Good afternoon and welcome to the Weight Watchers Fourth Quarter and Full Year 2015 Earnings Call. All participants will be in a 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, Amy, and thank you to everyone for joining us today for Weight Watchers International's fourth quarter and full year 2015 conference call. With us on the call are Jim Chambers, our President and Chief Executive Officer and Nick Hotchkin, our Chief Financial Officer. At about 4:15 p.m. Eastern Time today the company issued a press release reporting the fiscal 2015 fourth quarter and full year 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 www.weightwatchersinternational.com. Reconciliations of non-GAAP financial measures are disclosed on this conference call to the most directly comparable GAAP financial measures of which are also 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 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 of future events or otherwise. I would now like to turn the call over to Jim Chambers, President and Chief Executive Officer of Weight Watchers International. Jim?

Thanks, Corey. Good afternoon, everyone, and thank you for joining us. I'm very pleased to say that our transformation is building momentum and delivering on our core objective of driving recruitment growth. We have introduced a new Weight Watchers through our Beyond the Scale program and it is resonating with consumers. Furthermore, our partnership with Oprah Winfrey is off to a strong start and her involvement has already contributed to renewed interest in our brand. While we have more work to do, we are highly confident in our direction and pleased by our improving performance. My remarks today will focus on three areas. First, our business performance where in the fourth quarter our business fundamentals strengthened. Second, we'll assess our winter season which started with the launch of our holistic Beyond the Scale program including the rollout of our new SmartPoints food plan and introduced Oprah Winfrey as a partner in our marketing and member engagement activities. And third, following Nick's discussion of our financial performance, I will outline our path forward including our focus areas for 2016. Starting with our 2015 performance, for the full year, revenue was $1.16 billion, adjusted operating income came in at $190 million, and adjusted earnings per share was $0.67. We ended the year with 2.4 million global active members with 1.4 million online and 1.0 million in meetings. Since the very slow start we experienced in January of 2015, we have seen positive improvements in our recruitment trends. In fact, in Q4 for the first time since 2011 we had positive year-over-year global recruitments on a like-for-like week's basis led by particular strength in North America. Through 2015 we reduced our gross annualized expenses by $250 million versus our 2012 cost base. We have fundamentally changed the cost culture of the company so…

Thanks, Jim, and good afternoon, everyone. As a reminder, our 2014 results included an extra week that impacts year-over-year comparability. While this impact is not carved out of our reported results, when I speak to recruitment trends in the fourth quarter of 2015, I am referring to trends on a comparable like-for-like weeks basis. Let me start by highlighting a few key items in our Q4 financial performance. Global member recruitment was positive in the fourth quarter driven by the great response to our partnership with Ms. Winfrey and the December launch of Beyond the Scale. This dramatically improved the year-over-year End of Period Active Base, with Q4 ending down 4.8% versus prior as compared to the 12.7% decline we reported in Q3 2015. Q4 is our smallest quarter, so while the revenue benefits from the recruitment's improvements are not meaningful in terms of our 2015 results, they do improve our 2016 starting point. Specifically, where we previously thought we would have a $35 million revenue headwind going into 2016, our Q4 performance reduced this to $20 million. In addition, in Q4 we incurred added expenses in preparation for the Q4 program launch and marketing campaigns. These items, as well as higher than anticipated tax reserves, resulted in an adjusted EPS of negative $0.03 in the fourth quarter. Absent the one-time tax adjustment impact of $0.04 per share and the negative FX impact of $0.02 per share, we would've generated a profit in Q4. For the full year, total company revenue declined 16.3% on a constant currency basis to $1.16 billion driven by lower Meetings and Online paid weeks compared to the prior year. Given the upgrading deleverage pressures indicated by gross margin decline of 480 basis points on an adjusted constant currency basis for the year, we focused hard…

