Weight Watchers International Inc WTW
Q1 2010 Earnings Call Transcript
Transcript Call Date 05/06/2010

Operator: Good evening, ladies and gentlemen and welcome to the Weight Watchers International First Quarter 2010 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in a question-and-answer session and instructions will be provided at that time. As a reminder, this conference call is being today, May 6, 2010.

At this time, I’d like to turn the call to Miss. Sarika Sahni of Weight Watchers International. Please go ahead.

Sarika Sahni - IR: Thank you, and thank you to everyone for joining us today for Weight Watchers International’s first quarter 2010 conference call. With us on the call are David Kirchhoff, President and Chief Executive Officer and Ann Sardini, Chief Financial Officer.

At about 4.00 PM Eastern Time today the company issued a press release reporting its fiscal results for the first quarter 2010. 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 at www.weightwatchersinternational.com.

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. The Company does not undertake any obligations that publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

I would now like to turn the call over to Mr. Kirchhoff. Please go ahead David.

David Kirchhoff - President and CEO: Good afternoon, and thank you for joining us since we review Weight Watchers International’s performance for the first quarter of fiscal year 2010. Consistent with the direction we gave in the last earnings call, Q1 2010 proved to be one of the more challenging quarters that Weight Watchers have faced. The combination of residual slowness in the economy, unprecedented bad weather in our largest markets accompany against the new program launch last year and our U.S. and U.K. markets created uniquely difficult operating conditions.

As a result, we experienced soft enrollments in our meeting business in both our key U.S. and UK markets only partially offset by the successful launch of our new ProPoints program in Continental Europe and a continued growth of our global WeightWatchers.com business. As we will discuss later in this call, the early results of Q2 looks significantly more favorable.

Before I run through those specific quarterly results, I want to point out that we have modified our approach to our earnings press release to more clearly bridge between our GAAP and non-GAAP financial results as well as other key metrics.

I will focus my remarks on the financial and operating metrics that provide comparability and insight into the performance of our business. I hope you find this new approach helpful.

On a constant currency basis, Q1 revenues decline 4.5% with meeting fees declining 7%, product sales and another revenues declining 6% and Internet revenues growing 11%.

From a volume perspective, combined global online and meetings paid weeks grew by about 1%. Global paid weeks in our meeting were down 4% versus a prior year quarter, while paid weeks for Weight Watchers Online were up a solid 11%.

Q1 2010 EPS was $0.58 compared to $0.61 for the same period in 2009. After adjusting for the impacts of the adverse U.K. self-employment ruling along with last year’s restructuring charges, Q1 2009 EPS would have been $0.63 on a comparable basis. Among the factors negatively impacting Q1 2010 EPS was $0.02 per share of higher interest expense.

I will now briefly review our results and our major geographies and business units. First, our North American meeting business. Total NACO revenues were $195 million in Q1, a decrease of 8% versus the same period last year. NACO meeting fees declined 9%, while in-meeting product sales declined 4%. NACO Q1, 2010 paid weeks were down 8% versus the same period in 2009, while attendances were down 16%.

To better understand the drivers behind the weak Q1, 2010 volume figures, it is useful to review the trends we saw beginning in Q4, 2009.

As I noted on our February call, NACO had been seeing moderating growth trends during the months of October and November. However, when we begin to lap against the launch of Momentum program in December 2009, we saw a significant drop in relative volume, albeit during a typically low volume time of year.

2010 is an off-cycle program innovation year, which resulted and that’s not having meaningful news to entice new consumers into our doors in the first quarter of this year. Moreover in January last year, we saw a surge of attendance from existing monthly pass members coming to meetings to check out the new program. We did not have the same benefit this January.

It is now clear that when we were parsing out the relative effect of the recession versus Momentum innovation in our Q1, 2009 results, we underestimated the impact of the new program launch.

Our results in this year’s quarter were further impacted by extraordinarily bad weather. In my 10 years at Weight Watchers, I cannot recall a more difficult time from a weather perspective on the North American business.

Meeting closures were up an unprecedented 44% for the full quarter and even meetings left open and the impacted areas were affected hurting both attendance and most importantly enrollments.

For many consumers it’s all too easy to procrastinate the sometimes difficult first step of starting a sustained weight loss effort. And this winter’s tough weather gave many consumers appropriate excuse to stay home.

