WW International, Inc.
Q2 2018 Earnings Call Transcript

Published: 7 Aug 2018

[Operator:]

Good afternoon and welcome to the Weight Watchers' Second Quarter 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, Investor Relations. Please go ahead.

[Corey Kinger:]

Thank you, Brian and thank you to everyone for joining us today for Weight Watchers International's second quarter 2018 conference call. As of 4

[Mindy Grossman:]

Thanks Corey. Good afternoon everyone. It's great to be speaking with you today. We had another quarter of strong performance in Q2, with momentum that continued in the spring and throughout the summer, following the global launch of Invite a Friend and our first Summer of Impact marketing campaign. We ended the quarter with 4.5 million subscribers worldwide, an increase of 1 million subscribers from a year ago, due to continued double-digit member recruitment growth across all of our major geographic markets. And importantly, our average retention continues to be at record levels of well over nine months. These results demonstrate the global appeal of our WW Freestyle program, supported by strong, integrated marketing execution, and a robust and engaging digital platform. By presenting WW in new ways, we're starting to attract a broader and more diverse audience, bringing in many new members who may not have considered Weight Watchers as a program for them in the past. Similar to what we saw in the first quarter, in the U.S., more than 40% of our member signups in Q2 were new to WW, an increase in the proportion of first-time members compared to recent years. On a year-over-year and constant currency basis, revenue was up 18%, gross margin expanded 430 basis points, and operating income increased 30%, demonstrating the power of our high margin subscription business model and impressive flow-through to profitability. This summer, we launched our first Summer of Impact campaign, and we are pleased with the lift it has given our performance, with signups improving significantly in what has historically been offseason for WW. People want to get healthy around, not just in January. And as we move to WW 365 mindset, we will begin to have activations and events year-round. This summer, we're doing exactly that in a global campaign, celebrating the Freestyle U, highlighting food, family and fun and showing how WW can be a powerful partner for health in people's lives year-round, encompassing digital marketing, eCRM, social media, unique video content, public relations, and in the U.S., TV advertising, Summer of Impact is globally coordinated effort and one that has engaged our ambassadors and members alike. For Father's Day, we launched a dad-style social media campaign with videos from DJ Khaled, Kevin Smith, and Chef Eric Greenspan, which delivered 1.2 million views and 1.4 million engagements. Summer of impact is appealing to a younger audience who are participating in the conversation via social media and sharing their enthusiasm for WW. Anyone who has looked to connect our in-app members-only social media platform knows that Better Together is one of our most popular hashtags and for good reason. When you're following the program with a friend, you're more likely to encourage and motivate each other, leading to better engagement and success. To reward members for referring family and friends to the program, this summer, we added an Invite a Friend feature into our mobile app. When an invited friend signs up for WW, both members receive one free month added to their membership. So far, the program results are highly encouraging. In the U.S., more than 70% of those referred by Invite a Friend have signed up for membership, with over 70% of those referred becoming first-time WW members. Weight Watchers has always been about community and as a global purpose-driven brand, we have the ability to make communities healthier and make healthy habits accessible to all, not just the few. This summer, we launched WW Good, an inspiring initiative to unite our global community. Through a series of six free mini festivals happening over the course of this summer across North America, we're bringing people together in fun events, featuring inspirational speakers, interactive group fitness activities led by motivational fitness trainer Holly Rilinger, healthy food, and more importantly, free engagement opportunities for all ages. For every person who attends an event, we are helping one local family in need, via a month's worth of fruits and vegetables. We've already possibly impacted thousands of people with our effort, with over 2,500 families receiving fresh produce per month, and in addition, 2,000 pounds of produce donated to food banks so far. And we still have three more festivals ahead. Please join us for our WW Good events in Los Angeles, Toronto and in Union Square in New York later this month. As we have said previously, our aspiration is for the Weight Watchers app to become the world's everything app for wellness. All of our 4.5 million subscribers have full access to our highly rated WW app, providing tools, content, connection, and inspiration anytime, anywhere. And we will continue to add content and features such as Invite a Friend, to make our app even more engaging and rewarding. Looking at the WW app usage more closely for the first six months of 2018, on average, each month, approximately 1.3 million unique members have synced a fitness device, 1.8 million unique members engage on Connect, our digital social network community; 2.6 million unique members used our convenient bar code scanner; and 280 million times members tracked food. That's 280 million opportunities for engagement. And as we know, engagement is correlated to both success on WW and longer retention. 2018 is on track to be an important and memorable year for WW. Our business is strong, supported by a mobile-first technology platform and agile development approach, a test and learn mindset, focused on consumer insights and a brand-led culture. As we make the next steps to move to a holistic wellness platform, we are modernizing our brand to be more culturally relevant to attract a more diverse audience and to drive continued engagement. I am confident in our strategies to capture the growth opportunities ahead. Now, I will first hand the call over to Nick to discuss our Q2 performance in 2018 and then I'll join to talk about the future.

