Q1 2020 Earnings Call
Thursday
Thursday
Good day and welcome to the W W International first quarter 2020 earnings conference call all participants will be in listen-only mode off. Do you need assistance, please signal a conference specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.
I would not like to turn the conference over to Cory Kendra BP investor relations, please go ahead.
Thank you to everyone for joining us today for w w International conference call at about 4:05 p.m. Eastern time today. We issued a press release recording our first month results. The purpose of this call is to provide investors with some further details regarding the company's Financial results as well as provide a general update on the company's progress. The press release them available on the company's corporate website located at corporate supplemental industrial materials are also available on the company's corporate website in the investor section under presentation events reconciliations of non-gaap measures disclosed on this conference call to the most directly comparable gaap Financial measures are also available as part of the press release.
Before we begin let me remind everyone that this call will contain forward-looking statements investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today and except as required by law the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information future events, or otherwise joining today's call are Mindy Grossman president and CEO and CFO am reading officer North America and president emerging-market.
Oh now turn the call over to Mindy.
Thanks, Cory. Good afternoon everyone. Thank you for joining our call today. And I hope all is well with you and yours it goes without saying that a lot has changed since our last phone call only two months ago our commitment to our members and the community we have created is more important than ever. Our purpose is to inspire healthy habits are real life for people families communities the world for everyone that was true. Two months ago is true today and will continue to guide everything you do long the future. I could not be more proud of how our team has come together globally to support our members the community and each other during this unprecedented time a few overarching principles that are guiding our actions first the health safety and support of our employees and members is Paramount in mid-march wage.
Covid-19 situation escalated. We took quick globally coordinated action and paused our in-person workshops and implemented virtual workshops. In order to continue to provide a studio members with the support encouragement and community that is integral to the ww.w experience.
second
We know our members and must continue to meet them where they are overnight the world changed as if the consumer mindset we immediately revamped all of our content and Communications to address concerns. They're having today in addition. We ramped up the frequency and volume of our content to ensure. Our members feel supported cared for and connected. We are closely listening to members who quantitative surveys, you know, virtual workshops and on connect these daily real-time insights are guiding or approach to all contents. Both member marketing and recruitment oriented marketing.
Third we will continue to invest to innovate while we are certainly being aggressive and expense management at this uncertain macro-environment. We are also prioritizing the action that will enhance the member experience and engagement and maintain wws position as The Trusted leader in weight loss and wellness delivering a connected digital and deeply human condition of the experience. We will continue to advance the experience with new value-added features tools creative content and thought leadership to promote both recruitment and retention.
Turning to our q1 results our winter season for a 20 20 off to a strong start the global launch of the new more customized my ww.w program resonated in every Global Market the WWE presents opens twenty-twenty Vision tour raised our brand awareness generating a stunning eighty eight billion media and precious jobs along with visibility modernity and thought leadership and our Global Marketing efforts had great impact driving members sign ups and reinforcing are leading position in weight loss and Wednesdays. We are the queue one with 5 million subscribers 9% year-over-year and a record level for the end of q1 member recruitment Trends were strong mid March, but then turn negative in the last two weeks of our quarter when the covid-19 situation rapidly escalated. So while q1 end up. Subscriber level was up 9 a.m.
Year-over-year. It's so short of the mid-teens growth. We had anticipated.
The strong growth and subscribers grow revenues of four hundred million adjusted operating income of 29 million and a net loss of $0.09 per share ahead of our prior expectations with the quarter due to Good Cost management are strong starts at you one and record subscriber level provides a solid foundation as we manage through the current environment and pose for a post-cold war world.
Ww.w is a technology company delivering a human experience our transformation from primarily offline to a digitally enabled experience has been underway for several years with all members enjoying the tools features content and connect Community available in the W in mid-march to ensure the health and safety of our members and our coaches. We proactively pivoted from in-person workshops for a global Studio members which represent approximately 25% of our overall membership to an entirely virtual experience over Sprint our studio operations technology and digital product teams developed a solution for our coaches to host their workshops virtue. We trained over fourteen thousand coaches and gods globally for virtual workshops and created connect groups for each studio. So that members can continue to engage with each other dead.
inside the WWE coasters
in between workshops
on March 19th, we simultaneously launched virtual workshops across 12 countries with over 12,500 workshops in that first week alone have received highly positive reviews from our members on the virtual Workshop experience with a 97% satisfaction. I personally attended many virtual workshops held by Kodak all across the world and to hear directly from our members on how much they appreciate the opportunity to connect and support each other has been particularly gratifying and inspiring
The move to Virtual workshops has accelerated or digital first strategy while face-to-face experiences will always be a core part of w we are strategically repositioning a studio business to have a smaller real estate footprint with fewer locations to be clear the virtual Workshop experience that has temporarily replaced in person Studio experience today is not April forward of the launch of virtual group coaching, which we have previously discussed and have been in the plans and will be launching later this year. We will continue with virtual workshops as we phase in our studio openings.
