Students: Ajai Atal, Lucy Lu, Milo Tong...2018/06/03 · Students: Ajai Atal, Lucy Lu, Milo Tong...

November 17th, 2017

Students: Ajai Atal, Lucy Lu, Milo Tong

Short: Weight Watchers International, Inc. (NYSE:WTW)

✘ Growth in recent quarters has been driven by Platform changes to the program. Next innovation coming end of this year is minor and will catalyze subscriber churn

✘ Rebranding efforts have not led to changes in brand perception, limiting WTW’s ability to convert the new customer segments (e.g. millennials, men) they need to

✘ WTW’s online business, the main driver of growth, faces high hurdles to continued success

✘ At 27x forward P/E and 14x forward EV/EBITDA, WTW is still trading at unwarranted peak valuation levels, especially relative to comparable companies

Short recommendation

WTW has made sustainable business changes that will drive long lasting growth, citing increased retention as proof

WTW is on its way to becoming the lifestyle brand that management aspires towards and will attract new demographics in the future

WTW’s online business will continue to drive growth

WTW deserves substantially higher valuation than peers due to recent outperformance and projected double-digit EBITDA growth

Investment thesis

STREET VIEWOUR VIEW

Company overview

REVENUE BREAKDOWN

Revenue breakdown and financial profile

FINANCIAL PROFILE

53%29%

10%

8%

By segmentMeeting Fees

Online Subscriptions

In-Meeting Product Sales

Other 68%

8%

18%

6%

By geographyNorth America

UK

Continental Europe

Other Regions Revenue

0%

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15%

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30%

35%

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2010 2011 2012 2013 2014 2015 2016

Revenue EBITDA margin (rhs)

Company overview

HIGHLY CYCLICAL BUSINESS

MARKET VALUE YE16 FINANCIALS CURRENT VALUATION YE18 PRICE TARGET

• In a given year, ~40% of the people who join Weight Watchers do so in 1Q

• Dependent on recycling of customer base - 2/3 of the meeting members at any time have done Weight Watchers in the past

• Consistently push out program updates every 2 years with marketing campaigns to re-catalyze sign ups

Weight Watchers has been around for 50+ years (aging like its to core demographic!)

Stock price ($) 44.29

High / low ($) 46.08 / 44.20

Share outstanding (mm) 64.5

Avg 3mo daily volume (mm) 1.4

Short interest 10%

Market cap ($mm) 2,856.7

Plus: Debt ($mm) 1,916.3

Less: Cash ($mm) 178.2

Plus: Minority Interest ($mm) 4.6

Enterprise value ($mm) 4,599.4

Revenue ($mm) $1,165

Marketing spend ($mm) 194.4

EPS ($) $1.03

Gross margin 50%

Operating margin 17%

EBITDA margin 22%

Net income margin 6%

P/E 2017 27.6x

P/E 2018 22.4x

EV/EBITDA 2017 14.1x

EV/EBITDA 2018 11.9x

Base case ($) 30.83

Upside -30%

Bull case ($) 12.67

Upside -71%

Bear case ($) 52.73

Upside 19%

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Fwd P/E (rhs)

2-year innovation cycles & their celebrity spokespeople

2009: Momentum -combine points plan and core food plan

2011: PointsPlus(Platform change) -

factor nutritional value into points

plan

2012: PointsPlus 2012 –enhance personalization

for new member onboarding

Jennifer Hudson: Dec 2010 – 2014Charles Barkley: Dec 2011 - 2012Jessica Simpson: Sep 2012 – 2014Ana Gasteyer: 2013Oprah Winfrey: Oct 2015 - present

2013: Weight Watchers 360 –attempt to change behavior

2014: Simple Start –2-week starter plan

2018: [Freestyle] –[Add more foods to

0 points list]

2016: Beyond the Scale(Platform change) –

incorporates fitness and more personalization

#1: This time is THE SAME

Platform change THEN: PointsPlus for 2011 NOW: Beyond the Scale for 2016

Marketing • Jennifer Hudson joins after Christmas 2010• Appears on Oprah show Feb 2011, where Oprah

gives everyone in audience 3 free one-year memberships

• Partnership with Oprah, who purchases 10% stake in WTW Oct 2015

Market data: Around launch

• Stock price: $70.15• Fwd P/E: 13.1x• 4Q10 EPS: $0.59 (vs 3Q09: $0.68)

• Stock price: $53.32• Fwd P/E: 37.9x• 4Q15 EPS adj: -$0.03 (vs 4Q14 adj: $0.07)