[Nicholas Hotchkin:]

Thanks Mindy. We continued to have great business momentum throughout the second quarter with strong global recruitment and record retention driving topline growth and margin expansion. Year-over-year recruitment growth rates in Q2 continued to be well above those obtained during Q2 2016 and 2017, bringing our end-of-period subscribers to 4.5 million, up 1 million subscribers or 28% from prior year, and this was driven by very strong WW online performance. Total paid weeks were up 27% year-over-year in Q2 with double-digit gains in all of our major geographies. On a global basis, average retention continues to be well over nine months in both meetings and on online, which is an increase of more than 15% versus three years ago. This reflects improvements in the member experience and increasing engagement with tools like Connect, our social media platform embedded in our app. We also continued to have success with our longer term commitment plan offerings. Looking at our global finance in Q2, 21% chose an initial six-month plan versus 14% taking the six-month option a year ago. Q2 revenue of $410 million increased $60 million or 18% year-over-year on a constant currency basis, a continuation of the accelerated growth rate we saw in Q1. The operating leverage in our business model is reflected in the strong flow-through to profitability in the quarter. Gross margin rate was nearly 60%, up 430 basis points year-over-year on constant currency and the operating income of $128 million increased $29 million or 30% on a constant currency basis from the prior-year second quarter and that brought our operating income margin to 31% in Q2. While marketing expense was higher on a year-over-year basis, it remained relatively flat as a percent of sales as we continue to focus on the efficiency of our spend. To demonstrate the effectiveness of our marketing model, looking at our U.S. signups in Q2, the ratio of subscriber value to cost per acquisition was 5

[Mindy Grossman:]

