Earnings Call: Q1 2019

May 2, 2019

Good afternoon, and welcome to the WW First Quarter 2019 Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Corey Kinger, Investor Relations. Please go ahead. Thank you, Andrea, and thank you to everyone for joining us today for WW's Q1 2019 conference call. At about 4:0:5 p. M. Eastern Time today, we issued a press release reporting our first 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. Www.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'll now turn the call over to Mindy. Thank you, Corey. Good afternoon, everyone. I'm glad to be speaking with you today. I am pleased to say that year over year member recruitment trends have improved in both February March. While still below 2018 levels, we've stabilized the business by taking quick action to improve and optimize our marketing effectiveness. This resulted in us ending the 1st quarter with 4,600,000 subscribers, above our prior expectations and up 1% from the Q1 of 2018. As a result of these improved recruitment trends and strong cost management, we delivered Q1 results ahead of our expectations. As we discussed on the call in February, our 2019 winter campaign did not recruit to the levels we had intended. We attributed this to 3 main factors. 1st, we were lapping the phenomenal success of the launch of our WW Freestyle program last year and it proved to be a more difficult comp than we expected. 2nd, the launch of our new global brand rollout and campaign needed a more overt bridge between WW and Weight Watchers and between weight loss and wellness. And third, as much as we are pleased with our heightened brand perception and relevancy, the campaign calls to action did not recruit at the levels we needed. We responded immediately, conducted additional research and began optimizing and revamping all of our assets across every channel, TV, digital, social and eCRM in every geographic market. We then pivoted quickly, introduced new assets with fewer messages, clearer branding bridge between WW and Weight Watchers and added more targeted offers, all of which together drove a step up in our recruitment performance. We then carried these learnings into the development of our spring campaigns in all markets. We developed a framework with a singular message, it works, and leveraged the stories of our members as well as our celebrity ambassadors, including Helena Cigar in France, Matsy Mabuse in Germany and of course Oprah Winfrey in North America as well as Australia and New Zealand. Oprah surprises members with a video FaceTime call to celebrate their weight loss success on WW and their lifestyle transformation. During these 1 on 1 conversations, she speaks candidly with fellow members about their experience on WW and why it works. The joy and enthusiasm expressed in these conversations convey what WW delivers, weight loss that fits into your life. As said by Oprah and WW member, Faven, it is not even a diet, it's a lifestyle. In addition to TV, these short and long form video assets are being leveraged across digital and social. Last week, Oprah kicked off WW Wednesdays, a series that is highlighting the full conversation she had with those members that will be shared on both Facebook and Instagram. The first conversation highlighted WW member Eric, where he shared his 168 pound weight loss and how the WW Connect community stepped up to support him when he encountered strife in his life. Additional stories will be released in the series over the next few months. In addition, we've added talent and organized the teams to have an even more focused performance marketing approach across all our platforms. We shifted our marketing mix and are using real time analytics to measure efficacy of assets with different audiences and we're able to more efficiently target and drive sign ups at a lower cost. For example, in the U. S. Alone, we currently have over 200 creative variations in rotation, which is 4x as many as last year, reaching targeted unique cohort audiences. We still have more work to do in order to return to the growth trajectory that we know we can achieve, but I'm encouraged by this early progress as well as the focus, the energy and the agility of passionate teams globally. Our spring campaigns are a great proof point demonstrating that we can deliver weight loss messaging with a strong call to action and also show up in a modern aspirational way. Consumers want to lose weight and get healthy and they need to know that WW delivers on both. Our consumer perception studies show that our brand perception is elevated with more people identifying WW as a modern relevant program that can fit their lives. We are confident that our wellness strategy is on target And for consumers, weight loss is a critical component of wellness, so we will still ensure it's front and center because it is something we deliver better than anyone else. As we continue to optimize our marketing to drive recruitment, there are 4 key consumer insights that we are elevating and integrating more heavily into our marketing message. The first, nutritional science is a key point of differentiation. WW is rooted in science with more than 90 scientific studies on our approach and clinically proven program. Our efficacy led to WW recently being named an official diabetes prevention program provider by the NHS in England as well as the CDC in the U. S. We have an opportunity to give heightened visibility and voice to the science behind our program. The second is consumers want livability, but livability is also about sustainability, not just flexibility. We frequently highlighted the flexibility of our program with no food jobs limits with a further opportunity, particularly in today's environment, to reinforce that WW is the most sustainable weight loss program, helping members learn new healthy habits and achieve lasting change. As a prime proof point, we have tens of thousands of lifetime members that attend our workshops every week. They have maintained their healthy lifestyle through the support of the WW program and community. 