Welcome to the WW International Third Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. At this time I'd like to turn the conference over to Corey Kinger of Investor Relations. Please go ahead.

Thank you, Alison, and thank you to everyone for joining us today for WW International's third quarter 2019 conference call. At about 4:05 PM Eastern Time today, we issued a press release reporting our third quarter 2019 results. The purpose of this call is to provide investors with some further details regarding the Company's financial results as well as to provide a general update on the Company's progress. The press release is available on the Company's corporate website located at corporate.ww.com. Supplemental investor materials are also available on the Company's corporate website in the Investors section under Presentations and Events. Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are also available as part of the press release. Before we begin, let me remind everyone that this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the Company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today and except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Joining today's call are Mindy Grossman, President and CEO; and Nick Hotchkin, CFO, Operating Officer, North America and President, Emerging Markets. I will 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, up 6% from a year ago, demonstrating positive momentum from our second quarter where we reported end of period subscribers up 1.5% year-on-year. This is the highest Q3 end subscriber level the Company has ever had, the result of our progress in returning 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 and EPS of $0.68. As a result of the improvements we've been making across the business across all aspects of our advertising campaigns, search, eCRM, studio engagement and more, 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 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 brand, reflecting the intense focus we have had, both on improving our studio business experience and on providing a market-leading digital ecosystem that our members engage with each day. While retention trends can be choppy 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 align with our key objectives of recruitment, retention and elevating the WW brand. They are marketing, execution and strategy; studio strategy and future experience; 2020 innovation; personalization; and global community activation. Our teams have done a tremendous job…

Thanks Mindy. Before I discuss our initiatives around our studio strategy and future experience, I'll 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 digital subscribers were up 13% year-over-year to 3.1 million, an improvement from a gain of 8% in Q2 and then the period studio subscribers were down 7% year-over-year to 1.3 million, an improvement from a decline of 11% in Q2. Total global recruitment was positive versus prior for Q3, with September trends accelerating with the start of our fall marketing campaign and staying strong in October, which we believe puts us in a good starting position for our innovation launch and winter season. Recruitment channels such as Invite a Friend and In-App Purchase continued to work well for us and are highly effective in attracting first-time members. In Q3, about 15% of our global recruits joined through these two channels. Total revenue in the third quarter was $349 million, down 3% year-over-year on a constant currency basis. Digital subscription revenues increased 9% and studio revenues decreased 13% year-over-year on constant currency. Continental Europe was our best performing segment with total revenue increasing 3% versus prior. Gross margin reach was 56%, down 300 basis points year-over-year on constant currency due to lower revenue, preparations for the winter launch, as well as higher inventory reserves versus 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 $0.68, this compares to GAAP EPS of $1.00 in Q3 2019. EBITDAS was $109…

Thanks Nick. As a purpose-driven organization, we are focused on providing members with a deeply human and personal experience, powered by technology and with a foundation in a science-based effective program that delivers 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 11. But to preview, this new program will be our most customized weight loss plan ever, leading to clinically significant weight loss and a healthier pattern of eating. We are constantly listening to our community and we know our members want a more customized approach. We're excited and are looking forward to this program launch. And as always, no foods will be off limits on WW. Beyond our 2020 food innovation, we're focused on continuously making the WW experience more personalized, so each member of feels that we understand them, we know them and we are delivering a program especially for them. Leading up to our innovation launch we've been intensely engaged with our studio teams, ensuring our coaches and guides have the training and support to be knowledgeable advocates for the new program. Through a combination of in-person live trainings and virtual micro learning 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 focused campaign, highlighting what's new about the WW program, weight loss results and the success stories of individual members who have successful weight loss on the new WW program, including those of our global celebrity ambassadors such as Kate Hudson, Tamela…

[Operator Instructions] The first question today will come from Edward Yruma of KeyBanc Capital Markets. Please go ahead.