Over the past two months are digital product and Technology teams have been launching new feature after feature in the WWF and coming very soon. We will be adding some tracking As A New Wellness vertical for ww.w, especially in the current environment our ability to continue to gamify and personalize our app experience is important for member engagement since March we have launched new features to meet our members needs including hydration and water tracking streaks and filter and sort stools. Each of these new features are 1080 has specifically requested and we have seen great utilization since launch.
Members continued engagement with Iraq is critical driving greater success and extending retention in addition to these new in app features. We also recently scaled up our own content engine to give members even more reason to engage. For example, we launched in a video content and a new connect Channel called w w Now featuring live virtual Fitness cooking and wellness content from our ww.w ambassadors. We have seen very high members sentiment and engagement with this content and we will continue to use it as a way to drive engagement off. The response to these initiatives has been strong with the number of video views increasing 40% year-over-year. We've also increased the frequency of our Communications off notifications and launched to provide members with the tips. They need now to stay healthy while at home and on social hashtag dead.
4 week challenge to help
Members get back on track almost a hundred thousand members are participating covid-19 and up consumers health and wellness routines are quantitative consumer surveys indicate that consumers are looking for structure routine and help with habits for creation during this time of upheaval in addition community and connection is critical particularly with those they already know and trust versus creating new relationships importantly. We have seen Equity continue to grow in the current environment with with gains across current former and non-members measures of brand trust and leadership are strong and have increased significantly across all audiences with the majority of survey respondents. Globally agreeing that not only are we a leader in the weight loss industry, but also a leader in the Healthy Living industry and that w a program I trod
Turning to our marketing across social channels are ww.w member and have activated during this crisis feeling motivated to inspire and connect with others marks or record clubs in creation from our member ambassadors. We sixteen hundred pieces of creative content generating 3.3 million total impressions.
Taking a fresh look at all of our content and communication also applies to our spring marketing campaign. It is essential to hit the right chord demonstrating that we are there for members took a message that is aligned with the current realities right now. We are running a two-week T campaign in the to reinforce brand awareness and our position that WWE here to be your partner in health. The creative is entirely member generated content with our real number sharing how they're staying healthy and encouraging each other while social distancing these authentic Hearts all videos are all the stories successes and struggles of real members. We're reacting in real time to an ever-changing landscape. We plan to be back on T starting as mid-may wage content, which will also feature member content including from Oprah. However, we are navigating the now and will be attentive and Nimble in our investment messaging and approach.
Across channels and what is a very fluid environment?
I've also talked about the importance of partnering with other people and organizations that share our mission to generate a positive impact on the world and for us that's by delivering well-known for all on April 15th. We launched a global healthy giving challenge incurring our members to do more learn more and give more by redeeming their welcome twins rewards for donations to Charities including those that provide fresh fruits and vegetables and healthy meals to communities in need the ability to donate to our charitable Foundation has always been a huge part of our Wellness wins programs. This healthy giving challenge will directly support charitable Partners such as feeding a wholesome wave and other Global charitable organizations who are on the front lines of getting food into the hands of people in need including w h of Wellness wage.
Member contributions we are current.
Leon page to exceed our commitment of two million dollars to provide local food banks with ten million meals and three million pounds of fresh produce to date nearly 114000 wins or over half a million dollars has been donated and we've seen heightened member engagement to track food Fitness and weight. In order to gain more wins to this WWE Challenge in addition. We were proud to support and be part of several covid-19 relief efforts including Global Citizens, April 18th event one world together at home as well as dating ourselves. We know that people now have a greater awareness of the higher health risks related to obesity and while we don't know how long you will change as a result of this crisis. We know that having a trusted partner in health is more important now than ever W is clearly positioned to be that partner.
I will now turn the call over to Nick to review our q1 performance current business Trends more on our digital transformation in our studio business strategy and or revised Costco for the year. I'll then come back to discuss our 2020 priorities and our key initiatives Nick.
Thanks, Mindy as discussed ww.w had a strong start to 2020 due to the successful launch of our new mind ww.w program a well-executed global marketing campaign and high-visibility from the WWE presents. Oprah twenty-twenty Vision tour.
From January through mid-march, total member sign-ups were up in the double digits year-over-year with growth across each of our major Geographic markets off. So gross not only in digital but also in studio signups with digital far outpacing Studio.