The soft volume trends were most pronounced in January and February, and we began to see some moderation in March. This is consistent with the passing of the January, February snow as well as a diminishing impact of lapping the initial launch of the Momentum program in the prior year.

While the poor weather was not unanticipated, the fact that we did not have a new program was not. It is now clear that the collective impact of our advertising and PR in January did not have nearly enough impact than cut-through in this crowded and competitive environment.

Quite frankly, we were outshouted by our competitors. In one case, in a duplicitous manner that we’ve vigorously and successfully challenging court. The poor start of this year has been a wake-up call for me and my team to take more different and more aggressive approach to getting our message out.

As a first step in this new direction, on March 28 we launched a louder more aggressive marketing campaign and it has already had a visible impact on our enrollment trends.

Word of mouth has always been the most effective way to create interest in Weight Watchers and our new campaign attaches a megaphone reverse conversations by using the voices of our members, online subscribers and meeting leaders to passionately convey the benefits of Weight Watchers. This campaign fully integrates all aspects of our marketing mix including TV, website, Internet, PR and direct mail.

As a part of this campaign, we enlisted Jennifer Hudson, an Oscar Golden Globe and Grammy award winning singer/actress. Prior to the April 1 launch announcement, Jennifer had been confidentially participating in Weight Watchers, working with the real life meeting leader and using the Internet tools including the new iPhone application extensively. She had fantastic success and her transformation was already apparent to the public, prior to the announcement of her partnership with weight Watchers.

It’s been more than five years since the Duchess of York had been fully integrated into our marketing campaigns. When we made the decision to once again work with the celebrity spokesperson, we had several criteria. One, we wanted an A list celebrity who had broad-based appeal and who could help us to expand our relevance through her appeal to multiple demographic groups including young people.

Two, we wanted a celebrity partner who really beliefs in the Weight Watchers’ approach and was going to live Weight Watchers much like our members do. The celebrity, who can showcase the sustainable lifestyle-based approach of Weight Watchers.

Jennifer has demonstrated that an incredibly busy on the move women can learn to navigate manage her environment. She maybe often in the spot light, but most ways she is very much like her other members. She sees the value of having Weight Watchers be a partner for a healthy lifestyle and because she truly believes this, she is able to communicate the benefit of Weight Watchers in a real and authentic way.

All early research suggests that the consumer has responded very favorably to Jennifer and were very pleased with our partnership.In the first few weeks of the spring campaign, volume trends in both paid weeks and attendances have improved significantly from what we’ve experienced in Q1. While I am pleased with the early enrolment trends, I would caution that we’re only five weeks into this new campaign.

The other bright spots in the NACO business in Q1 included further increases in monthly pass penetration rates improving monthly pass retention as well as higher in-meeting product sales. Product sales for attendance in Q1 were up a robust 15% driven by a combination of successful new product launches along with a very effective promotional campaign.

While we are pleased with the favorable April enrollment trends, we believe that prudence should be applied to forecast the NACO volume trends. Therefore for the remainder of the year, we’re forecasting mid-to-high single-digit paid week declines and high single-digit to low double-digit attendance declines.

Now on to the international meetings business. U.K. 2010 Q1 revenues declined 11% on a constant currency basis driven by promotional discounts in enrollments softness. Revenues were further adversely impacted by the return of VAT rates from 15% in Q1 2009 back to the historical 17.5% in Q1, 2010.

Paid weeks declined by 3% and attendances declined 13%. The situation in the U.K. during Q1 was very similar to that of NACO with volumes being significantly impacted by, one, weather, unprecedented snow in the first two weeks of January resulted in the loss of nearly 50% of the enrollments in those critical first two weeks.

More than any other of our major markets, the U.K. is particularly dependent on New Year’s resolution volume. While weather was less of a challenge for the remainder of the quarter, as expected the U.K. was not able to make up for the volume loss.

Two, timing of program innovations. Like the U.S., the U.K. did not have the benefit of a new program to provide product news in its winter marketing campaign in Q1 of this year as against the new program launch last year.

As is the case with NACO, it is clear that we need to take a different and a more aggressive path in getting our message out in this market as well. While we expect some moderation in volume trends in the U.K. for the duration 2010, we’re forecasting low single digit paid week declines and high single digit attendance declines for the remainder of the year.

