WW International, Inc.
Q1 2019 Earnings Call Transcript

Published: 3 May 2019

[Operator:]

Good afternoon, and welcome to the WW First Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Corey Kinger, Investor Relations. Please go ahead.

[Corey Kinger:]

Thank you, Andrea, and thank you to everyone for joining us today for WW's first quarter 2019 conference call. At about 4 or 5 p.m. Eastern Time today, we issued a press release reporting our first 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. Supplement and investor materials are also available on the company’s corporate website in the Investor section under presentation 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.

[Mindy Grossman:]

Thank you, Corey. Good afternoon, everyone. I'm glad to be speaking with you today. I'm pleased to say that year-over-year member recruitment trends have improved in both February and March, but still below 2018 levels, we stabilized the business by taking quick action to improve and optimize our marketing effectiveness. This resulted in attending the first quarter 4.6 million subscribers, above our prior expectations and up 1% from the first quarter of 2018. As a result of these improved recruitment trends and strong cost management, we delivered Q1 results ahead of our expectation. As we discussed on the call in February, our 2019 winter campaign did not recruit to the levels we had intended. We attributed this to three main factors

[Nick Hotchkin:]

Thanks, Mindy. Before I discuss our results and outlook, I'd first like to say, how thrilled I'm to be leading our North America efforts. Our talented teams have really galvanized around driving performance across all aspects of the business, and it is showing in our improving trends. I'm already enjoying spending time in the field and hearing from other coaches. And with that, I'll turn to our financial results. We entered the first quarter with 4.6 million subscribers, up 1% year-over-year and slightly ahead of our expectation as the actions we took during the quarter helped stabilize the business. Recruitment channel such as Invite a Friend and in-app purchase are working well for us, and are effective and attracting first time members. In Q1, approximately 15% of our global recruits joined through these two channels. Despite that, Q1 member recruitment was down year-over-year across our major geographic markets, with the Studio business, in particular, being significantly weaker year-over-year. Total revenue in the quarter was $363 million, down 9% year-over-year on a constant-currency basis, primarily driven by declines in Studio revenue as well as product sales in other revenues. Digital subscription revenues increased 11% year-over-year on a constant currency in Q1, primarily due to the strong pull-through from a higher level of incoming subscribers at the start of the year. Gross margin rate was 55%, up nearly 130 basis points year-over-year on constant currency. Excluding the impact of inventory of lessons reserves taken in Q1 2018, gross margin would have been roughly flat year-over-year, a little better than we expected due to cost-reduction actions taken in the quarter. Operating income was $22 million, down from $62 million in Q1 2018, primarily driven by operating deleveraged on lower revenues and higher marketing expense in the quarter versus the prior period. Also, impacting Q1 2019 operating income was $6.3 million of expenses related to organizational restructuring. As discussed in our February call, the better aligned profitability and cash generation with expected revenue levels, we launched a comprehensive cost-savings initiative across all expense lines. Q1 GAAP EPS was a loss of $0.16, which included a negative impact of $0.07 per share related to the organizational changes. This compares to GAAP EPS of $0.56 in Q1 2018, which included a $0.25 per share tax benefits. EBITDAS in Q1 was $38 million. Now turning to our outlook. Our subscriber trend over the course of 2019 is expected to be consistent with our normal seasonality. Like, Q1 is our peak end of period subscriber level and the year-end is our low point. We expect Q2 end of period subscribers to be down slightly, both year-over-year and sequentially. As a reminder, about 40% of