Thanks, Nick. We're excited about the progress we have made in transforming Weight Watchers. We have more to do and many more opportunities ahead of us. But we believe in 2016 we will deliver on our primary objective of reversing four years of annual decline and returning the company to full year recruitment and revenue growth. We have leveraged our insight's capabilities to launch the Beyond The Scale program and an associated improved service experience for both our digital and meeting room products. We have the opportunity to increase the awareness of Beyond the Scale and SmartPoints, as currently in the U.S., three out of five lapsed members and four out of five never members have yet to be made aware that Weight Watchers has a new program. In addition, we have the opportunity to increase the penetration and consistency of our meetings experience enhancements. Our technology environment is running at lower cost with higher capability, and improvements to our agile innovation model reflect our strategy to deliver continuous innovation validated through consumer exposure. We are continuing our strong partnership with Humana and while not a near-term revenue growth driver at a company level, we continue to see longer-term potential in the Health Solutions business. We are excited about a study published last week by Indiana University, which showed that adults with prediabetes who followed Weight Watchers lost significantly more weight and experienced better blood glucose control than those following a self-initiated program using supplemental counseling materials. As a science-based, evidence-proven approach, we believe we are well-positioned to serve the corporate and healthcare markets as they continue to develop. And we're just scratching the surface of the potential engagement opportunities between members and Oprah. Behind the scenes, Oprah is equally as involved as a board member and advisor, contributing insights and ideas that are informing our view of future opportunities. In closing, I'd like to thank the entire team at Weight Watchers and especially our leaders, coaches and other members of our extraordinary field service provider organization for the progress you have made and the confidence and resolve with which you have made it. Thanks again for joining us today. I'll now turn the call to the operator for questions and answers.

Thank you. Our first question is from Meredith Adler at Barclays.

Thanks for taking my question. I guess, I'd like to ask you, Nick, you're very good at guiding and making sure that we don't' get over optimistic. If we think about the various drivers for 2016, what area do you think has the most upside to get you to the high end of your guidance?

Well, let me tell you about the thing I'm most pleased about and thanks for the question, Meredith. It's terrific to see recruitments growing on both meetings and online and, frankly, now that we're through tech transformation, we have an opportunity to continue to innovate and add value through our tech product online throughout the year. So it's great to see recruitments growing. But as you know, our model has a timing lag inherent in our business model. So as we return to growth, recruitment is a leading indicator, but you know what, we should think about revenue as a lagging indicator. Frankly, with the impact of the lower starting actives headwind as we entered 2016, it's probably right to think about recruitment growth that we're experiencing somewhere in the range of double the revenue growth that we'll experience this year. So that's what I'm most pleased about and that's what really sets us up not only to have a strong 2016 as I believe we're guiding to, but also to propel us into 2017 with more people in the brand at the end of this year.

Great. And then I have a question for Jim. When you look at the response you've gotten from consumers, first, I don't know if you've been sort out there surveying them and what kind of feedback you get from them. And then I sort of have a question about whether you feel that you've got the response you expected to get from the new program and from Oprah.

Yes, Meredith, hi. Look, I couldn't be happier with the new program, but I also would like to talk to the opportunities we have to sustain momentum through the year. We do have a lot of feedback from consumers, both from development, which we've shared with you in the past but now importantly when they're experiencing the program in the real world and the satisfaction is very high. It's high on both the meetings product and the online product. They're telling us that they're having very strong weight loss. They are telling us that upon coming into the program they had confidence that their participation in the program is going to get them the results that they want. They are experiencing a better integration and better digital tool supporting that, and as we have said many times in the past, just the general positioning of Weight Watchers is not a diet but more of a holistic program with integrated fitness. They're responding very, very well to that. An opportunity for us at the same time is the awareness of the program has a lot of upside. We know from our research that when consumers are aware that Weight Watchers has a new program, there's approximately two times the likelihood that they will take an action step, which might be going to the website or the likelihood of attending a meeting or signing up. So we know the awareness of the fact that Weight Watchers has a new program is very motivating. We also know that once they're in the program, as I described, the satisfaction is high. And so when we think about and using some U.S. numbers as I talk to in the script, when we think about the fact that we have 60 points of upside and awareness for lapsed members, which we know are generally speaking very brand favorable as well as 80% upside and awareness from "never" members, that gives us a lot of confidence that we can sustain the momentum. Last point I'll throw out there and Nick touched on this a teeny bit, we have improved the digital tools that are the online product and that support the meeting room product. And we are innovating in a different way there, and so we will be bringing feature enhancements and changes much more periodically to that product than we have in the past. And that's all a function of having a new technology environment and a new development model. So I think the response has been very strong. I would say that our relevance is there. It's been across both meetings and online and we have more to go.

