Q2 2020 WW International Inc Earnings Call

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Thank you for your patience good day and welcome to the W.W. International second quarter 2020 earnings Conference call. All participants will be I must tell me about so do you need assistance for single Cauldron specialists Sparky buys you. After today's presentation the won't be an opportunity to ask questions asked the question.

Star then one well your touchtone phone.

Well the charter question. Please press Star then too.

Please note so that is being recorded I'd now like to turn the call coach over check Corey Kinger Vice President Investor Relations. Please go ahead.

Okay.

James we are experiencing some tough technical.

Difficulties. Please standby while this issue is resolved thank you.

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Thank you to everyone for joining us today for W.W. Internet.

National second quarter 2020, <unk> conference call at about four o'clock PM Eastern time today, we issued a press release reporting second quarter 2020 result.

The purpose of this call is to provide investors with some further details regarding the Companys financial results.

Well look to provide a general update on the company's program.

The press release is available on the company's corporate website located at corporate duct W.W. Dot com.

Supplemental investor materials are also available on the company's corporate website in the Investor section under presentations.

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 investor 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 such statements.

All forward looking statements are Nate 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, our Mindy Grossman, President and CEO, and Nick Hotchkin, CFO operating Officer, North America, and President emerging markets.

I'll now turn the call over to Mindy.

Thanks, Corey good afternoon, everyone.

Thank you for joining our call today I hope that all of you along with your family your friends are safe and healthy.

We began our strategic shift to a purpose driven and deeply impactful technology experience company long before March 2020.

However, there's no doubt that our digital transformation has accelerated with the onset of cobot 19.

Our digital first strategy as both obvious and evident in our strong second quarter results.

As we indicated in our mid June update digital member trends have had strong momentum and with their favorable margins are the key drivers of our future growth and profitability.

Although 2020 has certainly been a year upbeat at unprecedented challenges for US all it has also serve to reinforce our belief in our strategy. The resilience of our business model and the relevance of our global brand as well as a significant opportunity we have for W.W. cups.

Positively impact People's lives.

The reason trends in our business demonstrate that consumers are looking for science based affordable and proven wellness and we bought program that is both digitally enabled and provides a real human connection.

Our second quarter results underscore the relevance and importance of our value proposition in today's environment as the trusted leader and we bought and wellness.

I am proud and thankful for our talented dedicated and passionate employees, who put W.W. members first been everything they do and he would've been instrumental Boca navigating the here now and also positioning W. W pretty years ahead.

We ended Q2 with 5 million subscribers up 9% year over year and a record level for the end of Q2 and practically unchanged from our typical seasonal peak at the end if you want.

This growth is due to strong marketing execution in terms of delivering our message and value proposition to audiences in a way that is both clear and relevant to their needs and across all channels digital social PR and of course TV.

What are the revenues up on marketing, we extended or a U.S. bring TV campaign into the summer running both through June and July with good results.

Our brand method and value proposition within further amplified by the four week virtual experience with Oprah, which resonated with audiences around the world.

Member recruitment trends for digital gain momentum globally over the course of the quarter, bringing digital subscribers to 3.9 million up an impressive 23% year over year.

Given the dynamic growth of our digital subscribers in Q2, now about 80% of our members our digital only at about 20% or studio plus digital would they shift. We're also seeing a demographic change with 51% of members going into two being below the age of 45.

The second quarter on a constant currency basis digital revenues were up 15%.

This strength was offset by the declines in studio fees and product sales did studio closure as a result cobot.

In total revenues were 334 million down 9% on constant currency.

Notably adjusted gross margin was 60% in Q2.

200 basis points year over year due to the benefit of an increase mix a digital subscribers combined with effective cost management as we reduce our studio footprint.

This is the highest adjusted gross margin, we as seen in the past eight years.

Adjusted operating income arguments, 28% flat year over year.

This strong operating and financial performance demonstrates the resilience of our business model and provides a solid foundation as we continue to manage through the current environment and position W.W. for the long term.

Our last earnings call I highlighted many of the digital features and enhancements we have launched to better serve number and deliver a robust experience I'm happy to say that these new innovations have resulted in increase and overall engagement trends, which as you know are a key driver of retention an organ.

Remember success.