These solid Trends drove our q1 end subscriber level to an all-time high of over five million in Revenue was four hundred million dollars 11:00 to 6 year-over-year an accountant currency basis and our gaap. EPS plus was $0.09 to one was negatively impacted by $0.05 due to a one-time Goodwill impairment charge related to the Strategic decision to shift our Brazil business to focus on our digital and virtual Studio offerings. This compared to a loss of $0.16 in the prior-year first quarter, which included a $0.07 charge related to restructuring.
Better than anticipated EPS performance versus our guidance is due to strong business momentum throughout the majority of Cuba on the tour expenses wage in the lower than anticipated and quick Cost Containment actions in March our q1 results include approximately 16 million in direct store rep you and approximately the same amount 16 million in tour expenses.
Positive double-digit member recruitment growth Trends held through mid-march until the covid-19 situation rapidly escalated in the last two weeks of March. We suck 7 and drop off in Memphis sign-ups at that time both digital and Studio turned sharply negative year-over-year with more severe declines in studio while we retrieve those were very weak given our launch of personal workshops and a member engagement activities member cancellation rates did not Spike significantly in we are pleased that same retention is holding steady at ten months.
Given the weekend recruitment Trends in late March. We ended q1 with 5 million subscribers still up a notable 9% year-over-year, but below the age teens growth rate. We had been trending towards previously note digital subscribers were up 16% and Studios subscribers were down 5% rejecting week Studio recruitment in March.
In the first two weeks of April while member sign ups continue to be negative for both digital and Studio the trend moderated somewhat for digital winding the gap between a digital in studio trends.
In any given year East is typically the beginning of our spring season and the time when signup Trends experience has seasonal left. We are encouraged that in the two weeks since April 12th digital recruitment Trends have seen some good recovery. And in fact total digital recruitment has been positive for the past two weeks.
Given these trends at this time. We have approximately 4.9 million subscribers globally versus five million at the first quarter end primarily driven by choice of studio sign up Trends and for your modeling purposes note that as the monthly price of a studio subscription is about twice that of a digital subscription month due to our week Studio recruitment Trends Studio revenue is expected to be significantly Below prior-year in Q2 and will remain pressured during the covid-19 is dead.
As a reminder approx 40% of our annual recruits typically join us in q1. And in addition q1 is traditionally our annual peak in end appearance package type is sloping to a Q4 trough while last year. Our membership base was plant from q1 to Q2 note that since we have already seen a sequential decline a few to this year. It is uncertain whether or land 2020 versus the past five years Q one two Q for seasonal membership average decline of 13%
due to the
Disruption and uncertainty related to covid-19. We are withdrawing our previously provided full year fiscal 2020 revenue and e. S guidance.
I'll probably do in financial objectives for 2020 maximize Recruitment and Retention with a focus on subscription lifetime value pack ensure we continue to deliver a high-quality and engaging member experience across all platforms.
Strategically reposition us to Joe business to have a smaller real estate footprint continuing to offer virtual workshops to maximize retention among suja subscribers.
Continue to focus on e-commerce given lost consumer product sales while studios are closed Implement a 100 million cost savings an issue with continue to invest in our products. In fact capabilities to take advantage of future opportunities and finally maintain strong liquidity.
As I mentioned, we are implementing a cost-savings initiative of one hundred million dollars versus our initial 2020 annual operating plan. I am taking these contacts ins to maintain our place ability to respond to evolving business and consumer conditions while at the same time ensuring our ability to continue to invest in innovating a program and experience to position the company for future growth.
The $100 million reduction in expenses will come from Casa revenues marketing and Jeannie in marketing. We will continue to be agile wage didn't best behind those initiatives that are producing results on G&A expands. We are taking a number of actions to reduce corporate overhead as you will be seen in RHK file today Mindy myself and the executive committee and our board of directors will be taking reductions in compensation package will cost reduction actions including temporary salary reductions for corporate employees and lower contributions to employee benefit programs vary by country. As long as we make these decisions. We are carefully focused on maintaining an efficient and effective organizational structure to drive our key business priorities.
Natasha services for the year will reflect a smaller Studio business footprint and Associated labor savings. We expect a phase reopening of our in-person work off globally with no Studio reopening prior to May 30th.
Safety will come test and the decision-making before any individual studio location reopens.
Well, we don't know how the macro environment and the impacts on our business will play out in the coming months. We believe there's cost plan provides protection in a challenging environment.
In addition as you may recall on December 16th, we announced the extension of our partnership with Oprah Winfrey through May twenty twenty-five projects to Asia holder approval of the associated 3.3 million share option Grant at our annual meeting in may we expect to record a one-time charge in the second quarter of 2028 and the amounts of this charge will reflect to then current stock price.