In the meantime, the U.K. team is heavily focused on preparing for the soft launch of this new program in late 2010, with the full supporting marketing campaign beginning January 2011.

Moving on to Continental Europe, with the benefit of a new program launch this year, we saw our trends begin to improve significantly in Q1. CE revenues were up 3% on a constant currency basis for Q1 ‘010 versus the same period in ’09.

Paid weeks were up a robust 10% and attendances were up 3%. This marks a dramatic shift from the double-digit attendance declines we saw in CE throughout much of 2009. This improvement in volume came despite bad weather conditions across much of Europe earlier this year.

As we said in our previous call, CE launched a significant program innovation, ProPoints, into the market in late 2009. Volume trend improvements were universal across launch countries, driven initially by a large influx of returning members who are attracted back by the many new benefits ProPoints offers, including a totally revamped points formula.

Member response has been terrific and the transitional issues associated with these major innovations have been limited. Going forward, the challenge for the CE management team is to use this successful launch to begin to attract more number of members by levering the benefit of increased positive word of mouth being generated by the influx of successful returning members during Q1.

Additionally, the CE management teams are focusing their efforts on other initiatives that will further long-term growth in Europe, including greater marketing effectiveness, innovating the core service offering, and building new sales channels such as At Work. For the remainder of the year, we are forecasting low single digit attendance growth and high single digit paid weeks growth for our CE business.

Moving on to WeightWatchers.com. WeightWatchers.com had a solid start in 2010 with particularly good growth in its international markets. Internet revenues were up 11% on a currency adjusted basis, online paid weeks were up 11% and end of period license subscribers were up 11.5%.

During Q1, growth from the dot com business was particularly strong in the U.K. where it benefited from an integrated marketing campaign and Continental Europe were benefited from both integrated marketing campaigns and from the new program.

In the U.S, in April, WeightWatchers.com launched its new advertising campaign, which leverages the same marketing approach we are now using for the meetings business, by enlisting and actively amplifying the voices of successful subscribers who talked about the positive impact Weight Watchers Online has had on their lives.

Again, we are cautious in interpreting the results of the campaign that’s only five weeks old, but we are very encouraged by the results so far with nice volume acceleration versus the trend in Q1.

As a side note, I am very happy to announce that a few days ago, WeightWatchers.com reached an important milestone having surpassed the one million active subscriber market. The WeightWatchers.com team continues its pace on product development with well received future upgrade releases for the iPhone and website applications. For the duration of the year, we’re forecasting mid double digit online paid weeks growth.

Now, I would like to turn the discussion over to Ann, who will elaborate further on our Q1 performance.

Ann M. Sardini - CFO: Thank you David. And good afternoon, everyone. Recapping our first quarter 2010 as reported results, before adjustments for comparability, consolidated company revenues of $388 million were slightly behind prior year decreasing by 27%.

Operating income of $91.4 million declined 2.6%, while net income of $44.6 million was 5.8% below the Q1 2009 level. And EPS was $0.58 versus $0.61 in last year’s first quarter.

There were just a couple of items related to expense in the first quarter of last year, which should be adjusted for comparability. The first of these is a restructuring charge taken in last year’s first quarter associated with reduction in force.

Removing this charge from 2009 reduces expense by $3.1 million and increases 2009 Q1 EPS by $0.02. The second adjustment relates to the adverse court rulings we received earlier this year. With regard to leader self-employment status in the U.K., this resulted in a current and prior period charge on fourth quarter 2009 results and has an ongoing impact.

In the first quarter of 2010 this charge was $1.1 million. Adjusting the first quarter 2009 for comparability results in a similar charge, which reduces Q1 ’09 EPS by $0.01.

After adjusting for both of these items, 2009 Q1 EPS of $0.63 and 2010 Q1 EPS of $0.58 is $0.05 below the comparable prior year level with higher interest expense accounting for $0.02 of the difference.

Q1, 2010 revenues benefited by $15.3 million since there was a foreign currency translation. Excluding that benefit, revenues decreased by 4.5% versus the prior year level with the impact of volume softness in the NACO and U.K. meetings businesses, partially offset by revenue increases in Continental Europe meetings and Global online.