Thanks Nick. As I look back on my first year at the company, I am so impressed with all of the work our global teams have accomplished in this short time. From the launch of WW Freestyle to our partnerships with new WW ambassadors, including Elena [Indiscernible], DJ Khaled, Chef Eric Greenspan, Kevin Smith and others. From the development and creation of our impact manifesto, to broadcasting its launch to employees worldwide and being joined by Oprah Winfrey, who is such an invaluable partner for WW for this momentous event, which we also made public. From bringing WW 365 to life with Summer of Impact, launching WW Good to rolling out new digital features and bringing more inspiring content to our global community and to our highest subscriber base retention and engagement in our history. These are among just a few of our highlights from this past year, and we are only at the beginning of our evolution. We've embarked on an exciting journey. From being the global leader in weight management to becoming the world's partner in wellness. To be the brand that democratizes wellness for all and the embodiment of our purpose. We inspire healthy habits for real life for people, families, communities, the world, for everyone. It is our intention to bring science and scale not only to weight management but also increasingly to activity and positive mindset through partnerships and collaboration. To live up to that purpose, our brand needs to evolve as well. The look, the feel, the expression, the articulation in every aspect of how we show up in people's lives globally. Our brand has become a trusted mark that exemplifies a brand in which speaks to both the sustainability and the efficacy of what we could bring to all people, regardless of their personal wellness goals, whether that's losing weight, eating healthier, moving better or having a positive mindset to live a better life. We believe in heritage and legacy. And from the -- Jean Nidetch gathered a group of women in her kitchen, we've brought the best science of eating healthy and the inspiration of community to millions and millions of people around the world. We're proud of that legacy and embody that to this day, but now we can be so much more. At our February 7th global event, Oprah said it best, Healthy is the new skinny. We can be more holistic, more diverse and reflect what people want today and in the future and a partner for health and wellness. We will be evolving the articulation of our brand to present ourselves in a modernized and even more culturally relevant way that highlights wellness. Our brand expression will be a better reflection of who we've become and where we want to go. For what everyone has loved about us will always be true. We will always be about real, about livability, about community, but we will have elevated our look, our feel, to reflect a new maternity. We look forward to bringing this to life in the next couple of months. We are implementing a brand-led culture. Everything we do is screened through our purpose filter and through the lens of member recruitment and retention. All of our decisions, from marketing, creative, to products, to content, to partnerships, are guided first and foremost, by our purpose. And if something doesn't fulfill our purpose, we shouldn't be doing it. To be a partner to all in wellness, we need to evolve all aspects of how we integrate into people's lives. WW will always be the global leader in healthy eating, informed by the best of science, but now we will also be a partner in activity and mindset, and we're choosing partners who have the same goal as we do, have a discernible and positive impact on people's lives. In the U.S., we've recently launched the beta with Headspace, a global leader in meditation and mindfulness, bringing exclusive content to the WW app and into meeting rooms. We are excited by the potential of offering a broader integration and we have plans to add more and more wellness content this year. We've previously stated that we wanted to own a healthy kitchen, in products, food, content, culinary experts, and experience. I'm excited to announce that by January 2019, there will be no artificial ingredients in any products that WW sells directly to consumers. In addition, every product that will be in our meeting rooms, online, in-stores has been reformulated, developed and repackaged, which will be a reflection of the new brand across the world. The speed with which our partners and teams work to reformulate and reimagine these products is nothing short of impressive. As announced previously, in the U.S., we're working with FreshRealm, who brings national scale and expertise in food logistics, to launch WW Fresh quick prep food portion meal kits and individual fresh food products. We plan to launch later this year and are finalizing distribution. We aim to expand this type in other fresh food programs globally. In Sweden, for example, where we've had a WW grocery initiative since 2014, over 10 million WW meals have been sold to-date and we believe that this is a significant global opportunity. Our WW Cruises have been a fantastic way to showcase what we're all about and to reintroduce WW to new audiences with a week of fun and wellness at sea. Our next sailing in November is already sold out and we look forward to more cruises in 2019, including our first launch from Europe. We're also excited about WW's first rewards and loyalty program. We provide members with a deeply human and personal experience, an experience where they are inspired, motivated and connected. We are focused on making that experience even more rewarding. We believe this will be the most innovative rewards program in the marketplace, rewarding healthy behaviors, creating motivation, and empowering people to take actions that will enhance their health and well-being, yet another proof point of our purpose. Unlike other loyalty programs, ours will not be about dollars spent. We will be rewarding members for positive behavior and actions that we know will lead to healthy habits, recognizing success with WW curated products and experiences. The testing results have been highly positive, with linkage to increased engagement, satisfaction, and retention. We look forward to launching rewards and are enthusiastic about its potential to motivate and engage members. We have been executing while evolving, and our focus on organizing for impact. We are strengthening our teams and putting the building blocks in place to have a world-class, tech-enabled global organization. We're adding tech and digital product talent to fuel innovation, and in late October, we'll be moving into new San Francisco office space, as we expand our teams in this key market. Across the business, we're deepening our talent bench, not only technology and product, but also in other revenue-driving areas such as marketing and brand. Importantly, we are attracting the right talent who are drawn to our purpose and want to join an organization where they can truly make positive impact. Every day, I am more inspired and excited about my role, the brand, and the business and I really realize it's just early days, but I passionately believe we have tremendous opportunity to have great impact and truly live our purpose. So, thanks for joining us on the call today. We'll now turn the call to the operator for Q&A.

[Operator:]

We'll now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Alex Fuhrman with Craig-Hallum Capital Group. Please go ahead.

[Alex Fuhrman:]

Great. Thanks very much for taking my question and congratulations on another very strong quarter. I wanted to ask about the Summer of Impact marketing campaign. It seems like it was pretty successful by all accounts and I was interested to hear in your commentary that it was really resonating with the younger audience. I'm curious if that's what you were expecting at the beginning of the campaign. And just as we think about these younger customers, are they behaving any differently? And even as you look back against, not just with the summer marketing campaign but to the extent that you do have younger customers in their 20s or 30s, do they tend to stay on the program as long as older customers? Just curious how we should think about your customer base as it presumably becomes more well-rounded, age-wise, over time.

