Q3 2019 Earnings Call
Welcome to the W. W International third quarter 2019 earnings Conference call.
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At this time I'd like to turn the conference everyday Coricancha I've Investor Relations. Please go ahead.
Thank you Allison and thanks, everyone for joining us today for W.W. International third quarter 2019 conference call.
For a SaaS PM Eastern time today, we issued a press release reporting our third quarter 2019 resolved.
Purposes. This call is to provide investors with some further details regarding the Companys financial results as well provide in general update on the company's progress.
A press release is available on the company's corporate website located at corporate W.W. dotcom.
Supplemental investor materials are also available on the company's corporate website in the Investor section under presentations ended at.
Reconciliations of non-GAAP measures closed on this conference call 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 could differ materially from those discussed here today.
Risk factors are explained in detail in the company's filings with the Securities Exchange Commission. Please refer to these filings for more detailed discussion of forward looking statements and their risks and certainties of such statements.
All forward looking statements are made as of today, except as required by law. The company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result, with new information future events or otherwise.
Joining today's call, our Mindy Grossman, President and CEO , Nick Hotchkin, CFO operating officer, North America, and President emerging markets.
I'll now turn the call over to Mindy. Thanks, Corey Good afternoon, everyone and thank you for joining our call today.
We ended the third quarter with 4.4 million subscribers.
6% from a year ago, demonstrating positive momentum from our second quarter, well, we reported end of period subscribers up 1.5% year on year. This is the highest Q3 and subscriber level. The company has ever had the result of our progress to make turning 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 an S 68 cents.
As a result of the improvements we've been making across the business across all aspects of our advertising campaigns search easier at studio engagement anymore 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 the 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 Brad reflecting the intense focus we have had both on improving our studio business experience and our providing a market leading digital ecosystem that our members engaged.
With each day.
Well retention trends can be trophee 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 aligned with our key objectives of recruitment retention and elevating the W.W., Brad they are marketing execution of 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 and the results are showing up in our sequentially improving subscriber and revenue trends.
A fall marketing campaigns drove momentum across all our global markets with September being our best year over year recruitment bonds. So far this year bolstered by TV advertising in our major market.
Our U.S. advertising creative fee should the experience of 10 of our members visiting Oprah Winfrey or home in Maui and sharing it W.W. 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 drives 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 touch points were 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, just driving greater click through rates.
Birds appreciate him respond to more personal content. So in August I launched a personal monthly newsletter, giving members of behind the scenes peak, what's happening at W. W. And also sharing my experience as a member as well as sharing my family life, My social life and how I live My W.W. life. In addition, I've free.
Equally 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 W.W. community.
Our member marketing efforts also increased visibility for a loyalty and rewards program wellness wins, both in App, and an 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 incentive.
Since launch a year ago members have earned six point billion wins.
Donations to W.W., 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 W. W. We continuously monitor brand perception and awareness.
Across most markets since winter awareness of the new W.W. logo as weight Watchers has grown are maintained and brand relevance continues to improve.
We are focusing on elevating perception of brand maternity, particularly among prospective members and W.W. 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, our 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 engagement continues to be strong with solid trends in the percentage of members who are tracking foods logging weight using connect and thinking a fitness device.
September alone nearly 2 million members use connect and in Q3, our members created nearly 2 million post 13 million comments and gave over 60 million like.
The number of members thinking in activity device each month with over 1.6 million in Q3.
Up from approximately 1.3 million in the year ago quarter.
Community engagement or at the heart of everything we do the more touch points. A member has more likely they are to continue on the journey and have even greater success and 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.
So I'll now hand, the call over to net 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 us studio strategy in future experience ill 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 is digital subscribers were up 13% year over year to 3.1 million an improvement from a gain of 8% in Q2.
And then to period studio subscribers were down 7% year over year to one point Threemillion an improvement from a decline of 11% Q2.
Total global recruitment was positive versus prior to Q3 with September trends accelerating with the start of a full marketing campaign and staying strong in October which we believe touches on a good starting position product innovation launch and winter season.
Recruitment channels, such as in buying a friend and in that purchase continue to work well for us in a highly effective in the transient first time members in Q3 about 15% of all global recruits joined as June through these two channels.
Total revenue in the third quarter was 349 million down 3% year over year on a constant currency basis.
