Q1 2020 Earnings Call

Thursday Thursday

Good day and welcome to the W W International first quarter 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 quarter 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 releases 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 that's 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 Operating 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 going is 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, when the covid-19 situation escalated we took quick globally coordinated action and paused our in-person workshops and implemented virtual workshops wage order to continue to provide 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 rant 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 prioritize the actions that will enhance the member experience and engagement and maintained position as The Trusted leader in weight loss and wellness delivering a connected digital and Thursday.

Please human Community 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 saw a 2020 off to a strong start the global launch of the new more customized my ww.w program resonated in every Global mom the WWE presents opens twenty-twenty Vision tour raised our brand awareness generating a stunning eighty eight billion media Impressions along with visibility modernity and thought leadership and our Global Marketing efforts had great impact driving members sign ups and reinforcing our leading position in weight loss. And well, we are the queue one with 5 million subscribers up 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 nicely.

We 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 position w w.

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 six days 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 guides globally for virtual workshops and created connect groups for each studio. So that members can continue to engage with each other off.

inside the WWE coasters

done 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 or 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 1-6 T has specifically requested and we have seen great utilization since launch.

Numbers continued engagement with our app 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 rep Fitness cooking and wellness content from our ww.w ambassadors. We've 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 a 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 people in addition community and connection is critical particularly with those they already know and trust versus creating new relationships importantly Thursday. We have seen w w brand Equity continue to grow in the current environment with gains across current former and non-members measures of brand trust and leadership are strong. I 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 yep.

the leader in the Healthy Living industry

And that w w a program I trust.

Turning to our marketing across social channels are ambassadors have activated during this crisis feeling motivated to inspire and connect with others marks or record co-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 the message that is aligned with the current realities right now. We are running a two-week T campaign in the US 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 member 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 programmed this healthy giving challenge will directly support charitable Partners such as feeding South America, 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 currently on Pace to exceed our commitment of two million dollars to provide local food banks with ten million meals and three million pounds of fresh produce month-to-date nearly a hundred and fourteen thousand winds or over half a million dollars have been donated and we've seen heightened member engagement to track food Fitness and weight. In order to gain more wins to this. W w good challenge in addition. We were proud to support and be part of several covid-19 relief efforts including Global Citizens, April eighteen Thousand and One World together at home as well as saving 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 Behavior will change as a result of this crisis. We know that having a trusted partner in health is more important now than ever.

A position to be that partner.

I will now turn the call over to nip 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 home. 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 $400 11:00 to 6 year-over-year on a constant 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 cube on the tour expenses wage in the lower than anticipated and quick Cost Containment actions in March, but she won results include approximately 16 million in direct Tour Ever View and approximately the same amount 16 million in tour expenses.

A 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 saw a sudden 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.

I'm a treatment trials were very weak. Given our launch of personal workshops and a member engagement activities member cancellation rates did not Spike significantly and we are pleased that so far 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 at 16% and Studio 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 you a 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 and primarily driven by name 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 a week Studio recruitment Trends Studio revenue is expected to be significantly Below prior-year in Q2 and will remain pressured during the Corvette crashes.

As a reminder approx 40% of our annual recruits typically join us in q1. And in addition to one is traditionally our annual peak in end appearance package type is sloping to a Q4 trough while last year. Our membership base was plants from q1 to Q2 note that since we have already seen a sequential decline a few to this year. It is uncertain where we'll end 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 off GPS guidance.

I'll pray and financial objectives for 2020 Maxima is 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 our studio business to have a smaller real estate footprint continuing to offer virtual workshops to maximize retention among sujeo subscribers.

Continue to focus on e-commerce given lost consumer product sales while studios are closed Implement a 100 million cost savings initiatives may continue to invest in our products. In fact capabilities to take advantage of future opportunities and finally maintain strong liquidity.

And we are implementing a cost-savings initiative of one hundred million dollars versus our initial 2020 annual operating plan. We are taking these actions 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 cost of revenues marketing and Jeannie in marketing. We will continue to be agile wage best behind those initiatives that are producing results on G&A expense. We are taking a number of actions to reduce corporate overhead as you will be seen in a h k final 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 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 to face reopening of our interests workshops globally with no Studio reopening prior to May 30th.

Health and safety will come first in the decision-making before any individual studio location reopens.

Well, we don't know how the macro environment and the impacts and our business will play out in the coming months. We believe this 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 subjects to get a hold of 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 the 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 on page Forty-Eight 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.