1 year after • Stock price: $119.50• Fwd P/E: 13.0x• 4Q11 EPS: $0.86

• Stock price: $21.98• Fwd P/E: 10.1x• 4Q16 EPS : $0.20

2 years after • Stock price: $106.52• Fwd P/E: 11.6x• 4Q12 EPS: $1.03

• Stock price: [$30.17]• Fwd P/E: [20x]• 4Q17 EPS : [$1.53]

3 years after • Stock price: $66.04• Fwd P/E: 11.2x• 4Q13 EPS: $0.54

• Stock price: [$30.83]• Fwd P/E: [20x]• 4Q18 EPS : [$1.50]

New members? • 1Q11 saw never-members up over 1Q10 and 1Q09 • No stats on never-member enrollment

Platform change has run its course and next innovation will cause churn

Next innovation THEN: Weight Watchers 360 for 2013 NOW: [Freestyle] for 2018

Short term catalyst for churn

• Jessica Simpson’s pregnancy distracted from promotion of new program

• Program change wasn’t drastic enough for people to see value in update – YoY subscribers dropped an average of 11% across all regions

• Oprah launched own heath food line in Aug separately from WTW, so her ‘effect’ will diminish as it is stretched across promotion of multiple products

• Primary research suggests that program change will be minor

#2: WTW is still not a lifestyle brand

Management thinks a rebrand is possible with WTW’s core demographic…

NEW CUSTOMERS = CURRENT CUSTOMERS = PAST CUSTOMERS

“… recurring nature of the business model is an important part of the attractiveness of the business model… if you have a weight-loss problem, it tends to be a chronic issue that you deal with throughout your lifespan. We certainly see repeat members coming back, especially when we have major program innovations…

Our average member today is a 48 to 49-year-old woman on the meetings business... Our average online member is about 43 years old. Those stats have stayed pretty consistent over time. I think over time appealing to new demographics as we grow is a wonderful opportunity for us. In the near term, we're confident that we can return to growth by doing a better job attracting the folks who have traditionally come to Weight Watchers.”

NICHOLAS P. HOTCHKIN, CFO - INDUSTRY CONFERENCE NOVEMBER 2015

Source: WTW Facebook support group


…but that group is shrinking. WTW will have to tap into new markets near term to sustain growth

The population of overweight women is not growing.

49% of people think their weight is “about right” and are not

interested in losing weight, the highest ever in history

(historically 31%)

• Confirmed core demographic – majority of attendees were middle-aged women who were overweight (not obese) and appreciated group support

• Size of meetings averaged 10 people• Anecdote from 1 location: attendance had been on decline for past 3 years

• Cited reasons for joining• Life events e.g. wedding, surgery• Previous member• Personally ready to lose weight at that time


Primary research

OBSERVATIONS FROM 3 DIFFERENT MEETING LOCATIONS IN PHILLY

JOINED ONLINE PROGRAM (SIMILAR TO ETOOLS THAT COMES WITH MEETING MEMBERSHIP)

GENERIC CALL WITH WTW PERSONAL COACH COMMUNITY IS NOT INTERACTIVE

Not one mention of Oprah!


Data confirms meeting attendance has indeed declined

54 51 57

51 43 41

32 33

88 88

105

99

89

78

66 70

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45%

47%

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63%

2009 2010 2011 2012 2013 2014 2015 2016

Attendance weeks vs. paid meeting weeks

Attendance weeks (rhs) Paid weeks (rhs)

Attendance/paid wk


Source: Keyhole

Real rebranding will be challenging:Instagram comparison: Kayla Itsines vs. WTW

Kayla posts consistently all year round, while WTW still feeds into the cyclical nature of dieting


Real rebranding will be challenging:App download comparison: Kayla Itsines vs. WTW

Guess which is Kayla’s app and which is WTW?

US

over

all r

anki

ng

#3: Online business faces high hurdles

Competition is fierce

DIET APPS AND ONLINE COMMUNITIES FOOD DELIVERY

28% revenue growth YoY

5% revenue growth YoY

0.

5.

10.

15.

20.

25.