We are a highly cash generative business with strong liquidity that fall purely as a precautionary measure. We conservatively Drew Down 1,000 and 48 million on our revolver on March 23rd.
Bear in mind that q1 is always our weakest quarter of cash flow due to winter season markings band and we expect to generate cash during the rest of 2028.
Including the revolver draw we ended q1 with a cash position of $292 million.
Recalled. We have a covenant flight debt structure and our Term Loan and bombs. Maturity dates are not until November 2024 and December 2025 respectively full-year interest expense, assuming the revolver remain strong through year-end is approximately 123 million months in summary. We are focused on the items within our control taking decisive actions to deliver and enhance the value of WW2 members and non-members alike took Financial flexibility and liquidity and best positions ww.w for both the immediate and longer-term growth opportunities with our leading digital platform with that. I would like to turn it back to Mindy.
Thanks, Nick. We remain confident that we're focused on the right actions. Not only to best serve our members today, but to position as a leader in delivering human impact through technology at the highest level the scenes of our 2020 priorities are unchanged and our key objectives of recruit retain and off the w w brand will continue to guide all our actions as an organization. As Nic mentioned. We are making a number of critical decisions and cost reduction to manage through this challenging time and therefore haven't even higher degree of prioritization to ensure. We are best allocating resources towards the actions that will help us with our service members and drive the business today tomorrow and Beyond
R22
The priorities are one amplifying the power of community Through coaching accelerating our digital transformation to deliver a virtual coaching and community. And in fact has the way is now even more essential. We are on track for our launch of an entirely new digitally enabled community-focused and Coach LED business Vago later this year this new offering will not only reflect the immense learning from running virtual workshops that scale and our ongoing test pilots of virtual group coaching, but also are fifty-seven years of experience in creating community.
We believe this new vertical will provide a unique differentiator and tear to the experience and drive both new Recruitment and Retention as we evolve and cream more personalized offerings and build highly-skilled Kochi Talent. We are focused on providing solutions to our members in the format steps that they're allowed the best second. We will continue to build them Eco system deepening the app experience and gamification. It's important that we continue to evolve and be recognized as the trusted partner in Total Wellness, spanning activity mindset motivation hydration and sleep. We are rapidly introducing new features and tools to help our members improve their overall health and wellness forming of integration between all these important factors in early may we will be launching sleep tracking our science team has completed a body of work on sleep and we know that consumers dead.
In particular our members have a strong interest in sleep-related measurement and tracking as well as actionable content for improvement sleep is even more top of Mind these days. So we are eager to give our members added tools to help them during this time in addition to the features and content we build ourselves. We've been expanding our Partnerships to bring even more of a complimentary experience to ww.w member.
You know Fitness vertical W has just launched a partnership with fit on to bring members in home video Fitness classes via the WWF sit on, that integrated into the WWE is currently in our Australian and Canada markets and we'll be launching in the in the coming weeks. The experience will provide member with curated video fitness programs. That will be personalized based on member engagement and will span a variety of workout types.
It on joins our fitness partner active which has been providing audio Fitness content and classpass who will offer in-person content. We look forward to expanding our relationship is classed as one fitness centers begin their reopening in our Sunset vertical we continue to offer our members headspace and have expanded our expert content around mine that stress and support people love to find ways to be challenged and compete whether it be in the analog or virtual world and we know the more fun they can have and the more incentive they have while I'm doing it the more engaged they will be challenges streaks and other forms of friendly gamification will be accelerated.
3rd is Nick mentioned e-commerce growth in.
Our expansion is a significant opportunity. I'm pleased to say that a March 23rd. We integrated into our app versus only being available online, ramping up our e-commerce plans and intend to make WWE shop a primary way to purchase our consumer products in addition to in studio purchasing in just a few months argh Ecommerce sales have already exceeded for all of 2019. Our digital-only members now have awareness and accessibility and are responding in addition. We will be expanding the assortment of our current product categories and launching new product verticals 4WD over the course of the year.
Health Solutions and being the partner of choice as we discussed before we see a significantly larger opportunity for our Health Solutions business in the years to come our Health Solutions. If she has done considerable foundational work and building out the talent and Technology to support and drive this business. We have made the needed Investments and believe we now have the technology and platform to allow us to enhance the experience and value for our current partners and to attract new partners as people look for solutions to improve their overall health by managing their way we intend to be the partner of choice for wellness and weight loss across employers providers physicians in pairs. We are focused on increasing awareness of w as a wellness benefit and demonstrating not only the economic but the human value of population health
And finally Community activations events and created content will allow us to accelerate our efforts to both diversify our customer base and maximize engagement wage believe Community activation events and content are even more important now than ever before we're focused on producing unique and engaging live virtual content that Fosters real life connections and inspires people to live their best life.
