Good day and welcome to the WW fourth quarter and full year 2018 earnings conference call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Corey Kinger. Please go ahead.

Thank you Sean and thank you to everyone for joining us today for WW's fourth quarter and full year 2018 conference call. As of 4:05 P.M. Eastern Time today, we issued a press release reporting our fourth quarter and full year 2018 results. The purpose of this call is to provide investors with some further details regarding the company's financial results as well as to provide a general update on the company's progress. The press release is available on the company's corporate website located at corporate.ww.com. Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are also available as a part of the press release. Before we begin, let me remind everyone that the 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. I will now turn the call over to Mindy.

Thanks Corey. Good afternoon everyone. I am glad to be speaking with you today. After an outstanding year for WW in 2018, our start to 2019 and winter recruitment performance has been very disappointing, as reflected in the financial outlook we are providing today. Our winter campaign, while it did help drive positive perception and relevancy of the WW brand through its message of the why of WW and the livability of Freestyle, was not as effective at driving positive recruitment growth, especially when lapping the phenomenal success of the original launch of the WW Freestyle program in the prior year period. In addition, given the particularly competitive winter diet environment, the campaign did not drive recruitment of our significant universe of lapsed members. Our journey won't be linear, but in no way do these results diminish our confidence in our long-term strategy to focus on providing an ecosystem of holistic wellness solutions in addition to our best-in-class weight management program, supported by the modern WW brand. There is a global paradigm shift underway in help people to think about sustainable healthy habits in weight loss. Modernizing our brand, diversifying our audience and expanding our offerings to include more resources to support our members on their journeys are all imperative for the future of the company. Every January, we conducted a consumer perception study to track how consumers identify with our brand. In January 2019, we saw significant improvements in our brand equity compared to prior years, with notable gains in the number of prospective members identifying WW as a modern relevant program that can fit their lifestyles. And perhaps most importantly, more people are agreeing that WW is a livable lifestyle, not a short-term diet. These findings, notwithstanding our current urgency to improve marketing efficacy and performance, reinforce our…

Thanks Mindy. As Mindy mentioned, 2018 was an exceptional year for WW as evidenced by strong year-over-year subscriber growth, double-digit revenue growth and impressive flow-through to operating margin. We ended the year with $3.9 million subscribers, up 22% from the end of 2017 with double-digit growth in all major geographic markets. While this is a solid achievement, it did fall short of our expectations as recruitment growth turned negative year-over-year in December as we lapsed the launch of WW Freestyle For the full year 2018, total revenue was $1.5 billion, up 15% year-over-year on a constant currency basis. Gross margin rate was 57%, up 420 basis points year-over-year on constant currency. And operating income of $389 million increased 37% on a constant currency basis after adjusting 2017 results for our $13 million Brazil impairment. We delivered Q4 GAAP EPS of $0.63, which included an aggregate positive impact from one-time items of $0.17, reflecting the benefit of a lower tax rate in the quarter. GAAP EPS for the year was $3.19, which included an aggregate positive impact from one-time items of $0.48. The full year 2017 GAAP EPS was $2.40, which included an aggregate positive impact from one-time items of $0.75. At year-end, our cash balance was $237 million and our revolver was undrawn. EBITDAS was $451 million in 2018, up from $337 million in the prior year. Turning to 2019, I would like to spend a few minutes discussing our key topline assumptions around recruitment, retention, new channels and partnerships. As discussed, recruitment so far this year has been well below prior-year as we have lapsed the successful launch of WW Freestyle in 2018 and in addition, our marketing hasn't driven recruitment growth. Trends in Studio + Digital, in particular, have been significantly weaker year-over-year and with a higher price…