3rd, goes without saying the importance of technology. The WW app is a powerful enabler of healthy habits for real life. It has never been easier to follow WW. Our members value our incredible digital assets and everything delivers, including Freestyle and SmartPoints, recipes, our proprietary barcode scanner, restaurant guides, fit points, Aptiv, Headspace, WellnessWins Connect and 20 fourseven chat with a coach. Beyond our current and former members, there's a great opportunity to galvanize awareness of our app, all its features and the tremendous evolution of our ecosystem, particularly over the past year. Our app experience is unique in the immense value it delivers for all our members. This is the reason the WW app was recently recognized by the International Academy of Digital Arts and Sciences with a Webby Award, the Internet industry's highest honor. In addition to being selected by Internet industry experts, our app also won a Webby People's Voice Award to the in app's mobile and voice best practices category. For the WW app to be honored among some of the Internet's best technology experiences, an amazing achievement and speaks to the value it's delivering to our members. Importantly, member engagement with our app continues to grow, both among digital and studio plus digital members. As we add more features, content and tools, our members have even more ways to engage. In the quarter of our members using our app, approximately 2 thirds engage with Connect, our unique social media feature within the app, significantly up from the 50% utilization in 2018. In Q1, these members created 2,500,000 posts, left 16,000,000 comments, gave 76,000,000 likes. More members are tracking fitness by syncing a device to the WW app to automatically track activity. In March, more than 1,500,000 members had synced an activity device, up from an average of 1,300,000 throughout 2018. And more members are tracking their food in app. Looking at members who joined in early 2019 versus early 2018, an ever larger percentage are tracking SmartPoints and this is consistent both among digital and studio and digital members. We believe these year over year increases in tracking food and activity are driven by the introduction of WellnessWins, our rewards and loyalty program, which rewards members with wins for engaging on the app by tracking food, activity, weight and workshop attendance. As we work to increase awareness of wellness wins and our other in app features and content, we have further opportunity to grow member engagement and retention. And lastly, personalization is expected. As we have stated, we are utilizing data science and technology to make the experience more customized and personalized, including in our 20 fourseven chat with a coach. Coaching and personalized support is a key priority area for us in 2019 and beyond in terms of how we can better tailor the WW member experience and content. Our goal is to have every member feel that it is their WW. We have a strong foundation upon which to build across each of these areas, so we work to attract both returning and new members to WW. As I mentioned in the last call, I'm personally focused on our studio business. I'm regularly spending time visiting our studios, attending workshops and meeting with our WW coaches globally. In the Q1, we realigned our resources across our global organization to ensure we have the right talent and a clear agile structure in order to drive future growth. A key element of this A key element of this alignment was to increase the focus on our studio business, ensuring we have the right leadership in every one of our global markets to revitalize and elevate our experience. In addition to his role as CFO, I've asked Nick to assume operating responsibility for the North American markets. So I'll now hand the call over to Nick Hochman to discuss our financial performance and outlook, then I'll come back to discuss 2019 priorities. Thanks, Mindy. Before I discuss our results and outlook, I'd first like to say how thrilled I am to be leading our North America efforts. Our talented teams have really galvanized around driving performance across all aspects of the business, and it is showing in our improving trends. I am already enjoying spending time in the field and hearing from our coaches. And with that, I'll turn to our financial results. We ended the Q1 with 4,600,000 subscribers, up 1% year over year and slightly ahead of our expectations as the actions we took during the quarter helped stabilize the business. Recruitment channels such as Invite a Friend and in app purchase are working well for us and are effective in attracting first time members. In Q1, approximately 15% of our global recruits joined through these two channels. Despite that, Q1 member recruitment was down year over year across our major geographic markets with the Studio business, in particular, being significantly weaker year over year. Total revenue in the quarter was $363,000,000 down 9% year over year on a constant currency basis, primarily driven by declines in studio revenue as well as product sales and other revenues. Digital subscription revenues increased 11% year over year on constant currency in Q1, primarily due to the strong flow through from a higher level of incoming subscribers