It's just hold subscription revenues increased 9% and studio revenues decreased 13% year over year on constant currency.
Continental Europe was our best performance segment with total revenue increasing 3% versus prior.
Gross margin rates was 56% down 300 basis points year over year on constant currency due to lower revenue.
Operations for the winter launch as well as higher inventory reserves for us as 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 68 cents. This compares to GAAP EPS of a dollar in Q3 2018.
EBIT Das was $109 million in Q3, compared to 135 million in a year ago quarter.
Now turning to our outlook.
Mike top 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 August call and the 12 million on on 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 identified 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 trust banks, North America, and the UK full year revenue to be down in the mid single digits year over year on a constant currency basis, we now anticipate 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 160 321 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.
Yes, Mike gross margin rate to decreased by about 150 basis points for the full year 2019.
Marketing expense in 2019 is expected to be approximately 245 million.
Continuing to be flexible and that show in our approach investing behind initiatives that produce results and we will launch our winter TV advertising campaign after Christmas.
Jana 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 the full year effective tax rate of approximately 23%.
Pending the Finalization of regulations that could impact tanks on foreign income a 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 DNA is expected to be approximately 50 million.
Now I'd like to spend a few minutes talking about our capital structure and our cash generation.
Our liquidity position is strong Q3 end, we had 239 million in cash and an undrawn 150 million revolver.
With business trends, improving and strong cash generation.
Early into Q4, we elected to voluntarily prepaid another 15 million of term loans, bringing this years total bone voluntary prepayments to 100 million.
We expect Ebitdas of approximately 360 million for the full year driving continued strong cash generation.
We have a covenant lite debt structure and the flexibility to pay our term loan at any time we.
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 or on a first lien basis and that Q3, and our consolidated first lien net debt to EBITDAX leverage ratio was 2.92 times.
With a 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 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 at the Las Vegas franchise in October .
Looking ahead, we expect when 2019 with more subscribers year over year, which given the nature of our subscription business model translates into a modest revenue tailwind entering 2020.
No. This is only a starting point before factoring in the benefit from expected member recruitment growth next year.
While we're not providing specific 2020 revenue guidance today.
Given our momentum and successful 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 into sure experience.
Returning the studio business to growth.
As an important part of our strategy.
Intense focus on the business has led to consistently improving trends since the start of the year.
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.
And since we expect digital growth to continue to outpace studio growth our studio strategy has both near term and long term component.
In the immediate term, we're kicking off another workshop to attendance challenge encouraging members to stay engaged through the November and December holidays.
We saw great success, and 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 in celebration moments a powerful motivate is integral to the member journey.
On the people side, we're very fortunate to have a passionate engage group coaches in guides, who provide inspiration and encouragement to members everyday.
Historically, we have only recruited our coaches from our studio members.
We are now also hiring from additional 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 and additional environment as well as in studios.
In addition to these near term actions, we are re imagining the studio experience and we see a pathway for a variety of is variety of experiences that fit the needs and demands of our members.
28 high volume US 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 how recently opened pilot with coal Syndicate Bill alloy.
In 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 W. W and speech where the coach.
And at the same time, we'll continue to have a flexible footprint, where we leverage third party locations, which we call studio apps to reach communities, where we host only a few meetings a week.
And finally, Recurrently 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 line.
And with that I'd like to turn it back to Mindy.
Thanks, Nick.
As a purpose driven organization, we're focused on providing members with as deeply human and personal experience powered by technology and with a foundation in a science based effective program that deliver 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 but to preview. This new program will be our most customized weight loss plan ever leading to a clinically significant weight loss and a healthier path.
Pattern of meeting.
We are constantly listening to our community and we know our members want more customized approach. We're excited and are looking forward to this program launch and as always know foods will be off limits on W. W.
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 Weve been intensely engaged with our studio teams, ensuring our coaches in guys have the training and support to be knowledgeable advocates for the new program through a combination of in person life trainings and virtual micro lending 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 focus campaign, highlighting what's new about the Ww program weight loss results and the success stories of individual members. We have successful weight loss on the new W.W. program, including those of our global celebrity ambassadors such as Kate Hudson.
Similar man hilarious Guara, Robbie Williams, Sam arbitrage and many more.
It will be a robust integrated campaign across TV, social digital NPR.