On March 7th, we wrapped the nine cities Nationwide sold out WWE presents. Oprah twenty-twenty Vision tour. The campaign for wellness was a standout success and we extended the conversation beyond the arena with our new social channel. The response was incredible. These sold out full day wellness events were filled with inspiration community and fun and hope to demonstrate the power and appeal of reinforce our brand transformation and highlighted. How is your partner in both weight loss and wellness inspired by Oprah twenty-twenty Vision tour. We are thrilled to share that Oprah will continue to inspire people to live their healthiest and most well-lived even in the most challenging times.
in the coming weeks we will
Details of our launch of a free Global virtual experience that will leverage Oprah's powerful role with W to accelerate our mission to democratize well known for all at a time the world needs it most stay tuned for more exciting details. I'm personally so grateful to Oprah for her incredible commitment and passion for galvanizing people to live their healthiest and best Lives having worked with her over the past several years her insights collaboration and inspiration are truly unmatched Oprah and Thursday or fully aligned on the opportunity for WW2 and the democratization of Wellness making a positive impact on the health and wellness of society as a whole
We believe that healthy living is a human right and we aspire to make Wellness accessible to all protecting the health and safety of our employees and our members is our highest priority at this critical time. We are being focused on being responsive to our members needs and continuing to provide them with effective tool to plan helping meals stay active maintained a positive mind off and feel in control while their normal routines are interrupted. I'm incredibly proud of our team for their dedication to supporting each other and our members during this time. Now more than ever before the value of good health is top of mind for everyone people are recognizing that they may have higher health risk due to their weight and they have a greater sense of urgency to take action to reduce their personal risk. We know that good health and Community are essential having the tools to better manage your health should not be considered a luxury but a necessity we do number.
What the future holds but we believe the current environment will have a lasting impact on consumer behavior in just a few weeks. We've all changed the way we communicate work and play while we are all very eager for the day when we will be able to congregate in person. Again, we believe virtual connections will only increase and we are accelerating or digital transformation to meet this need bring people together in a Spire healthy habits for real life and let me reiterate that whenever consumers put weight loss and wellness in the Forefront of their minds will be there for them. Whatever format members choose or authority trust and Community will be more critical than ever before. Thanks for joining us on the call today. And with that we would return the call to the operator for Q&A.
Thank you. We will now begin the question-and-answer session to ask a question. You may press start and one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the key.
To withdraw your question, please. Press * then two.
At this time, we won't pause momentarily to assemble our roster.
Our first question will come from Lauren castle with Morgan Stanley, please go ahead.
Great. Thanks for taking my question. And for all the color. It's really helpful, you know, the the color on total digital recruitment over the last two weeks turning positive is obviously grew up to here just curious have those subscribers looked any different than your average it'll digital subscriber. Just trying to understand if maybe you're attracting a new subscriber in this environment and then a second question is just any way to quantify the increase engagement that you're seeing change in minutes per day being spent any any sort of quantification around that would be great. Thanks, So, you know, we we've obviously been pleased to see the digital recruitment particularly in the last couple of weeks and we will be identifying specifically but overall, we've seen diversification of our digital membership continue to accelerate so we would see that birth.
Part of it. The one thing that's been very interesting is we've been really looking at the comments of new digital members coming in to connect and what we are really seeing is this heightened sense of I need to be healthy for myself. And what is really driving people to join in this environment one of the benefits we have because of our connect platform and now with virtual group coaching both qualitatively from our tracking measurement and quantitatively from hearing and listening to people we do a daily Behavior change in real time. And even over the course of this crisis. We've seen escalating recognition that people need to take a different assessment of their birth.
And it's got to be more of a necessity than a luxury. We also have definitely seen everything from changes in food tracking. So for example, you know flour baking goods are up 52% People are at home. They're baking so we've all pivoted and said what are are healthy recipes that we can give people. You know, what what do they looking for? You heard us say just in our e-commerce our snacks. We just launched very quickly a whole flavored do-it-yourself movie popcorn. I mean, we're really seeing what people are doing in activity. We're seeing not surprisingly more workouts during the day not just morning and night as people are home number's are logging much longer walks yoga frequency is up. So that's really the level that we can see because we put in dead.
the healthy giving Channel
We're really seeing our Wellness wins escalate and food tracking has definitely grown over the over the past couple of weeks, We will continue to be able to almost track behavior in in real time.
Great. Thanks so much.
Our next question comes from Wendy Nicholson with Citibank, please go ahead.
Hi, good evening. My first question I just wasn't clear on the hundred million dollars in cost savings. I assume some of those are temporary, you know the executive position. I assume we'll bump back up once we get through this but what percentage of that hundred million dollars in cost savings are permanent reductions to sort of the cost structure of the company.