So a couple of quick ones from 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 is there any that would cause next year be different, one? And then two, obviously lots to discuss on the new innovation - on the program. As you think about kind of leading into the program, how would this launch differ from maybe what you guys did in '17 and maybe from a financial perspective, is this a more extensive launch and maybe can you tell us how we should think about the uplift from it? Thank you.

Look, Ed, firstly on the economics, we've got the same great business model we've always had and very high incremental margins with growth and we certainly expect 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, which gives us a very broad spectrum of who the program is going to appeal to and in 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 and feel that we will be very clear messaging going into 2020.

Our next question today will come from Alex Fuhrman of Craig-Hallum Capital Group. Please go ahead.

Wanted to ask a couple of things, it looks like you might be by piloting or having early launch your new program in a couple of your smaller markets, just curious how that's gone, if there's been any interesting learnings from that initial rollout. And then just thinking a little bit more broadly, it 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, how you're thinking about the timing of the rollout of the new diet program and then 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 pilots in certain markets to make sure all our technology was activating our messaging. So you'll see some of that clearly around the world with every one going live globally on Monday, which we're 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 thrust of our marketing efforts, including our broad scale mass marketing efforts really occurs after Christmas.

And then, Mindy, I think 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 on to those through the winter season. Just wondering if you can elaborate 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 program soon?

Yes, I think it's really important, and as you hear every time I speak about retention, I'm maniacally focused on engagement and we measure that in every aspect of the business; digitally; physically engaging and tracking and engaging in community and a lot of the efforts and what we've delivered to people across the ecosystem of nutrition, activity, mindset, our WellnessWins 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 the confidence along with the fact that we have the new program and we will have kind of a lot of noise about the productivity of that.

Our next question today will come from Olivia Tong of Bank of America. Please go ahead.

First, on the test market, can you just talk a little bit about how you measure performance there, what are sort of some of the KPIs to influence your decisions. And then if there's going to be any pricing changes that come with the new innovation?

So, a lot of the things we're testing our - we know the efficacy of the program, right. So what we're really testing, if you could imagine globally around the world, all of our technology changes. So we're making sure that that's going to be a seamless experience for people that they will be on-boarded into whatever new program. So most of the attention is really being paid to the execution of the program, not necessarily marketing efforts, which really launch going forward. But we're 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 roll out, and this is another great example of that.

And Olivia, like on the price side, no broad - no price change - no change to our strategy there. As you've heard us say many times, our focus is really on delivering value to our members to attract more people to the brand and to have them stay longer and that's what we'll plan to do this winter.

Just two follow-ups there, first on the meeting biz. I guess I was a bit surprised how challenged it was this quarter and how does that in any way influence you as you prepare for the launch. What does it mean as you prepare that meetings to accelerate that dramatically. And if you could talk about things that you're doing to sort of prop that up.

Yes, 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've said that we see that returning to growth. So I just need to clarify that.

Studio sign-ups, recruitment during the quarter was down year-over-year, but in the single-digits and a marked improvement from Q2 and Q1, and revenue, yeah, it's still down 13% in constant currency in Q3. Bear in mind that fall campaign happened in September. So 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, a lot of focus, but obviously we're delighted that we're going to have a new program to shout about here on Monday.

Just one last thing in terms of external partnerships. There is a shortage that you have of external partnerships, whether it's lifestyle services, workouts, food, Amazon, etcetera. The one area that you haven't partnered so far is pharma. So what's your thought there and partnerships overall going forward?

Yes, so I mentioned on the call, our health solutions business, which is our B2B or as I call it B2B2C 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 with everyone those that will be moving forward with into 2020.

Our next question today will come from Jason English of Goldman Sachs. Please go ahead.

Thanks for spot me in. I guess I wanted to come back to a couple of questions Olivia had. First, on the meeting subs are building off the topics. The meeting subs, the guidance for year-on-year growth 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 bring?

Yes. So we expect studio recruitment to turn positive year-over-year during the fourth quarter.

And is that recruitment or is that - would you expect that to translate into overall subs being up year-on-year?