For example, you features such as our water tracker had been enthusiastically received over 2 million W.W. members tracking hydration and we recently enhanced our fleet tracker to think was connected devices, making it easier for members monitor their progress and improve their sleep habit.

In addition, the integration of fit on a video fitted platform not only bolsters our portfolio fitness content, but provides members with workouts they could do at home all well seamlessly seeking to fit point.

Vintage recent launch our members completed over half a million fit on workout, it's been over 75 million minutes working out.

Added gamification, we recently launched to fit on bands connect challenge a three week partnership would fit on trainers and encourage member to try different type of fit on workout.

This grew that fit on fans group engagement exponentially, we will continue rolling fit on l. globally over the balance of the here.

As we accelerate our digital transformation, we're increasing our focus on producing original created content for our members that incorporates our unique expertise and behavior change science and community building to drive engagement Accountability and result.

Our four week over your life and focus a vision for word virtual experience was truly a first of its kind, bringing people together virtually from all around the world in Allied interactive experience.

And with three and a half million views. It came at a time when the world needed. It most.

The virtual experience generated 30 billion media impressions and drove significant social media conversation.

Addition to hearing from over herself listener heard from a variety of inspirational and diverse special guests from celebrities that just Kate Hudson and Duane the rock Johnson to wellness expert such as life coast stay steady relationship expert at airport sale as well as numerous W.W. members about their perspective.

Challenges victories and experiences.

Each week included an online workbook for participants to assess their wellness close and based on their ability to focus connect adapt internet.

The learnings from the wellness assessment exercises from both the virtual experience and the nine city Arena, where this year are being leveraged into our innovation pipeline as we add new features and content into W.W. that members value.

We see the opportunity to create new differentiated content experience that continue to elevate the W.W. brand and provide value across our membership offerings digital only studio plus digital and coming later this year, a new membership here for virtual coach led community.

I haven't content in cooking experiences that are insightful interactive engaging we believe we will have a greater opportunity to attract new members. The W. W. Appeal to younger more diverse audiences retain members longer and make a lasting impact on millions of lives.

Looking to the fall season, we aim to further on momentum and build our brand presence as we ramp up to winter.

Our integrated fall campaign will include TV bulk linear and screaming you digital channel influence or Activations to help drive new audiences.

Having a wider array of content will also enhance our ability to deliver a more personalized experience for a member however, they wish to engage with W. W.

Our goal is not to maintain but to advance W. W position as a trusted leader in weight loss and wellness delivering a connected digital and deeply human experience for sustainable behavior change.

As a reminder, when cobot 19 escalated in mid March we took quick globally coordinated action and pause or in person workshop and implemented virtual workshops around the world continuing to provide studio number with the support encouragement and community that is central to their W.W. experience.

Well face to face experience will always be apart W. W. We're strategically repositioning our studio business. They have a smaller real estate footprint with your relocation.

Nick will provide an update on our studio strategy and progress shortly but I'm pleased to say that over the past two months. We have started resuming a condensed schedule of in person workshops in many areas of course enhanced safety procedures are in place and we will continue to monitor that situation closely.

The local level at the health safety and support of our employees and member is Paramount.

We will also continue to operate virtual studios to support our members and give them the community and support they need.

As you likely read in our press release. This afternoon I am thrilled to announce that Nick Hotchkin has been named Chief operating officer of W. W. A new role assuming responsibility for all our global market as well as our health solutions business.

Nick has been in valuable partner give me since I joined W. W. Three years ago and his experience from its eight years as CFO. In addition to his leadership of North America operations. This past year, making the perfect person to this global role as we accelerate our business transformation.

I'm also excited to announce that Amy O'keefe will be joining W.W. at Chief financial officer her deep expertise in operational for now and her proven track record of driving business growth, while maximizing profitability makes a uniquely qualified to join our team.

Jamie has more than 25 years of financial expertise. So any W. W. After three years as CFO of drive deleverage health care, a leading private equity backed medical equipment company based in Port Washington, New York.

Previously held CFO positions at the BOP systems and being in holding.

I know several corporate finance position with increasing responsibility at Stanley Black <unk> Decker.

On behalf of the entire executive team I look forward to Amy joining us in October.

I will now turn the call over to Nick and then I'll come back to discuss our 2020 priorities and key initiatives.

Thanks, Mindy I look forward to continuing to drive our strategy in partnership with you.

Local teams in my new role as Chief operating Officer.