Oprah Winfrey will also be featured our USA and Canada campaigns, along with a host of members speaking to have a new W.W. 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 to events activations content and experiences we kicked off this initiative with events around global wellness day at essence fast.
W. W. 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.
Ed starting in January that extraordinary opportunity to do what both W. W and Oprah Winfrey do best Brean communities together with a shared goal of health and wellness together, we will bring W.W. presents Oprah's 2020 vision your life and focus a full day.
Hey, wellness event to nine cities across the U.S.
We are thrilled with the incredible response to the W.W. presents over his 2020 vision tour and the tours are ready more than 80% sold out nationwide.
Press coverage, so far has been tremendous yielding 23 million online impressions and nearly $19 million broadcast 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 opus 2020 vision tore the more than 100000 attendees and with a ripple effect that will be significantly larger in the new year.
Are you seeing me 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 partnering wellness, making it accessible to all.
People are seeking out experiential creative empowering and fulfilling experiences, creating an offering such events is now essential for reaching new and diverse audiences and having them connect with W. W.
We've also articulated that we want to own a healthy kitchen across products food content and experiences.
As we elevate our brand Ww is showing up in new places from cafe menu items at the Barclays Center tour, a healthy kitchen tools in food products in 250 call stores and now Ww is at the airport are completely we formulated and repackage Ww on a go snacks are now available.
People are more than 80, Siebel gourmet markets in nine major us airports, including JFK, Laguardia, Newark, and Chicago O'hare.
And 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 solar tab offering ww cooking classes and more than 80 of their retail locations. We're thrilled with the early fill rates on upcoming classes at the Asian favorites with Ww class B.
The most popular W.W. 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're focused on increasing awareness at Ww as a wellness benefit and demonstrating the value of W. W. Two 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 opportunities for this business in 2020 .
There was 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 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 clearly demonstrate our ability to restore momentum in the business and Ww is on track to return to a growth trajectory in 2020.
Im confident in our strategies and plans for elevating our brand diversifying our audience.
Spanning 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 Reimagine studio experience.
In addition, the Ww presents Opus 2020 vision your life and focus store will amplify our message and foster community and enthusiasm to out our winter season.
Thank you for joining us on the call today and with that we'll now turn the call to the operator for QNX.
Thank you.
We'll 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 and to withdraw your question. Please press Star then too.
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 Hey, how are you.
Just a couple of quick ones for 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, but but is there anything that would cause next you could be different one and then to obviously lots to discuss on the new innovation.
The program.
As you think about kind of leading into the program.
How how would this launch differ from maybe what you guys did in 17.
Maybe from a financial perspective is this is this a more extensive launched in that and maybe contextualize, how we should think about the uplift from it. Thank you.
Look at firstly on the economics look we've got the same great business model, we bought we've always had and.
Very high incremental margins, so with growth and we'd certainly aspect 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.
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 and 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 so.
We'll be able to launch our program innovation through all our marketing channels.
Well, there will be very clear messaging going into 2020.
Great. Thanks, so much guys.
Our next question today will come from Alex permit of Craig Hallum Capital Group. Please go ahead, Hi, Alex Raymond.
Hi, many onec thanks for taking my question.
I wanted to ask a couple of things and it looks like you might be by piloting or having early launch your new programming a couple of your smaller markets. Just curious how thats gone if theres been any interesting learnings from that initial rollout and then 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 I'm, just curious if that was to give people more time to adjust as how how you're thinking about the timing of the rollout of the new diet program and 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.
And clearly wanted to test pilot in certain markets to make sure all our technology.
As activating our messaging.
So you'll see some of that.
Clearly around the world with every one going live globally on Monday.
Which were very excited about as far as timing. The teams have been working on this for a very long time.
And we are further ahead than we've been so we felt going into market.
And certainly being able to galvanize our existing member base is a real positive, but the rough of our marketing efforts, including our broad scale mass marketing efforts really occurs after Christmas.
Great Thats really helpful. Thank you and then and then many of 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 onto those through the winter season. Just wondering if you can elaborate on 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 programs and I think it it's really important.
As you here every time I speak about retention I.
Im a nicely focused on engagement.
And we measure that in every aspect of that business digitally physically engaging and tracking and engaging and community.
A lot of the efforts and what we've delivered to people across the ecosystem.