at the start of the year. Gross margin rate was 55%, up nearly 130 basis points year over year on constant currency. Excluding the impact of an inventory obsolescence reserve taken in Q1 2018, gross margin would have been roughly flat year over year, a little better than we expected due to cost reduction actions taken in the quarter. Operating income was $22,000,000 down from $62,000,000 in Q1 2018, primarily driven by operating deleverage on lower revenues and higher marketing expense in the quarter versus the prior period, Also impacting Q1 2019 operating income was $6,300,000 of expenses related to organizational restructuring. As discussed in our February call, to better align profitability and cash generation expected revenue levels, we launched a comprehensive cost savings initiative across all expense lines. Q1 GAAP EPS was a loss of $0.16 which included a negative impact of $0.07 per share related to the organizational changes. This compares to GAAP EPS of $0.56 in Q1 2018, which included a $0.25 per share tax benefit. EBITDAS in Q1 was 38,000,000 dollars Now turning to our outlook. Our subscriber trend over the course of 2019 is expected to be consistent with our normal seasonality, where Q1 is our peak end of period subscriber level and year end is our low point. We expect Q2 end of period subscribers to be down slightly both year over year and sequentially. As a reminder, about 40% of our annual recruits join us in Q1. And therefore, while we expect our business recovery and cost structure actions to have a positive impact over the course of the year, it is difficult to recover from a soft start given the seasonality of the business. We expect member recruitment to be negative for the year as a whole for both digital and for studio. On a global basis, average retention continues to be well over 9 months in both digital and studio, reflecting the value our members are finding in WW. We are focused on further extending retention through WellnessWins and our other efforts to enhance the member experience. We continue to expect full year 2019 revenue to be approximately $1,400,000,000 This guidance assumes a continued mix shift towards digital subscriptions and anticipates some relevant improvement in recruitment trends in our spring campaign and some further improvement in the back half of the year as we lap easier comparisons. This revenue guidance also assumes an estimated foreign exchange negative impact of $12,000,000 Overall, we continue to expect subscription revenues to be about 85% of our total revenue this year. In North America and the UK, we expect full year revenue to be down in the mid single digits on a constant currency basis. And in Continental Europe, we now expect full year revenue to be down in the low single digits year over year on a constant currency basis, representing a modest improvement versus our prior guidance. Our full year GAAP EPS guidance range has increased to $1.35 to $1.55 reflecting slightly improved revenue trends and strong cost management. This guidance assumes 70,000,000 shares outstanding for the full year. For the remainder of my comments, I'm going to speak to the midpoint of our full year EPS range and on a constant currency basis. We now expect gross margin rate to decrease by about 200 basis points in 2019, an improvement from our prior guidance, primarily reflecting lower volumes, partially offset by cost savings initiatives versus prior year. Marketing expense in 2019 is expected to be about 250 $1,000,000 We'll continue to be agile in our approach, investing behind initiatives that produce results. And in addition to an always on digital and social marketing approach globally, in the United States, which is our largest market, this year, our spring TV advertising will run through mid June. G and A expense in 2019 is expected to be approximately $250,000,000 reflecting lower absolute dollar spending year over year in Q2 through Q4. Below the line, we assume full year interest expense to be approximately 140,000,000 and a full year tax rate of approximately 25%. For the year, we expect CapEx, primarily driven by tech spend, capitalized software and some studio network improvements to be in the $60,000,000 range and D and A is expected to be about $50,000,000 Now I'd like to spend a few minutes talking about our capital structure and our cash generation. Our liquidity position is strong. At Q1 end, we had $193,000,000 cash balance and an undrawn revolver. We expect EBITDAS of approximately $350,000,000 for the full year, demonstrating our continued strong cash generation. And this cash generation is well in excess of our short term debt obligations. So absent any debt prepayments, we would expect to end 2019 with a cash balance higher than the end of 2018. We have a covenant light debt structure and the flexibility to prepay our term loan at any time. We ended Q1 with a net debt to EBITDAS leverage ratio of 3.7x. Note that the leverage calculations used in our credit agreement are on a 1st lien basis And at Q1 end, our consolidated 1st lien net debt to EBITDA as leverage ratio was 2.91 times. With a highly cash generative business model, we have the resources and flexibility not only to operate the business, but also to continue to invest in the initiatives that will drive our growth. In summary, we are encouraged by the incremental improvement in trends resulting from our course correcting actions. We remain confident that our strategy to focus on providing holistic wellness solutions in addition to our best in class weight management program is the right path to create long term sustainable growth. And with that, I'd like to turn it back to Mindy. Thanks, Nick. As we've outlined previously, we have 5 key priority areas for 2019 that all align with our key objectives of recruitment, retention and elevating the WW brand. 