Fitbit S Health MyFitnessPal Google Fit MapMyWalk MyChart GarminConnect

Sleep Cycle WTW PeriodTracker

# monthly unique users (mm)

Source: Verto Index: Health and Fitness Apps


• Despite marketing efforts, user demographic remains WTW core customer: middle-aged women with children

• Weight loss mindshare on search continues to diminish

• Traffic has been declining since peak of recent recovery last year

Source: Google trends, Alexa Internet

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110

Google search trends (global)

weight watchersweight loss

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2014 2015 2016 2016 2017

Global traffic rank

Website user engagement metrics have not improved

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Online revenue trends

Online rev/sub

Online rev/wk (rhs)

2010 2011 2012 2013 2014 2015 2016 2017


What top line growth doesn’t show

#4: Peak valuation will not last

WTW is expensive relative to comps and where it was trading YE12

CompsMarket Enterprise Revenue % Rev EBITDA Net income EBITDA P/E EV / EBITDA

Company Ticker Capitalization Value LTM Growth LTM Margin Margin 2017E 2018E 2017E 2018EWeight Watchers WTW $2,857 $4,599 $1,262 9% $316 9% 25% 27.6x 22.4x 14.1x 11.9x

YE 2012 $2,914 $5,265 $1,839 0.4% $533 14% 29% 11.6x 12.8x 9.6x 9.6x

Planet Fitness PLNT $2,584 $3,173 $412 12% $173 11% 42% 36.7x 30.7x 17.3x 15.1xNutrisystem NTRI $1,396 $1,307 $675 28% $95 8% 14% 24.0x 20.8x 11.8x 9.9xMedifast MED $827 $731 $286 5% $41 9% 14% 31.9x 27.4x 15.7x 13.5xNautilus NLS $393 $367 $404 4% $57 7% 14% 14.1x 11.6x 6.9x 5.8x

Median 5% 9% 14% 24.0x 20.8x 11.8x 9.9xAverage 10% 10% 23% 23.7x 20.7x 12.3x 10.8x

Valuation

EPS EBITDA

2017E 2018E 2019E P/E 2017E 2018E 2019E EV/EBITDA 2017Revenue

2017 Marketing Exp / Sales

Street $1.80 $2.04 $2.25 32.6x $328.5 $387.8 $404.6 15.4x $1,300.6 16% 2017

Our view(base) $1.53 $1.50 $1.48 20x $291.5 $309.7 $305.7 12x $1,259.0

17% 2017, 18% thereafter

∆ ($0.27) ($0.54) ($0.77) -12.6x ($36.97) ($78.05) ($98.91) -5x ($42) +100-200bps

BULL CASE BASE CASE BEAR CASE

Thesis plays out: • New innovation leads to churn• WTW needs to reach new

demographics but fails to do so• Online business struggles to compete• Multiple rerates to 12x

• Oprah distances herself, leading marketing expenses to rise

• New innovation is utter disaster and core demographic churns out more than expected

• Emergence of new competing diet plan takes market share

• Multiple rerates to 10x

Risks come to bear:• New innovation attracts never-

members, including those in new demographics

• Online business continues to boost growth

• Peak multiple is warranted

Base case ($) 30.83

Upside -30%

Bear case ($) 52.73

Upside 19%

Bull case ($) 12.67

Upside -71%

Street is pricing WTW at peak multiples

Risks mitigations

Upcoming innovation and marketing

campaign are a hit and never-members join

WTW is able to branch out of its core demographic

WTW gains traction internationally

• WTW historically sees high levels of churn after minor program updates

• Market of core demographic is highly saturated

• Oprah launched her own line of heathy comfort foods without WTW, which is competing for the Oprah effect

• This could potentially put WTW a step closer to goal of becoming lifestyle brand, but no evidence of this actually happening

⁻ Website user engagement metrics have been deteriorating

⁻ Meeting attendance is declining

• For online, still needs to compete with the crowded market of free diet apps and social communities

• Neither WTW nor Oprah have the same brand appeal in Europe as they do in US

• Creating the same brand recognition abroad would require a significant marketing investment

• UK meeting growth has struggled historically after botched marketing campaign and emergence of aggressive local competitor

Appendix

Management and incentives

Mindy Grossman joined as President, CEO, Class III Director in July. She has more than 38 years of experience in building and transforming consumer brands, having served as CEO of HSN, an interactive, multichannel retailer of fashion, household and lifestyle products, and a member of its Board of Directors since August 2008.

PERFORMANCE INDICATORS LISTED IN 10K2016RevenuePaid WeeksIncoming SubscribersEnd of Period SubscribersRecruitmentsAttendanceGross profit & operating expenses as a percentage of revenue

2011RevenuePaid WeeksAttenanceMeeting revenue/ paid week and in-meeting product sales/attendeeOnline subscribersOperating expenses as percentage of revenue

FINANCIAL PERFORMANCE GOALS FOR COMPENSATION2016• 33.3% 1Q recruitment - meetings subs

count twice as much as online subs

• 66.7% full year operating income goals

2015• 25% 1Q meetings and online recruitment • 12.5% Q2-Q4 meetings recruitment• 12.5% Q2-Q4 online recruitment

• 50% positive cash flow - full year operating income less capital expenditures

2014 and prior• 100% full year operating income goals

Dropped last year

Compensation structure

Base salary $1,200,000

Target bonus $1,800,000 for 2017, 150% of base thereafter

Max bonus 50-200% of target in 2017,300% of base thereafter

Equity annual grant value of at least 400% of base salary

Plays into cyclicality, not long-term lifestyle

Appendix

Ownership

“Invus is the U.S. investment arm of Artal, are our controlling shareholder. The Invus team is by and large, ex-consultants who are incredibly knowledgeable and passionate about our space and have a wonderful institutional memory in addition to expertise on the business. They're very deeply engaged in the business, and Jim as CEO, frankly, draws them into the big issues of the day and promotes their thought partnership on issues. So they're very engaged.”