Thanks Nick. This is a transformative journey and one that isn't linear and there are bumps along the way and we acknowledge that the results we saw in January were a hard bump. As we said, we have already begun taking action to improve performance and in the coming weeks we will be we realigning resources across our global organization to ensure we have the right talent and a clear agile structure in order to drive future growth. With that, I am pleased to announce Kim Seymour is joining WW as our Chief People Officer and will partner with me to ensure that we have the right organization for the future, including the transformation of our Studio business. Most recently with American Express as Senior Vice President and HR business partner, where she supported the former Vice-Chairman now CEO, the CFO in two different lines of business. Kim has demonstrated the ability to architect transformation, forge connections, deliver insights, tunneling talent to strategy. She spent the last several years partnering with leaders on the vital transformation of technology, digital and servicing capabilities at American Express with a focus on enterprise solutions, collaborative leadership and process excellent. Throughout here 20-year career, her focus has been on being a trusted advisor and thought partner and on building world-class teams, ensuring that the people side of the business equation enables strategic growth plans and I look forward to working closely with her. In addition to our continuing key priorities on both the marketing and Studio front, we have to ensure that we have the capabilities and strategies to take the company forward. These key priorities include 20/20 innovation, personalization and creating wellness events and experiences. We are actively at work on each of these areas, which are important drivers of future growth as…

[Operator Instructions]. Our first question comes from Alex Fuhrman with Craig-Hallum Capital Group. Please go ahead.

Great. Thank you very much for taking my question. A couple of things that come to mind. One is, you referenced some fairly optimistic statistics about some of your current customers and I am just trying to understand, I guess, the divergence between the difficulties with recruiting and then it sounds like, if I was understanding your prepared remarks correctly, it sound like from some of your internal surveys of customers, brand perception is actually up from last year and you are continuing to expect paid length of stay to increase to more than 10 months in 2019. So I guess, is there a simple explanation for how new member recruiting and the satisfaction of your existing members on the program could have taken such a dramatic divergence there?

Yes. Let me talk to that, Alex. So let me bucket this into what were external factors and let's call it what were self inflicted factors. And the combination of that became the perfect storm as we went into 2019. So number one, we were anniversarying what was truly a Freestyle phenomenon, largest recruiting efforts in the company's history, most successful program. And clearly, we had plans in place to do that. But the enormity of that was significant. The second is, we are in a very competitive environment. So we have Keto becoming a cultural meme and these things happen very so often. And we are not going to change our DNA. We lived through this for 57 years and we are not to play a game and we never have. We are going to be science-informed and we are sustainable for the long-term. But that does affect lapse member recruitment when we are not lapping something new. And then the third piece was our marketing as a whole, which was very geared to both attracting new members as well as lapsed members. We came out with a significant, anthemic and Freestyle campaign. And again, as much as it was great that it gave us relevance and performance, we need recruitment and it did not do what we needed it to do. And if I was going to assess what the what was, it wasn't granular enough. I think it needed to be more weight loss focused, especially in the January season and a more aggressive bridge from Weight Watchers to WW needs to be more overt. So that was self-inflicted. Now what we did very quickly, we will make changes that are having positive impacts. But given the magnitude of January recruitment, it's a significant headwind. So that was very much about recruitment. On the flipside, what you are talking about, the reason we are seeing retention is that we are providing our members with a huge amount of assets. If you just look at what we launched over the past year and we will continue to do that and we want to continue growing retention. But in our business, we have to recruit. And that clearly is our focus, certainly for the balance of the year to refine and accelerate our marketing efforts. I talked a bit about our spring campaign. Launching our wellness events towards an experiences and then certainly really gearing up to prepare for the launch of our 20/20 innovation. And that is what the teams are focused on and clearly we are not pleased at all with our performance and what we are speaking about today. And we are going to make every efforts to improve upon that throughout the year.

Hi Alex, just to comment on that. Something you said as you asked your question. The mix of first-time WW members and people who have done WW before, this year was quite the same as last year. So while we have a specific issue connecting with lapsed members, I just want to clarify that year-over-year, member recruitment is currently down for first-time WW users also.