Yes.
Nutrition activity.
Mindset, our wellness wins program and community really all have contributed to that so the measure of engagement that we're seeing is at an all time high and that gives us confidence.
The fact that we have the new program.
Hi, a lot of.
No what about the positivity at that.
Thats great. Thank you very much Mindy.
Our next question today will come from Olivia Tong of Bank of America Top. Please go ahead, great. Thanks, good afternoon.
All right.
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 CPI is to influence your decisions and then if there's going be any pricing changes with that come with a new net new innovation.
So a lot of the things we're testing our you know we know the efficacy of the program right. So what we're really testing.
Globally around the world all of our technology.
Asia.
So we're making sure that that's going to be a seamless.
That they will be onboarded into whatever new program. So most of the attention is really being paid to the execution of the program not necessarily marketing efforts.
Which was really.
Which really launch going forward.
Were 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 we'll be rolling out globally. So we're really leveraging our capabilities to test accelerate and rollout and this is another.
Sample of that.
Good luck on the price size like no broad.
So a price change.
Okay understood changes trust strategy that as you've had to say many times.
Focus has really on delivering value to our members to attract more people at solar Brandon to happen to say longer and Thats, what well what plans do this winter.
Got it. Thanks, that's very helpful. Just two follow ups. There first on the meeting because I guess I was a bit surprised how challenging 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 and.
If you could talk about things that you're doing to sort of brought that up so just to say this was the least deceleration.
In a very long period of time, so we feel that we're making great progress in our studio business and we said that we see that with turning.
Two growth so I, just I just need to clarify that like.
Sure studio.
Sign ups recruitment during the trailing eight quarter was down year over year, but no in the single digits.
Back to improvement.
Q2 in Q1 and no.
Revenue, yes, it's still down 13% and the kind of constant currency in Q3 bear in mind bear in mind that.
Fall campaign happened in September So I was our strongest month, we got some of that revenue in Q4, and a decent improvement from down 17% in Q2. So good progress in the studio business lot of focus, but obviously, we're delighted that we're going to have a new program to shout about era on Monday.
Great just one last thing.
In terms of external partnerships, there's no shortage that you have of external parties partnerships, whether to lifestyle services workouts food Amazon et cetera.
You Havent partner.
So far is pharma so what's your thoughts there.
And partnerships overall going forward.
So I mentioned on the call our health solutions business.
Which is our our b to b or as I call. It be happy to see business to recruit so we're doing a lot of work there, particularly in areas of diabetes and other areas. So we continue to look at partnerships across the spectrum and we'll be sharing.
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 greatest Hello.
I just thought ma'am.
Yes, I want to come back to a couple of questions. If you had.
First on on the meeting subs.
Our building off the topics I guess.
Demeaning subs the guidance for year on year gross 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 Brian Yes. So we expect studio recruitment to turn positive year over year during during the fourth quarter.
Hi.
And is that is is that recruitment or is that do you expect that to translate into overall subs being up year on year regulatory let's talk you were talking recruitment and sorry notes, we launched new programs sometime during the quarter over your spread to turn positive data. That's helpful. Yeah, and as <expletive> mentioned, you know obviously with the campaign we saw sequential.
So improvement across the business. The one thing I want to talk about.
Nick talked to it in his discussion.
Discussion on the street as a whole what were very focused on is really meeting people, where they are and in today's environment, giving them. The support they need how they want their support. So every member we have has our digital experience.
And we still have one third approximately of our members who still want that face to face physical experience and we want to support them, but we're looking at opportunities to do that while also exposing the brand to new customers like the studio that we have.
With calls into Calvin 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, a virtual group coaching.
So 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. So we'll really be able to meet people.
Where they are and how they feel they need the best support.
It sounds sounds exciting.
One quick follow up on the on the pricing strategy question.
I understand as we look at your revenue per saw revenue per user that theres a mix component here.
Digital outpacing meetings.
But even when we when we.
Through that and just look at the Rev per sub for meetings. It continues to fall quite a bit year on year. I know this was a topic on the last quarter call too and you mentioned that that pricing comps sort of 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.
What's driving that compression on what appears to be pricing for for meetings. Yes look at you are right Jason that if you if you look at.
Compare paid weeks on the studio side.
Versus revenue for studio.