our annual recruits join us in Q1. And therefore, while we have expect our business recovery and cost structure actions to have a positive impact over the course of the year, it is difficult to recover from the soft start given the seasonality of the business. We expect member recruitment to be negative for the year as a whole for both Digital and for Studio. On a global basis, average retention continues to be well over nine months in both Digital and Studio, reflecting the value our members are finding in WW. We are focused on further expanding retention through WellnessWins and our other efforts to enhance the member experience. We continue to expect full year 2019 revenue to be approximately $1.4 billion. This guidance assumes a continued mixed shift towards digital subscriptions and anticipate some relevant -- improvement in recruitment trends in our spring campaign and some further improvements in the back half of the year as we lap easier comparisons. This revenue guidance also assumes an estimated foreign exchange negative impact of $12 million. Overall, we continue to expect subscription revenues to be about 85% of our total revenue this year. In North America and UK, we expect full year revenue to be down in the mid single-digits on a constant-currency basis. And in Continental Europe, we now expect full year revenue to be down in the low single digit year-over-year on a constant-currency basis, representing a modest improvement versus our prior guidance. Our full year GAAP EPS guidance range has increased to $1.35 to $1.55 reflecting slightly improved revenue trend and strong cost management. This guidance assumes 70 million shares outstanding for the full year. For the remainder of my comments, I'm going to speak the midpoint of our full year EPS range and on a constant-currency basis. We now expect gross margin rate to decrease by about 200 basis points in 2019, an improvement from our prior guidance, primarily reflecting lower volume partially offset by cost saving initiatives versus prior year. Marketing expense in 2019 is expected to be about $250 million. We'll continue to be agile in our approach, investing behind initiatives that produce results and in addition to an always on digital and social marketing approach globally in United States, which is our largest market. This year our spring TV advertising will run through mid-June. G&A expense in 2019 is expected to be approximately $250 million, reflecting lower absolute dollars spending year-over-year in Q2 through Q4. Below the line, we assume full year interest expense to be approximately $140 million and a full year tax rate of approximately 25%. For the year, we expect CapEx primarily driven by tech spend, capitalized software and some studio network improvement to be in the $60 million range and DNA is expected to be about $50 million. Now I would like to spend a few minutes talking about our capital structure and our cash generation. Our liquidity position is strong. At Q1 end, we had $193 million cash balance and an undrawn revolver. We expect EBITDAS of approximately $350 million for the full year, demonstrating our continued strong cash generation, and this cash generation is well in excess of our short-term debt obligations. So absent any debt repayments, we would expect to end 2019 with a cash balance higher than the end of 2018. We have covenant-light debt structure and the flexibility to prepay our term loan at any time. We ended Q1 with a net debt-to-EBITDA as leverage ratio of 3.7 times. Notes that the leverage calculations used in our credit agreement are on a first-lien basis and Q1 end are consolidated first lien net debt-to-EBITDA as leverage ratio was 2.91 times. With a highly cash-generative business model, we have resources and flexibility not only to operate the business, but also to continue to invest in the initiatives that will drive our growth. In summary, we are encouraged by the incremental improvement in trend resulting from our cost connecting actions. We remain confident that our strategy to focus on providing holistic wellness solutions in addition to our very best-in-class with management program is the right path to create long-term sustainable growth. And with that, I would like to turn it back to Mindy.