The revolve a draw we ended q1 with a cash position of $292 million recall. We have a cabinet flight debt structure in our term loans and bonds maturity dates are not until November 2024 and December 2025 respectively full year interest expense, assuming the the Volvo remain strong and three year end is approximately 123 million.

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 wage, cuz the financial flexibility and liquidity and best position for both the immediate and longer-term growth opportunities with our leading digital platform. And 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 a gesture of our members today, but to position as a leader in delivering human impacts who technology at the highest level the scenes of our 2020 priorities wage and changed and our key objectives of recruit retain and Elevate the w w brand will continue to guide all our actions as an organization.

As Nick mentioned we are making a number of critical decisions and cost reductions to manage through this challenging time and therefore haven't even higher degree of priority mission to ensure we are best allocating resources towards the actions that will help us better serve members and drive the business today tomorrow and beyond our 20 G20 priorities are one amplifying the power of community Through coaching accelerating our digital transformation to deliver a virtual coaching and community life in your hands away is now even more essential we are on track for our launch of an entirely new digitally enabled community-focused and Coach LED busy vertical 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 job.

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 W. And drive both new Recruitment and Retention as we evolve and create more personalized offerings and build highly-skilled Kochi Talent. We are focused on providing solutions to Our member that the format step that they're allowed about second. We will continue to build our Wellness ecosystem deepening the app experience and gamification. It's important that we continue to evolve and be recognized as a trusted partner in Total Wellness spanning nutrition activity mindset motivation hydration and Suites. We are rapidly introducing new features and tools to help our members improve their overall health and wellness forming a deeper integration between all these important factors in early may we will be launching sleep tracking dead.

Our science team is completed.

Body of work on sleep and we know that consumers and 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 been expanding our Partnerships to bring even more value-added complimentary experience to ww.w members.

You know Fitness vertical W has just launched a partnership with fit on to bring members in home video Fitness classes via the W sit on, integrated into the W 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 class paths who will offer in-person content. We look forward to expanding our relationship is classpass one fitness centers begin their reopening in our mindset 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 and product expansion is a significant opportunity. I'm pleased to say that a March 23rd. We integrated into our office or just only being available online. We are ramping up our e-commerce plans and intent to make WWE a primary way to purchase our consumer products in addition to Institute of purchasing in just a few months or eCommerce sales have already exceeded e-commerce sales for all of 2019 with 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 for dead 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 and payers. 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.

Rated content will allow us to accelerate our efforts to both diversify our customer base and maximize engagement We 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 w 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 announce details of our launch of a free Global virtual experience that will leverage Oprah's powerful.

To accelerate our mission to democratize Wellness for all at a time the world needs it most stay tuned for more exciting details life personally. So grateful to open up our 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 and inspiration are truly unmatched Oprah and we aligned on the opportunity for w 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.

The 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 Palm again. We believe virtual connections will only increase and we are accelerating or digital transformation to meet this need bring people together and Inspire healthy habits for real life and not let me reiterate that whenever consumers put weight loss and wellness in the Forefront of their minds will be there for them in whatever format members choose a life warranty trust and Community will be more critical than ever before. Thanks for joining us on the call today. And with that we will now turn 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 will 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 great 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 my second question is just any way to quantify the increase engagement that you're seeing some change in minutes per day being spent any any sort of quantification around that would be great. Thanks month or 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 suck.

See that being 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 assemblage.

and up their health and it's got

Would be more of a necessity than a luxury we also have definitely seen everything from changes in food tracking. So for example, you know flown know you can go through a 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 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 nice 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 the home.

We'll be giving challenge. We're really seeing our Wellness wins escalate and food tracking has definitely grown over the over the past couple of weeks. So 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, you know 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 don't look in three three buckets that you saw no GNA marketing and operating expense, you know Thursday 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 locations, you know that that certainly has you know, you know long-standing custom applications intensive. 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. Toh de lis 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 how long as you think about maybe increasing promotional spending maybe lowering the cost of a subscription. How do you think about that relative to advertise?

I think 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. Well, I think we can look up things two ways one is and we have always felt that we want to be very much considered an accessible resource for people. So if you look at our digital membership for example and certain promotions that we've done on, you know, X number of months free month. 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 took what people are paying for and I think that's really important. If you look at what people are getting for a digital subscription today. It is incredibly Roberge.

And it becomes a real part of their life and day and that's what's been important the New Vertical that we're going to be launching which is digital virtual group coaching. We see as another opportunity to not only give people the tools and 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 our promotions are but really wage were seeing and I think the team has done an incredible job in marketing is to really quickly adjust the tone the tenor and what it is that people are really looking for and how are we going to approach them? And that's where very fluid and that's how we're looking at it right now.