1st, our marketing execution and strategy. Our approach to marketing is across the comprehensive member journey from contemplation to sign up to onboarding to motivation to engagement to success. Our cross functional team is focused on creating experience, which understands, recognize and rewards our members so well it could only come from WW. Our goal is to make us the first choice for consumers who want to lose weight and get healthy. We're leveraging our data and learnings to further enhance our communications to drive engagement in everything we have to offer, nutrition, activity, mindset, motivation, community and personal support as well as products, events and more. I'll discuss our actions around personalization in the member journey shortly. We also engage with prospective members and current WGEM members alike in our influencer marketing. Our ambassadors are highly effective at helping people meet where they are, driving interest and engagement globally. For example, last month, Kate Hudson shared a weight loss update to a more than 10,000,000 Instagram followers about how she's close to reaching her goal weight and how WW's easy and livable program, app and community have helped her along the way. This post drove over 300,000 social media engagements and editorial commentary, inspiring conversation and resulting in mass as well as broadcast and online news coverage garnering over 17,000,000 earned impressions. Having a diverse combination of celebrity and non celebrity member ambassadors is helpful in showing that WW is for everyone. We recently welcomed several new ambassadors to our family, including Grammy Award winning gospel singer, Tamela Mann and British TV personality, Alison Hammond, and the response has been fantastic. We look forward to upcoming marketing activations featuring our global ambassadors. Just to highlight, one of the upcoming activations starting on May 5, we'll be celebrating and showcasing DJ Khaled's recent 42 pound weight loss milestone ahead of his upcoming album release, the high impact out of home takeover in the heart of Times Square. As many know, Khaled's reason for being a part of the WW family was to get healthy for his son. His new studio album aptly named Father of Assad launches later in the month and we're excited to celebrate the launch with a number of creative marketing activation. 2nd, I'd like to talk about our studio strategy and future experience. Of our 4,600,000 subscribers at the end of Q1, 1,500,000 were Studio Plus Digital members. Our in person workshops with WW Coaches are a key differentiator in providing the community and inspiration that many people look for in their weight loss and wellness journey. Our teams are implementing an expansive plan to improve performance and make the necessary fundamental changes that will drive this business over the long term. These initiatives hit upon every touch point, people, programming and places. We are putting NPS, which is a measure of customer satisfaction, the heart of everything we do. We have recently implemented a proprietary and customized global Qualtrics system to get real time NPS data not only at the studio level, but down to the individual workshop level. We are using this NPS data to drive decisions on the overall health of our studio business, leveraging strengths and opportunity in the program, service delivery and the overall member experience. 1st and foremost, this is a personal relationship between our members and their coaches and guides. Our 16,000 studio team members worldwide are our strongest advocates and are the ones who bring WW to life. We are focused on better galvanizing our field and providing the tools, training and resources to better support both member recruitment and retention. We're also leveraging our WW coach council to ensure the voice of our coaches is applied as we roll out key initiatives and changes. As we look toward the future of the member experience, we're testing various formats to enrich the coaching experience and gather insights. In addition, we are piloting virtual coaching to bring our coaches to members in new and modern ways. In short, we have a strategic framework of initiatives designed to galvanize our coaches, recruit new members and elevate our studio experience. 3rd, our 2020 innovation. 2020 innovation is a critical component of our strategy. We've taken the learnings from WW Freestyle, new scientific research, leveraged the latest in food science, behavioral science and consumer preferences to create our most personal program yet. This global innovation has been in development for nearly 2 years. We're further ahead than ever and are excited to bring this to members later this year. Personalization, I talked about it earlier, it's our intent to personalize all that we do. Importantly, this encompasses every touch point in a member's journey. Some are high-tech, such as our recently launched Siri shortcut voice integrations and others are low tech, such as the WW Coach greeting you by name, but all are immensely important to the member experience. Celebrating successes has always been an essential part of the WW culture. To encourage our members along their journeys, we have in app digital badges to celebrate their successes and engagement. In addition to these virtual badges in our workshops, members receive milestone charms as they hit weight loss milestones and this concrete recognition is deeply inspiring and motivating for many members along their journeys. But we want to recognize surprise