[Mindy Grossman:]

We are very focused on all elements of diversity. So, we think about age, gender, ethnicity, geography, and very focused on areas of lifestyle and age. So, cohorts like young moms and young dads and broader audiences, that's been very important. And it's evident in the 40%, or north of 40%, new into the program, which prior was significantly lower than that. When we developed the campaign for summer, which as I mentioned, was one concept executed in 10 markets with specific local relevance and it resonated everywhere. If you look at the diversity that was pictured in the campaign, it really reflected what I was talking about in terms of the different cohorts. The other thing that we really learned is with the efficacy and efficiency of our digital marketing spend in particular, we can really drive relevant content to different audiences. And we definitely saw positive results with doing that to male audiences as an example. And you're going to continue to see that as we move forward, both in our fall and then certainly into our winter campaign. So, for example, just, I believe, it was yesterday, it was International Friendship Day, and we had Kevin Smith and his best friend out there around, Invite a Friend and do this together. So, we're trying to really use our social platforms and our abilities to broaden audience, but in a very targeted, efficient way.

[Alex Fuhrman:]

Great. That's really helpful Mindy. And then if I could just ask one follow-up, and you mentioned the strength of the returns on digital marketing. Was that more than expected? I was surprised to hear that you're not planning to run TV ads in the fall considering from where, we're sitting as investors, it certainly looks as though the winter and the spring and the summer TV campaigns were very successful. Is it just that the digital marketing spend is that much more efficient this year?

[Mindy Grossman:]

Yes, so let me speak to it a little differently. We believe, very strongly, in video content across platforms. And we will be developing, prolifically, storytelling and digital video content from six second up across platforms. And we have tested in a couple of markets where we had run TV, not running TV, but instead using very immersive video content very successfully. So, we feel confident that the marketing that we're doing, the creative that we're doing, the targeted cohort that we're doing, is really very strong. But I want to be clear; it's still the tremendous development of creative video platforms across all our assets.

[Nicholas Hotchkin:]

Yes, and Alex, the only thing I'd add is like, given the relative high cost of TRPs for TV in the fall, it's a strategy we've been thinking about, wanting to implement as digital marketing effectiveness has become much, much better.

[Alex Fuhrman:]

Great, that's really helpful. Thank you both.

[Operator:]

Next question comes from Christina Brathwaite with J.P. Morgan. Please go ahead.

[Christina Brathwaite:]

Hi, I just wanted to follow up on the Summer of Impact campaign. Comments that you guys made. So, it sounds like it's been performing kind of above your expectations so far quarter-to-date in 3Q. Are you -- I bet you maintained the 4 million subscribers by end of this year, are you embedding any new member increases related to the Summer of Impact campaign or is there some level of conservatism embedded in there?

[Nicholas Hotchkin:]

Yes, let me start by that, and look, we've been floored with the momentum, not only in winter but now spring and into summer, as global momentum and our guidance now assumes that continues. And you see that we are not only delivering good revenue increases, we're at 18% this quarter, but we're doing it in the context of very strong margin expansion also. So, we're excited about our plans for fall and winter, and that 4 million people in the brand at the end of the year doesn't assume any slowdown in our momentum. And it'll be great to have that $0.50 tailwind heading into 2019. Our business is following normal seasonal patterns. I was thrilled the end-of-period subscribers stayed up so nicely, 4.5 million, a record for Q2, versus 4.6 million in Q1. So, no surprises versus where we expect it to be. And bear in mind, that revenue guidance too includes that 15 million negative forecast or forecast foreign exchange impact.

[Mindy Grossman:]

And given that we actually started Summer of Campaign, a couple of weeks forward into the summer of timing, and it's just ended its TV in the U.S. but digital continues, and we were also lapping World Cup. So, we were actually really pleased when you look at the growth in every market, and even markets, for example, like France or Germany with the growth that they had without running TV and really leveraging digital assets. And as I said, for the first time, it was a global campaign integrated and executed together. So, all the countries were able to access more assets than they've ever had before, which actually increases the efficiency of the development of the spend and the campaign.