[Mindy Grossman:]

Thanks, Nick. As we have outlined previously, we have five key priority areas for 2019 that is all aligned with our key objectives of recruitment, retention and elevating the WW brand. First, our marketing execution strategy. Our approach to marketing is across the comprehensive member journey contemplation to sign up to on-boarding to motivation to engagement to success. Our cross-functional team is focused on creating experience, which understands, recognize and rewards our members so well it only come from WW. Our goal is to make us a first choice for consumers, who want to lose weight and get healthy. We are leveraging our data and learnings to further enhance our communication to drive engagement in everything we have to offer, nutrition, activity, mindset, motivation community and personal support as well as products, event and more. I'll discuss our actions around personalization in the member journey shortly. We also engaged with prospective members and current WW members alike in our influencer marketing. Our ambassadors are highly effective in helping people meet where they are, driving interest and engagement globally. For example, last month Kate Hudson shared her weight loss update to more than 10 million Instagram followers, that how she's close to reaching her goal weight and how WW's easy and livable program app and community has helped along the way. This is post drove over 300,000 social media engagements and editorial commentary, aspiring conversation and resulting in mass and well as broadcast and online news coverage garnering over 17 million earned impressions. Having a diverse combination of celebrity and non-celebrity member ambassadors is helpful in showing that WW is for everyone. We recently welcomed several new ambassadors to our family, including Grammy Awards Winning Gospel Singer, Tamela Mann and British TV personality, Alison Hammond and the response has been fantastic. We look forward to upcoming marketing activation featuring our global ambassadors. Just to highlight one of the upcoming activations starting on May 5th, we'll be celebrating and showcasing DJ Khaled's recent 42-pound weight loss milestone ahead of his upcoming album release, high impact added home takeover in the heart of Times Square. As many know Khaled's reason for being a part of the WW family was to get healthy for his son. His new studio album aptly named Father Of Asahd launches later in the month and we are excited to celebrate the launch with a number of creative marketing activation. Second, let's talk about our studio strategy and future experience. Of our 4.6 million subscribers at the end of Q1, 1.5 million was Studio + Digital members. Our in-person workshops with WW coaches are key differentiator in providing the community inspiration that many people look for in their weight loss and wellness journey. Our teams are implementing an expensive plan to improve performance and make the necessary fundamental changes that will drive this business over the long-term. These initiatives hit upon every touchpoint people, programming, and places. We are putting NPS, which is a measure of customer satisfaction, the heart of everything we do. We have recently implemented a proprietary and customized global call-track system to get real-time NPS data not only at a studio level, but down to the individual workshop level. We're using this NPS data to drive decision on the overall health of our studio business, leveraging strength and opportunity in the program, service delivery, the overall member experience. First and foremost, this is a personal relationship between of our members and their coaches and guides. Our 16,000 studio team members worldwide are our strongest advocates and are the ones who bring WW to life. We are focused on galvanizing our field and providing the tools, training, and resources to better support both member recruitment and retention. We're also leveraging our WW coach counsel to ensure the voice of our coaches is applied as we rollout the initiatives and changes. As we look towards the future of the member experience, we are testing various formats to enrich the coaching experience and gather insight. In addition, we are piloting virtual coaching to bring our coaches to members in new and modern ways. In short, we have a strategic framework of initiatives designed to galvanize our coaches recruit new members and elevated our studio experience. Third, our 2020 innovation. The 2020 innovation is a critical component of our strategy. We've taken the learnings from WW Freestyle, new scientific research, leverage the latest in food science, behavioral science, and consumer preferences to create our most personal program yet. This global innovation has been in development for nearly two years further has been ever and are excited to bring this to members later this year. Personalization. I talked about it earlier, it's our intent to personalize all that we do. Importantly, this encompasses every touch point in a member's journey. Some are high-tech such as recently launched Siri shortcut voice integration and others are low-tech such as WW Coach by name, but all are immensely important to the member experience. Celebrating successes is always been a substantial part of the WW culture. To encourage our members along their journeys, we have in-app digital badges to celebrate their success and engagement in addition to these virtual batches, in our workshops, members receive milestone charms as they hit weight loss milestones and this concrete recognition is deeply inspiring and motivating for many members along their journeys. So, we want to recognize the price and delight our digital members as well, so we are currently in the process of rolling out delivery of charms digital members and these milestone recognitions become significant moments on social media. By recognizing our member successes to tangible and digital milestones, wins for tracking or coming later this year WellnessWins challenges, we're adding more value to the member experience. From our testing, we know that rewards and recognition drive increase engagement, which then drives longer retention. We look forward to adding even more value, recognition, rewards and gamification to the member experience. We are also delivering a more personalized experience just recently launched Connect Groups, which are providing a greater sense of logging. Connect Groups help WW members find people like them, such as in our LGBT queue, WW growth and foodie groups, when members are like them, they don't feel they have to explain themselves to each other and the conversations get deeper and more relatable faster. They get reliable advice from people in the same life stage, such as our Brides Group which is one of our most frequently visited groups. The Brides Group has high return visit with the members are counting down to a specific significant event and are finding timely content and support, and they find a forum where they can easily contribute or get immediate value, such as our recipes and their group. Even though Connect Group has just launched, we have found that group members are posting more frequently and are falling two times as many people as non-group members. Currently 9% of Connect users are members of the group. So given the value our members have told us the group provides is a big opportunity to grow this metric and, thereby increase overall engagement. And then global community activation. As I talked about during our last call, one of our key priorities is to galvanize communities to events, activations, content and experiences. We will be hosting a series of events throughout the summer, taking off of an activation on global wellness day in June. Later in the fall, we will be announcing a multi-pronged activation of community events, including events in partnership with Oprah Winfrey, which we will be launching earlier in the New Year. More to come on this, but needless to say, we are very excited that the opportunity to bring our brand into the community to reach and touch so many people. By executing on each of these priorities, we are confident we will be able to improve our performance trajectory. While recruitment at the start of the year was not with our expectations, we are encouraged by the team's ability to quickly course correct and pivot where necessary, while maintaining focus on our long-term vision. We are confident that developing a best-in-class weight loss and wellness ecosystem that encompasses nutrition, activity, mindset, motivation, community and personalized support with broader appeal to more diverse audiences, it’s the right path to support long-term sustainable growth. Weight loss and wellness are highly attractive markets. People everywhere want to be healthy, happy life and by executing on our purpose to inspire healthy habits for your life, we become the real partner of wellness as well as the work leaders with Wealth Management. So thank you for joining us on the call today. And with that, we will now turn the call to the operator for Q&A.

