back half, suggesting that we should see an abatement of that, but we're not really seeing an abatement. What's driving that compression on what appears to be pricing for meetings?
Yeah, look, you're right, Jason, that if you compare paid weeks on the studio side versus revenue per studio, you see some price realization in Q3. No real change to promotional strategy. A good driver of it is a focus on driving people to sign up initially for longer-term retention plans. That's a key driver of it.
Okay, got it. Thank you very much.
Thank you.
Our next question will come from Linda Bolton Weiser of D.A. Davidson. Please go ahead.
Hi, Linda.
Hi, how are you? I just wanted to know, can you give us any color on how the sign up or ticket sales rather, are going for the Oprah tour? Are they kind of in line with expectations or above or what so far?
Yeah.
And-
Oh, sorry. We're very excited about the response. They are very much ahead of expectations. We've had incredible press conversations about it. People are very excited to experience what it is we'll be delivering to those markets. As I said, we're touching hundreds of thousands of people across those markets, but the messaging and amplification will be that much more. We're very pleased.
My second question was just on the competitive landscape, because you have mentioned some of the issues last diet season had to do with competition, like Keto, for example. Are you anticipating anything like that in this upcoming diet season? Is there anything you can sort of get ahead of the competition or anticipate a little bit better if there is some sort of competitive threat? How are you kind of rank ordering Noom in the competitive landscape? Is that as threatening or less threatening, or how do you rank that versus Keto? Thank you.
Yeah. How I would say is there's always going to be competition, and we are acutely aware of who that competition is and what they're doing. What we're focused on is what we're doing to be able to accelerate our business and differentiate what we do, not only for named competition, but people thinking they can get healthy themselves. We're very excited, clearly, about our new program innovation because we think it's going to fill a need that we don't feel currently exists today, that we've been working on through our science teams, and we've been very pleased with all clinical trial results that we'll be able to articulate the efforts we're making around all the enhancements in our digital assets, which you've heard us talk about, the increased engagement that we're seeing as a result of that. Not think.
We're going into the season eyes wide open, but very clear about what we have that is distinct and differentiated.
I think that's right. Look, I like many things about this quarter. Obviously, reaching the over 10 months retention milestone, returning to global recruitment growth. The response of folks to our market-leading digital ecosystem, seeing each segment having double-digit increases versus prior and end of period digital subscribers shows a response to our digital assets.
Thank you.
Our next question today will come from Michael Lasser of UBS. Please go ahead.
Hi, Michael.
Good evening. Thanks.
Hi.
Hey, Mindy. Given the momentum that the business has had and the fact that you'll be launching the new program, Mindy, is there a subscriber growth number as you look out over the next few quarters that you would be disappointed with if you didn't achieve? The market's already assuming that you're going to get back to full subscriber growth, both within the meetings business. Is there a level of growth that you would be disappointed with?
Hey, Michael, look, obviously, look, we're not providing guidance today other than saying based on this momentum, not only on recruitment, but on retention, we've got great tailwinds heading into next year. We're excited about this new program. Certainly, look, any definition of success for next year has recruitment, subscribers, revenue, and profit growth in 2020.
My follow-up question is, you're in this cycle now where you're having an innovation that will drive growth every couple of years by new program launches. Is there any eye towards trying to make the business just a bit more sustainable, independent of program launches, and how do you achieve that goal?
Yeah, Michael, that is a great question. Certainly, we feel that innovation, based on what we're seeing in science and technology, and consumer behavior is something that we're known for and what we have to continue innovating. Innovation goes beyond a food program. Many of the things that we're doing in other areas of the business, whether it's science applied to activity and what we're doing there. We have pilots around sleep. We're focused on mindset. The key is for us to have a continuous flow of innovation, not just the nutrition side, although we know how critical that is, particularly for weight loss. The team's focus is to be able to constantly be delivering enhanced innovations and results to create greater engagement and recruitment. Absolutely.
Without providing specific guidance, if we're talking a year from now or when we're talking a year from now, do you think you'll be at that point where you'll just have constant innovation coming and obviously not just on the food side?
That's certainly our goal, and then what we're focused on in different areas of the business. This is one of the first conversations I've really had about our WW Health Solutions business. I think we mentioned on the last call that we have created a third tech hub in Toronto that is servicing that business and other areas of personalization and AI. We're constantly iterating on innovation, and I think that's going to be important in all the segments of our business.
Yeah. Look, it's a great question, Michael. Look, we've shown as recently as 2017, that can grow in the second year of a food plan innovation. Look, that's why we're so focused on engagement and retention. That's why we're so focused on multiple growth levers, like what Mindy's just mentioned, WW Health Solutions. We're excited about partnerships, new demographics, emerging markets too.
Thank you very much.
Our next question will come from Brian Nagel of Oppenheimer. Please go ahead.
Hi.
Good evening.
Good evening.
Hey, Brian.
The first question I want to ask is on the new product innovation. Mindy, you've discussed it a lot here. It's obviously launching soon. You've tested it. I'm sure you're pleased with what you've seen in the test, but the question I have is how flexible is this? Or how many other levers you could pull that if you launch it next week and you're not getting the response you'd expected or it's underperforming, there's ways you could tweak it into the year-end and prepare maybe better for the early part of next year?