[Christina Brathwaite:]

That's helpful. Thanks. I just wanted to also ask a question on margins, if I could. So, you mentioned that there are going to be some targeted investments and some infrastructure projects that are offsetting some of the mix shift benefit for the gross margin this year? So, still an impressive 425 basis point guidance -- increased guidance, for the full year. So, I was wondering if you could talk a little more about an investment you've alluded to. Are there incremental investments that you're choosing kind of pull forward in the year, given the margin performance? Or have you always kind of embedded that in your guidance for the year?

[Nicholas Hotchkin:]

Well, look, you see us delivering, I think, impressive margin expansion what, year-to-date 435 basis points of operating margin expansion, 31% operating margin in Q2 alone. While at the same time, we're delivering that performance, we're absolutely investing to drive future growth. If you look at the, just the things we've got launching now and in the next few months from the Headspace beta and further wellness opportunities, to rewards, to newer brand articulation, to WW Fresh, to whole new packaging for our products, investments in our people and tech and products and brand. Yes, we're absolutely investing with confidence, because we're very excited about what we want to deliver in this space.

[Mindy Grossman:]

Yes, and we have not yet really heavily rolled out kind of our Invite a Friend marketing. And based on what we've seen for summer in the results, you'll see that as core to campaigns going forward.

[Nicholas Hotchkin:]

Yes, frankly, I was pleasantly surprised with them, anything in Q2, it was the response to that, Invite a Friend launch. 70%-plus conversion when folks are referred, and our uploads, 70% of the people joining by that program are new to the brand. And of course, it's very cost-efficient marketing.

[Mindy Grossman:]

Yes, and it's very early days of, even marketing the program.

[Christina Brathwaite:]

Okay. Thanks guys.

[Operator:]

Next question comes from Olivia Tong with Bank of America Merrill Lynch. Please go ahead.

[Olivia Tong:]

Great. Thank you. Wanted to ask about your revenue growth expectations. Obviously, 20% this quarter is clearly very strong, but it was a bit of a slow down across all the divisions relative to Q1. So, can you talk through what keeps momentum going, particularly as comps get materially tougher in the second half? And also talk through, I think, Nick, you had said that the U.K. expectations were for double-digit growth and if I had that correct, it used to be mid-teens. So, could you talk a little bit about what's driving that? Thank you.

[Nicholas Hotchkin:]

Yes. No, look, thanks for that. I mean, our fee, broadly speaking; I'd really view the 18% constant currency revenue growth this quarter in the context of what we did this quarter last year. So, it was 18% revenue growth on top of a 12% revenue growth in Q2 2017. So, I don't see the business slowing. I see, as accelerating in the first half of this year versus where we were. And we've just delivered the fifth straight quarter of double-digit constant currency revenue growth. And our forecast for the rest of the year, you can sell we're excited about rewards; we're excited about leveraging Invite a Friend. So, no change in momentum. You mentioned the U.K. When we look at the U.K., I'd encourage you to focus on some of the metrics like end-of-period subscribers up 15%, paid weeks up 16%, and last, on the revenue, up 4%. Because it gives a slightly warped picture of how the U.K. is performing. So, the U.K. revenue year-over-year was impacted by some onetime accounting impacts, which favorably impacted revenue last year. So, it's a tough compare, but equalizing for that, the U.K. is performing nicely to, as shown by those double-digit year-over-year growth in paid weeks and end-of-period actives. I mean, overall, to your point, U.K. revenue, up in the low teens in this guidance versus up mid-teens in our prior guidance. So, on the margin, a little bit of change in our assumptions, but no change to the trajectory of the business.

[Mindy Grossman:]

Yes, and Nick and I just got back from a full week with teams in U.K. and France as well as the GMs from all of the countries. And we came away, not only enthused by the teams themselves, but their execution around all elements of the Impact Manifesto and the moves that they have to make in each of their markets. And are significantly aligned on what they will be delivering over the course of the next year and through what our aspirations are to end of 2020.