Okay. That's helpful. Thanks both of you for that explanation. And I guess just as kind of a follow-up question. I guess it sounds like if I am on interpreting your comments correctly, I mean it sounds like maybe there was a messaging shortfall with the new brand name to WW. Have you seen any evidence, internally or based on business trends that suggested that really is the right direction to go with the name change to WW? And I guess, kind of where I am getting at when I am trying to ask here is, it seems like across all of your different marketing channels, you haven't fully dropped the Weight Watchers brand name. You are still referencing it off in parentheses Weight Watchers Reimagined. As you think about different possibilities as 2019 unfolds, is there are potentially a scenario where you just kind of start using the Weight Watchers brand name more and more again and just kind of move back in that direction? Or is it pretty much 100% that you are going to moving to WW fulltime.

Yes. Alec, we believe the most WW and Wellness that Works for the long-term relevance and performance as a brand is the right thing to do. We always expected to have a bridge between Weight Watchers and WW and Wellness that Works. And obviously, you are seeing it out in the environment. What we didn't do in particular, our broadcast messaging was make that bridge more overt. So what we did, for example, we added the Oprah voiceovers that said, WW, the new Weight Watchers and just like anything else we have to reinforce that for our new members so they really understand there is a bridge, but very important for our former members. But we believe the direction of what we have to represent the brand for the next years ahead and to have the relevance we need specifically based on what people's perceptions of healthy are today and I have said this before, we are not giving up our leadership in healthy weight loss, but we have to lead with what do people want from healthier lives. And we know that. We believe that. We just need to create the appropriate bridge.

Great. That's helpful. Thank you very much.

Our next question comes from Edward Yruma with KeyBanc Capital Markets. Please go ahead.

Hi. This is Sarah McCann, on for Ed. Thanks for taking our question. So when you said that you will be optimizing for the economics around the Invite a Friend program this year, can you give us some more color on how you expect to do that? And any more color on the puts and takes of the impact that Invite a Friend will have on the trajectory for 2019. Thanks.

Sarah, look, these new revenue channels, Invite a Friend and the ability to buy a monthly subscription to WW in the app store, are working well for 15% of our global recruits so far in these channels. In terms of the optimizing economics, specifically for Invite a Friend, we have switched to a specific landing page to improve our economics for that activity versus everybody getting the full offer that is available at the time. So basically looking at the incentives that are needed to drive that program and that's working well for us.

Great. Thanks. And just as a follow-up, can you talk about your efforts to track, kind of different cohorts and customers, like new dads or younger customers? And any success you have seen there so far in 2019?

Yes. Well, I think, as we gone through 2018 and into 2019, particularly in our digital assets, we have been working on diversification. That's why you have seen kind of the distinct influencer bases that we have been doing. We recently, for example, not only do we have Connect, which is our digital community, we have launched Connect Groups. So we have young moms, college, men, et cetera. And we also have specific assets that we have employed, particularly in digital, around new cohorts with a definite focus on lifestage and we will continue to do that. We think it's an important element of diversification for the brand in the future because we do have the appeal and it works.

Our next question comes from Kara Anderson with B. Riley FBR. Please go ahead.

Hi. Good evening. If I heard correctly, I think you said you are seeing some positive results from the initial launch of WellnessWins. Just wondering if you can expand on those comments and possibly dive into engagement or usage with respect to the launch of that program? Thanks.

Yes. To give you just some perspective, WellnessWins launched in the U.S. in October and it just launched in Canada and Europe, U.K. market. But what we have seen is definitively engagement, increases in tracking and its gamification. Throughout the year, we are going to be introducing things like more challenges, an ongoing engagement there because we do believe we are just at the point where we are starting to see redemptions because people had to build up the points and the surprise and delight of what they are getting. So we have had very good feedback and engagement with the program. And I think the more we enhance it, it will be that much more significant.

Yes. I would like to describe 2019 as an investment year for WellnessWins with the cost of prizes incorporated in our gross margin guidance. And then later in the year, our forecast assumes that we start getting those retention benefits based on increased engagement with the program.

Got it. Thank you.

