Weight Watchers Announces Second Quarter 2016 Results

WW International, Inc.
Published: August 5th, 2016

NEW YORK - Aug. 4, 2016 // PRNewswire // -

• Revenues of $310 million and EPS of $0.46
• North America business continues positive growth trend, with:
  • End of Period Subscribers up 9% year-over-year
  • Paid Weeks up 8% year-over-year
  • Revenues up 5% year-over-year
• Global End of Period Subscribers up 5% year-over-year to 2.9 million
• Global Operating Income up 5% year-over-year to $74 million
• Full year 2016 EPS guidance range of $0.90 to $1.05
  • Reflecting expected revenue and profit growth for the second half and the full year
  • Incorporating an estimated benefit from an R&D tax credit of approximately $0.10 per share in Q3 2016

Weight Watchers International, Inc. (NYSE: WTW) today announced its results for the second quarter of fiscal 2016 and updated its full year fiscal 2016 earnings guidance.

"Our second quarter represents our third successive quarter of year-over-year member recruitment growth, keeping us on-track to deliver revenue and profit growth for the full year 2016. We are encouraged by our transformation momentum and the solid foundation we are building for 2017 and beyond," saidJim Chambers, the Company's President and Chief Executive Officer.

Q2 2016 Consolidated Global Results

View Original for Full Data Table

Note: Totals may not sum due to rounding.

See "Reconciliation of Non-GAAP Financial Measures" attached to this release for further detail on adjustments to GAAP financial measures.

(1) "Meetings" refers to monthly commitment plan subscribers, "pay-as-you-go" members, Total Access subscribers and other meetings members.

(2) "Online" refers to Weight Watchers Online, Weight Watchers OnlinePlus, Personal Coaching and other digital subscription products.

(3) "Subscribers" refers to meetings members and Online subscribers who participate in recurring billing programs, such as the Company's monthly commitment plans for its meetings business.

*Except in the case of the financials attached to this release, "Net Income" refers to Net Income attributable to Weight Watchers International, Inc.

Q2 2016 Business and Financial Highlights

• End of Period Subscribers were up 5.0% for Q2 2016 versus the prior year period, driven by continued recruitment growth in North America where End of Period Subscribers increased 8.6%, partially offset by declines in the United Kingdom and Continental Europe. Globally in Q2 2016, End of Period Meetings Subscribers were up 6.6% and End of Period Online Subscribers were up 3.8%, both driven by solid gains in North America.
• Total Paid Weeks in Q2 2016 were up 4.2% as compared to the prior year period, with a Meeting Paid Weeks increase of 5.5% and an Online Paid Weeks increase of 3.1%.  These gains were driven by strength in North America where Total Paid Weeks grew 8.1% year-over-year, partially offset by declines in international segments.  
• Total Revenues in Q2 2016 were $309.8 million. On a constant-currency basis, total revenues increased 0.7% versus the prior year period.
  • Service Revenues in Q2 2016 were $251.6 million. On a constant-currency basis, these revenues increased 1.2% versus the prior year period, as growth in North America of 4.8% on a constant currency basis was partially offset by declines in international markets.
  • Product Sales and Other in Q2 2016 were $58.2 million. On a constant-currency basis, these revenues decreased 1.1% versus the prior year period as growth in North America of 10.9% on a constant currency basis was offset by declines in international markets.
• Operating Income in Q2 2016 was $73.7 million. On a constant-currency basis, operating income increased 4.9% versus the prior year period.  Adjusted Operating Income in Q2 2016 was also$73.7 million, up 4.6% on a constant-currency basis versus the prior year period.
• Tax Rate in Q2 2016 was 31.5%, as compared to 40.2% in the prior year period. Q2 2016 results include a $2.5 million reversal of a valuation allowance related to tax benefits for foreign losses that are now expected to be realized.
• GAAP Net Income was $30.5 million in Q2 2016, compared to $27.9 million in the prior year period.
• GAAP Earnings per fully diluted share (EPS) was $0.46 in Q2 2016, compared to $0.49 per fully diluted share in the prior year period.

Items Affecting Year Over Year EPS Comparability 

Q2 2016 had a higher share count as compared to Q2 2015 which negatively impacted Q2 2016 EPS by$0.07.

Q2 2016 results benefited from a $2.5 million (or $0.04 per fully diluted share) reversal of a valuation allowance related to tax benefits for foreign losses that are now expected to be realized.

Q2 2015 results benefited from a gain on early extinguishment of debt of $6.7 million ($4.1 million after tax or $0.07 per fully diluted share) for its previously disclosed debt prepayment in the quarter.

Other Items

• Cash balance was $114.5 million as of July 2, 2016, which included $48.0 million outstanding under the Company's revolving credit facility.
• Revolving Credit Facility: Subsequent to the end of Q2 2016, the Company paid down $25.0 millionof the $48.0 million outstanding on its revolving credit facility.  The Company anticipates paying down the remaining balance during Q3 2016.
• R&D Tax Credit: Prompted by Congress' decision to make the Federal R&D tax credit permanent inDecember 2015, the Company has undertaken a comprehensive assessment of its U.S. taxes and its technology investments. While the analysis is not yet complete, it is currently estimated that the Company may be eligible for tax credits relating to its previously incurred technology investments. Subject to completion of its more comprehensive assessment, in Q3 2016, the Company expects to record a tax benefit which will positively impact Q3 EPS by approximately $0.10 per share.

Full Year Fiscal 2016 Earnings Guidance

The Company is providing 2016 earnings guidance of between $0.90 and $1.05 per fully diluted share. This GAAP earnings guidance incorporates an estimated $0.10 per fully diluted share benefit from an R&D tax credit in Q3 2016 as described above.