[Olivia Tong:]

Got it. And I'd like to follow-up, just on your decision to forgo TV advertising during the fall. I'm assuming you've never done that in the past, but how do you think about the effectiveness of the video campaign versus television? Are these commercials in YouTube? Is it paying for sponsored search? Just provide a little bit more color on that.

[Mindy Grossman:]

Yes, right. So to be clear, we are talking specifically about the U.S. and no other market, okay? And we have been doing great work in the U.S. And they're actually leading relative to best practices for rest of world in their abilities to monetize both their social, digital, influencer, video content across a lot of different platforms, some with partners developing content and a lot of content we're developing on our own, so we feel very strongly about what we have going into the fall. It's definitely part extension of the summer campaign, but really elevated. And we have a number of different events that we'll be talking to as well. So, when we look at efficacy and efficiency, clearly, we have confidence that what we will do across platforms is going to deliver.

[Olivia Tong:]

Great. Thank you.

[Operator:]

Next question comes from Frank Camma with Sidoti & Company. Please go ahead.

[Frank Camma:]

Good afternoon guys.

[Mindy Grossman:]

Hi Frank.

[Frank Camma:]

Just a couple of quick ones. First, specifically on retention, can you just give us a little more color, are you seeing anything breakout above that nine months area, either online or in the meetings?

[Nicholas Hotchkin:]

Yes. Look, now it's well over nine months, and we're excited to see the launch of our rewards program as another catalyst. So, well over nine months means closer to 10 than nine and a half, so we're very pleased with how members are responding to engagement with our program.

[Frank Camma:]

Is that the same basically in online and meetings? Like you don't find a difference?

[Nicholas Hotchkin:]

Yes, they're very close. Very close.

[Frank Camma:]

Okay. Other question, just on modeling. Did you lower your tax rate assumption to 22%? Did you have 25% last quarter? Or do I have that wrong?

[Nicholas Hotchkin:]

Our tax rate forecast for the year is 15% versus 18% in our prior guidance and that's--

[Frank Camma:]

So, you did lower it?

[Nicholas Hotchkin:]

Yes, lowered it and that's primarily driven by successful resolution of some audit work and also by the positive impact of employees accessing their equity grants at higher stock prices.

[Frank Camma:]

Okay, great. Thanks. That's all I have for now.

[Operator:]

Next question comes from Michael Lasser with UBS. Please go ahead.

[Michael Lasser:]

Good evening. Thanks also for taking my question.

[Mindy Grossman:]

Hi.

[Michael Lasser:]

Did you get the return on the marketing investment that you expected in the second quarter? It was up 3% per subscriber year-over-year and that compared to being down 11% in the first quarter.

[Nicholas Hotchkin:]

Yes and look, overall, our global cost per acquisition was pretty much exactly in line with where we would've thought it would've been and in line with the efficient levels we saw in Q1.

[Michael Lasser:]

And as a follow-up, can you give us some indication of the amount of discounting that you did in the second quarter versus where the trend had been in the last few quarters?

[Nicholas Hotchkin:]

Yes, and, I'm glad you asked that, because I think one of the strengths of this quarter was not only the 18% constant currency revenue growth, but doing that in tandem with 430 basis points constant currency gross margin expansion. Obviously, that's partly online mix, that's partly operating leverage, but it's also very good work by the team on price realization. So, we weren't discounting more than we typically were.

[Mindy Grossman:]

No, and as a matter of fact that is a very, very big focus on us, is how we continue delivering more value for what people want and articulating that in ways around, I'll give you an example, Invite a Friend, obviously, drove a lot of efficacy and efficiency and that's not a discount, it's believing in our product. And that's what we're very much focused on, not over discount.

[Michael Lasser:]

Thank you very much.

[Operator:]

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

[Kara Anderson:]

Hi, good evening. So, it may be too soon, but as we're approaching sort of the nine month timeframe with the new more livable Freestyle program, just wondering if the narrative around why people cancel has changed at all? And if I may, I have a follow-up to that. If there's any new stride that are being done to sort of identify and target those who are about to cancel, maybe they're not tracking, and sort of action to get them back on track.

