Good afternoon, and welcome to the Weight Watchers First Quarter 2016 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation there will be an opportunity to ask questions. 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, Emily, and thank you to everyone for joining us today for Weight Watchers International's first quarter 2016 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 2016 first quarter 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 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. 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. The Q1 financial results we are reporting today are largely a reflection of the recruitment trends before our partnership with Oprah and the successful launch of our new Beyond the Scale program. Beyond the Scale and Oprah's involvement is a winning combination for our business. In Q1 for the first time since 2012, we delivered positive growth across key volume indicators, including recruitments end-of-period subscribers and attendance, which will drive revenue and profitability growth going forward. As a result, we are raising our guidance for the year. Our first quarter financial results are better than we expected and consistent with the guidance we provided in February for a year-over-year decrease in both revenue and profitability. This decrease in revenue and profitability is the result of declining member recruits we experienced through much of last year and don't fully reflect the turnaround we are seeing in the business. We have returned to member recruitment growth, but it will take multiple quarters before we realize the full revenue impact and embedded profitability from this growth. Given the lag in our subscription business model between member recruits and their full revenue and profit realization, we expect that we will report both top line and bottom line year-over-year growth beginning with our second quarter and continuing through the remainder of the year. In a few minutes, Nick will more fully explain this lag between member recruitment growth and the full impact on our P&L, but let me emphasize that we are already seeing the start of the flow-through. An important milestone of note is that our North America business swung to positive revenue growth in the first quarter following declines in the high teens and low twenties throughout 2015. In fact, we are…

Thanks, Jim, and good afternoon, everyone. Let me start by highlighting a few key items in our Q1 financial performance. Global member recruitment was solidly positive in the first quarter, particularly in North America, driven by a strong response to our new Beyond the Scale program and our partnership with Miss Winfrey. This positive recruitment drove an increase in the year-over-year end of period subscribers with Q1 ending up 4.8% versus prior, which sets us up well for revenue growth starting in Q2. For the quarter, total company revenue declined 3% year-over-year on a constant currency basis to $307 million. This is a significant improvement from the trends we had throughout 2015 with revenue declines in the 20% range. With paid weeks up 1.7% year-over-year in Q1, services revenue was roughly flat compared to the prior year quarter. Q1 revenue was also impacted by lower contributions from licensing and product sales which were down 10.7% year-over-year on constant currency. While we saw soft licensing revenue trends, which lagged the overall business trends by about a year, we see great long-term opportunities in licensing as we return to growth. For those of you who are newer to our story, building on Jim's comments, I'd like to take a moment to explain our business model, specifically the lag from member recruitment to revenue, the timing of recognition of revenue and expenses and the strong operating leverage in our model due to the high value of an incremental new recruit. As a subscription model business, there's a lag between recruitment growth and the associated revenue recognition and profit flow-through. To illustrate using the U.S. as an example, the average retention or length of stay is approximately eight months for a meetings member. So the average revenue for that member comes to about $375.…

Thank you, Nick. We're thrilled with the progress we've made on our transformation. The launch of Beyond the Scale was a significant and critical step in transforming our business. Now, our first priority is to stay focused on execution and to continue to build our momentum. And while we're thrilled with progress so far, we believe there is much more opportunity ahead. By combining the brands and capabilities of Weight Watchers and Oprah Winfrey, we believe we can build our momentum into a movement, fully transforming our business and creating a bright future for our company. Our aspiration can be delivered, if we evolve the Weight Watchers brand to represent a greater and more enduring benefit, make everything we do feel more personal and unique, and do more to create living and breathing relationships within and beyond the meeting room. We're working with Oprah within this framework on a range of initiatives that we believe will enhance the Weight Watchers experience and could translate into extending the average length of stay of our members, which due to our high margin business model would deliver substantial economic benefits. The last few years have not been easy for this company, but through the focus and the dedication of our team we have turned the corner. I'd like to thank the entire team at Weight Watchers and especially our leaders, receptionists, coaches and other members of our extraordinary service provider organization for the amazing work you continue to do every day in inspiring and guiding the healthier choices that transform the lives of millions of Weight Watchers members worldwide. We are turning the page on our history to a new chapter for Weight Watchers as a trusted holistic partner that helps many, many more people become their best selves. Thanks, again, for joining us today, and now I'll turn the call to the operator for Q&A.