[Operator:]

We will now begin the question and answer session. [Operator Instructions] And our first question will come from Brian Nagel of Oppenheimer. Please go ahead.

[Brian Nagel:]

Hi good afternoon.

[Mindy Grossman:]

Hi Brian.

[Brian Nagel:]

Thank you for taking my questions. So my first question and I appreciate all the color and your comments with regard to subscriber growth. So as we look back now in Q1, may be with a clear wins. Can we talk more about with the weakness in recruitment, do you think now is more a function of say internal missteps versus external factors like some of the new guys could have emerged. How do you think about that split?

[Mindy Grossman:]

So what I think about is we can control what we can control and the reason why we have been a leader in what we do for over 55 years is because we lead in healthy weight loss and now in the ability to also help people lead better lives as wellness. So what I'm talking about is very specifically what we diagnose is what we could have done in a more effective way and that's why we're seeing the results of that in the improvement. Nobody is more disappointed than us that we didn't perform, but we immediately diagnose, we immediately responded, we created new assets, new ways to engage the customer and our focus is on absolutely controlling what we can control and do what we can do best.

[Brian Nagel:]

Okay. And then if I can a follow-up question. Nick, you have mentioned in your financial commentary that how the trajectory in subscribers -- likely trajectory subscriber through 2019 and I think you said we expect a similar type phase if you will is in prior years, but the question I have is, if we think about -- the ways we’re think this, but weaker subscriber growth, we couldn’t expect subscriber growth in Q1 and arguably some of that was probably that recurring customer not coming back to the Weight Watchers brand. Could we make the assumption, if that's true then maybe there would be less follow of fade through this year. You have base -- potentially stick your base right now at the end of Q1?

[Nick Hotchkin:]

Brian, like our guidance assumes the same seasonal trends that I said in Q1 as the peak over the year end as the low point. Now, of course, within that expected normal seasonal trend both with the WellnessWins and other retention driving activities, we're focused not only on continuing to improve our recruitment trajectory, but have people stay with WW for longer also.

[Brian Nagel:]

Okay. Thank you.

[Operator:]

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

[Frank Camma:]

Hey, thanks for taking the question. First question is just a clarification. Nick, did you say that there was $6 million in SG&A related to restructuring?

[Nick Hotchkin:]

Yeah. There is a $6.3 million in total restructuring spend or $0.07 per share. The vast majority of that is about $5 million or so, Frank, SG&A, the rest hit OpEx.

[Frank Camma:]

Okay. So if we wanted to normalize your numbers, we could take out $0.07. Is that what you're saying for…

[Nick Hotchkin:]

Yeah. The $0.16 loss that we reported had that $0.07 restructuring within that number, yes.

[Frank Camma:]

Okay. That makes you 250 for the year, more reasonable given what you said. Okay. The other question is just, sort of, products obviously not your big thing, but the product revenue was really the only big variance on my revenue line. Why would that be down so sharply year-over-year given some of those initiatives that you've been working on?

[Nick Hotchkin:]

Yeah. Look, I think some unique -- Frank primarily the fact that we set our studio business and therefore, attendance in meetings was so weak during the first quarter, particularly in January new members to WW tend to spend more on that products when they're in our workshops. The other factor was the fact that we're just really ramping up globally that's wonderful new line that comes through the products and that's why we certainly expect year-over-year trends and product sales to improve as we go through the year and our guidance assumes that they dip.

[Mindy Grossman:]

And you will see over the course of the year more and more new product introductions, particularly in the food space and other categories and also continued focus on in addition to the sales that we're doing in our workshop, our e-commerce platform I think you saw we launched our first dedicated store on Amazon and we continue to add our products as they've been developed and formulated within that.