- Nicholas P. Hotchkin May 28, 2015

“In addition, our partnership with Oprahhas greatly accelerated our progress. She is a passionate member and a strong strategic voice for the company.”

- Thilo Semmelbauer, May 2017

Source: Bloomberg

Appendix

Revenue build: North America

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022E

North America $1,164.7 $947.8 $755.4 $798.7 $868.0 $919.2 $892.8 $901.8 $898.6 $894.6% Revenue Growth -19% -20% 6% 9% 6% -3% 1% 0% 0%

Meeting Fees $595.1 $496.3 $399.4 $437.2 $460.6 $476.6 $445.4 $442.8 $429.0 $407.8% Revenue Growth -9% -17% -20% 9% 5% 3% -7% -1% -3% -5%

Subscribers 833.2 692.6 645.1 743.9 855.5 923.9 923.9 970.1 941.0 912.8$ Fee / Sub $714.2 $716.6 $619.1 $587.7 $576.0 $535.6 $482.1 $467.6 $448.9 $439.9

% YoY 0% -14% -5% -2% -7% -10% -3% -4% -2%Paid Weeks 59.7 50.3 40.8 45.8 52.7 56.9 56.9 59.7 57.9 56.2

Implied Churn -10% -16% -19% 12% 15% 8% 0% 5% -3% -3%

Subscriber BuildBeginning Subs 833.2 692.6 645.1 743.9 855.5 923.9 923.9 970.1 941.0Churn -140.6 -47.5 98.8 111.6 68.4 0.0 46.2 -29.1 -28.2Ending Subs 692.6 645.1 743.9 855.5 923.9 923.9 970.1 941.0 912.8

Online Subscriptions $373.3 $298.2 $240.0 $239.1 $277.3 $308.0 $310.2 $317.0 $324.9 $339.3% Revenue Growth -20% -20% 0% 16% 11% 1% 2% 3% 4%


% YoY 6% -16% -9% 4% -5% -7% -5% -5% -1%Paid Weeks 66.8 51.7 55.3 68.0 76.2 80.0 88.0 93.3 97.9

Implied Churn -23% 7% 23% 12% 5% 10% 6% 5%

Subscriber BuildBeginning Subs 1232.9 925.2 886.4 975.3 1199.6 1343.6 1410.8 1551.8 1644.9Churn -307.7 -38.8 88.9 224.3 144.0 67.2 141.1 93.1 82.2Ending Subs 925.2 886.4 975.3 1199.6 1343.6 1410.8 1551.8 1644.9 1727.2

In-Meeting Product Sales $119.1 $85.2 $64.8 $72.4 $79.6 $83.6 $86.1 $90.4 $93.2 $95.9% Revenue Growth -28% -24% 12% 10% 5% 3% 5% 3% 3%

Other $77.2 $68.1 $51.2 $50.0 $50.5 $51.0 $51.0 $51.5 $51.5 $51.5% Revenue Growth -12% -25% -2% 1% 1% 0% 1% 0% 0%

Appendix

Revenue build: UK

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022EUK $172.7 $156.9 $124.7 $100.8 $100.3 $103.2 $98.0 $98.5 $95.8 $97.1

-9% -21% -19% 0% 3% -5% 0% -3% 1%Meeting Fees $85.3 $80.8 $65.1 $54.5 $53.4 $55.3 $52.1 $52.3 $50.9 $51.6

% Revenue Growth -18% -5% -19% -16% -2% 4% -6% 0% -3% 1%Subscribers 166.0 158.1 153.2 154.8 157.9 165.8 165.8 174.1 177.6 179.3$ Fee / Sub $513.9 $511.1 $424.9 $352.1 $341.5 $341.5 $314.2 $307.9 $289.4 $289.4

% YoY -1% -17% -17% -3% 0% -8% -2% -6% 0%Paid Weeks 13.7 12.4 10.7 10.3 10.5 11.0 11.0 11.6 11.8 11.9