The innovation itself, thousands and thousands of people have gone through this. It works. We have no concerns about the program and the innovation itself. I think that's important. If what you're asking is how we're amplifying it, that we're always constantly iterating and tweaking. One of the things we're excited about going into 2020, it's very clear, very simple. It's the new program, the efficacy, what it does, and the ease, simplicity, and the results. That's a very clear message that we believe will resonate. To be clear, the program itself has been received extremely well.
That's helpful. The second question I have, not sort of a nitpick here, but I guess it's more for Nick. The product margins in the quarter were down, if I did the math correct, in excess of 1,000 basis points. I think you had guided to 300. Is there some call out there as to why the product margins were so particularly weak here in Q3?
Yeah. Well, look, let me answer that in a couple ways, Brian. Within the overall context of the business performed pretty much exactly the way I would have hoped in Q3, frankly, if not, as you saw in our post, ahead of our expectations despite negative foreign exchange. Look, on the gross margin side, yeah, look, we expected to be down 300 basis points year-over-year, and we were. We've said about 100 of that was driven by year-over-year inventory reserve changes. Look, on the consumer product sales side, if you're going there, good sequential improvement. They'd been a real weak spot in the first half of the year. Seeing consumer product sales down 4.6% in Q3 and we're forecasting to return to growth in Q4.
I feel pretty good about the consumer product sales trajectory also as people get their hands on our broad new assortment.
Yeah, just to give some context on the product sales side. If you remember, we reformulated, created, and expanded 100% of all of our products. Starting in January, what you saw in our distribution channels of our studios and e-commerce are all the new products. We've had to scale and expand those assortments globally, starting with the first of the year. As Nick mentioned, we're now where we can see increases in the product sales. Because of the work we did and what the new products are, we're now actually able to distribute those products outside our own platforms. That's what's exciting and that's where we'll have an opportunity in each market.
All right. Thank you very much. Good luck with the upcoming launch.
Thank you.
Thank you.
Our next question today will come from Michael Swartz of SunTrust Robinson Humphrey. Please go ahead.
Hey, good evening, guys.
Hi.
Hello.
Just wanted to touch on the national television advertising program you started running later in the quarter. One point of clarification, did you have a similar ad campaign, national television ad campaign, last year at that time? I guess, Mindy, with regards to how maybe the response rate from consumers or the response from consumers, did that come in relative or above your expectations? Is there anything quantitative you can provide us about maybe how well that did and how well that continues to do into the fourth quarter?
Yeah. If you remember, last year, we had a summer campaign that ran into the beginning of the third quarter that included TV, and we didn't have fall TV at the end of the quarter. In a lot of the learnings, we did shifts, so we didn't have TV early, and then we had TV as part of fall. We obviously took a lot of the learnings that we did post January and a lot of the new campaigns, and what we saw in September with the fall campaign was very positive response, hence the recruitment that you saw. Does that make sense?
Yeah, that's helpful.
Okay, good.
Maybe sliding over to Nick, just with regards to your EBITDA guidance for the year, you maintained it. Remind us, does that guidance add back the $6 million in charges that you guys saw in the first quarter?
The 360 add back the restructuring charges. I don't believe so. It does not. It adds back D&A and the stock-based compensation.
Okay, great. Thank you.
Our last question today will come from Kara Anderson of B. Riley FBR. Please go ahead.
Hi, Kara.
Hi, good afternoon. It's actually Mark on for Kara.
Oh, hi, Mark.
Good afternoon. Mindy, you talked about testing some pop-ups in high traffic areas. I'm wondering if you could elaborate on what type of high traffic areas you'll be targeting and then maybe some of the aspects you're hoping that will enhance the brand.
We're finalizing all of those elements, but as we've seen, when we show up, what we want to do is be able to attract audience that may not be familiar with the brand. How can we give them an environment where there's a coach, they can understand the program, they could almost have a Apple Genius Bar and interface with our products? We're looking forward to doing some different things than we've done in the past for winter.
Depending on the success, this could be rolled out to maybe a longer-term permanent strategy?
Absolutely.
Great. Thank you very much.
Ladies and gentlemen, this will conclude the question and answer session. At this time, I'd like to turn the conference back over to Mindy Grossman for any closing remarks.
Well, thank you everyone for being on the call. I just want to reiterate that driven by the strong execution, our focus, the creativity of our global teams, the subscriber growth trends are gaining momentum, and we feel it's positioning us well for a strong start to 2020. We're excited to be launching our new program globally on Monday, so our most customized weight loss program ever. Our coaches and guides are certainly advocates and evangelists for the new program, and I think it will have broad appeal among current, returning, and first-time members. It'll also be amplified by our most integrated marketing campaign that certainly will have a strong call to action. From January to March, we'll be spreading our message of wellness in the nine-city tour, the WW presents Oprah's 2020 Vision: Your Life in Focus.
I want to thank you again for joining us today, and I truly hope you'll join Oprah and me at one of our tour stops this winter. Thank you.
The conference is now concluded, and we thank you for attending today's presentation.