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 wage and marketing dollars where it's working. You can imagine like we're prepared for a wide range of scenarios here looking at the lots of lots of money 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 third of em, marketing GNA and cost of services, but of course if in that context marketing is working will put the dollars where they're 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 find it 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 secutity over the last few years. Just curious. You know, how we used to 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. Mm.

So it says, you know, this has been an ongoing transformation of the business for a number of years and as you know our studio business office about 25% of of the business and we've been investing heavily in our digital assets and our Revolution frankly to both diversify and brought in our face as well as give members and and give every really what they need off. So this is not an overnight reaction. However, it obviously stands to make sense that given the current environment some of our plans will accelerate as you know around the world. We have branded locations and then we have you know other locations are proud.

Are you focused right now 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 partner to diversify 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 next in very working very closely obviously with his role as ahead of North America and working with the teams on the real estate strategy and the 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 kind of we open a strategy until the end of May and even then it will be very controlled and measured and we will learn

And that's absolutely right, you know Mindy hi Alex. And so just to give a little bit of color of it to Echo mini, you know work in process cuz this can imagine like this is a month, you know, it's 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 but of our members going forward you can imagine we're more likely to look at those two EOS that close to branded Studios and you know, look at the opportunity to you know, Focus off Footprints and some of those areas birth.

know 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 you know, that's that's

Great. Thanks. That's really helpful. 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 them 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 help with the pretty strong digital asset at this point makes you less susceptible to sort of Hudson consumer discretionary budgets off you done any surveys or gathered any feedback from your members to see where the position you, you know, we've looked at historically and actually Nick and 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 our 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 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 can't imagine that. 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 you look back to the last recession if you took 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 the ship to monthly pass was was in its infancy. So like any other company here will will we be impacted while our summer hours are closed absolutely. But what was seeing here, especially from virtual studio. So the such a customer need for coaching in a game

So well and so adding our coaching strategy to content focus and the community that we've always excelled at providing, you know, that's kind of how I am thinking through 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 Buck snapped back here, you know, we're forming our plans assuming that the economy and consumer Behavior, you 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 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, I 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.

But going back to my illustration of 2500, you know third party locations in the United States. We we pay for those when we took we use them on the 800 branded Studios. We have been fulfilling our lease obligations as you can imagine we are and we will be in conversations with landlords going going forward in this environment in terms of retention. I've been pleased that, you know, we haven't seen a meaningful object 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 so quickly transitioning to a virtual Studio product has been dead.

Working well for us. Thank you.

Our next question comes from Brian novel with Oppenheimer, please go ahead.

Good afternoon. Thank you for taking my questions be a bit of a focus on improving Trend back here. Unless proven subscriber growth Trend last last couple of weeks. So understand better you may and they're prepared comments. You mentioned that East or served as the historically that's used to serve as a catalyst there. Who was is their own now, so

Stepped up or improve the messaging on the part of w w that's helped to drive this trend lately.

So we've 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 took it and kind of my prepared remarks. We ramped up our content machine both in Social as well as our digital platforms off the T 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. And one thing I'm hearing rather consistently wage is declining rates for digital marketing. So I guess the question would have it, you know recognizing goes back to your comments that you heard this call your your saving cost and you laid that out very well, but if are you seeing declining rates and it'll click as we think we going to pull out this potentially? Could you lead even further into your marketing as a result of these lower rates?

Look what Nick has said as we've outlined. Even our cost efficiencies particularly in the marketing area if we see a 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. Nick mind providing Main in and oh, you're not providing guidance. But trying to model your second quarter is is unique 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 actually ma'am about modeling that second quarter.

Yeah, hi. Hi Michael. If you look at the you know components 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 recruits, you know from the middle of March through now, they have been you know, very weak and so, you know, the thing care of, you know, since the end of the quarter the bank declined from 5 million to 4.9 million subscribers in total is primarily reflective of that week Studio recruitment environment. So the club

To revenue pictures impacted by that and of course whether it's being 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 e-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.

Make sure that we can.

And maintain our margins where we can but of course, you know less Revenue, you know hurts.

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 wrong with the same coach level of support and their Community as well as new enhance connect groups in between which is why our retention is holding it that 10 months.

Absolutely. So are you getting any indications that want those members in the studio business office there? There are 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.

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're focused 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 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 wage is 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, Yep.

and thought leadership 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 back or front 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 soon.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.