Implied Churn -19% -9% -14% -4% 2% 5% 0% 5% 2% 1%


Online Subscriptions $29.7 $27.9 $22.4 $18.7 $21.5 $23.2 $22.9 $23.7 $23.2 $24.2% Revenue Growth -6% -20% -17% 15% 8% -1% 3% -2% 4%


% YoY 3% -13% -17% 9% 0% -5% -2% -8% 0%Paid Weeks 7.9 6.6 6.2 6.9 7.2 7.4 8.0 8.4 8.8

Implied Churn -16% -6% 11% 5% 3% 8% 5% 4%


In-Meeting Product Sales $35.9 $30.2 $23.8 $15.7 $14.1 $13.4 $12.1 $11.5 $10.8 $10.2% Revenue Growth -23% -16% -21% -34% -10% -5% -10% -5% -6% -5%

Other $21.8 $18.0 $13.4 $11.9 $11.3 $11.3 $11.0 $11.0 $11.0 $11.0% Revenue Growth -17% -26% -11% -5% 0% -3% 0% 0% 0%

Appendix

Revenue build: Central Europe

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022EContinental Europe $305.7 $298.4 $226.7 $207.5 $227.5 $251.2 $240.5 $238.5 $238.3 $242.8

-2% -24% -8% 10% 10% -4% -1% 0% 2%Meeting Fees $137.4 $133.6 $99.4 $89.6 $86.4 $89.5 $84.7 $83.0 $79.6 $80.0

% Revenue Growth 1% -3% -26% -10% -4% 4% -5% -2% -4% 0%Subscribers 184 178 172 172 173 184 184 187 187 189$ Fee / Sub $748.4 $749.7 $576.6 $521.8 $501.0 $501.0 $460.9 $447.1 $424.7 $424.7

% YoY 0% -23% -9% -4% 0% -8% -3% -5% 0%Paid Weeks 13.2 12.8 11.6 11.0 11.1 11.8 11.8 12.0 12.0 12.1

Implied Churn -1% -3% -9% -5% 1% 6% 0% 2% 0% 1%

Subscriber BuildBeginning Subs 183.6 178.2 172.4 171.7 173.4 183.8 183.8 187.5 187.5Churn -5.4 -5.8 -0.7 1.7 10.4 0.0 3.7 0.0 1.9Ending Subs 178.2 172.4 171.7 173.4 183.8 183.8 187.5 187.5 189.4

Online Subscriptions $90.8 $97.4 $76.7 $75.0 $99.6 $120.2 $115.5 $115.2 $118.4 $122.5% Revenue Growth 7% -21% -2% 33% 21% -4% 0% 3% 3%

Subscribers 344.8 373.6 358.3 393 491 526 536 579 602 620$ Fee / Sub $263.3 $260.7 $214.1 $190.8 $225.2 $236.5 $217.5 $206.7 $200.5 $200.5

% YoY -1% -18% -11% 18% 5% -8% -5% -3% 0%Paid Weeks 22.8 21.2 21.7 27.1 29.0 29.6 32.0 33.3 34.2

-7% 2% 25% 7% 2% 8% 4% 3%

Subscriber BuildBeginning Subs 344.8 373.6 358.3 393.0 491.3 525.6 536.2 579.0 602.2Churn 28.8 -15.3 34.7 98.3 34.4 10.5 42.9 23.2 18.1Ending Subs 373.6 358.3 393.0 491.3 525.6 536.2 579.0 602.2 620.3

In-Meeting Product Sales $48.4 $46.3 $34.3 $27.3 25.9 25.9 25.2 25.2 25.2 25.2% Revenue Growth -1% -4% -26% -20% -5% 0% -3% 0% 0% 0%

Other $29.1 $21.1 $16.3 $15.6 15.6 15.6 15.1 15.1 15.1 15.1% Revenue Growth -27% -23% -4% 0% 0% -3% 0% 0% 0%

Appendix

Revenue build: Central Europe

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022EOther Regions Revenue $87.6 $76.5 $69.8 $66.0 $63.1 $64.1 $61.0 $60.6 $59.4 $60.3

-13% -9% -5% -4% 1% -5% -1% -2% 2%Meeting Fees $34.1 $34.1 $34.5 $35.9 $31.7 $31.1 $28.4 $27.5 $26.5 $27.3

% Revenue Growth -17% 0% 1% 4% -12% -2% -9% -3% -4% 3%Subscribers 37.1 35.6 37.2 40.6 43.8 45.2 45.2 47.0 48.4 49.8$ Fee / Sub $919.1 $957.9 $927.4 $884.2 $751.6 $699.0 $629.1 $597.6 $555.8 $555.8