and delight our digital members as well. So we're currently in the process of rolling out delivery of Charms' digital members and these milestone recognitions become significant moments on social media. By recognizing our member successes through tangible and digital milestones, wins for tracking or coming later this year, WellnessWins challenges, we are adding more value to the member experience. From our testing, we know that rewards and recognition drive increased engagement, which then drives longer retention. We look forward to adding even more value, recognition, rewards and gamification to the member experience. We're also delivering a more personalized experience through our just recently launched Connect Groups, which are providing a greater sense of belonging. Connect Groups help WW members find people like them, such as in our LGBTQ, WW Bros and Foodie Groups. When members see others that are like them, they don't feel they have to explain themselves to each other and the conversations get deeper and more relatable faster. They get reliable advice from people in their same life stage, such as our Brides Group, which is one of our most frequently visited groups. The Brides Group has high return visits, but the members are counting down to a specific significant event and are finding timely content and support. And they find a forum where they can easily contribute or get immediate value such as our recipes and meal prep group. Even though Connect Group has just launched, we have found that group members are posting more frequently and are following 2 times as many people as non group members. Currently, 9% of Connect users are members of a group. So given the value our members have told us the group provides, there's a big opportunity to grow this metric and thereby increase overall engagement. And then global community activation. As I talked about during our last call, one of our key priorities is to galvanize communities through events, activations, content and experiences. We will be hosting a series of events throughout the summer, kicking off with an activation on Global Wellness Day in June. Later in the fall, we will be announcing a a multi pronged activation of community events, including events in partnership with Oprah Winfrey, which we'll be launching earlier in the New Year. More to come on this, but needless to say, we are very excited about the opportunity to bring our brand into the community to reach and touch so many people. By executing on each of these priorities, we are confident we will be able to improve our performance trajectory. While recruitment at the start of the year was not up to our expectations, we are encouraged by the team's ability to quickly course correct and pivot where necessary, while maintaining focus on our long term vision. We're confident that developing a best in class weight loss and wellness ecosystem that encompasses nutrition, activity, mindset, motivation, community and personalized support with broader appeal to more diverse audiences, the right path to support long term sustainable growth. Weight loss and wellness are highly attractive markets. People everywhere want to lead healthy, happy lives. And by executing on our purpose to inspire healthy habits for real life, we become the world's partner in wellness as well as the world's leader in weight loss management. So thanks for joining us on the call today. And with that, we'll now turn the call to the operator for Q and A. And A. We will now begin the question and answer And our first question will come from Brian Nagel of Oppenheimer. Please go ahead. Hi, good afternoon. Hi, Brian. Thank you for taking my questions. So my first question, and I appreciate all the color in your comments with regard to subscriber growth. So as we look back now at Q1, maybe with a clearer lens, can we talk more about the weakness in recruitment? Do you think now is more a function of say internal missteps versus external factors like some of the new diets that have emerged lately? How do we think about that split? So what I think about is we can control what we can control. And the reason why we've been a leader in what we do for over 55 years is because we lead in healthy weight loss and now in the ability to also help people lead better lives of wellness. So what I'm talking about is very specifically what we diagnose is what we could have done in a more effective way. And that's why we're seeing the results of that, in the improvement. Nobody is more disappointed than us that we didn't perform. But we immediately diagnosed, we immediately responded, we created new assets, new ways to engage the customer. And our focus is on absolutely controlling what we can control and do what we do best. Okay. And then, I guess a follow-up question to that is, and Nick, you'd mentioned, in your potential commentary, about how the trajectory in subscribers, the likely trajectory in subscribers through 2019. And I think you said that we should expect a similar type fade, if you will, as in prior years. But the question I have is, if we think about the risk of overthinking this, but we have weaker subscriber growth. We couldn't expect subscriber growth in Q1. And arguably, some of that was probably that recurring customer not coming back to the Weight Watchers brand. Could we make the assumption, if that's true, that maybe there would be less fall off or fade through this year? You have basically a potentially stickier base right now at the end of Q1? Well, like Brian, like our guidance assumes the same seasonal trends that are typical with Q1 as the peak over the year end as the low point. Now of course, within that expected normal