Our next question comes from Brian Nagel with Oppenheimer. Please go ahead.

Good evening. Thank you for taking my questions. So the first question, it maybe a bit of a follow-up to the prior questions, but as we look at the shortfall in recruitment here in early 2019, have you been able to dissect the data to really determine if there is certain group, whether it be demographically or geographically, that you fall short of your goals? So maybe help understand, with that, we can help understand better the true drivers of this, whether it be internal, external, whatever?

So there isn't a specific cohort that we are talking about. At the end of the day, what was self-inflicted on our end were the more aggressive call to actions for recruitment across the base. And that's what we immediately started addressing and started to see improvement, but we need to have that continue. So it wasn't a one isolated cohort. And as I said before, seeing what we are seeing in retention, we just have to get the cohorts in and the job is on us to recruit in a more strategic aggressive call to action with.

Yes. Look, I think, Brian, we have been forthright about the pictures we are putting in place. I think we should view it in the context of a phenomenal year for Freestyle last few years. So you consider that we ended 2017 with 3.2 million people in the brand because of positive recruitment. That shot up to a 4.6 million at the end of the Q1 2018. So a million higher than a year before. 1.4 million subscriber increase from that 3.2 million to 4.6 million. We are expecting the business to follow our normal seasonality this year. So we said that Q1 will be slightly down, people and the brand year-over-year at the end of Q1. Still, showing that normal seasonal trajectory of 3.9 million people in the brand at the end of this year 2018 growing to about that same, roughly 4.6 million people in the brand of the end of Q1. So obviously disappointed with the negative recruitment trends, but still have roughly 4.5 million, 4.6 million or thereabouts people in the brand at of the end of this Q1.

Got it. Thanks Nick. And then maybe a few follow-up and these are for you Nick, more on the financial side. Two questions. One, as we look at the guidance you laid out for 2019 and the sales numbers and the EPS numbers, is there anything between previously between those numbers? Meaning that, are there one-time costs that we should think about as you trying to drive the business. And then secondarily, I haven't ran through my model yet, but are you still profitable? I assume you are still generating cash. Stock's way down now. Could there be an opportunity to be buying back, using your cash to buy back stock here?

Yes. Let me comment, Nick, on the guidance, I guess, on the strong cash position. In terms of revenue guidance, last year we were a shade over $1.5 billion, $1.5 billion, $1.4 billion. Guided to about $1,400 million or $1.4 billion now. So a decline of $114 million. 10 million of that is FX. And by the way, most of that hits in the first quarter. We mentioned, we had a start of active tailwind of $74 million. So the rest of it is roughly $25 million shortfall in product sales year-over-year due to a weaker Studio business primarily and then $150 million negative volume impact due to that weak recruitment environment. So those were the moving parts of the revenue guidance. On the EPS guidance, the biggest driver of cost of such a high margin business is the profitability impact from those lower volumes. Bear in mind, something to take off the top versus the $3.19 that we posted in 2018 is the roughly $0.50 of tax benefits in 2018. So you are just going from $2.70 in 2018 to that no $1.375 midpoint of the 2019 range, the biggest driver of that is the volume drop that I have discussed. In addition, marketing is up by $25 million year-over-year. I want to stress, that's the money we spent in Q1 in terms of costs plan, really tightened our belts and look for efficiencies while doing the right things to drive the business. And we will have flat marketing Q2 through Q4 essentially. So those are the moving parts of the revenue and the EPS guidance. I mentioned the tax rate. Remember, the tax rate going from 8% in 2018 to about 25% in 2019.

Thank you. Then with regard to potentially deploying cash to buy back stock?

I am sorry. Look, we are cash rich.$237 million at the end of the year. $360 million of EBITDAS forecast. So we will generate cash through the year. We will consider capital structure options. To be clear, as we have always said, we are focused on improving our debt position and reducing our leverage. And that's still our clear capital structure priority in addition to investing in our future growth that we are excited about.

All right. Thank you.