Thank you. We will now begin the question-and-answer session. Our first question is from Trent Porter of Guggenheim Partners. Please go ahead.

Hi, guys. Congrats on a good quarter. Just a couple of quick ones; the first one, with your meeting attendance and paid weeks up in North America, I noted product sales were still down. And I was just wondering how we should think about that? I would have thought the product sales would have been correlated. And the second thing, have you seen any traction from your online marketing of the product sales?

Yes, hey. Thanks, Trent. Look, product sales in North America, we had a great reception to a new range of SmartPoints-friendly crunchy snacks and chocolate bars that we introduced, so product sales were certainly up in North America. When you look at the trends in product sales and other as a whole that was declined slightly in North America and product sales another year-over-year declined in CE and UK, but as we've said, there's a natural lag in our licensing business. We believe we've got strong licensing opportunities going forward.

Okay. Got it. And then just if I could sneak two more in there. The first one, I wonder if you could expand a little bit on the besides the popularity or relative popularity of Oprah, the differences between this market and what's going on in the UK, Continental Europe, and the difference in the competitive landscape there? And then are you planning to correct it going forward? And the next one, you completed your big IT platform spend or transformation, if you will. Obviously the cost associated with that goes down, but I was wondering if you could talk in addition to say enabling e-commerce some of the opportunities and benefits presented going forward in the near- and long-term from this new IT platform? And then I'll get back in queue.

So to your first question, Trent. We've had two really potent growth levers working in our business. Based on our new consumer strategy, we've introduced the Beyond the Scale program, which has the SmartPoints food plan in it. That has been met very well by consumers. It's resonating, and it has contributed to improving our trends at all of our markets. And the second growth lever that we've had working for us has been Oprah's amplification and creation of awareness for Weight Watchers in general. Looking to your question about international, what we have seen is where people are aware of the new program, it drives them to action. They want to learn more, they want to sign up. Where they're not as aware, obviously, it does not. And so arraying the markets by their level of awareness is critical and correlates with how well they are doing. And particularly in I'll say France and Germany and UK, we have some opportunities to refine our marketing message and focus more directly on the fact that we have a new program and what the benefits of that program is. So between our strength of communications around the fact that we have a new program and as well as the strength of our promotions, you can see where those forces were working better, we did better; and where they weren't, we did less so. So the primary difference in the markets at this level that I'm describing has to do with the execution of how we brought the message forward. Now repositioning a brand and a company against the new program is not something that happens overnight, but we've responded very quickly to get to the second part of your first question and pivoted our ads a little less holistically and a little more towards the primary benefit that the consumers want that has to do with weight and has to do with food and what they're eating and how that relates to the food plan. So we've tweaked the advertising and we've also bolstered the promotions in those markets. The other thing I'd mention is in the U.S. we've put in place a number of technology-driven enhancements to our visitor site, which makes the experience better and increases the level of conversion from visitors into subscribers. We have yet to fully roll those out to the majority of our international markets. So that also accounts for a little bit of a difference that we're seeing in performance. Your second question, I think in general, how do we see the investments we've made in technology playing forward into our future strategies and into our offerings? Is that close?

Yes, I think so.

Okay, so...

And also – I'm sorry – as a follow-on to it, I'm interested to know whether you've caught up with some of the other competitors in terms of the APIs and uptick of your members with APIs, whether it's for the wearables or social media type stuff?

Okay. Let me hijack your question just a little bit and take a step back. Our first quarter was very exciting for us and offered a lot of validation in our transformation plan as we've seen our consumer momentum turn and our active base grow, which is something that we've been focusing on for quite some time, but the important thing about that is to know that it is rooted in fundamental strengths in our company that point to future relevance. When we put forth the transformation plan, we knew, and everyone knew, we were working in a huge market with unmet needs. We knew and everyone knew that Weight Watchers as a program works and it always will. But the world was changing and, frankly, I don't think we quite keeping up and a big part of that had to do with technology and how that was having an impact on our online business and our digital tools in general. And so a big focus in launching our transformation and driving it to be a more consumer-driven company with improved experiences was to bring ourselves up to speed as you're referencing and improve our digital offering, and we've been working hard on that. So on the meeting side we have put a tremendous amount of focus over the last year and changed a lot of things that we think make the meetings a more refreshing and energetic experience, and that's our flagship offering. And what it also does is it provides us a great strategic advantage for understanding what really makes people successful in this more holistic pursuit of losing weight and eating healthier. And that has to do with being connected to other people. We are experiencing that every week in tens of thousands of places and learning…

That was a great answer. Thank you very much.