% YoY 4% -3% -5% -15% -7% -10% -5% -7% 0%Paid Weeks 2.5 2.7 2.4 2.6 $2.8 $2.9 $2.9 $3.0 $3.1 $3.2

Implied Churn -14% 8% -11% 8% 8% 3% 0% 4% 3% 3%

Subscriber BuildBeginning Subs 37.1 35.6 37.2 40.6 43.8 45.2 45.2 47.0 48.4Churn -1.5 1.6 3.4 3.2 1.3 0.0 1.8 1.4 1.5Ending Subs 35.6 37.2 40.6 43.8 45.2 45.2 47.0 48.4 49.8

Online Subscriptions $15.5 $13.9 $12.2 $11.0 $13.2 $14.8 $14.9 $15.4 $15.3 $15.4% Revenue Growth -10% -12% -10% 20% 12% 1% 3% -1% 1%


% YoY -7% -16% -17% 18% 7% 0% 5% 0% 2%Paid Weeks 2.1 1.9 2.2 2.3 2.4 2.3 2.3 2.3 2.3

Implied Churn -10% 16% 4% 5% -3% 0% -2% 0%

Subscriber BuildBeginning Subs 37.1 35.6 37.2 40.6 42.2 44.3 43.0 43.0 42.1Churn -1.5 1.6 3.4 1.6 2.1 -1.3 0.0 -0.9 0.0Ending Subs 35.6 37.2 40.6 42.2 44.3 43.0 43.0 42.1 42.1

In-Meeting Product Sales $8.9 $7.4 $6.3 $5.6 5.3 5.3 5.2 5.2 5.2 5.2% Revenue Growth -25% -17% -15% -11% -5% 0% -3% 0% 0% 0%

Other $29.1 $21.1 $16.8 $13.5 12.8 12.8 12.4 12.4 12.4 12.4% Revenue Growth -27% -20% -20% -5% 0% -3% 0% 0% 0%

Appendix

Income statementIncome Statement

2013A 2014A 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022EMeeting Fees $852 $745 $598 $617 $632 $652 $611 $606 $586 $567

Subscribers 1,220 1,065 1,008 1,111 1,231 1,319 1,319 1,379 1,354 1,331Paid Weeks 89 78 66 70 77 83 83 86 85 83

Online Subscriptions $509 $437 $351 $344 $412 $466 $464 $471 $482 $502Subscribers 1,746 1,454 1,392 1,519 1,856 2,042 2,122 2,317 2,439 2,546Paid Weeks 100 81 85 104 115 119 130 137 143

In-Meeting Product Sales $212 $169 $129 $121 $125 $128 $129 $132 $134 $137Other $157 $128 $98 $91 $90 $91 $90 $90 $90 $90

Total Revenue $1,724 $1,480 $1,164 $1,165 $1,259 $1,338 $1,292 $1,299 $1,292 $1,295% Revenue Growth -6% -14% -21% 0% 8% 6% -3% 1% -1% 0%

Meeting Fees -9% -13% -20% 3% 2% 3% -6% -1% -3% -3%Online Subscriptions -14% -20% -2% 20% 13% -1% 2% 2% 4%

In-Meeting Product Sales -20% -24% -6% 3% 3% 0% 3% 2% 2%Other -18% -24% -7% -1% 1% -1% 1% 0% 0%

Meeting paid weeks -10% -12% -16% 6% 10.6% 7% 0% 5% -2% -2%Online paid weeks -18% 5% 22.1% 10% 4% 9% 5% 4%

Gross Profit $1,001.1 $802.6 $573.8 $585.1 $663.9 $712.1 $694.4 $704.7 $707.3 $715.2% Margin 58% 54% 49% 50% 53% 53% 54% 54% 55% 55%

Marketing Expense $295.6 $262.3 $201.1 $194.4 $207.7 $227.4 $219.7 $233.9 $219.7 $220.1% of Rev 17% 18% 17% 17% 17% 17% 17% 18% 17% 17%

Customer Acquisition Cost $99.7 $104.1 $83.8 $73.9 $67.3 $67.7 $63.8 $63.3 $57.9 $56.8

SG&A 243.5 $243.0 $205.1 $190.2 $202.4 $215.1 $207.8 $208.9 $207.8 $208.2% of Rev 14% 16% 18% 16% 16.1% 16.1% 16.1% 16.1% 16.1% 16.1%

Impairment Charge 1.2 26.1 - - - - - - - -

EBIT $460.8 $271.2 $167.6 $200.5 $253.8 $269.6 $266.9 $261.9 $279.8 $286.9% Margin 27% 18% 14% 17% 20% 20% 21% 20% 22% 22%

Interest Expense 125.4 115.7 112.3 116.8 108.5 108.5 108.5 108.5 108.5 108.5Income Taxes 130.6 58.3 22.9 16.6 40.8 56.4 55.4 53.7 60.0 62.4

Tax rate 39% 37% 41% 20% 28% 35% 35% 35% 35% 35%.