Our next question comes from Greg Badishkanian with Citi. Please go ahead.

Hi. This is Spencer Hanus, on for Greg. Just one quick question. You highlighted that you saw increased competitive environment in diet season this year, which is in line with some of the commentary we have seen from one of your other competitors. Could you just give us some additional color on what's driving this increased level of competition?

So if we look out there and we look at surges and things that come into culture right now, we have a Keto surge. It's a meme. It's not like a company. People have Keto doughnuts. And everybody on the diet side look for the quick fix. We have been through this before and we know that we are the program that works. But it also reinforces the fact that it's very important that we become as much of a lifestyle and as much as livability and as much about health as we are about weight loss. We are not a short-term, in and out. We are about sustainable, long-term, livable results. But when there is a lot of noise, particularly in January, we have to focus our efforts on our marketing to recruit as hard as we can, but we are always going to make the smart decisions. We are not going to change our DNA. We are not going to play a game. We never have. And that's why we have been able to do what we do for 57 years and hopefully the next 57 and beyond that.

Great. And then you talked about how the Invite a Friend program has been a tailwind to results recently. Can you just give us any additional color on the length of stay of these subscribers and how that compares to the overall corporate average?

Yes. It is too early to say. But we do know that the ripple effect as we also and people do our program together. There is an accountability and togetherness there. So I would expect it more likely to aid retention than not. But it's too early to conclude that from our data.

Okay. Great. Thank you.

Our next question comes from Frank Camma with Sidoti. Please go ahead.

Hi. Thanks for taking the questions.

Hi.

You talked a lot about your emphasis on the celebrity side coming up here, but so you think part of the problem might be that the average consumer might be moving away from celebrity endorsements and such. I mean we have kind of seen that fade in and out over the years. So I was wondering --

Yes. So let me reframe what I mean by celebrity because we are very, very diligent in who our partners are and we do think that within the influencer space and people who connect with other people, particularly in certain segments, is important. And we have seen it know across especially social and digital platforms. But they have to be authentic. And we have hundreds of ambassadors around the world who came out of our program, who have their social networks. They are very important to us. And they amplify our message. We have local micro-celebrities. We have built the chef portfolio that enhances what we do around lifestyle and food. But anyone that we have decided to partner with really have to have the same vision that we do. It's not endorsement. They have to be focused on inspiring people to lead healthier lives. And there is a lot of people we could be working with that we are not and we are being diligent on who we really feel is going to amplify what our message is, what our brand and program is and why it's important to help people's lives. So I think there is a delineation there and that's been very important to us.

Okay. And my other question and just I might have missed this, on the quarter itself, the marketing spend in absolute dollars was down. Is that the time issue? Or was that a shift to digital where you saw --?

Yes. Q4 wasn't a shift in philosophy, more just a timing issue with exactly when ads aired and when production cost were incurred.

Okay. So it's Q1, you mentioned a higher cost in Q1 of this year.

Yes. That's part of the Q1 higher cost, but a major driver of that $20 million increase in marketing spend in Q1.

Okay. Great. Thanks guys.

Our next question comes from Vincent Sinisi with Morgan Stanley. Please go ahead.

Hi. Terrific. Good evening guys. Thanks very much for taking my questions. I wanted to ask first on expenses. If you could give us a bit more help on, you mentioned cost cutting initiative being launched, kind of where is that coming from? What are the different buckets? And then just related to that, you have of course numerous initiatives and partnerships. What types of expenses are associated with some of these things? And how do you prioritize the array of initiatives? Thank you.