No, we're talking recruitment. Sorry, as we launched new program sometime during the quarter, we anticipate to turn positive.

Got it. That's helpful.

And as Nick mentioned, obviously with the campaign we saw sequential improvement across the business. The one thing I want to talk about and Nick talked to it in his discussion on the studio business as a whole, what we're 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 Kohl's in DeKalb and 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.

So, it sounds exciting. One quick follow-up on the pricing strategy question. I understand as we look at revenue per sub or revenue per user that there is a mix component here of the digital outpacing meetings. But even when we cut 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 the 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 seen an abatement. What's driving that compression and what appears to be pricing for meetings?

Yes. You're right, Jason, that if you look at - compare paid weeks on the studio side versus revenue per studio, you see some price realization in Q3. No real changes to promotional strategy, a good driver of it is our focus on driving people to sign up initially for longer-term retention plans. But that's the - a key driver of it.

Our next question will come from Linda Bolton Weiser of DA Davidson. Please go ahead.

I just wanted to know, can you give us any color on how the sign up or ticket sales rather are going for the Oprah Tour, are they kind of in line with expectations or above or what and --

Yes.

And…

I'm sorry. We're very excited about the response. They are very much ahead of expectations. We've had incredible press conversations about it. People are very excited to experience what it is we will be delivering to those markets. And as I said we're touching hundreds of thousands of 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 had to do with competition, like Keto, 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 how are you kind of rank ordering Noom in the competitive landscape, is that as threatening or less threatening or how do you rank that versus Keto? Thank you.

Yes. So how I would say is, there is always going to be competition and we are acutely aware of who that competition is and what they're doing and what we're focused on, is what we are doing to be able to accelerate our business and differentiate what we do, not only for named competition, but people thinking they can get healthy themselves. We are very excited clearly about our new program Innovation because we think it's going to fill a need 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 we'll be able to articulate the efforts we're 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 are not - I think we're going into the season eyes wide open, but very clear about what we have that is distinct and differentiated.

I think that's right. I'd like many things about this quarter, obviously reaching over 10 months retention milestone, returning to global recruitment growth, but the response of folks to a market-leading digital ecosystem, seeing each segment having double-digit increases versus prior end of period, those digital subscribers shows the response to our digital assets.

And our next question today will come from Michael Lasser of UBS. Please go ahead.

So given the momentum of the business had and the fact that you will be launching the new program, Mindy, is there a subscriber growth number as you look out over the next few quarters that you would be disappointed with if you didn't achieve or the market is already, assuming that you're going to get back to full subscriber growth, both within the meetings business, but is there a level of growth that you would be disappointed with?

Hi, Michael, look, obviously 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. We're excited about this new program. Certainly like any definition of success, next year has recruitment subscribers revenue and profit growth in 2020.

And my follow-up question is, you are in this cycle now where you are having an innovation that will drive growth 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 goal?

Yes, Michael. That is a great question. Certainly we feel that innovation based on what we're seeing in science and technology and consumer behavior is something that we're known for and 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 it's science applied to activity and what we're doing there, we have pilots around sleep, we're focused on mindset. So the key is for us to have a continuous flow of innovation, not just the nutrition side although we know how critical that is for weight loss. But the team's focus is to be able to constantly be delivering enhanced innovations and results to create greater engagement and recruitment; absolutely.

Without providing specific guidance, if we're talking a year from now or when we're talking a year from now, do you think you'll be at that point where you'll just have constant innovation coming and not - obviously not just on the food side?

Well, that's certainly our goal and what we're focused on in different area of the business. This is 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're constantly iterating on innovation and I think that's going to be important in all the segments of our business.

It's a great question, Mike. Like we've shown recently at that go 2017, there can you grow in the second year of a food plan innovation and look, that's why we're so focused on engagement and retention. That's why we're so focused on multiple growth levers, like what Mindy just mentioned, health solutions. We're excited about partnerships, new demographics, emerging markets too.

Our next question will come from Brian Nagel of Oppenheimer. Please go ahead.