Net Income $204.8 $97.2 $32.4 $67.1 $104.4 $104.7 $103.0 $99.7 $111.4 $116.0% Margin 12% 7% 3% 6% 8% 8% 8% 8% 9% 9%

Basic Shares Outstanding 56.1 56.6 58.4 63.7 64.6 65.6 65.6 65.6 65.6 65.6Diluted Shares Outstanding 56.4 56.7 58.5 65.3 68.2 69.8 69.8 69.8 69.8 69.8EPS $3.63 $1.71 $0.55 $1.03 $1.53 $1.50 $1.48 $1.43 $1.60 $1.66

Appendix

Balance sheet

Balance SheetCash and Equivalents 175.8 299.6 332.0 181.7 218.3 312.7 407.3 497.8 600.2 707.1Accounts Receivable 36.2 32.0 29.3 27.5 29.9 31.8 30.7 30.9 30.7 30.8Inventory 40.9 32.4 27.8 32.6 32.4 34.1 32.6 32.4 31.9 31.6Deferred Tax Assets 24.5 23.7 7.5 35.5 35.5 35.5 35.5 35.5 35.5 35.5Prepaid Expenses & Other Assets 39.5 36.4 52.8 30.9 31.8 32.8 33.7 34.8 35.8 36.9

% of Rev 2% 2% 5% 3% 3% 3% 3% 3% 3% 3%Total Current Assets 317.0 424.1 449.5 308.2 348.0 446.9 539.9 631.4 734.2 841.9

Gross PPE 201.0 204.3 201.9 204.7 242.5 282.6 321.4 360.4 399.2 438.0Accumulated Depreciation -113.9 -129.6 -143.7 -155.2 -193.0 -233.1 -271.9 -310.8 -349.6 -388.5Net PPE 87.1 74.7 58.2 49.5 49.5 49.5 49.5 49.5 49.5 49.5

Franchise Rights Acquired 836.8 799.8 747.3 748.6 748.6 748.6 748.6 748.6 748.6 748.6Goodwill 79.3 106.8 159.3 166.1 166.1 166.1 166.1 166.1 166.1 166.1Trademarks, Intangibles, Franchise 45.3 68.1 66.3 58.6 82.6 106.6 130.6 154.6 178.6 202.6Deferred Financing Costs 42.0 32.7 25.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other Assets 2.7 5.3 6.7 12.8 12.8 12.8 12.8 12.8 12.8 12.8Total Assets 1410.2 1511.6 1512.6 1344.0 1407.8 1530.6 1647.6 1763.1 1889.9 2021.7

Short Term Debt + Revolver 30.0 24.0 213.2 21.0 21.0 21.0 21.0 21.0 21.0 21.0Accounts Payable 45.5 54.4 38.2 40.6 42.5 44.7 42.7 42.5 41.8 41.4Derivative Payable 7.6 42.4 44.2 49.6 49.6 49.6 49.6 49.6 49.6 49.6Other Liabilities 175.6 189.9 145.8 118.2 118.2 118.2 118.2 118.2 118.2 118.2Income Taxes Payable 10.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Deferred Revenue 76.3 66.2 61.6 62.9 86.6 86.6 86.6 86.6 86.6 86.6Total Current Liabilities 345.8 377.0 503.0 292.4 318.0 320.2 318.2 318.0 317.3 316.9

Long-Term Debt & Capital Leases 2358.0 2334.0 2021.3 1981.3 1898.0 1898.0 1898.0 1898.0 1898.0 1898.0Deferred Tax Liabilities 164.1 171.5 159.5 175.1 175.1 175.1 175.1 175.1 175.1 175.1Other 15.7 16.9 23.9 25.0 25.0 25.0 25.0 25.0 25.0 25.0Total Liabilities 2883.6 2899.4 2707.7 2473.9 2416.1 2418.3 2416.3 2416.1 2415.4 2415.0

Retained Earnings 1,771.3 1,900.5 1,994.5 2,056.9 2,162.6 2,267.3 2,370.3 2,470.0 2,581.4 2,697.3 Treasury Stock (3,256.4) (3,253.6) (3,247.4) (3,237.3) (3,237.3) (3,237.3) (3,237.3) (3,237.3) (3,237.3) (3,237.3) Comprehensive Inc. and Other 8.5 (20.0) (37.3) (27.1) (13.1) 0.9 14.9 28.9 42.9 56.9 Total Common Equity (1,476.6) (1,373.1) (1,290.2) (1,207.5) (1,087.8) (969.1) (852.1) (738.4) (613.0) (483.1)