[Nicholas Hotchkin:]

Yes, I don't think the reasons why people cancel have changed materially. It gets to people having met the goals that they set for themselves, or whether there's being no discretionary product than choosing to spend their money on other things. But I think that's where the shift to wellness gives us an opportunity because we look at these features we're adding to our program, and you see it driving our increased retention, be it Connect or a place to chat on our further wellness initiatives in digital. We're giving people more reasons to stay as a holistic lifestyle partner.

[Mindy Grossman:]

As you heard from Nick, what we're pleased with is people are signing up for longer times within the program. We're also doing -- continuing to do a lot of work in investments around personalization and the capabilities to identify when people might fall off and being more proactive around insuring retention. So, a lot of that in work and a lot of that being executed as well.

[Operator:]

Next question comes from Michael Swartz with SunTrust Robinson Humphrey. Please go ahead.

[Michael Swartz:]

Hey, good evening everyone. Just wanted to dig into the year-end member expectations a little more. Nick, I guess, with a lot of the positive commentary that we've heard on the call, with retention, new subs, the success of Summer of Impact, I guess I'm trying to understand there or at least reconcile why we should see maybe a steeper fall off in the back half of the year in terms of members than what we've seen in the past few years? I guess is there something that I'm missing, or some offsets there?

[Nicholas Hotchkin:]

Now look, I think we're certainly forecasting the business to follow the same seasonal pattern and we're excited with what we've got coming this year. Obviously, we're not giving guidance for 2019 today, it's August, it's just important for us to see, and let The Street know that given the momentum we have, we typically do so on this call that based on those more people in the brand at the start of the year, we'll have that $0.50 tailwind. So, we're looking forward to what we'll be launching in December and delivering a great door price or tailwind into 2019. But certainly not forecasting or expecting a steeper drop off than normal.

[Michael Swartz:]

Okay, that's helpful. And then, I think, Mindy, you mentioned that there were 1.8 million monthly unique users on the Connect app, I hope I heard that number correctly. I think you've said in the past that was around 1.5 million members. So, maybe I just want to understand a little better, what was the cause of that increase? And then maybe longer term, how does that play into your thoughts around marketing investment, both, I guess, from an absolute standpoint as well as maybe seasonally?

[Mindy Grossman:]

Yes. So, I am a huge believer in the power of that Connect platform. I've seen it; I know it's correlated to retention. So, people, even who've achieved their goals, feel they're going to inspire others. We are actually seeing within that, if you look at the number one hashtag on Connect, it's #NSV, non-scale victory. So, people really talking about the impact that we're having, not just on their weight and their life. So, the more people that we can be involved in the Connect platform, that feel that's going to be for them. We are investing in new capabilities for people to form their own communities to be able to create their own member groups. And we will continue to do that because we do feel it is such an asset to us, obviously, particularly in retention. Now, that does not mean that our other social platforms, whether that be Instagram, Facebook, et cetera, are not also very powerful to communicate to both our members and future members. So, social, as part of us, as a very powerful community, will continue to be where we're investing and whether that's full storytelling, content like Instagram Stories or what we're doing in six-second video, all of that is going to be, and continue to be, very important.

[Michael Swartz:]

Great. Thanks a lot.

[Operator:]

Next question comes from Linda Bolton-Weiser with D. A. Davidson. Please go ahead.

[Linda BoltonWeiser:]

Hi. In the past, you've referred to the opportunity to bring more opportunity to have in-app sales of products. And also, you've talked about the opportunity to bring more technology into the meetings. Can you talk about your progress on each of those initiatives?

[Mindy Grossman:]

Yes, we have -- so let me talk about two different bodies of work. One is what we are doing in our products as a whole. So, I mentioned that every product we currently have has been reformulated, re-strategized and will be, in January, available across all our platforms. And so, the second phase of that is what other products are we looking to develop to expand and then how are we investing in the technology to enhance our e-commerce and digital presence. So that development is going hand in hand, and there's a global team that is working on that. So, you will continue to see, both from a product point of view and an experience point of view, whether it be on our site or in our app develop. In terms of, what was she saying was -- in-app purchase.

[Nicholas Hotchkin:]

In terms of the in-app sales, I mean, we've got a great opportunity with this, our new products that we will be launching to look at Internet sales of those products. In terms of in-app, our biggest opportunity is looking to increase the opportunity for people to go buy Weight Watchers subscriptions via in-app purchase as opposed to sales within the app, per se.