Look forward to welcoming aiming to W. W. As our new Chief Financial Officer.

The past the is it W. W have being the most rewarding if my Korea to see how far the company has come as being incredible I believe that future opportunities.

Great.

As discussed on last earnings call in provided in our business update announcement on June 15th.

Starting in the Middle of April digital recruitment trends returned to growth on a weekly basis compared to the prior year period.

Yes, we see great trend accelerated over the course for the quarter ending June surpassed the weekly recruitment growth rates, we saw in the first quarter prior to the escalation covert 19 in mid March.

This reserve strife in digital fine ups has offset the continued decline in studio due to cope with my team studio closures.

In Q2, roughly 90% of member sign ups chose our digital offerings.

Overall member retention remains above 10 Bucks.

Well these solid recruitment and retention trends, they bought Q2 and subscriber level to an all time high five from William.

Q2 revenue was 334 million down 9% year over year on a constant currency basis due to the further mix shift towards higher margin lower priced digital subscriptions.

Increased mix of digital subscriptions and the speed of our actions to write finds the cost structure for the claims environment drove an exceptionally strong adjusted gross margin of 60% wishes adjusted to exclude restructuring charges.

As we move to a more digitally enabled business model over time or high marginal model will be increasingly evident and is a key attribute of operating and financial flexibility.

In fact above 195 million in gross profit dollars in Q2, 75% for generated by digital subscriptions.

Adjusted operating income margin was strong at 28%.

I got PPS was 20 cents.

In addition to a higher tax rate in the quarter.

Due to 2020 P.S. was negatively impacted by a total of 47 cents and one time charges.

Including a 12 cents per share impact from our organizational restructuring.

And a 35 cents per share impact from stock option expense associated with the extension of our partnership with Oprah Winfrey through 2025.

Excluding these one time items EPS would have been 67 cents compared to 78 cents in the prior years second quarter.

As discussed on our last call operating and financial objectives for 2020 Oh.

Maximize recruitment and retention with a focus on subscription lifetime value.

And should we continue to deliver.

Quality and engaging member experience across all platforms.

Strategically repositioned I'll studio business and deliver on all 100 million cost savings initiatives with reductions underway across cost of revenues marketing and DNA.

Continue to focus on E commerce continue to invest in our products, so type capabilities to take advantage of future opportunities.

Finally maintains strong liquidity and financial flexibility.

I am pleased to see that we have been delivering on each of these initiatives strikes me W. W for both the immediate and longer time.

While we are strong believers in face to face coaching the changes to our studio business unlikely to be long lasting.

You will continue to nimbly manage the studio cost structure, given the significant decline in studio revenue.

Looking at a U.S. a real estate at the start of the Yeah. We had nearly 800 leases for W.W. branded studios.

We are consolidating many of our workshops into these W.W. branded locations, where we have more control over health and safety.

We also have already permanently closed more than 100 branded studios, bringing the U.S. studio base through about 650 locations today.

Looking ahead, we are focused on maximizing the smaller footprint to be the cornerstone of our in person workshops and retail experience.

At the start of the year. We also had about 20, 303rd party locations with month to month rental arrangements.

Given the current covert environment. These locations have been closed since mid March and will be reopened only on a very selective basis.

Looking into 2021, we have 189 studio leases up for renewal the average lease length about 615 W.W. Studios is only 26 months. So we have ample real estate flexibility.

Central workshops continues to be extremely well received by members with many expressing a strong desire for them to continue post coded as members enjoys a convenience.

These ventral workshops also provides greater access to our coaches, particularly in areas, where we don't have a studio location that pool. We have time to continue offering workshops virtually in addition to exploring strategic palm locations to serve an even broader meant that base.

Looking ahead to fall, we will maintain a global creative strategy looks like just for individual market needs.

In addition to showing up in digital social and find a influencer activations, we will return to TB across all major markets.

To evaluate maxing efficiency, we look at subscription lifetime value and customer acquisition cost.

Well there on seasonal fluctuations on a full year basis in the U.S. LTV to CAC ratio has been about five to one.

As mentioned earlier, we've had success in driving member sign ups with compelling longer tenured plans.

In the U.S. nearly 50% of on member sign ups. So far on 2020 chose a six month old Greta initial plan.