Non controlling interest 0.0 5.6 4.5 4.7 4.6 4.6 4.6 4.6 4.6 4.6Total Shareholders Equity/Deficit (1,476.6) (1,367.5) (1,285.7) (1,202.8) (1,083.2) (964.4) (847.5) (733.8) (608.4) (478.5)

Total Liabilities & Equity 1,407.0 1,531.8 1,422.0 1,271.0 1,332.9 1,453.8 1,568.8 1,682.3 1,807.0 1,936.5

Appendix

Cashflow statement

CashflowsNet Income (GAAP) 204.8 97.2 32.4 67.1 104.4 104.7 103.0 99.7 111.4 116.0Depreciation and Amortization 44.9 49.2 53.2 52.6 37.8 40.1 38.8 39.0 38.8 38.8

% of Rev 3% 3% 5% 5% 3% 3% 3% 3% 3% 3%Share-Based Compensation 4.3 10.5 24.8 6.5 14.0 14.0 14.0 14.0 14.0 14.0Deferred Income Taxes 35.4 22.2 12.1 11.1 0.0 0.0 0.0 0.0 0.0 0.0Other Operating Activities 47.0 40.4 5.3 13.5 0.0 0.0 0.0 0.0 0.0 0.0Decrease (Increase) In Working Ca (11.6) 9.2 19.1 (49.3) 24.3 (0.4) 1.6 0.8 1.0 0.9

Change A/R 1.1 4.3 2.7 1.8 (2.4) (1.9) 1.1 (0.2) 0.2 (0.1) Change Inventory 5.9 8.6 4.5 (4.8) 0.2 (1.7) 1.5 0.2 0.5 0.3 Change A/P (3.9) 8.9 (16.2) 2.4 1.9 2.2 (2.0) (0.2) (0.7) (0.4) Change Deferred Rev (9.8) (10.1) (4.6) 1.3 23.7 - - - - - Change Income Taxes (2.7) 0.7 16.2 (28.0) - - - - - - Change Other Op Assets (2.3) (3.1) 16.4 (21.9) 0.9 1.0 1.0 1.0 1.0 1.1

Operating Cash Flow 324.8 228.7 146.9 101.6 180.6 158.5 157.4 153.5 165.2 169.7

Capital Expenditures (40.7) (9.1) (4.0) (5.6) (37.8) (40.1) (38.8) (39.0) (38.8) (38.8) % of Rev -2% -1% -0.3% -0.5% -3% -3% -3% -3% -3% -3%

Capitalized Software Expenses (21.3) (42.6) (32.3) (28.8) (24.0) (24.0) (24.0) (24.0) (24.0) (24.0) Cash Paid for Acquisitions (83.8) (16.7) (3.1) (2.9) - - - - - - Other Items 0.4 (0.6) (0.9) (0.3) - - - - - - Cash Flow From Investments (145.3) (69.0) (40.3) (37.5) (61.8) (64.1) (62.8) (63.0) (62.8) (62.8)

Net Repayment of Long-Term Deb (18.4) (30.0) (158.1) (213.3) (83.3) - - - - - Payment of Dividends (29.6) (0.1) (0.0) (0.0) - - - - - - Proceeds from Stock Options/New 16.2 0.7 - 0.1 1.3 - - - - - Share Repurchases - - - - - - - - - - Other Financing Cash Flows (42.7) 0.0 89.6 1.0 (0.1) - - - - - Cash Flow From Financing Activitie (74.4) (29.4) (68.6) (212.2) (82.1) - - - - -

Effect of Exchange Rates 0.6 (6.6) (5.6) (2.2) 1.9 - - - - - Change In Cash 105.6 123.8 32.4 (150.3) 36.6 94.4 94.6 90.5 102.4 106.9

Beginning Cash 70.2 175.8 299.6 332.0 181.7 218.3 312.7 407.3 497.8 600.2 Change in Cash 105.6 123.8 32.4 (150.3) 36.6 94.4 94.6 90.5 102.4 106.9 Ending Cash 175.8 299.6 332.0 181.7 218.3 312.7 407.3 497.8 600.2 707.1

Students: Ajai Atal, Lucy Lu, Milo Tong...2018/06/03 · Students: Ajai Atal, Lucy Lu, Milo Tong...

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Transcript of Students: Ajai Atal, Lucy Lu, Milo Tong...2018/06/03 · Students: Ajai Atal, Lucy Lu, Milo Tong...