Our net income on a constant currency basis after factoring in the 2009 adjustment was 10.9% below the 2009 Q1 level.

In the operations overview that follows, I’ll discuss our operating performance on a currency neutral basis and excluding the adjusting items discussed above.

Our 2010, Q1 operating income was $91.4 million, a currency neutral decrease of 7% as compared to the adjusted 2009 first quarter level. Our operating income margin declined 60 basis points to 22.9% on the same basis.

Gross margin expansions versus prior year driven primarily by WeightWatchers.com were offset by higher G&A as a percentage of revenues, which I will review later on this report.

Now, summarizing some of the operational trends. First, in the meeting business, paid weeks declined 4.2% globally in the quarter. Internationally meeting paid weeks were up 2.4% reflecting 9.9% growth in Continental Europe. U.K. meeting paid weeks declined by 3% and NACO meetings paid weeks declined 8%.

As David noted, both U.K. and NACO were cycling against last year’s innovation and were impacted by severe weather this year in the quarter, which lowered both enrollments and propensity to attend. First quarter global attendance was down 12%, with U.K. down 12.8% and NACO down 16%. Continental Europe attendance was up 3.4% on the strength of the innovation and despite its own weather issues.

Lecture income revenues of $218.2 million in the first quarter were 7% behind the prior year quarter, a result of lower enrollment levels in the prior year. Overall, lecture incomes per meeting paid weeks declined slightly versus prior year by 2.9%, mainly as a result of globally higher penetration of value priced monthly pass.

In NACO, lecture income per paid week declined 1.7%. Internationally, increased promotion activity versus the prior year quarter also had an impact as did a reversion to higher U.K. VAT rates after a temporary government abatement. As a result, lecture income for paid weeks declined 3.8% across the international market.

First quarter global in-meeting product sales were $80 million, down 4.4% versus prior. On a per attendee basis, global in-meeting product sales were up 8.5% with NACO increasing 13.6% and the strength of new consumable product introductions, which were very well received in promotions. Internationally, product sales per attendee grew 1.7%.

Moving to WeightWatchers.com, with strength across all major markets, the combination of strong retention and signup growth drove first quarter revenues in this business up 10.9% over prior year. Paid weeks grew by 11.3% and in this period active online subscriber increased 11.5% versus Q1 ‘09 adjusted to 972,000.

Now turning to a review of the performance of our other revenue, which include licensing, franchise commissions and revenues from our publication. Other revenues of $22.7 million declined 9.3% versus the prior year level.

Our licensing revenues of $15.4 million in the quarter declined 6.7% versus last year. Domestic licenses declined 10% with 40% of the decline resulting from the change in the Applebee's and Yogurt relationships. Our remaining domestic licensing was down 6%, with 4% coming from the food category where the introduction of multiple new products introduced last year drove especially strong results.

By way of reference, the largest better-for-you retail category, frozen entrees was down roughly 4% in the quarter. Most of the products in the better-for-you category are premium priced and the category has experienced difficult trends in the recessionary environment.

International licensing was down 3.5% with growth in the U.K. offset by declines in Continental Europe. Franchise commissions, which totaled $3.5 million in the quarter, were down 18.6% with U.S. franchise commissions down 20.3%.

Our first quarter gross margin was 54.6%, 50 basis points improved from last year’s first quarter adjusted level. This gross margin expansion reflects growth in our high margin WeightWatchers.com business and the positive impact of higher attendances for meeting in Continental Europe driven by the innovation.

Q1 marketing expenses were $74.5 million, flat versus the prior year level on an as reported basis, but down 4.6% in constant currency. There were no media campaign timing differences this year versus last, As Easter which marks the kick-off of our spring marketing campaign was in the second quarter in both years.

Marketing savings resulted from the efficiencies and timing of winter production. Marketing as a percent of revenues was 19.2% in the first quarter 2010 as compared to 19.1% in the comparable quarter last year.

Q1 G&A expenses were $45.8 million, a 4.6% increase on an as reported basis. In constant currency and excluding $3.1 million of restructuring charges in the prior year quarter, G&A expenses increased 7.5%.

We gained efficiencies from reductions initiated last year, but these will offset by higher legal fees including our successful litigations with Jenny Craig Inc. and higher bad debt expense for a particular international license.