Absolutely, 30% chose a three month initial commitment and about 20% started on a month to month plan, which includes members joining in that via the Apple store.

Since we've introduced a two week free trial in the App store our conversion rate on these trials has been impressive.

And I suppose to sign ups accounted for 8% of our total U.S. sign ups in Q2.

We'll continue experimenting with free trial and other marketing channels as we look to attract first time members to W. W as well as repeat members.

It is important to note that during the free trial period. These trials are not counted as I have a sign ups all subscribers only upon conversion to a paid subscription all they counted as a sign up and the subscriber.

Looking ahead, we are confident in our digital transformation and our ability to drive long term growth through digitally enabled innovation.

In July we should that seasonally low volume period digital finest continue to trend my sleep positive year over year, which is encouraging as we approach helpful recruitment season.

Given the continued macro uncertainty we are not providing detailed subscriber revenue or EPS guidance at this time.

We would like to provide you with a few directional assumptions for your modeling.

Big spikes talk to three year over year revenue trends for digital studio and product sales to be relatively similar to the trends experienced in Q2 with strong growth in digital offset by declines in studio related revenues due to the reduced availability of in person.

Workshops.

As we resumed personally workshops swallow rightsizing our studio cost structure.

We have spikes or overall gross margin to be in that mid 50% Rage. Importantly, however, as we continue to move to a more digital subscriber base, we expect to deliver margin expansion over the longer time.

Well the interest expense is expected to be approximately 120 million.

And the Treasury Department recently released final regulations around guilty now committing companies to a likes to exclude foreign income already subject to a high effective tax rate, we noticed by top fold year 2020 tax rate will be approximately 20%.

We are highly cash generative business with strong liquidity, we have a covenant light that structure and our term loan and bond maturity dates are not until November 2024, and December 2025, respectively.

Our cash balance at the end of Q2 was 150 million and our revolver was undrawn.

We aspire to talk corresponds to increase during 2020.

We ended the quarter with a four times net debt to EBITDA, that's leverage ratio or three times levered on a first lien debt basis.

As previously announced in June we amended our revolving credit facility, increasing their commitments to 175 million from 150 million and raising the consolidated first lien leverage ratio to up to five times together, providing for significantly more flexible.

Access to liquidity.

Reducing our leverage continues to be our overall capital structure priority.

And in addition to investing in technology and digital product resources on talent.

We will continue to evaluate potential tuck in acquisitions of technology companies that can augment some capabilities.

We may also continue to buyback card W.W. franchises as you have seen in recent years.

In summary, we believe we are focused on the right priorities to maximize our churn offerings. While also innovating to drive future growth with that I would like to turn it back to Mindy.

Thanks, Nick.

Before I discuss our priorities and upcoming milestones for the remainder at 2020, I first want to address Black lab matter and the critical need for diversity and inclusion at W. W and in our society.

We have made it a priority to cultivate a wellness community a diversity and inclusion and while we are proud of the progress we have made over the past few years with our board our leadership team and our member base. We are greatly accelerating our effort and are taking further action that are both measurable and to see.

Annabelle.

Well highlight just a few of the actions we have taken we have donated 1 million dollar and are matching employee donation to several non profit organization dedicated to positively influencing black lives.

We will be spotlighting black on businesses in the W.W. shop, we have appointed ahead of inclusive leadership.

We have pledged to the CEO asking for diversity and inclusion initiative, we are creating new career and professional development program for a black employees as well as grading companywide educational programs aimed at eradicated bias and racism and we are requiring best practices in hiring to ensure diversity.

At all points, along the W.W. ecosystem.

When we released our impact manifesto in early 2018, we made our purpose very clear.

We inspire healthy habits are real life or people families communities the world for everyone to be the brand that truly democratizes wellness for all so it is up to all of us as individuals as an organization and its selling human to advocate for our employees our member and arc.

Indeed, and this is not an isolated objective, but one that will be in grain across every priority and initiative at W. W.

We are focused on technology driven innovation.

Data driven personalization at every step of the member Gerry.

Powering community and creating meaningful experiences at every touch point.

That align each of our 2020 priorities.

Further we will continue to build our wellness ecosystem.

They are app experience and adding further identification.

We're focused on our 2021 winter Lawrence and delivering a new and compelling programatic innovation as we anniversary My W. W. Our plans are exciting and will further our efforts around personalization motivation and weight loss success.