Yes. Thanks Vinni. Look, I will touch on the broad cost initiatives. First looking at operating expenses, as you mentioned, looking in the major components of cost like making sure we are running our call center, contact center as efficiently as we can. Pricing optimization is as part of it. Consolidating meetings where we can in existing sites, where that's a cash flow and profit beneficial. And then given these lower volumes, making sure that our variable field costs reduce in line with that. In terms of marketing, it's about mix of the marketing, particularly ensuring that our digital spend is efficient. I think we have got an opportunity in pure banner, digital ads, for example. And it's about looking at the efficiency of the costs of all aspects of our non-working media, including all of our agencies and production costs. So in terms of marketing, while in our guidance you see marketing spend increasing from $226 million in 2018 to a guidance of $250 million in 2019, bear in mind as I have said is that increased spend is being spent in Q1. So the main cost actions starts in Q2 where we are rightsizing our marketing spend to be relatively in line for quarters Q2 through Q4, essentially flat with how much we spent last year. You might ask, why aren't we getting marketing back to 2017 levels of $201 million? At this time, we think that would be counterproductive to where we want to take the business. Quickly moving to G&A, it's about making sure we only hire the critical positions that we need, making sure that we have got an effective organizational structure and looking at consultants and outside vendors all across the board. So G&A at $250 million versus $251 million in 2018 shows the impact of those initiatives. And as I said in the prepared remarks, it assumes Q2 through Q4 will be lower than last year. Again you might ask, look, why aren't we taking G&A down to $211 million where it was in 2017? It's because we believe in this growth opportunity that we have for the business. And so we have deliberately invested in areas like tech and digital product. And again, we think it would be counterproductive to take the cost down to those levels. So those are the moving parts, but we will continue to manage cost very nimbly throughout the year to ensure that our cost structure is aligned with our revenue environment.

All right. That's helpful Nick. Thank you. And then maybe just as a follow-up just going back, of course, to the year-to-date recruitment and then just kind of the overall thoughts on like, Mindy, you had said, maybe one of the things with the winter ad campaign was you maybe just needed a bit more weight loss focus as one of the components there. So when you kind of weigh that with obviously the brand change going to WW going forward, I know you guys are still committed to that, I guess a quick question, I think you have mentioned in the past how like some customer research that you have done, it shows a positive reaction to the brand change. Has there been anything more recently to kind of just further that confidence? And then also, in your opinion, how do you weigh kind of the messaging end of it with who may or may not be influencers within that?

Yes. And I think that's a great question and that's what we are very focused on. To your point in how we measure, every January we do a significant both quantitative and qualitative study. And what came back was the highest levels of relevance and brand perception that we have seen in the brand and in the company. So while that's good, we have our job to do to also recruit and get people in the brand based on that and that messaging has to be there. The other thing that we have tried to be clear on is that with this move to healthy, supporting our members and supporting people to lead healthier lives, we never wanted to advocate our leadership in weight loss. So it really is healthy living and in many cases through weight loss, because when we do our studies and if you ask people what they need to do to live a healthier life, over 75% say lose weight. So we just not need to articulate that in an effective manner in what our program is going to do for you. And it will also support your efforts, if you want to lose weight. Yes, we are there. We are going to be the best. And if you want to eat healthy, that's there as well. And I think that message will come across around WW. It works. It works for me across the spring campaign. And we certainly are taking all of the learnings and taking it very seriously and making sure we are maximizing our messaging from here forward.

Yes. Hi, Vinni, I just want to come back to your question on partnerships. I didn't mean to skip over of that. So using two of our most visible ones as examples, Blue Apron and WW Fresh. They are essentially royalty streams for us. So while we are thrilled with them and their impact on our brand, that's why to-date they are not major revenue drivers for us in 2019. By the same token, we don't have major costs associated with putting them into place given their royalty structures.

Okay. Got you. All right guys. Thanks very much. Good luck.

Our next question comes from Jason English with Goldman Sachs. Please go ahead.

Hi. Good evening folks. Thank you for squeezing me in. A couple of questions. I guess I was going to initially start with just the flow-through of EBIT, the revenue shortfall to EBITDAS. I think you have kind of answered that with the investment. So I am going to sharpen that question a little bit more on to G&A. You mentioned $250 million holding flat. I get that the marketing investment is a discretionary investment. How much of the G&A is truly discretionary? Or said differently, how much of this $250 million is now more just fixed in nature because of the requisite investments behind the tech and digital capabilities?