I'd just add, Jim, that every operating indicator that I track is moving in the right direction. So, satisfaction, retention on the program is strong, Jim said folks like SmartPoints, the response to the Connect feature, as Jim mentioned in his comments, and through not only through response to our advertising been good, but we're seeing word of mouth being strong among our membership base for the first time in a few years.

Great. Thank you. That's very helpful.

Your next question is from Alex Fuhrman, Craig-Hallum.

Great. Thank you for taking my question and congratulations on really some transformational change here for the better. Would love to get a sense of the marketing opportunity throughout the balance of the year. Obviously having Oprah Winfrey on board as a marketing partner I would think creates a lot of opportunities that you might not have had during the 10 months or 11 months non-diet period in prior years. What are some things that you're looking at for the balance of the year? And what sort of recruitment trends as the year progresses are baked into the guidance for the full year?

I'd like to take the first part of that, Alex. And as you know, I'll steer clear of very specific things that relate to commercial plans. But I would say in general, as we entered this year, as we launched the program, we had a two-pronged strategy where Oprah was inspiring and inviting and other ads and consumer activation were communicating the strength and the power of the new program. As I just mentioned, one of the critical dimensions of opportunity for us going forward, one of the ways to put metrics around that are the awareness levels. And when people are aware of the fact that we have a program that sparks a lot of activity, and so strategically I think you'll see us focus on that this year. The other thing that's been incredibly powerful and responsive is Oprah's engagement in the community. If you happen to go on the Connect tool and follow her, you'll see a little taste of what I'm describing. But her natural ability, her authenticity as a member sharing the journey has been a very, very positive thing. The response has been strong to that and I think it's a big part, as Nick was referring to a minute ago, why we think we're going to have a stronger word of mouth. So without getting into the tactics, I think that touches on what the core strategic for us will be from a marketing perspective.

Great. Thanks, Jim. That's really helpful. And then looking at the balance sheet, I know you mentioned you have the B2 term loan coming up in four years after the B1 redemption coming up in the next few months. I mean, if your debt were to continue trading around $0.70 on the dollar, the B2s that is, for the foreseeable future, what would your options be looking into the balance of the year? Would it be reasonable to think that at some point with all the cash you're going to generate, you would consider doing a tender to buy back some of the B2s similar to what you did last year with the B1s?

Fundamentally, Alex, the benefit of returning to a strong recruitment growth and generating revenue and increased profitability is that with the leverage in our operating model, now that we have a much better cost structure, we're going to generate substantially more cash flow than we did last year. So that's the basis on which we're comfortable we can use that cash to delever over time here.

That's great. Thanks, Nick. And then, lastly, just thinking about your guidance for the year. It sounds like the business is trending a lot better at least on a revenue basis in the United States than in Europe. And some of that is surely currency related. But was there a discernible difference in the immediate lift that you saw from Oprah's partnership in the United States versus elsewhere?

Are you asking about the markets Oprah participated in from a marketing perspective versus the others?

Yes, that would certainly be part of it or just trying to get a sense of if there were maybe some markets where there was a much bigger initial response maybe because of just a bigger reach on her part in some markets versus others?

I think the program and the synergy with Oprah participating in the consumer activation was a strong factor in all of the markets that we cited as having improved performance: U.S.; Canada; UK; Australia. I think it's been particularly effective in the U.S. and Canada, and Australia, too. So I think it's been a factor everywhere, but parsing that from the strong consumer response to the program is pretty difficult.

Yes, the only thing I'd add is I'd say while we're particularly pleased with the North America performance and obviously given our cost base is fantastic to see meetings growing so well and especially as you know, Alex, we get $44.95 a month from everybody who shows up for meetings versus $19.95 for online, so great economics of a strong meetings business. So particularly pleased with North America, but I'd say while performance isn't as strong in our continental Europe markets, they are still seeing a substantial trend change. So the trajectory is improving nicely there, too.