Great question. Thank you. Like yeah, the hundred million. No cost savings is this is the plan we had coming into twenty-twenty and obviously it's about getting the balance right between our excitement and our future opportunities and wanting to invest in the future with the reality of the situation and wanting to take strong cost action to protect the the the downside looked at in three three buckets that you saw no GNA marketing and operating expense, you know, Thursday's appointment in a lot of those g n a savings on the salary cuts are temporary the move to a more efficient organization, of course has lasting benefits under Mark decide to be clear. We're always going to invest behind marketing ideas that are working on on the cost of goods sales side because we ship
The are you know what to to an even more digital first strategy and wind up having a smaller Studio footprint with fewer location, you know that that certainly has you know, you know long-standing cost implications in terms of okay, that's very helpful. And then my question I think if I heard it right you're increasing some of your marketing spending here in the June quarter, which is terrific, but I guess looking past covid-19, Maybe when we all get back to more normal not totally normal, but more normal behavior. I guess the the concern I have is on the lingering tale of sort of economic pressure and people who have lost their job who might not be coming back to the workforce. So my question is as you think about maybe increasing promotional spending maybe lowering the cost of June.
a subscription how
You think about that relative to advertising in terms of how much you want to invest in in which bucket to sort of get as many members in to the program on an affordable basis. Thanks. So well, I think we can look at things two ways one is and we have always felt that we want to be very much considered accessible resource for people. So if you look at our digital membership for example and certain promotions that we've done on Earth, you know X number of months free we've seen longer commitment plans. So we're very agile in that and actually what we've been doing is giving more and more value for what people are paying for and I think that's really important if you look at what people are getting for a digital subscription to Thursday.
It is incredibly robust and it becomes a real part of their life and day and that's what's been important the New Vertical Thursday. We're going to be launching which is digital plus virtual group coaching. We see as another opportunity to not only give people the tools in digital but to give them the coaching platform that people really want and then we will still have our premium membership. So of course we're going to constantly look at what promotions are but really what we're seeing and I think the team has done an incredible job in marketing is to really quickly adjust voice tone the tenor and what it is that people are really looking for and how are we going to approach them? And that's we're very fluid and that's how we're looking at it right now dead.
I think so. Right and but just just to add like we've got such a you know, High incremental margin model that always makes sense for us to offer spend marketing dollars where it's working. You can imagine look we're prepared for a wide range of scenarios here looking at the lots of lots of money lying in the future is hard to predict but in the context of that hundred million savings plan or a reasonable going-in assumption is that the split of the savings could be roughly a third a Thursday that marketing g n a and that cost of services, but of course if in that context marketing is working will put the dollars were either working.
Got it. That's very helpful color. Thank you so much.
Our next question comes from Alex firman with craig-hallum, please. Go ahead.
Hi Alex. Hi. Thank you very much for taking my question. Certainly. Hope everyone is doing well. You know one thing I wanted to ask about is is Mindy I think you'd contracted in your prepared remarks that as you kind of look to to twenty Twenty-One and Beyond w w will likely have a a smaller physical real estate footprint wage. If you could talk a little bit more about that is that you know in some ways it's kind of a reaction to what what's been going on the last couple of months or is this always been been, you know within your plans that you've been over the last few years. Just curious. You know, how we should think about, you know, the the your physical locations and in terms of w, w branded locations versus third party locations, and then you know, I'm starting to test more things like your partnership with cold. You know, how we should think about your footprint over over the next few years, right? I'll make a few comments and I'll let Nick speak to this to suck.
LCS you
No, this has been an ongoing transformation of the business for a number of years. And as you know, our studio business is about 25% of of the business and we've been investing heavily in our digital assets and our Revolution frankly wage to both diversify and brought in our base as well as give members and and give everyone really what they need. So this is not an overnight reaction. However, it obviously stands to make sense that given the current environment some of our plans will accept you as you know around the world. We have branded locations and then we have you know other locations our primary focus right now, ma'am.
Is obviously Safety and Security and when we do decide to open it will be very staggered to your point. We definitely have an opportunity with Partners to diversify of both locations, whether they be for workshops, whether they be Wellness chickens and a lot of different and we will continue to pursue those opportunities as well. And it's been very working very closely obviously with his role as ahead of North America and working with the teams on the real estate strategy in a field. So I'll let him talk a little bit about it, but it is definitely a work in process because we're not planning to entertain any kind of reopening strategy until the end of May and even then it will be very controlled and measured and we will learn
I think that's absolutely right, you know Alex and so just to give a little bit of color but you know work in process cuz this can imagine like this is a you know, as a location by location analysis and discussions with landlords Etc. But you know, it can the United States we got about 3,300 locations right now and the 2500 of those are what we call Studio at, you know, third-party very casual locations 800 of those locations studio. So as we look at how best to serve our our members going forward you can imagine we're more likely to look at home to those Studio apps that are close to our branded Studios and you know, look at the opportunity to you know, Focus off Footprints and some of those are dead.
but notice especially since we've been so thrilled with the response to visual studio and seeing our members enjoying it will be very thoughtful in our home, you know as that's the
Great. Thank that's really helpful. I I appreciate the the color. Thank you.