[Mindy Grossman:]

Yes. And then, as far as, we've done a comprehensive diagnostic on our entire meeting business worldwide. We have about 30,000 meetings a week. We have about 1.6 million of those 4.5 million, 4.6 million in meetings. And we are looking -- we have about five test sites where we're integrating technology in a new way from the end-to-end experience. And we will be highlighting a number of those particularly as we go into January for a whole different experience.

[Linda Bolton Weiser:]

Great. Thank you very much.

[Operator:]

Next question comes from Greg Badishkanian with Citi. Please go ahead.

[Frederick Wightman:]

Hey guys. It's actually Fred Wightman on for Greg. I think you mentioned some possible retention benefits from the loyalty program. Can you just help us size the possible impact? I mean, are we talking about a step function improvement? Or sort of the continued slow and steady improvement you guys have seen over the past year or so?

[Mindy Grossman:]

We are very excited about the rewards program. So, when you think about it, if your reward is for every step that you take to take yourself further on your journey, so that's every food you track, every activity that you do, everything you do in support of your health and mindfulness or other areas, it could be meeting, it could be invite a friend, et cetera, I'm a big believer in the form of gamification that presents that human behavior. And when we tested this, we definitely saw increased retention from what would be the norm. And so this combination of people being able to be incentivized to do these things, not only will that increase retention, it will make them more successful, in terms of what they're doing. So, the combination of that, we feel very strongly it's going to be a very important element going into 2019, even though it will be launching prior.

[Frederick Wightman:]

Great. That makes sense. Then if we just look at the shift you guys have articulated towards more of a digital first strategy, especially in the U.S. here, can we talk about how that can impact the speed you're able to enter new international markets? I would think that would probably accelerate it, but maybe we're missing something.

[Nicholas Hotchkin:]

Yes, look, for the leading global digital app and with a modern cloud-based tech architecture, we've certainly got international market entry opportunities that wouldn't have been easily accessible to us until recently. And with just having a small Latin America business in Brazil but no presence in any other markets there and no presence in Asia-Pacific, I'm very excited about those international market opportunities. And the ability to enter a new market with our digital subscription offering and while at the same time, providing some elements of human engagement, the thing that makes us really special and really having a good time working on that initiative with the team.

[Frederick Wightman:]

Great. Thanks.

[Operator:]

And the last question today comes from Edward Yruma with KeyBanc Capital Markets. Please go ahead.

[Edward Yruma:]

Hey guys, thanks for squeezing me in. I guess, first, now that you're kind of eight months into the new Freestyle program, have you seen any changes in terms of the actual health outcomes or weight loss outcomes from clients that are in that program? Are they losing the same amount of weight as they would've increased previously? And then, I guess as a follow-up, I know you've been targeting some new consumer cohorts, young fathers, I guess, kind of help us break down if some of those initiatives have been successful. Thanks so much.

[Mindy Grossman:]

Yes, so actually we're thrilled with Freestyle. And as I said, it's something that we feel we have tremendous equity in as a brand in addition to our brand. People are losing as much if not more weight than before the program. But what they have really appreciated is the simplicity and the ease and the freedom of how this has allowed them to have a very livable program that they can do. I mentioned before we're seeing more engagement with men, and again, we've not gone out and said WW for men. It's not our strategy. We've employed kind of diversity and strategic marketing efforts. And in speaking with our members, it does relate back to that ease, that simplicity and that livability that people are really responding to, that they haven't seen from anywhere else that they had looked within the, let's call it, healthy living framework. So, we still see it as an opportunity to bring more people into the business.

[Edward Yruma:]

Great. Thanks so much.

[Operator:]

At this time, this will conclude today's question-and-answer session. I'd like to turn the conference back over to Mindy Grossman for any closing remarks.

[Mindy Grossman:]

So, thank you, everyone. It's certainly an honor to be part of a company that deeply impacts the lives of millions. I also want to thank our global teams for everything you do. And thank you for joining us today, your interest in Weight Watchers, and we will look forward to keeping you informed on this journey. Thank you.

[Operator:]

The conference has now concluded. We want to thank you for attending today's presentation. You may now disconnect.