seasonal trend, both with WellnessWins and other retention driving activities, we're focused not only on continuing to improve our recruitment trajectory, but have people stay with WW for longer also. Thank you. Our next question comes from Frank Camma of Sidoti. Please go ahead. Hey, thanks for taking the question. First question is just a clarification. Nick, did you say that there was $6,000,000 in SG and A related to restructuring? Yes, there was $6,300,000 in total restructuring expense or $0.07 per share. The vast majority of that, about $5,000,000 or so, Frank, hit G and A, the rest hit OpEx. Okay. So if we wanted to normalize our numbers, we could take out $0.07 is what you're saying for the jump rate? Yes. The $0.16 loss that we reported had that $0.07 restructuring within that number, yes. Okay. And that makes your $2.50 for the year more reasonable given what you said. Okay. The other question just sort of I know products obviously not your big thing, but the product revenue was really the only big variance on my revenue line. Why would that be down so sharply year over year given some of those initiatives that you've been working on? Yes. Look, I think some unique factors there, Frank. I mean, look, primarily, look, the fact that we've set our studio business and therefore attendance in meetings was weak during the Q1, particularly in January. New members to WW tend to spend more on their products when they're in our workshops. The other factor was the fact that we're just really ramping up globally this wonderful new line of consumer products. And that's why we certainly expect our year over year trends and product sales to improve as we go through the year and our guidance assumes that they do. Right. And you will see over the course of the year more and more new product introductions, particularly in the food space and other categories, and also continued focus on, in addition to the sales that we do in our workshops, our e commerce platforms. I think you saw we launched our first dedicated store on Amazon, and we continue to add our products, as they've been developed and formulated within that. And bear in mind, in the tail end of last year, we were ramping down the sale of our old products as we started to ramp up this new product line. So we've got easier comps in the back half of the year also. Okay. Just remind me, that's where you put royalties as well, right? But those are well down from historical years. Is that correct? Yes. That's where royalties on our licensing business is relatively flat year over year. Yes. The way to think about it is we've sat back, as you know, and done a full assessment of what our opportunities are within the product space. Certainly, our first priority was to have the products out there that we sell be consistent with who we are as a brand, which is why all reformulated, all back out in the market, across every product we have. We also brought in a new Head of Product and Licensing, and we are looking globally, particularly in the areas of Healthy Kitchen, where you've seen us focused our efforts. So you will expect to see product expansion, particularly around those areas of business. Okay. That's helpful. Thank you. Our next question comes from Jason English of Goldman Sachs. Please go ahead. Hey, good evening folks. Thank you for squeezing me in. Hey, Jason. I want to drill a little bit deeper on the meaning subscribers in North America because it was certainly a little bit lighter than we expected and given your initiative on trying to dig into satisfaction, it sounds like it's also an area that you guys are focused on. Any early indications of what drove the relatively subdued sequential step up in North American media subscribers? Is it fair to assume that this cohort of consumers is the one where repeat rates are highest, meaning that they generally come in, they leave with satisfaction and then come back a year or 2 later? So to your point, lapsed members, particularly early in the year, normally first to come back, if you think about it, we were also lapping a year of a huge new news innovation, which tends to drive lapsed members even more. So a combination of those things. So you're right. So we definitely know that even from a targeted marketing point of view, working both on certainly new and lapsed members as we look for the business. But then also looking at things like new studio formats, new partnerships to attract new members. So for example, we announced that we'll our partnership with Kohl's, we're building a 1600 square foot studio in their flagship in Chicago and have other efforts. So you'll see diversification of how we're looking to recruit, not just former members within our existing environments, but also expanding our opportunities where we can recruit new members. Okay. And in terms of let's just a broader on recruitment then. You mentioned that retention still high tracking over 9 months. You gave us some great little data soft point here. Do you think you're doing enough on recruitment? And you've soft point here. Do you think you're doing enough on recruitment? And you mentioned that you've seen sequential improvement through the quarter. Is there any quantification, any data points you can give us to grasp to contextualize the improvement that you talked about? Yes. Well, I'd say, look, sequential improvement during the quarter and frankly continuing into the launch of our spring campaign also and that's reflected in our guidance. So I wouldn't expect Q2. Our guidance doesn't assume that Q2 has positive year over year recruitment, but we would expect to cross that hurdle sometime later in the year. Okay. Thank you. Our next question