Our next question comes from Kara Anderson with B Riley FBR, please go ahead.
Hi, good evening. Hi, so you kind of test on a little bit Mindy but I just wanted to get your perspective on how you think this business performed with a recessionary environment. Do you think that the work you've done to become more of a wellness company focus on health with the pretty strong digital asset at this point makes you less susceptible to sort of Hudson consumer discretionary budgets off of you done any surveys or gathered any feedback from your members to see where they position you? Yeah, you know, we've looked at historically and actually Nick couldn't talk to this more over the course of different years including 2008 2007 etcetera and we haven't had the big swings of of impact. I think part of it's because of the are accessibility and very importantly the fact that we have Community. That's particularly powerful from a retention Point birth.
But you know clearly everybody seeing impact right now. But what I'm very focused on is, you know, as consumers move out of this, what are they going to be looking for and you know, as I mentioned earlier this idea of Health and Wellness not being a luxury but a necessity in people's minds and if she marry that to community motivation and support this idea of healthy habit formation as a ritual more important than ever and so is trust God and so I think for us, you know, our Focus has been how do we leverage fifty-seven years of what we've been able to provide five people and do that even more and even more broadly and how we reach people coming out of this I think is going to be more important than ever.
Totally agreed and actually in Imagine like yeah, we look at a lot of history and especially in the context that like it's clear here that you know our revenue and our financial performance will be below what we had planned when we entered the the year, but you know when he looked back to the last recession back at like 2008 to 2009. The company was so different, you know, the digital business was in its infancy. We didn't have an app the subscription business. Does she have to monthly pass was was in its infancy. So like any other company here will will we be impacted y Los Ojos are closed absolutely. But what was seeing here, especially from virtual studio. So this such a customer need for coaching in age.
social world and so
Coaching strategy to content focus and the community that we've always excelled at providing, you know, that's kind of how we're thinking through Thursday managing in a potentially recessionary environment and typically a while. I mentioned we're prepared for a wide range of scenarios. We're not expecting a quick snap back here, you know, we're forming our plans assuming that the economy and consumer Behavior know will be impacted for more than a few months.
And a quick follow-up on some of those comments just curious if you've seen any patterns or Trends in recruitment in this pandemic of things have improved in some areas wage. Um, if you've seen I you know, any specific geographies Trends emerging. Um, yeah, you know the the impact as well as the recovery particularly in digital has been Global it's been pretty consistent.
Great. Thank you so much.
Thanks.
Our next question will come from Edward with keybanc capital markets, please. Go ahead.
Hey guys. Thanks for taking my question. Hope all is well and help you and your teams, I guess first on the Studio's business. Are you paying rent while the studios are closed? And do you have any potentially from your landlord's and then I guess second, you know, just think about I think it was mentioned kind of length of stay is still run ten months. What what behaviors are you seeing kind of of the the traditional Studio customer retention perspective. I guess is it fair to assume that this fight kind of virtual Studio opportunities that their retention may see some temporary impact given the studio closures. Thank you.
Let me take the real estate question first going back to my illustration of 2500, you know third-party Service locations in the United States. We we pay for those when we when we use them on the 800 branded Studios. We have been fulfilling a lease obligations as you can imagine we are and we will be in conversations with the landlords are going going forward in this environment in terms of retention. I've been pleased that, you know, we haven't seen a meaningful upset in cancellation rates and that retention has held that ten ten months. Obviously. I can't predict the future, but I'm pleased that our strategy of adding content and suck.
Quickly transitioning to a virtual Studio product has been working well for us.
Thank you.
Our next question comes from Brian noggle with Oppenheimer, please go ahead.
Good afternoon. Thank you for taking my questions. So I want to be a bit of a crisis. But this really focus on this improving Trend that you've proved subscriber growth Trend last last couple of weeks. So understand better. You may have prepared comments. You mentioned that East or served as the historically that's be used to serve as a catalyst there who is their own boss, so
Stepped up when proved that's the gene on the part of w w that's helped to drive this trend lately.