We'll see some price realization in.
And next Q3, no real change to promotional as strategy.
Hi, good driver of it is focus on.
Driving people to sign up initially for longer term.
Retention plans.
But.
That's that's a key.
A key driver of it.
Okay got it thank you very much.
Yeah.
Our next question will come from Linda Bolton Weiser of D.A. Davidson. Please go ahead your Linda.
Hi, how are you.
I just wanted to know can you give us any color on how the sign up ticket sales rather are going for the over two or are they kind of inline with expectations are above or what so yes.
I'm sorry.
Well, we're very excited about the response they are very much ahead of expectations.
We've had incredible.
Yes, Chris conversations about it people are very excited to experience what it is will be delivering to those markets.
And as I said, we're touching hundreds of thousands.
As people across those markets, but the messaging and amplification will be that much more.
So we're very pleased.
And then my second question was just on the competitive landscape because you have mentioned.
Some of the issues last diet season, he had to do with competition like Quito 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 and and how are you.
Trying to rank ordering new home in the competitive landscape is that as threatening or less threatening or how do you rank that versus Quito. Thank you. Yeah. So how I would say is there's always going to be competition and we are acutely aware of who that commerce competition is and what they're doing and what were focused on as well where do.
Going to be able to accelerate our business and differentiate what we do.
Not only for names the competition, but people thinking making good healthy themselves.
We're very excited clearly about our new program innovation, because we think it's going to fill a need it 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 will be able to articulate.
The efforts were 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.
So I think we're not saying were going into the season eyes wide open, but very clear about what we have that is distinct and differentiated hey, guys. Sorry look I'd like many things about this quarter, obviously, reaching the no over 10 months retention milestone returning to global recruitment growth but.
The response.
Folks to.
Market, leading digital ecosystem seeing each segment having.
I would double digit increases versus prior and end of period does some additional subscribers chose a response to additional assets.
Thank you.
Our next question today will come from Michael Lasser, if you'd be US. Please go ahead.
Good evening, Thanks, Hi, namely.
So given the momentum of the business and pad.
And the fact that you'll be launching new program mini is is there a subscriber growth number as you look out over the next few quarters.
That you would be disappointed with if you didnt achieve.
The markets already assuming that you're getting it back to full subscriber growth both.
Within the meetings business, but 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 excited by this new program certainly look any definition of success for next year has said recruitment subscribers revenue and profit growth and 2020.
In my follow up question is.
You are in this cycle now where you have is having an innovation that will drive growth. Every 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 core yeah. Michael that is a great question.
Certainly we feel that.
Innovation.
Based on what we're seeing in science and technology E.
And consumer behavior is something that we're known for on where we have to continue innovating, but innovation goes beyond a food program.
And many of the things that we're doing in other areas of the business.
Whether its.
Science applied to activity and what we're doing there you have pilots around sleep, we're focused on mindset. So the key is for us to have a pin continuous flow of innovation not just the nutrition side, although we know how critical that is particularly.
For weight loss.
But the teams.
Focus is to be able to constantly be delivering enhanced.
Innovations and results to create greater engagement and recruitment absolutely.
It will in without providing specific guidance.
If we're talking a year from now or when we're talking to your from now do you think you'll be at that point, where you'll just have cost that innovation coming and not obviously not just didnt.
Side.
Well, that's certainly our goal and then what we're focused on a different area. The business. This is the one of the first conversations I've really had about our 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.
So we are constantly.
Interesting on innovation and I think that's going to be important in all the segments of our business.
Okay, Great question, Mike like we've shown as recently as.
2000.
17, there can you go in the second year, if they approved plan.
Innovation and look and Thats why were so focused on engagement and retention Thats why were so focused on multiple growth levels like what monies just mentioned.
Solutions very excited about partnerships.
No new demographics.
Emerging markets too.
Thank you very much.
Our next question will come from Brian Nature of Oppenheimer. Please go ahead.
Hi, good evening.
Good evening, Hey, Brad.
So I got a.
First question I want to ask is on the new product innovation. So maybe you've discussed will watch your talks in launching soon you test that I'm sure you're pleased with what you see the task. The question I have is how flexible is or how many order leverage you could pull that you launch. It next week, yeah, you're not gave US. The response you expect.