[Nick Hotchkin:]

Bear in mind in the tail end of last year, we were ramping down the tail off of our old products as we thought it ramped up this new product lines. So we've got easier comps in the back half of the year or so.

[Frank Camma:]

Okay. Just remind me that's where you put royalties as well, right, but those are well down from historical year. Is that correct?

[Nick Hotchkin:]

Yeah. Royalties licensing business, relatively flat year-over-year.

[Mindy Grossman:]

The way to think about it is we've said back, as you know, and done a full assessment, what our opportunities are within the product space. Certainly, our first priority was to have the products out there that we sell be consistent with who we are as a brand, which is why all we formulated, all back out in the market across every product we have. We also brought in new Head of Product and Licensing and we are looking globally, particularly in areas of healthy kitchen where you've seen -- focused our efforts. So you'll expect to see product expansion, particularly around those areas of business.

[Frank Camma:]

Okay. That’s helpful. Thank you.

[Operator:]

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

[Jason English:]

Hey, good evening folks. Thank you for squeezing me in.

[Mindy Grossman:]

Good evening. Hi, Jason.

[Jason English:]

I want to drill a little bit deeper on the meaning subscribers in North America, because it was certainly a little larger than we expected and given your initiative on trying to dig into satisfaction, it sounds like it's also an area that you guys are focused on. Any early indications of what drove the relatively sequential step up in North America new subscribers? And is it fair to assume that this cohort of consumers is the one where rates are highest, mean they generally come in; they leave with satisfaction and then come back a year or two later?

[Mindy Grossman:]

So to your point, last members, particularly early in the year, normally first to come back. If you think about it, we were also lapping a year of a huge new news innovation, which tends to drive lapsed members even more, so a combination of those things. So you're right. So we definitely know that even from a targeted marketing point of view working both on certainly new and lapsed members as we look for the business. But then also looking at things like new studio format, new partnerships to attract new members. So for example, we announced that our partnership with Kohl, we're building a 1,600 square-foot studio and a flagship in Chicago and have other efforts. So you'll see diversification of how we're looking to recruit, not just former members within our existing environments, but also expanding our opportunities where we can recruit new members.

[Jason English:]

Okay. And in terms of let's -- just a broader on recruitment then, you mentioned that retention still high tracking over nine months. You gave us some great little data points in terms of engagement, which hopefully should intuitively would translate into retention. But recruitment is clearly the soft point here. Do you think you're doing enough from recruitment? And you mentioned that you've seen sequential improvements in the quarter? Is there any quantification, any data points you can give us to grasp to contextualize the improvement that you talked about?

[Nick Hotchkin:]

Yes, so it looks sequential improvement during the quarter and frankly continuing into the launch of our spring campaign also and that's reflected in our guidance. So I wouldn't expect Q2, our guidance doesn't assume that Q2 has positive year-over-year recruitment, but we would expect to cross that hurdle sometime later in the year.

[Jason English:]

Okay. Thank you.

[Operator:]

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

[Vincent Sinisi:]

Good evening guys. Thanks very much for taking the question here.

[Mindy Grossman:]

Hi.

[Vincent Sinisi:]

Hey. Wanted to ask about the data analytics that you mentioned you said on -- and especially on the back of the new ad campaign. Can you give us all just a little bit more sense kind of some of the things that you're looking at, what you're seeing? And maybe also with some of the kind of mitigation of some of the missteps from a few months ago like do you have a sense for whether those things kind of reversed and you saw impact on most?

[Mindy Grossman:]

Yes. So I'm going to bucket into a few things. We've really enhanced our talent and our organization in terms of strategic member marketing, data science, marketing analytics. And as Nick was asked a question about, we have made some organizational restructuring in how those teams are working together or based on the back of informing through data. So that was a work in process, but certainly we accelerated those efforts. The second is we really looked at the marketing mix overall. So, although you still see us doing television spots, you will see a lot more asset, particularly in the areas of direct response social, digital, et cetera. I use the example of a number of assets we have out there today that we're measuring to make sure that we have the ones that have the most efficacy and then the new assets are being created against that, so very structured process and that also goes through any of our ECRM SEO. So I would say, if you actually -- for now, if you look year-on-year, we have much more sophistication there. So we feel very positive about what we're being informed and the measures we're taking and what we're creating against those assets.