We intend to be recognized at the world trusted partner in total wellness and behavior change spanning nutrition activity mindset motivation hydration and fleet operating leading digital feature and tool to help our members include their overall health and wellness.

I've spoken to four of our next two priorities.

Amplifying the power of communities, who coaching and the importance of community deactivations events and create a contact.

I will speak to them, both together as our upcoming milestones and strategy for both of these priorities are very much intertwined.

We know that building berchtold community in an enhanced way is more essential today than ever before.

Building on the success and he insights on the open vision tour. The recent virtual experience and the evolving needs at today's consumer we ever find our plans for an entirely new digitally enabled community focused and coax wed premium experience specifically designed for a millennial audience.

We're on track to launch this new enhanced offerings in December.

A new group of coaches, well deliver motivation accountability and deep insight entirely virtual to help members along their journey. They will engage in live and on demand experiences and hear unique content was scalable modern digital platform.

Backed by science and human behavior psychology, this new virtual co centric experience will offer the tools and communities off by millennials looking for weight loss and total body wellness.

As we evolve and create more personalized offerings and build highly skilled coaching talent, we're focused on providing solutions to our member in the format and communities that fit their lives that whether they be digital in person or virtual studios to virtual cooked wet communities.

Or coming later in 2021, we launched one on one personal coaching offering.

In addition to our programmatic experiences we will continue producing original content events and experiences for all W.W. numbers as well as non members who want to join our wellness offering.

Looking ahead, we envision more opportunities to produce unique events, such as the virtual over to where that expand the reach of W.W. to audience is worldwide. He is a critical elements of our strategy as we look to diversify our customer base and maximize member engagement.

Ecommerce growth and consumer product expansion is a significant opportunity and as an integral part of our digital acceleration strategy.

We envision W.W. as the go to for all things weight loss and wellness acquired healthy eating healthy kitchen and healthy lifestyle.

We will achieve this vision by driving brand perception and positive associations within the mines, the consumer and by creating favorable interactions and memorable experiences.

Advancements our team has made to enhance our E. Commerce experience has been exceptional W.W. shop is no. Our primary channel for purchases. In addition to in studio purchasing with E. Commerce sales in Q2 of 300% year over year.

In addition to integrating the W.W. shop into our App in March we have been actively expanding our product lines and categories such as the launch of our movie time popcorn kit coming soon grab and go ice coffee.

The future like digital commerce marketplace will span three different branding opportunity.

We are fully W.W. branded such as our me bars frozen novelty he's breakfast streets and other foods is that.

Cobranded, where we partner with another brand to develop value add products such as pitching tool.

And curated product, where we highlight product that W.W. found for you.

We are focused on increasing the percentage of number, particularly digital members, who buy W.W. products and our testing a number of initiatives to increase awareness and incentivize first time and repeat purchases.

Thank you to only a small percentage of our digital member purchased products on the recently launched in App W.W. shop, demonstrating the significant opportunity found in just a modest increase to this penetration me.

In addition, we see opportunities through increasing frequency purchase and are exploring new ways to incentivize and reward repeat purchases.

That to be hearing more from us as we build upon or E commerce momentum.

To further development of the W.W. shot platform the rollout new more international markets exciting partnership a pipeline of new products and the opportunity to bring our products is significantly more W.W. remember we are positioning our consumer product portfolio for exponential growth in years ahead.

And finally hope to loosen and being the partner of choice.

Our goal is who W.W. health loosen it'd be the best in class digital health to loosen make W.W. accessible and affordable to a broader and more diverse population.

We believe healthy living as a human rights and we aspire to make wellness accessible to all not just a few.

We are actively evolving this business from being viewed as a wellness perk to being a powerful partner in health by working with organization to help their populations lose weight stay healthy and prevent chronic condition, we see a significantly larger opportunity in the years to calm the greatly accelerate growth and we did significantly larger university.

Consumers.

In the UK W. W is now a key partner with public health, England towards better health campaign to help people lose weight get active and better last week public health, England launch this adult health campaign to seize the opportunity for a national reset moment of health.

It follows research that shows that nearly two thirds of adult and you pay are overweight living with RBC among the initiatives under public Health, England plan is the expansion of weight management services under the NHS.

By more people with the support they need to lose weight.