Okay. That's really helpful. Thank you and good luck this year.

Thanks, Alex.

Our next question is from R.J. Hottovy at Morningstar.

Thanks, guys. And thanks for taking my question. First question I had was just on recruitment trends in general and with that obviously headed in the right direction, maybe what's the next step to bringing people up to some of the higher-priced offerings or some of the more value-added offerings that are out there? I'm assuming most of the recruitment that's coming in is kind of at that opening price point on both the in-person and online meetings. And what's the next trigger point for you to kind of maybe make more aggressive marketing towards some of those higher price points? Just kind of how you think about that over the next couple years?

Yes, I think, R.J., thanks for the question. Obviously we have a premier Personal Coaching product and a Total Access product. I think it's really been terrific to see how we brought the meeting coaches into the online space, and so bringing that human touch into everything we do at Weight Watchers is helping us. And, of course, going forward, strategically, we'll continue to look at more value-added opportunities.

Yes, if I could just add. I know you mentioned in the question, and Nick has mentioned that we have had a strengthening meetings business and he did indicate that that is also a strong point for us financially. We've been confident in the changes that we've made to the meeting experience, making it a better experience in confidence, putting our recommendation flag more aggressively towards that for consumers, encouraging them to try the flagship product, which is a higher price point but is an experience that we think is right for a lot of people and generates great success. And so the second part of it, just as Nick said, we've been experimenting for a year now with strategies that allow us to bring the expertise that is associated with the meeting room to other moments and other dimensions of our product. So Coaching was a way to bring that expertise, Click to Chat was a way to bring that expertise. We continue to experiment with things that go down the same path, whether it results in an improved experience for an existing product at an existing price point, or presents the opportunity for us to enhance revenues by providing a more value-added product. But we're still experimenting with those platforms, but that strategy is still very core to us.

That's very helpful. Second question I had, and this is I guess for you Jim. You mentioned at the end of your prepared remarks about the Humana deal and potentially it being a springboard with the pre-diabetes study that was just released. At the Analyst Day at the end of the 2013, you talked about the Health Solutions business potentially being a $300 million to $500 million-type opportunity. And I just wanted to see if perhaps the timetable has changed and been pushed back a bit. But what is the longer opportunity in that business now as you've had a chance to kind of refine the offering and make it more accommodating to the insurance partners and other players in the space. Just kind of what the longer-term opportunity that you see in that business.

I'll let Nick make any comments on the timetable that he might like. But you know, from prior calls, you probably remember that we had along with many other players in the health care ecosystem anticipated the regulatory environment shifting very quickly. We knew that our product, with the kind of economic advantage and the scalability and reach, that our product could play a very significant role in helping with obesity and obviously, now with pre-diabetes as well. You know, that read was a tough read. And things didn't move anywhere near as quickly as we had thought. And we had made some investments in that arena that we are now leveraging in our B2B business. But we remain focused on the fact that when the conditions become more favorable, we are a cost effective, scalable, very efficacious way to address these challenges that are of incredible proportion and significance to not just the U.S. healthcare environment, but globally. That having been said and reflecting on the strength of the recent study with respect to how encouraging our service can be in diabetes prevention. We would need some things to go well in the marketplace that we don't fully control before these opportunities would become something that would really affect our near-term revenue projections. So we continue to progress. We are optimizing how we work in the vertical with our great Humana partnership. We're not projecting anything very near term to be significant from a revenue perspective in this regard. But strategically, I still believe this is going to be happen. But we don't control all the inputs. And we will be ready.

Yes. I think that's absolutely right. I feel the same way about the business strategically. Great long-term potential. The business as a whole is still north of $60 million today. But importantly, as the consumer businesses returning to growth, both the at-work or regional side of our business and the more larger corporate accounts, our strategic business, both are growing right now. So we certainly see the long run potential.

Thanks.

This concludes our question-and-answer session. And so the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.