[Vincent Sinisi:]

Okay. That's helpful. And then just more of -- just kind of a strategy question here. Kind of at a high level that you had some improvement later in the first quarter. But as you said in your comment of course, now looking forward to the next holiday season the 2020 innovation plan. Is it a fair thing to say that you'll continue to have things come out as we go through this year, particularly as it go into the fall. But is your mission right now to try to just kind of keep things stable for the majority of this year, and then essentially kind of come out with gun blazing as we get in toward the next holiday season. Is that how we should just kind of think about it at a high level?

[Mindy Grossman:]

Well, I think the way to think about the high-level is that we have an organization focused definitively on sequential improvement throughout the year, because I think you'll see, we have efforts whether they'd be around marketing efforts, studio efforts, influencer efforts, partnership efforts, that are all going to help to build to help us amplify the 2020 innovation. As I mentioned, we've been working on this for a long time. We have a very deep processes to make sure that we are going to deliver that in the most effective way. But there are certainly things that we're going to do throughout the year, both to improve performance, but also to help us amplify those efforts when we get to 2020 innovation.

[Vincent Sinisi:]

Okay. All right. Great. Thanks very much, guys and best of luck.

[Mindy Grossman:]

Thank you.

[Nick Hotchkin:]

Thank you.

[Operator:]

Our next question comes from Mark Rosenkranz of Craig-Hallum Capital Group. Please go ahead.

[Mindy Grossman:]

Hi, Mark.

[Mark Rosenkranz:]

Hi. Good evening and thanks for taking my questions. You mentioned some interesting subscriber activity with the increased food and activity tracking. I was wondering if you've seen any type of demographic shift with this new recruitment class or type of learnings on what they're tracking or what activity they're logging that can perhaps benefit recruitment, retention, how you market reach these new recruits?

[Mindy Grossman:]

Yes. So what we find at least of the tracking -- what we're seeing in food, ever since we came out with Freestyle, is people really embracing the ZeroPoint foods. And if you look at any recipe that shared, food is a core component of what we do. So it really is relative to the program itself what's being tracked. I can't tell you that the number one tracked food is an egg, if that's interesting, it is ZeroPoint. Relative to activity, as I mentioned, we're seeing a lot of that activity coming from syncing of devices. We've seen an increase in that as well and it really is diverse across the population. It's a pretty diverse population of where they are in their health journey. So that's really relative to what the devices, but not surprisingly, energetic walking, running, they tend to be the highest as far as that goes. In terms of diversity of audience, we're starting to definitely see movement on the gender side, I mean, we feel are predominantly female. But we are pleased that, as a result of our targeted marketing efforts, more diversity in our –adds themselves. We're starting to see movement there, and we're also starting to see diversity overall and that has a lot to do with the expansion of our ambassador and influencer base. And so, you'll see continued efforts as it relates to that.

[Mark Rosenkranz:]

Okay. Great. That’s helpful. And then just quick follow-up. You mentioned 9% of Connect users are in groups right now. It seems like a pretty big opportunity to expand recruitment and retention. Does that give you more of 2019 opportunity, you can build into, as you enter 2020? Or is that potentially part of the 2020 program offering that you're looking to?

[Mindy Grossman:]

I think, it's relatively new. The groups are getting formed. I mean, people have engagement on the whole Connect. I think, it's just a matter of them recognizing and joining the groups. And I have to say, I belong to a number of the groups. And it really has made a difference for those people who really want to engage with people like themselves. The other interesting thing is that a lot of people still stay engaged in the broader connect, as well as in their groups. So we're actually getting additional engagement. So we'll continue to monitor that. We have other elements that we want to add into these connect routes to help foster the engagement. So we're very pleased with the initial response.

[Mark Rosenkranz:]

Okay. That’s great. Thanks for taking my questions and best of luck on the spring and summer here.

[Mindy Grossman:]

Thank you.

[Nick Hotchkin:]

Thank you.

[Operator:]

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

[Mindy Grossman:]

Hi, Chris.

[Nick Hotchkin:]

Hi, Chris.

[Spencer Hanus:]

Hi, guys. This is actually Spencer Hanus on for Greg.

[Mindy Grossman:]

Hi, Spencer.

[Spencer Hanus:]

You just had a question. Yes. Hi. You just had -- or you just had -- you called out the 15% of recruits in 1Q came from Invite a Friend and in-app purchases. So just curious how the demographics of those recruits compare to the overall company?