So we so take it two ways. As I said growth in digital membership is where we've seen the uptick but what we did when I bought this entire crisis started we withdrew every piece of content that we had in market and that team pivoted as I walk in kind of my prepared remarks. We ramped up our content machine both in Social as well as our digital platforms off the TV that we've been running, you know the past couple of weeks. It's real people real stories real world support. And so the tone and tenor has obviously been relevant to the environment our next phase of our TV campaign also inclusive of birth.
Birds including Oprah and and that will launch but you know, the message is really we're here from you where here for you. We are here for all your Wellness needs certainly, you know weight being part of that and Community being part of that. So I I think that message is resonating, you know, and I think we do have this ability to listen and hear in real time. So what the marketing team done is work to have the highest degree of flexibility in terms of the both what the content is as well as where the content platforms are and will continue to do that.
That's very helpful. Then it's a follow-up to that. Maybe you know, I've been speaking with a number of consumer type companies through this crisis. So one thing I'm hearing rather consistently is declining rates for digital marketing. So I guess the question I would have is recognizing goes back to your comments that you heard this call your saving costs. And you laid that out very well wage. If are you seeing declining rates and it'll click as we think it should be going to pull out this potentially. Could you lead even further into your marketing as a result of these lower rates?
Look, what what Nick has said.
Says we've outlined even our cost efficiencies particularly in the marketing area if we see performance and if we see what we're doing working and great efficiency, we're going to spend against it because it's going to have impact.
Thank you very much. Thank you.
Our next question will come from Michael Lasser with UBS, please go ahead.
Good evening. Thanks a lot for taking my question mind providing Main in know you're not providing guidance. But trying to model your second quarter may be difficult. Can you provide some help on how we should be framing at least the studio business? The digital business is pretty straightforward, but the studio business I should be thinking about modeling that second quarter.
Yeah, hi. Hi Michael. Like if you look at the you know components of of the revenue as you clearly say, you know, having the digital home business Trends and growing in the last two weeks is is very, you know, encouraging, you know, having retention hold off at ten months as also being a bright spot. So, you know, the remaining two key factors on on the revenue side of of course, you know Studio off red kreutz, you know from the middle of March through now, they have been you know, very weak and so, you know, I think of you know, since the end of the quarter the exact line from 5 million to 4.9 million subscribers in total is primarily reflective of that week Studio recruitment environment. So the huge
To revenue pictures impacted by that and of course whether it's been closed for Studios through the end of May. I think the studio revenue is the main factor impacting to to the other the other final, you know, contributed to the revenue picture product sales, but we've been very pleased with our growth in our e-commerce business as Mindy mentioned in the queue to where the you know studios are are closed yet unlikely that while he Commerce is growing fantastically. It's unlikely that the e-commerce can offset the fact that we're not selling any consumer products in our students just right now, so I think those are the moving Parts on the revenue side and then of course on the car side you see as moving very quickly on every aspect of our cost structure. Yep.
But make sure that we can.
And maintain our margins where we can but of course, you know less Revenue, you know hurts has Mountain.
And I I'm I'm so sorry if I missed it. But when as the studios are closed, do you collect the the revenue from feed weeks from your from your subscribers? So I think it's really important to note that this pivot that we made to virtual studios as well as enhance connect groups. And as well as the online digital content where we're actually providing our studio members Thursday the same coach level of support and their Community as well as new enhanced connect groups in between which is why our retention is holding it that 10 months.
Absolutely, but are you getting any indications that want those members in the studio business office? They're they're they're paid week runs out because they're not they don't have anyone to go and and and maybe they don't find Value in that that that you're going to see your retention fall in the coming months.
Sorry, obviously focused on providing all our members with what they need to maintain their community. And I think you heard em, all of the assets that we've launched that were in the pipeline and we'll continue to obviously serve our members and you know support them as much as possible and then we're going to learn a lot as we start reopening Studios what assets and what sort of relationship members want to have.
Understood. Thank you very much. Thanks.
This concludes our question-and-answer session. I would like to turn the conference back over to Mindy Grossman for any closing remarks. Well, thank you everyone. We're confident that we should focus on the right actions. Certainly not only the best serve our members today but to position w w as a leader in delivering human impact of technology and creating Community has always been at the heart of what we do think. It's even more important today to create meaningful communities that allow our existing members took effect, but it's also going to allow us to diversify our consumer base and maximize engagement. So I believe that this combines with consumers heightened awareness and need for a wait loss and Healthy Living Solutions positions as well for the future. We're going to continue to focus and prioritize coaching Community created content.
and thought leaders
Ship to our members in ways that are personal authentic, and I really want to once again thank our passionate and talented for always keeping our members at the Forefront and continuing to innovate and to create value for them and for ww.w. So thanks everyone for joining us today. I hope you and yours are well, and I look forward to speaking with everyone again student.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.