Yes. Look, you know what, we have shown that we can nimbly manage our cost structure, Jason and we will continue to do so. If you look at our $250 million of G&A, the largest of piece of that are all in salaries and benefits for people. It's approaching $200 million of that total cost. So it's how we manage our organization and particularly where we have got expertise to leverage in-house as we do, we are sure that we are not paying outside for the great work we can do inside.

Got it. That's helpful. When Mindy walked through some of the drivers of the recruitment shortfall, top on the list was anniversarying the Freestyle phenomenon, I think she said, which clearly, by all measures, was a phenomenal success. It seems to be a testament to the concept that product news here, in terms of the diet program, can really move the needle. In that context, is there anything new that you are contemplating or thinking about? I know, really, it's a long ways off from the 2020 dieting season, but it's probably not too early to start to think about what sort of news you could bring late next year into the next recruitment cycle.

Yes. We have working on our 20/20 innovation for over a year. We have our science teams, have been working on that. And we are excited about where we are going and what we can bring, both from nutrition and science and behavioral science and we know that that definitely recruits. Now at the same time, we certainly have a focus on driving recruitments through marketing efforts, event efforts, digital efforts, everything that we are going to do for the balance of the year leading up to that, but clearly that is a very big focus for us.

Good to hear. Last housekeeping question and I will pass it on. The $75 million carryover revenue benefit. I think earlier in the year, you were talking about $0.50 of EPS. Is it still $0.50 or closer to $0.40, I think is what I just calculated? But what does that carryover benefit and ceteris paribus and hopefully that's not the case, hopefully you guys get some momentum and find new news. Is it right to think about that as a headwind that we are effectively carrying into 2020?

Yes. Look, the $75 million revenue tailwind was essentially roughly consistent with what we have said before. Bear in mind, impacting our Q1 guidance, as I said, that Q1 OI will be down about $50 million versus prior. Q1 only benefits from $30 million of that $75 million as we go through the year. Looking in terms of the flow through into 2020, obviously performance through this year matters. A big component of that too is December performance and as we launch our innovations and that's really where the magic happens or not. That's what hurt us in December when recruits it turned negative in December. Obviously, by the time we get into this December with new news we have an easier comp.

All right. Thank you guys. I will pass it on.

Our next question comes from Michael Lasser with UBS. Please go ahead.

Good evening. Thank a lot for taking my question. In an effort to understand how long external pressures are going to last, if you look back at a parallel situation like the emergence of the Atkins diet or low-carb, how long was that a pressure on the business?

I think going that far back is not necessarily the relevant thing we need to look at. Today, we are in a different technology environment. We are a different brand. We have a different offer. But we would be foolish not to be cognizant of what is happening in the external environment and what people are gravitating to for a short fix. So because of that, we have to be very focused on our messaging of why WW? What we have to offer? Why we are here for people? And why it works when something else eventually does not? And there's always going to be competitors and we have to be out there with what we have to offer for people.

And your expectation that recruitment trends are going to improve over the course of the next couple of quarters. Where do you see the risk associated with that expectation? What might last longer? Or what might cause downside to that?

Look, I think the next big data point for us is spring. And we have talked today about our plans for the spring campaign. And by the time of our first quarter call, we will have some early read on that spring campaign. So the recruitment trajectory, we do assume it improves based on the plans we have for spring and then easier comps in the back half of the year. That's why we are so focused on having a great spring campaign.

Okay. Good luck. Thank you so much.

Our next question comes from R.J. Hottovy with Morningstar Research. Please go ahead.

Thanks for taking the question. And just one from me. Nick and Mindy, could you talk about some of the trends in the Studio + Digital side? In particular, I wanted to dive into the comment about higher pricing maybe being a part of the softness in that business. Obviously, you spoke about a number of corrective measures on the marketing and innovation side. But could you talk about potentially your plans on pricing and any modifications that you might make for 2019?