[Nick Hotchkin:]

Yes. Like, as you like -- those new channels, great tools, particularly in-app purchase for attracting younger audience. Invite a Friend has been a terrific success in terms of bringing more men into the brand and both of these channels are very highly incremental, a very rich mix of first time users to the brand, and so that is why I'm very pleased with these two new recruitment channels.

[Spencer Hanus:]

Okay, great. And then in terms of member retention. In the past you've talked about trying to get to 10 months in 2019. Do you still think that an achievable target this year? And how do we get there from, I think, you said, above 9 currently?

[Nick Hotchkin:]

Yes. Look, well over 9 now, as you heard, say, working on great retention drivers, including WellnessWins, which we expect to have this same sort of ramp up usage curve as we saw in Connect know and the importance of the digital rewards and milestones that we mentioned in the call. So absolutely, we're certainly shooting to get to over 10 months as soon as possible.

[Spencer Hanus:]

Okay. Great. Thank you.

[Operator:]

Our next question comes from Edward Yruma of KeyBanc. Please go ahead.

[Edward Yruma:]

Hey, guys. Thanks for taking the question. I think first on the re-branding. I know that you kind of discussed some of the issues of the call to action as you transitioned in January. I guess you sit and asses it now, how was the re-branding gone and has it succeeded at least initially and kind of helping to modernize the branding?

[Mindy Grossman:]

So the answer on the modernization side, the brand perception, relevancy, absolutely. If you look at whether it's our products that are out in the marketplace, the consistency of our branding globally, the message that has absolutely -- and we measure that very, very specifically. And so that's why I talk about the proof points of relevancy and brand retention and what we're offering people. Now having said that, we needed a little bit more of a bridge for certain people to really understand and whether it was our former members or whether it was newer members. So we have done that and we will continue to monitor the brand, the recognizability, the understanding of WW, but we’re already seeing improvement of that, but I'm very pleased about the brand perception metrics, because that was a very big part of what we needed to do around relevancy.

[Edward Yruma:]

Great. A follow-up, if I may. Obviously, trends improved from January, but just kind of curious in your survey work when you talked to consumers, did you notice that maybe those are joined in February, March, maybe attempted paleo and failed or you constantly kind of emphasized a healthy weight loss component of the Weight Watchers. So do you think that over time as people realized some of the other help downsides to paleo that that could be a positive for you overtime? Thanks.

[Mindy Grossman:]

Yes. We know for a fact and it's not anecdotal that there are people that come to us, particularly if they’ve been with us before and you say why are you back and they go because we know that if I come back here it will work, and I just have to learn that it's sustainable, because where that is what our entire program our science and everything our brand is built on. So we want you to continue to support people, no matter what their former efforts were. And that's why if you look at our campaigns that are out right now around it works. And my commentary before that one of the things that, we're very focused on in our communication is sustainability. And you’ll continue to hear us speak about that.

[Edward Yruma:]

Great. Thanks so much guys.

[Nick Hotchkin:]

Thank you.

[Operator:]

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

[Mindy Grossman:]

Hi, Michael.

[Michael Lasser:]

Hi, Mindy. Good evening. Thanks for taking my question. Two; one, have you seen the improvement that you mentioned in February and March continue into April?

[Nick Hotchkin:]

Yes.

[Michael Lasser:]

And two, we have not seen such a wide divergence in your fee per subscriber between your studio business in North America and your digital business and the studio business that was down 4.4% and the digital business is up 4.2%. Can you give us a reason why we have seen -- there was such divergence trends there?

[Nick Hotchkin:]

Yes. Given the weakness in our studio business, particularly right at the start of the year, while we were waiting to get the pixels in place that we’ve described and which have been successful. We did get more promotional for a period of time and that was reflected in the metrics that you are citing. We are on a better price realization track right now.

[Michael Lasser:]

And on the digital business, were you less promotional because that metric that had been under pressure or declining the last five quarters?

[Nick Hotchkin:]

Yes. The price realization was a little better on the digital side, absolutely versus figure.

[Michael Lasser:]

Okay. Thank you very much.

[Mindy Grossman:]

Thank you.

[Operator:]

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

[Mindy Grossman:]

Thanks, everyone. And we look forward to continue to update you on our progress.

[Operator:]

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