Second Quarter 2016 Conference Call and Webcast

The Company has scheduled a conference call today at 5:00 p.m. ET.  During the conference call, Jim Chambers, President and Chief Executive Officer, and Nick Hotchkin, Chief Financial Officer, will discuss the second quarter 2016 results and answer questions from the investment community.  Live audio of the conference call will be simultaneously webcast over the Internet on the Company's corporate website,www.weightwatchersinternational.com.  A replay of the webcast will be available on this site for approximately 90 days.

Statement regarding Non-GAAP Financial Measures

The following provides information regarding non-GAAP financial measures used in this earnings release:

To supplement the Company's consolidated results presented in accordance with accounting principles generally accepted in the United States (GAAP), the Company has disclosed non-GAAP financial measures of operating results that exclude or adjust certain items.  Operating income and operating income margin, gross profit and gross profit margin, and selling, general and administrative expenses are discussed in this release both as reported (on a GAAP basis) and, with respect to the second quarter of fiscal 2015, as adjusted (on a non-GAAP basis), as applicable, to exclude the impact of charges associated with the Company's previously disclosed 2015 plan to restructure its organization. Earnings before interest, taxes, depreciation, amortization and stock-based compensation (EBITDAS) is presented in the attachments to this release. In addition, the Company presents certain of its financial results on a constant currency basis in addition to GAAP results. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. In this release and any attachments, the Company calculates constant currency by calculating current-year results using prior-year foreign currency exchange rates.

Management believes these non-GAAP financial measures provide useful supplemental information for its and investors' evaluation of the Company's business performance and are useful for period-over-period comparisons of the performance of the Company's business.  While management believes that these financial measures are useful in evaluating the Company's business, this information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP.  In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies.  See "Reconciliation of Non-GAAP Financial Measures" attached to this release and reconciliations, if any, included elsewhere in this release for a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures.

About Weight Watchers International, Inc.

Weight Watchers International, Inc. is the world's leading commercial provider of weight management services, operating globally through a network of Company-owned and franchise operations. Weight Watchers holds more than 32,000 meetings each week where members receive group support and learn about healthy eating patterns, behavior modification and physical activity. Weight Watchers provides innovative, digital weight management products through its websites, mobile sites and apps. Weight Watchers is the leading provider of paid digital subscription weight management products in the world. In addition, Weight Watchers offers a wide range of products, publications and programs for those interested in weight loss and weight control.

This news release and any attachments include "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, earnings guidance and any statements about the Company's plans, strategies and prospects. The Company generally uses the words "may," "will," "could," "expect," "anticipate," "believe," "estimate," "plan," "intend" and similar expressions in this news release and any attachments to identify forward-looking statements. The Company bases these forward-looking statements on its current views with respect to future events and financial performance. Actual results could differ materially from those projected in the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things: competition from other weight management industry participants or the development of more effective or more favorably perceived weight management methods; the Company's ability to continue to develop new, innovative services and products and enhance its existing services and products or the failure of its services and products to continue to appeal to the market, or the Company's ability to successfully expand into new channels of distribution or respond to consumer trends; the ability to successfully implement new strategic initiatives; the effectiveness of the Company's advertising and marketing programs, including the strength of its social media presence; the impact on the Weight Watchers brand of actions taken by the Company's franchisees, licensees, suppliers and other partners; the impact of the Company's debt service obligations and restrictive debt covenants; the inability to refinance the Company's debt obligations on favorable terms or at all; uncertainties regarding the satisfactory operation of the Company's information technology or systems; the impact of security breaches or privacy concerns; the recognition of asset impairment charges; the loss of key personnel, strategic partners, or consultants or failure to effectively manage and motivate the Company's workforce; the inability to renew certain of the Company's licenses, or the inability to do so on terms that are favorable to the Company; the expiration or early termination by the Company of leases; risks and uncertainties associated with the Company's international operations, including regulatory, economic, political and social risks and foreign currency risks; uncertainties related to a downturn in general economic conditions or consumer confidence; the Company's ability to successfully make acquisitions or enter into joint ventures, including its ability to successfully integrate, operate or realize the anticipated benefits of such businesses; the seasonal nature of the Company's business; the impact of events that discourage or impede people from gathering with others or accessing resources; the Company's ability to enforce its intellectual property rights both domestically and internationally, as well as the impact of its involvement in any claims related to intellectual property rights; the outcomes of litigation or regulatory actions; the impact of existing and future laws and regulations; the Company's failure to maintain effective internal control over financial reporting; the possibility that the interests of Artal Group S.A., who effectively controls the Company, will conflict with other holders of the Company's common stock; and other risks and uncertainties, including those detailed from time to time in the Company's periodic reports filed with the Securities and Exchange Commission. You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause the Company's results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, the Company does not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this news release or to reflect the occurrence of unanticipated events or otherwise. Readers are advised to review the Company's filings with the Securities and Exchange Commission (which are available from the SEC's EDGAR database at www.sec.gov, at various SEC reference facilities in the United States and via the Company's website atwww.weightwatchersinternational.com).

For full spreadsheet report please go to: [http://www.weightwatchersinternational.com/phoenix.zhtml?c=130178&p=irol-newsArticle&ID=2193271].

SOURCE Weight Watchers International, Inc.

Contacts:

Corey Kinger
Brainerd Communicators, Inc.
Investor Relations
(212) 986-6667
kinger@braincomm.com

Stacie Sherer
Media Relations
(212) 589-2737
stacie.sherer@weightwatchers.com