comes from Vincent Sinisi of Morgan Stanley. Please go ahead. Good evening, guys. Thanks very much for taking my question here. Hi. Hey. I wanted to ask about the data analytics that you mentioned, Mindy. You said and especially on the back of the new ad campaign. Can you give us all just a little bit more sense kind of some of the things that you're looking at, what you're seeing and maybe also with some of the kind of mitigation of some of the missteps from a few months ago. Like do you have a sense for what are those things that kind of reversed and you saw impact on most? Yes. So I'm going to bucket into a few things. We've really enhanced our talent and our organization in terms of strategic member marketing, data science, marketing analytics. So and as Nick was asked a question about, we have made some organizational restructuring in how those teams are working together, all based on the back of informing through data. So that was a work in process, but certainly we've accelerated those efforts. The second is we've relooked at the marketing mix overall. So although you still see us, doing television spots, you will see a lot more assets, particularly in the areas of direct response, social, digital, etcetera. I use the example of the number of assets we have out there today that we're measuring to make sure that we have the ones that have the most efficacy and then the new assets are being created against that. So very structured process, and that also goes through any of our ECRM, SEO. So I would say, if you actually for now, if you look year on year, we have much more sophistication there. So we feel very positive about what we're being informed and the measures we're taking and what we're creating against those assets. Okay. That's helpful, Mindy. And then I guess maybe just more of just kind of a strategy question here. Kind of at a high level that you've had some improvement later in the Q1. But as you said, kind of, of course, now looking forward to the next holiday season, the 2020 innovation plan, is it a fair thing to say that you'll continue to have things come out as we go through this year, particularly as we get into the fall? But is your mission right now to try to kind of just kind of keep things stable for the majority of this year and then essentially kind of come out with gun blazing as we get in toward organization focused definitively on sequential improvement, have an organization focused definitively on sequential improvement throughout the year because, I think you'll see we have efforts, whether they be around marketing efforts, studio efforts, influencer efforts, partnership efforts that are all going to help to build to help us amplify the 2020 innovation. As I mentioned, we've been working on this for a long time. We have a very deep process to make sure that we're going to deliver that in the most effective way. But there are certainly things that we're going to do throughout the year, both to improve performance, but also to help us amplify those efforts when we get to 2020 innovation. Okay. All right. Great. Thanks very much guys and best of luck. Thank you. Thank you. Our next question comes from Mark Rosenkranz of Craig Hallum Capital Group. Please go ahead. Hi, Mark. Hey, good evening and thanks for taking my questions. You mentioned some interesting subscriber activity with the increased food and activity tracking. I was wondering if you've seen any type of demographic shift with this new recruiting class or any type of learnings on what they're tracking or what activity they're logging that could perhaps benefit recruitment or retention, how you market and reach these new recruits? Yes. So what we find, at least on the tracking, what we're seeing in food, ever since we came out with Freestyle, it's people really embracing the 0 point foods. And if you look at any recipe that's shared, food is a core component of what we do. So it really is relative to the program itself what's being tracked. I can tell you that the number one tracked food is an egg. If interesting, it is 0 point. Relative to activity, as I mentioned, we're seeing a lot of that activity really is diverse across the population. It really is diverse across the population. It's a pretty diverse population of where they are in their health journey. So that's really relative to what the device is. But not surprisingly, energetic, walking, running, they tend to be the highest as far as that goes. In terms of diversity of audience, we're starting to definitely see movement on the gender side. I mean, we still are predominantly female, but we are pleased that as a result of our targeted marketing efforts, more diversity in our ads themselves, we're starting to see movement there. And we're also starting to see diversity overall, and that has a lot to do with the expansion of our ambassador and influencer base. And so you'll see continued efforts as it relates to that. Okay, great. That's helpful. And then just quick follow-up. You mentioned about 9% of Connect users are in groups right now. It seems like a pretty big opportunity to expand recruitment retention. Is that give you more of a 2019 opportunity you can build into as you enter 2020? Or is that potentially part of the 2020 program offering that you're looking to? I think it's relatively new. The groups are getting formed. I mean people have engagement on the whole Connect. I think it's just a matter them recognizing and joining the groups. And I have to say, I belong to a number of the groups. And it really has made a difference for those people who really want to engage with people like themselves. The other interesting thing is that a lot of people still stay