And then the U.S. last week, we announced that W.W. How solution has been added at the new wellness and weight management solution to Cvs Health point solutions management, offering which serves million.

Joining the point solutions management platform will enable employers that you Cvs caremark for pharmacy benefit management, the access W.W. Hooker loosen, we simplified contracting preferred pricing and streamline eligibility and billing processing.

The new offering makes it easier for plan sponsors to add W.W. health solutions to their benefit packages.

Through the collaboration plan sponsors can offer their member W.W. digital offerings, which are accessible virtually anywhere meet members, where they are helping them along their weight loss and wellness journey.

Third by the Koby graces employers will need to take on a greater role in advancing employee health and wellness. In addition people are seeking out more virtual option I personally spoken with many health care providers recently, and they said patients often now prefer for consultation to be done virtually we are truly.

We're seeing a dramatic shift in consumer preferences, and one that I believe is here to say.

We are confident that we're focused on the right and not only to best serve our members today, but to position W. W. As a leader in delivering feeling in path who technology.

We know that good health and community are essential and having the tools to better manage your health should not be considered a luxury but in that city. We are focused on making W.W. accessible unbelievable to more people than ever before broadening our reach offering W.W. in new format and.

80, new engaging experiences that help members along their wellness journey.

Thank you for joining us on the call today and with that we will now turn the call to the operator puts you in it.

[noise] speakers you may on mute your launch we will now begin the question answer session. Possibly a question. You May proceed Star then one on your Touchtone phone, if you're using speakerphone. Please pick up your handset before passing the keys.

Well George Your question. Please press Star then to at this time, we will pause momentarily so some of our roster.

Well first question will come from stuff was missing with Jefferies. Please go ahead.

Thank you good afternoon, everyone I'm, Indiana two part question for you one it's really just to clarify you talked about a premium experience targeting millennial in the back half of the year is that similar to our aligned with the virtual coaching model or is that something separate that's more targeted towards that.

Demographic.

No that is that is separate so is a whole new vertical of membership that we will be launching now we are going to continue some virtual workshops for our workshop member, but this is a completely different vertical we are bringing in Asia.

New cohort of coaches, it's very content, driven and community driven and we're very excited we will be in between from a pricing perspective, our digital and our worksop membership, but I really think it is going to.

To accomplish to thing it will attract new audience you diverse audience, but it's also an opportunity to up sell from digital for those people, who want more accountability more engagement and more community.

That's great and then just one follow up for your neck and this is more just the Numerics question, but you mentioned that good July business has continued to demonstrate some nice acceleration it almost looks like your businesses defying the historic seasonal pattern can you talk a little bit about if you think through the back half of the year, how we should think.

About the than normal seasonality not waterfall effect versus what you're able to actually off that and making some ground relative to that historic trend.

Okay, great pleased with the a rebound and a growing nicely in that July also wish is important as we approach are a full a campaign.

Having a Q2 and of subscribers or be at a 5 million at all time high impact Q2, and no effectively a equaling a there that Q1.

Number also 5 million or was it was a very important achievement for us and so to your point on a seasonality locale last year's seasonality was pretty exceptional historically, a peak to trough declining drone yeah.

8% from Q1, two where yearend, but certainly our performance in Q2 and a you know the of the speed of that digital growth for subscribers up 23%, there's a very encouraging a quota.

Okay. Thank you.

Our next question will come from Lorne Council Morgan Stanley. Please go ahead.

Great. Thanks, So much my first question was just on on the real state. The color you gave what was helpful. But I guess, how should we think about what the right number of branded Geolocation. Then is long term and then ultimately what sort of savings do you think we can see there I think you know Twain 19, you spent a little.

50 million I'd, rather do that 20 or $30 million. There you know sort of ballpark what could be seeing and in 21 and then my second question is just around marketing spend in the back half of your you noted ever churn cat TV in all market, you're not fall I guess, you how should we think about marketing spend during the fourth quarters.

Yeah look in terms of the real estate a footprint you see that it's a very flexible. So we can nimbly adapt to a any environment you see is running the play concentrating our business in those W. W. Branded studios, where we can control the health and.

Safety a environment. So that's why was concentrated on those six 650 W.W. branded studios today and will only open those Oh third party studio apps selectively though in terms of the savings from that we're well on track to deliver a 100 million cost savings.