So, I've got a - the first question I want to ask is on the new product innovation. So, Mindy, you've discussed a lot here. It's obviously launching soon, you've tested, I'm sure you're pleased with what you've seen with the test. The question I have is how flexible is this or how many - are there levers you could pull that if you launch it next week and you're not getting the response you expected or it's underperforming, there is ways you could tweak it into the year end and prepare maybe better for the dealers in the early part of next year?

The innovation itself, thousands and thousands of people have gone through this. So it works. So we have no concerns about the program and the innovation itself. So I think that's important. If what you're asking is how we're amplifying it, that we're always constantly iterating and tweaking. But one of the things we're excited about going into 2020, it's very clear, very simple, it's the 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 has been received extremely well.

That's helpful. The second question I have, not sort to be a nitpick, but I guess it's more for Nick, the product margins in the quarter were down, if I did the math correct, in excess of 1,000 basis points. I think you had guided to 300. Is there some call out there as to why the product margins were so - particularly weak here in Q3?

Yes, well, like - let me answer in a couple of couple ways, Brian. Within the overall context, the business performed pretty much exactly the way I would have hoped in Q3, frankly if not, as you saw in our POS ahead of our expectations despite negative foreign exchange. So, on the gross margin side, we expect to be down 300 basis points year-over-year and we've said about 100 of that was driven by year-over-year inventory reserve changes. And then, on the consumer product sales side, going sequential improvement. They've been a real weak spot in the first half of the year. So think consumer product sales down 4.6% in Q3 and we're forecasting to return to growth in Q4. I feel pretty good about the consumer product sales trajectory also as people get their hands on our broad new assortments.

Yes, just to give some context on the product sales 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 of our studios and e-commerce are all the new products. So we've had to scale and expand those assortments globally starting with the first of the year. So as Nick mentioned, we are now where we can see increases in the product sales and because of the work we did and what the new products are, we're now actually able to distribute those products outside our own platforms and that's what's exciting and that's where we'll have an opportunity in each market.

And our next question today will come from Michael Swartz of SunTrust Robinson Humphrey. Please go ahead.

I wanted to touch on the national television advertising program 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 or the response from consumers, did that come in relative or above your expectations. Is there anything quantitative you can provide us about maybe how well that did and how well that continues to do into the fourth quarter?

Yes, 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 fall TV at the end of the quarter. And 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 response, hence the recruitment that you saw. Does that makes sense?

Yes, that's helpful.

Okay, good.

And maybe sliding over to Nick, just with regards to your EBITDAS guidance for the year, you maintained it - remind us, does that guidance add back the $6 million in charges that you guys saw in the first quarter?

The $350 million - add back the restructuring charges, I don't believe so. It does not; it adds back D&A and stock-based compensation.

And our last question today will come from Kara Anderson of B. Riley FBR. Please go ahead.

This is actually Mark on for Kara. Mindy, you talked about testing some pop-ups in high traffic areas. I'm wondering if you could elaborate on what type of high traffic areas you will be targeting and then maybe some of the aspects you're hoping that will enhance the brand.

Yes, we're finalizing all of those elements, but as we've seen, when we show up, what we want to do is be able to attract audience that may not be familiar with the brand. So, how can we give them an environment where there is a coach that they can understand a program, they could almost like have a, you know, Apple Genius Bar, an interface with our products. So we are looking forward to doing some different things than we've done in the past for winter.

And then depending on the success, this could be rolled out to maybe a longer-term permanent strategy?

Absolutely.

And ladies and gentlemen, this will conclude the question-and-answer session. At this time 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 and our focus, the creativity of our global teams, the subscriber growth trends are gaining momentum and we feel it's positioning us 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 and guides are certainly advocates and 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 will have a strong call to action. And then from January to March, we will be spreading our message of wellness in the nine city tour, the WW presents Oprah's 2020 Vision: Your Life In 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 is now concluded. And we thank you for attending today's presentation. You may now disconnect your lines.