engaged in the broader connect as well as in their groups. So we're actually getting additional engagement. So we'll continue to monitor that. We have other elements that we want to add into these connect groups to help foster the engagement. So we're very pleased with the initial response. Okay, that's great. Thanks for taking my questions and best of luck on the spring and summer here. Thank you. Thank you. Our next question comes from Greg Badishkanian of Citi. Please go ahead. Hey, Greg. Hey, Greg. Hi, guys. This is actually Spencer Hanus on for Greg. So I just had a question Hi, guys. Yes, hi. You just had a you called out that 15% of recruits in 1Q came from Invite A Friend and in app purchases. So just curious how the demographics of those recruits compare to the overall company? Yes. Look, as you like, I expect those new channels, great tools, particularly in app purchase for attracting a younger audience. Invite a Friend has been a terrific success in terms of bringing more men into the brand. And both of these channels are very highly incremental, a very rich mix of first time users to the brand. And so that's why I'm very pleased with these 2 new recruitment channels. Okay, great. And then in terms of member retention, in the past, you've talked about to get to 10 months in 2019. Do you still think that's an achievable target this year? And how do we get there from, I think you said you're above 9 currently? Yes. Look, well over 9% now, as you've heard say, working on great retention drivers, including Wellness wins, which we expect to have the same sort of ramp up of usage curve as we saw in Connect and the importance of the digital rewards and milestones that we mentioned in the call. So absolutely, we're certainly shooting to get to over 10 months as soon as possible. Okay, great. Thank you. Our next question comes from Edward Yruma of KeyBanc. Please go ahead. Hey guys, thanks for taking the question. I guess first on the rebranding, I know that you kind of discussed some of the issues of the call to action as you transitioned into January. I guess as you sit and assess it now, how is the rebranding gone? And has it succeeded at least initially in kind of helping to modernize the brand? So the answer on the modernization side, the brand perception, relevancy, absolutely. If you look at whether it's our products that are out in the marketplace, the consistency of our branding globally, the message, that has absolutely and we measure that very, very specifically. And so that's why I talk about the proof points of relevancy and brand, retention and what we're offering people. Now having said that, we needed a little bit more of a bridge for certain people to really understand and whether it was our former members or whether it was newer members. So we have done that, and we will continue to monitor the brand, the recognizability, the understanding of WW. But we're already seeing improvement of that, but I'm very pleased about the brand perception metrics because that was a very big part of what we needed to do around relevancy. Great. And a follow-up, if I may. Obviously, trends improved from January. But just kind of curious, in your survey work, when you talk to consumers, did you notice that maybe those that joined in Feb or March maybe attempted paleo and failed or I know you constantly kind of emphasize a healthy weight loss component of Weight Watchers. So do you think that over time as people realize some of the other health downsides to paleo that, that could be a positive for you over time? Thanks. Yes. We know for a fact, and it's not anecdotal, that there are people that come to us, particularly if they've been with us before and you say, why are you back? And they go, because we know that if I come back here, it will work. And I just have to learn that it's sustainable. Because where that is what our entire program, our science and everything our brand is built on. So we want to continue to support people no matter what their former efforts were. And that's why if you look at our campaigns that are out right now around It Works and my commentary before that one of the things that we're very focused on in our communication is sustainability. And you'll continue to hear us speak about that. Great. Thanks so much, guys. Thank you. Our next question comes from Michael Lasser of UBS. Please go ahead. Hi, Michael. Hi, Mindy. Good evening. Thanks a lot for taking my question. 2, one, have you seen the improvement that you mentioned in February March continue into April? Yes. And 2, we have not seen such a wide divergence in your fee per subscriber between your studio business in North America and your digital business. In the studio business, it was down 4.4%. In the Digital business, it was up 4.2%. Can you give us a reason why we've seen there was such divergent trends there? Yes. Given the weakness in our studio business, particularly right at the start of the year, while we were waiting to get the fixes in place that we've described and which have been successful. We did get more promotional for a period of time and that was reflected in the metrics that you're citing. We're on a better price realization track right now. And on the digital business, were you less promotional because that's a metric that had been under pressure or declining the last 5 quarters? Yes. The price realization was it sounds a little better on the digital side, absolutely versus studio. Okay. Thank you very much. Thank you. This concludes our question and answer session. I would like to turn the conference back over to CEO, Mindy Grossman, for any closing remarks. Well, thanks, everyone, and we look forward to continue