Andrew underperforming, there's there's ways you could tweak it ended the year ended and prepare been better for the for the two years, there really part of next year.
So the innovation itself.
Thousands and thousands of people have.
Gone through this so it works. So we have no concern about the program any innovation itself. So I think that's important if what you're asking how.
You know that we're always constantly iterating and tweaking what are the things were excited about going into 2020, it's very clear very simple, it's a 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 but to be clear the program itself.
Been received extremely well.
That's helpful. The second question David.
Not sort of you did pick your biggest was more predictable product margin too much in the quarter were down about do the math correct in excess of thousand basis points.
I think you had guided Q3 hundred it was or is there some call out there as to why the product margins were so.
Were particularly weak here in Q3.
Well like.
On slide and a couple of capital is Brian within the overall context of the business performed pretty much exactly the way I would've hoped in Q3, frankly, if not as you as you saw on our upholstery.
Ahead of our.
Expectations despite.
Negative foreign exchange so come on the gross margin side silicon, we aspire to be down.
300 basis points year over year everywhere. We're excited about 100 of that was driven by a year over year inventory reserve.
No what changes and then look on the on the consumer product sales side. If you go.
Good.
Good sequential.
Improvement they've been a real weak spot in the first half dsos in consumer product sales down 4.6% in Q3 and.
Forecasting to return to growth in Q4, I feel pretty good about the consumer product sales trajectory also as people get the hands on our broad.
New assortment.
Yes, just to give some context on the product sell side, if you remember.
We reformulated created.
And expanded 100% of all of our products.
So starting in January what you saw in our distribution channels, our studios and E Commerce.
Our all the new product so we've had to scale.
And expand those assortments globally, starting with the first for the year. So as Nick mentioned were now where we can.
See increases in the product sales and because of the work we did and what the new products are where now actually able to distribute those products outside our own.
Platforms.
And that's that's what's exciting and.
That's where we'll have an opportunity in each market.
Right. Thank you very much good luck with the launch upcoming launch.
Okay.
And our next question today will come from Michael Swartz with Suntrust Robinson Humphrey. Please go ahead.
Hey, good evening guys.
Hi.
One of the touch on the National television.
Protection program is 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, and then I guess Mindy with regards to how maybe the response rate from consumers are the response from consumers that come in relative or above your expectations in it.
Is there anything quantitative you can provide it's about maybe how well that did and how well that continues to do into the fourth quarter. Yeah. So 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.
LTV at the end of the quarter.
In a lot of the learnings we did shift.
So we didn't have TV early and then we had TV as part of fall, but 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 risk.
Bonds, hence the recruitment that you saw does that make sense.
Yes, that's okay.
And maybe switching over to Nick just with regards to your EBITDA guidance for the year you maintained it reminds us that guidance add back the $6 million in.
Charges that you guys saw in the first quarter.
So if anything to add back the restructuring charges.
I don't believe so.
It does not add back DNA and as far based compensation.
Okay, great. Thank you.
And our last question today will come from Kara Anderson of B. Riley FBR. Please go ahead, hi, Kara Hi, Good afternoon. This actually mark on for Kevin Hi, Mark Good afternoon, and do you talked about testing some pop ups and high traffic areas. I'm wondering if you could elaborate on what type of high traffic areas.
Will be targeting and then maybe some of the aspects you're hoping that will enhance the brand.
Where where we're finalizing all of those elements, but as we've seen when we show up what we wanted to is being able to attract audience that may not be familiar with the brand.
So how can we give them an environment, where there's a coach they can understand that program vacant.
Almost like have yes, Apple genius bar and interface with our product. So were looking forward to doing some different things than we've done in the past.
For for winter.
And then depending on the success this could be rolled out to maybe longer term permanent strategy absolutely.
Great. Thank you very much.
And ladies and gentlemen, this will conclude the question and answer session.
Tom 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 and 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 is positioning.
As 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 in guides are certainly advocates in evangelists for the new program and I think it will have broad appeal among current returning and first time members.
And it will also be amplified by our most integrated marketing campaign that certainly we'll have a strong call to action.
And then from January to March will be spreading our message of wellness in the nine City tour W.W. presents over his 2020 vision your license focus.
So 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. So thank you.
The conference has now concluded and we thank you for attending today's presentation. You may now disconnect your lines.