Hi R.J. This is Nick. Look, the Studio and Digital businesses has been challenged this winter. So when we say that Q1 revenue will be down by over 10%, Studio and Digital is the key driver of that, down a little bit more than that. And so we are very focused on it. I don't think comparative pricing of our Studio + Digital offering versus the cost of our digital subscription offering is a key factor, though we always do a lot of price testing throughout the year. And in terms of our price strategy, it continues to be adding value and features for the price we charge to our members. So we haven't raised prices and our guidance doesn't assume that we will do so across Digital or Studio and Digital.

Thanks.

Our next question comes from Olivia Tong with Bank of America. Please go ahead.

Thanks. In terms of the people who are doing Keto or choosing other programs, what are you planning to do in 2019? You either convince them that that's not necessarily the best methodology or to convince those who have decided to use other apps or other programs for their weight loss to come back to WW?

Look, it's clear that our messaging has to be, why us and why this is the longer-term sustainable program that works? And you will see some of that even in our current messaging about what we do versus you don't deprive yourself of anything. You can go out. You can eat anything you want. You will see quite a bit of food in our social ads, et cetera, including pizza, right. Because we have always been about the livability of the program versus other programs and you will continue to see us differentiate absolutely.

Got it. And I know the $2 billion target has been shelved for 2020, but do you think this is still a viable target in the medium-term? Or is that not even the right way to think about it for now?

Look, we believe in the long-term growth potential of this business. But we really had to be transparent about what we thought we could accomplish by 2020. But our goals of what we want to achieve are definitely still what we believe we have the potential for.

Got it. Thank you.

Our final question comes from Christina Brathwaite with JPMorgan. Please go ahead.

Hi. Thank you for squeezing me in here. I guess I just wanted to circle back to a little bit different. On the mobile app, if you look at some of the reviews, in the Apple Store, for example, it looks like you saw kind of a ramp-up in complaints starting around the end of last year. I don't know if there was an issue with the functionality of the app or a lot of glitches there that maybe caused some issues with turnover in recruitment. But any color around, was there some sort of apathy that happened that you have identified and you are fixing, working on fixing the issue that maybe can help things improve from here?

Yes.

That would really be helpful?

Yes. We are really proud of our app and what we have done consistently in a 4.8 rating. But as I outlined before, we enhanced what we had to offer within our app in a significant way over the course of 2018. And so where we have identified any issues, we have quickly responded to them and whether that's iOS or Android and I think you will see that. But there is nothing, functionally or structurally, that is an issue. And I think you are seeing it in our retention where people have more engagement than they ever have before. So like anything else, we quickly respond to what we are hearing and what we are seeing and we will continue to do so.

Okay. That makes sense. And then, I guess I am just surprised. I understand the focus around cost savings as you go through the year. But I am just surprised by the guidance that marketing would still be flat in 4Q following the cut that you had in 4Q this year, if you are launching a new program for 2020. So should that imply that the new diet program is actually going to be a 2020 January launch instead of a typical kind of December or fall kind of timeline?

We are still working on our plans. And with any new program launch or innovation launch, we obviously start that earlier than going into the January time period, which we will continue to do it again and we have taken some of that into account. But we are constantly relooking at our marketing strategies.

Yes. Look and I wanted to reiterate, in case I wasn't clear in my remarks. When we say flat for the remainder of the year for the three quarters, Q2, Q3 and Q4 combined. So I guess that implies about $130 million to spend this year in those three quarters. That's about the same as we spent last year on those same three quarters. And it's about $15 million higher than what we spent in 2017 on those three quarters. So it's maintaining the level of marketing spend we believe we need to drive the business and to launch our new innovation in December. But of course, we will continue to manage that spend dynamically.

That makes sense. Thanks again.

This concludes our question-and-answer session. I would like to turn the call back over to Mindy Grossman for any closing remarks.

Well, thanks everyone for being with us today and we look forward to speaking with you in the future.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.