As a percentage of revenues, G&A was 11.8% in the first quarter of 2010 versus 10.4% in Q1, 2009 excluding restructuring charges.

In summary, our consolidated operating income margin was 23.6% in the 2010 quarter as compared to 24.5% in the prior year.

Before discussing our interest expense in the quarter, I’ll take a couple of minutes to review our recent financing activity. In early April, we concluded an amend and extend process, which extended the maturities of a portion of our term loans and revolving credit facilities, avoiding the need and the expense of refinancing of the entire credit facility which we would have faced by 2011. This created sufficient liquidity to enable us to resume our tax deployment strategies of opportunistic franchise acquisition and returning capital to our shareholders.

Through this amend and extend process, we extended the maturities at approximately 55% of our term loans and 66% of our revolver on an average of approximately three years moving much of our maturities into 2015 and 2016, and we reduced the amortization along the way, that is lowering the required debt pay-down per year.

Interest rate spreads on our extended term loans have increased to a very competitive 225 basis points and in our extended revolver, 250 basis points. Interest expense in the first quarter of 2010 was $18.7 million, up $2 million or 11.7% from the Q1 2009 level. The increase is a result of a higher portion of our debt being hedged, $900 million in the first quarter of 2009 versus $1.3 billion in the first quarter of 2010. The increase in interest expense arising from the debt expansion does not impact until the second quarter. Our current projection for interest expense in 2010 is approximately $74 million for the year.

In terms of cash flow, we generated $111.3 million of cash from operations in Q1 2010 before interest payments and before a $29.1 million one-time payment for retroactive U.K. back charges associated with the negative UK court ruling we received in 2008.

After capital expenditures of $3.7 million and the aforementioned U.K. back payments, we had $78.5 million of free cash available for capital structure. We made interest payments of $17.9 million, paid our quarterly dividend of $13.5 million and reduced our debt by $38.8 million. We ended the first quarter 2010 with $1.41 billion of debt as compared to $1.57 billion at the end of the first quarter of 2009.

And now I’ll turn it back to David.

David Kirchhoff - President and CEO: Thank you, Ann. Having completed the challenging first quarter of 2010, we’re feeling somewhat more optimistic about our volume prospects for the duration of the year, particularly in NACO and WeightWatchers.com.

Economic conditions certainly appear to be improving and the very early results of our spring campaigns in the U.S. are encouraging. The spring campaign launch was so early, is an indication of PR and advertising, can have a positive impact in shifting our enrollment trends.

In CE, we’ve demonstrated that we can change our trajectory by our program offering. While it is not easy to accurately predict how long the benefit from a new marketing campaign or program innovation will last, it is an important demonstration that our future destiny is under our control and can be driven by the actions we take.

Going forward, we’re focused on all the leverage we have available to us as we begin to turn around some of the negative volume trends we’ve experienced. With that in mind, we’re even more excited about our strategy of innovating our programs, transforming our retail infrastructure and innovating our service offering. Along those lines, we’re continuing to make strong progress as we prepare for 2011.

Let me provide a quick update on the status of these initiatives. As noted on the February call, we are working to ready our new program for soft launch in late Q4 in the U.S., U.K., Australasia and Canada with a full marketing push in January 2011, NACO’s retail transformation.

We’re continuing to make good progress in preparing for a full rollout commencing this fall. Specifically we now have a center design that will effectively accomplish our goals of having centers that, one, improves street side front of store appeal; two, provide a more confidential land and member processing experience and three, significantly improved the majority of our centers with that brand appeal.

By July, we plan to implant the full version of our retail vision of new center design, better location in full retail hours in two major metro areas.

For these two markets, we will be able to fully test and optimize the business model and operational approach. We can then parlay these learning’s into a wider rollout beginning this fall.

Further, our real estate team is now working against the backlog of existing leases and is looking to leverage our continued soft commercial real estate environment.

Our belief is that the combination of our new, stronger, louder, more buzz worthy marketing campaigns with the modernized retail presence in the new program will create substantial opportunities for volume growth in 2011.

To execute our strategy, we are particularly dependent on having the right kind of leadership in our organization. With this in mind and I’m extremely pleased with last weeks announcement of the filling of the President, North America role.