The next question is from Alex Fuhrman of Craig-Hallum Capital Group. Please go ahead.

Great. Thank you for taking my question. And yes, absolutely, congratulations on quite a transformation here. Wanted to ask a little bit about the healthcare channel? We've seen a number of announcements scroll over the past couple of months about new insurers that you've been partnering with. It doesn't look like necessarily as big as the big Humana announcement from last year. But can you talk a little bit about what some of these partnerships look like? Are they similar to the Humana partnership but just with different insurers? And are there other insurers that you're in talks with about expanding this program this year?

So, Alex, thanks for the question. This is Jim. You know that we've been committed to healthcare as a strategy for a while here and we have right-sized our investment in pursuit of that strategy, but remain committed that this presents an opportunity area for Weight Watchers over time. Going against health plans as a channel was clearly a focus of ours, and we've really enjoyed the Humana relationship. And we think it is successful, it is growing, and we're learning a lot about how to create value with a partner like that. I think what you're referring to is that we're beginning to connect in other ways with some other players in the healthcare ecosystem that act in different ways, and that reflects our strategy to offer ourselves as a point solution in a scaled model where that makes sense. And so trying to capitalize on the emerging regulatory leverage behind treating diabetes and pre-diabetes by working with partners like Solera who are concentrating efforts in building a technology to make it easier for providers like us to connect with consumers who are parts of plans of insurers and have the money and the information and flow and have that service be delivered well. So we're partnering with a few different kinds of players because everybody wants to be with Weight Watchers, everybody understands it's a great consumer brand, it drives engagement. We just have to be ready to work in multiple ways with multiple partners as this environment continues to change. But we're still excited about that. I'm not saying in the next six to nine months it's going to make a meaningful contribution to our revenue, but we're committed to it strategically. Nick, did you want to add anything?

Yes. Just let me add to that, Jim, look, we're excited obviously about the B2C transformation. We've mentioned long-term opportunities in licensing. And as Jim said, healthcare is such a long-term growth lever for this company, too. And we expect the healthcare business in total this year to grow from about $56 million in 2015 to about $62 million, $63 million this year, so good growth. I think importantly, though, as we look at our future and the leverage target that we laid out to be less than 4.5 times levered by year-end 2018, that only requires modest growth sustained in B2C. It doesn't assume heroic growth assumptions either in B2C and it doesn't assume an awful lot of growth in healthcare. So we can get to at year-end 2018 be less than 4.5 times levered and still have healthcare be comfortably less than $100 million business within that framework. Obviously if it takes off, that's fantastic. But our commitment to having sustained growth and delevering isn't dependent on it.

That's really helpful. Thank you both. And then, Nick, I did want to ask a little bit more about that leverage comment that you made. The path of getting to $1.4 billion in revenue, if you're able to do it, would you imagine that being fairly straight line in nature, as in $1.2 billion this year and then $1.3 billion next year and then $1.4 billion in 2018? And just how should we think about plausible ways to get there in terms of recruitment growth? And I think on the last conference call you'd said that if you end the year this year with a mid-single digit increase in customer count, that would set up about a $0.19 EPS tailwind for next year. How does that tailwind look now given that it sounds like you're probably going to end the year with a little bit better than that?

Yes, Alex, it's something we've reiterated that based on our growth this year that flows through into higher end of period subscribers in the brand at end of 2016. And so it gives us an actual revenue and EPS lift into 2017 for sure. And, look, in terms of the cadence of the progression to that $1.4 billion in revenue, I'm not prepared to lay out exactly what that could look like today, but safe to say it doesn't require anything other than moderate, sustained growth in our B2C business recruits. And as you heard Jim say, with the runway we believe we've got in our Beyond the Scale program and, of course, the partnership with Ms. Winfrey, we think we're very well placed to deliver that.

That's terrific. Thank you very much and good luck.

Thank you, Alex.

Thank you. This concludes today's conference. Thank you for attending today's presentation. You may now disconnect.