As many of you know, Dave Burwick has assumed this role. Prior to joining Weight Watchers, Dave spent 20 years at PepsiCo with the range of critical roles, including Chief Marketing Officer for North American Beverages and President General Manager of Pepsi, Quaker-Tropicana-Gatorade Canada, a $1 billion subsidiary. Dave experience as both the high powered marketer and exceptional leader brings the whole new level of capability and leadership to the NACO organization.

Regarding EPS guidance, while we are seeing some improved volume trend versus our earlier expectations, we want to remain cautious. Two recent factors which will have a negative impact on our earnings of this year versus our earlier guidance assumptions are the dollar significant strength in recent months and as Ann mentioned, higher than expected interest expense resulting from our success in extending significantly more of our debt than we had earlier thought possible.

Therefore we are maintaining our EPS range of $2.25 to $2.50 for the full year.

At this time, Operator, we would like to take questions.

Transcript Call Date 05/06/2010

Operator: (Operator Instructions). Jerry Herman, Stifel, Nicolaus.

Jerry Herman - Stifel, Nicolaus: First question is with regard to 2011 in the innovation in particular, David, I am wondering if you can, I know you don’t want to talk about specifics to the innovation, but can you help us with regard to how much of a proxy ProPoints in Continental Europe is serving for you guys, and if you can expect a similar or better or a less volume influence relative to Continental Europe?

David Kirchhoff - President and CEO: If you think about the elements that we described of the ProPoints plan in Europe on the last call, some of the things we talked about was the fact that we were updating the formula based on advancement in nutritional science for the past under 12 years that we were driving towards a plan that did an even better job of integrating health directly into the plan in terms of better-for-you healthy choices. And so I think the applicability of those types of learnings and trends to our English speaking markets are absolutely valid and important. The approach we take in program innovations is we worked very hard to have, if the U.S. and U.K. do an innovation one year, CE looks to take everything that worked really well of that innovation, then build on it and take it to a new level. And we would certainly be hoping to in the case of the English speaking market now that they are up a (bit), they will be looking to take what Continental Europe did and try to further up that. And so our programs absolutely build on each other, but they also look to improve with each successive version.

Jerry Herman - Stifel, Nicolaus: And maybe you can just help us with regard to the economic read and in particular paid weeks and the retention in that program. And in the past, you’ve talked a little bit about consumer credit and what sort of influence that has had on that model, which obviously uses credit cards.

David Kirchhoff - President and CEO: Are you talking about monthly pass?

Jerry Herman - Stifel, Nicolaus: Yes. Absolutely.

David Kirchhoff - President and CEO: I think what’s been gratifying on actually a number of different dimensions is as we discussed and have been discussing over the past year and a half, particularly going into the recession, we were concerned about some of the things that you talked about with credit card defaults and impacts of the economy and credit lines being pulled back might have on the consumer, and the knock-on effect that they could potentially have with monthly pass. Frankly, the good news is that we just haven’t seen any evidence of that happen at all. And I’d say that because what we’ve been seeing pretty consistently is some very nice increases in monthly pass penetration as a percentage of our total mix, for example, in North America really up pretty significantly Q1 ’09 versus Q1 ’010. And furthermore, what we’ve been able to do is to continue to have nice incremental improvements in terms of monthly pass retentions. And so to the extent that the consumer has been pressured, I think that the actions that we’ve been taking have been more than enough to compensate for that. So the matter of fact the consumer credit issues has not been present in our business so far.

Jerry Herman - Stifel, Nicolaus: And then just one quick one for, Ann. You were helpful in your guidance with regard to interest expense for the full year. Can you talk a little bit about the average interest rate and the sensitivity to the expense relative to changes in interest rates generally?

Ann M. Sardini - CFO: We are hedged, significantly $1.3 billion of the debt is hedged at this point. So we are not terribly sensitive to LIBOR right now. This is one more information on the interest rate.

Jerry Herman - Stifel, Nicolaus: In the past you’ve offered the average interest rate on the debt and again that’s probably a little bit less important. But –

Ann M. Sardini - CFO: We were looking at in the neighborhood of 5% roughly in the year.

Operator: Chris Ferrara, Bank of America.

Chris Ferrara - Bank of America: Dave, you said the trends in North America, going into the second quarter and the spring campaign, looked a lot better, and I understand you want to take it all in strive and be conservative. But it sounds like you’re guiding – maybe I got this one, attendance down, kind of, mid double digit. Still is that right? And I guess why doesn’t any of this improvement you’ve seen at all kind of translate into the attendance outlook especially, if the weather is not going to be as bad, comps are getting easier, stuff like that?

David Kirchhoff - President and CEO: In terms you’re right. I mean, we want to be conservative for a number of reasons. And then let me also get back to the attendance math, if you will, in terms of it being a lighting indicator of enrollments. But, first off, in terms of being conservative in the forecast, our view is that we have five weeks that we are really excited about. But it’s only five weeks. And we are going to be running this campaign actively right up until about Memorial Day, and then as you know, as we typically do, we tend to go (dark) for a period of time. I can’t tell you exactly how those follow-on effect is going to be during those periods nor can I forecast what the fall is going to look like. And so because I don’t know the lasting impact and this sort of ongoing impact that this approach is going to take, I have no reason to doubt its viability and its validity. But because I don’t have visibility and actually seen the data, our nature is to just be conservative in the way that we are looking at it. And that’s factored into some of the rest of your trend that we were suggesting in terms of a forecast for NACO. The other thing I would suggest is that if you look at the challenge of 2010 specifically, and you look at the impact of really soft enrollment numbers in the all important winter campaign is that what that has intended and what that does is it basically builds up a deficit via installed base that is beginning in Q2 of this year. And so it kind of creates a hole, which effectively was peaking at 16%. That we are now in the process of trying to pull back up. But there is a dependency on significant enrollment volumes during that winter campaign, that it’s hard to completely make that up. And so I think for the combination of all those reasons, that’s why we are being fairly conservative. What we take a lot of, what has been encouraging to see is that there clearly was an immediate reaction in terms of our enrollment trends when we started this new marketing campaign. I mean literally by the day we started this new marketing campaign, we saw a shift in the enrollment trends that was pretty stark. Maybe one thing that I might do to sort of help dimensionalize it is to give you a sense of how to think about that minus 16% attendance in North America in terms of some rough estimates, back of the envelope estimates of how some of these different factors affected it. If I were looking, if I were trying to sort of disaggregate weather out of the minus 16% on attendances, I would have said without the sort of ill weather effects the attendances would have been say, let’s call it minus 10% to minus 12%. If I tried to then back out the impact of comping against momentum program, I might have said, let’s say that’s another 5%. That would suggest maybe sort of organic minus 7%, minus 8% depending on how you look at it in Q1. And we’ve effectively turned that to flat with the launch of this campaign. And the thing I would point out is this campaign is just one element. This is not the entirety of our strategy. But it’s an important part of our strategy. And we have other things that we’re looking to have kick into gear, particularly as we move into 2011, which was why when we look at the cumulative effect, I am gratified and pleased to see the impact that the campaign has had on the enrollment trends. It is going to improve on some of the trends that we saw in terms of helping us make up for some of those lost enrollments from the winter campaign. But that’s why in my prepared remarks I talked about the fact that I’m particularly excited that when I see this business once and for all, this core meeting business in NACO firing at all cylinders marketing, retail innovation, program innovation, all those things combined, that’s when I absolutely see this business moving in the direction as it deserves to move.

Chris Ferrara - Bank of America: One of the things you mentioned, I guess you said you outshouted in – back of this concept. How do you think about, word of mouth today versus marketing campaign? Compared to, 2001 when you guys first went public, resolve word of mouth, I mean has the environment – I mean, I guess it hasn’t (which is an) obvious thing, but I mean the environment which you get shifted more towards media and more towards the need to be campaigning externally. Is that right? Does that make sense?

David Kirchhoff - President and CEO: You know, what’s funny, Chris, is that we actually look at it in a very different way and this was to us a realization and almost – no, not an epiphany, but it makes – it's kind of a little bit too dramatic. But we have this experience where we felt like we have just finally got into the point this January with over so much noise in the market, that somehow we were being missed in the conversation. And when I say the conversation, I mean the conversations that happen every day with people who are talking about the need and desire to lose weight ensuring tips and ideas on how they’re going to approach it. And we had those nagging feeling that we weren’t being part of it. What was frustrating for us is that we by far more than any other organizations have strong word of mouth. We have people all over the place that are speaking as passionate advocates for the approach, the lifestyle and the sustainable approach that we take toward weight loss. And I think that, to us, kind of the clue in was developing a marketing campaign that directly harness that word of mouth and did it in a way that if you want to think about it, pardon the buzzword, but it’s almost crowd sourcing our advertising and our messages in a way that amplifies what was happening in nature. And so we actually think the beauty of the approach that we can take that other people can’t is we can basically take word of mouth, advertising and PR, and then think of them as sort of three points on a triangle that sort of work and reinforce each other in a consistent set of messages in a way that nobody else can do. And I think that the upside of that is, is that it comes across as a message that is fundamentally different from what you’re going to see from, I believe in my own prejudice way, some of my competitors and that we’re going to have a message that is most importantly authentic.

Chris Ferrara - Bank of America: And just one of the quick things on the licensing side, is licensing still a focus, can you just give a quick update on how do you feel about that, right? Is it something that's been ignored as you been – tried to pull through the rest of the business or should we think about this as kind of a slightly declining business over time?

David Kirchhoff - President and CEO: Absolutely not. It is very much a focus for us. And it is clearly a focus for the licensing team, and they are working hard against it and it is consistent with Ann’s comments. I think there has been some misunderstanding about the licensing category that relates to some of the product lines that we carry. But if I look at our licensing portfolio, I think of it in sort of two dimensions. One is the dimension of some situations that I truly do believe was somewhat unique, such as the change in the Applebee’s relationship which was a function of new ownership and new management and different strategic priorities on their part. Some sort of complications in the relationship which had to do with the change of ownership that we believe is ultimately addressable in kind of the uniqueness of a relationship in soup which had much more to do with just the timing of when a bunch of new SKUs came on in inventory stocking this time last year as opposed to this year. If I look at the other aspect of licensing category, the truth is that the better-for-you category, if you would see across the board has been a bit of a victim in a recessionary environment. I believe it’s been a victim on two dimensions. One, better-for-you products do tend to carry a bit of a price premium and this hasn’t exactly been the best grocery market to have premium priced products. And two, this has been an environment with all these anxiety around a recession that, I believe, has lent itself to the opposite, which is comfort eating. And so, for example, when I look at kind of the frozen diet entr�e category, your Lean Cuisines, Healthy Choice, Smart Ones, if I look at that combined category, it was down about 7% in 2009 and down about 4% in 2010. And I absolutely believe that that category is, there is no doubt in my mind that’s going to get a second win because the consumer still needs to start making better choices. And so the opportunity for us is to capitalize on that when the consumer does start making better choices and they do start returning to better-for-you foods and then to make sure that we have the right license fees lined up. Both grew in a building against the stable business we have as well as continuing our process and seeking new relationships.

Chris Ferrara - Bank of America: But that new relationship seeking process, how is that going, I mean, building --

David Kirchhoff - President and CEO: I think it’s one of these things where we would always like it to go faster and I think we can look for opportunities to make it go faster. But at the same time we’ve had some nice wins getting out of the gates in January with Kraft, with Bocca Burgers and Jell-O, an endorsement deal that has been really successful so far. Green Giant is a relatively new endorsement program for us. And so, particularly on the endorsement front, we’ve had some good successes. I believe this is a place where frankly success breeds success. As we continue to build good case studies, I think we’re only going to do better in that category. And so I really do dispute the notion that Weight Watchers presence in retail in any way, shape, or form is going to diminish over time. One of my proof points for that is that if I look, for example, to U.K. which has the same sort of recessionary environment and some of the same pressures on grocery retail, their licensing business is up again this year. And so I think that some of the notions in terms of grocery dynamics, I’m just not sure it’s true. I really do believe that much of what we’re seeing with this category is the function of the recession in the premium prices. And that will pass over time.

Operator: (Operator Instructions). There are no further questions registered. I would like to turn the meeting back to the presenters.

David Kirchhoff - President and CEO: Thank you for joining us today. And I look forward to speaking with you again at our next quarterly earnings release.

Operator: Thank you. The conference call is now concluded. Please disconnect your lines at this time. And we thank you for your participation.