Plan. This is our plans coming into the here you know said before that about a third of that is a cost of sales, which would cover a rent that's a marketing and about a gene a so the rent savings are incorporated with those <unk> cost of sales savings, which frankly should be the more pod.

Oh 700 million not cost savings plan in terms of my things like you saw we under spend marketing.

This year in terms of Oh, you know what dollars spend versus last year, frankly, I think we published over.

Oh wait and sense of the efficacy in the wonderful marching up and so the team but forward, we deliberately slowed down marks and Q2, because the uncertainty of Cove. It going forward with the momentum. We have you can expect us to Tony continue to spend at levels that the momentum of the business.

That does.

Okay, and just a quick one one clarification is there an opportunity he more rent savings and 21 or do you think the vast majority of that it is going to happen in 20.

It really wasn't nimbly manage the business and a you heard me say, we've got a flexible a real estate footprint with 100 1989 net lease renewals.

No 2021, so no, but we're committed to no with this no small or a real estate footprint pretty committed to creating a fantastic face to face studio in retail a experience. So do we have a great opportunity to do that in addition to as many said for those areas that.

So why a face to face says studio continuing to offer vishal workshops tremendous.

Okay. Thank you so much.

Our next question will come from that from a Saab total with Guggenheim Securities. Please go ahead.

Yes. Thank you for taking the question I was wondering if you can give us some color on the characteristics of the subscribers that have joined in recent months, particularly around age and the mix a first time users versus returning and if there's anything to call out with respect to just the overall behavior and engagement levels of those cohorts relative to what you typically see on the platform.

Yeah, well, we had seen with its acceleration of.

Our digital membership is definitely a diversifying our audience. So as I mentioned about 51% of the number going or under 45 and that does a pretty broad swath. There. So that we are definitely.

And we've also been very focused in our marketing around diversity Influencers et cetera. So that's also a help in that regard now what we are theme is there isn't a dramatic differential between what people are doing based on the co.

Or but what we're excited about is we are seeing greater engagement year on year overall across all of our vertical and that's really because of the work that we got around personalization across you know nutrition fitness no fit on is up.

Personalized video fitness for you and it now things up with all our <unk> point.

And what we're seeing across and we're also seeing.

We.

Launch could neck loop, a while ago. So what we are seeing is people are finding their own cohorts that they want to interface with so whether that young mom College student Black women men et cetera, we have a lot more opportunity.

For integrated engagement and that is why our retention is where it is.

Okay, Great and then maybe just to follow ups that can you talk about how the pricing strategy has evolved here throughout the first half the year and you think about the launches that you have later this year in and what you're seeing in the market right now just what your approach towards promotional activity is in the second a 2020 any color there would be great. Thank you.

Yeah look at our pricing and promotions a strategy, it's been pretty constant.

Year over year over year, no idea when you look in detail it.

Numbers, you'll see a few things are pretty says is pretty stable price realization on the.

This little side for example, a in February we Ah we took a dollar of a price for on a new members are the sign ups and that's a factor there and look on the a studio site. A in addition to the impact of no offering a longer a longer term plans, which makes so much economic sense with.

Because it makes sense because they give a discount to get the the longer retention as you can imagine any cobot a environment with being a you know implementing various members say, it's a strategies, but overall no approved well promotion in pricing strategy is in.

Tax and working well for us the thinking like best in the quarter was the great results that were getting from the two week free trial and the Apple store and it really shows how the team is a innovating and try new things are great great way to attract new members to the brand and the.

Conversion from pre trial to a page that has been impressive.

Great. Thank you.

Our next question will come from Edward Yruma with Keybanc capital markets. Please go ahead.

Hey, good evening, Thanks for taking my questions I guess first what is retention been like on the on those customers that had entered through the studio product and maybe haven't been able to engage that physical experience.

Second I guess on the studio side when you have reopened I guess in some markets any commentary on behavior and then just one other quick one when when someone does a digital through App store I'm, assuming that there's a significant take from Apple does that change the economics of the product. Thank you.

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Like on the on the retention side, where it was thrilled that a retention is a overtime moms and as Wendy said that that's driven by the and engagement strategy on the studio side. It's helped tremendously that we introduce these beautiful workshops.

And our members find them convenient and our using Dan and and enjoying the terms of the Oh, absolutely, yes for those that digital subscriptions or where are you know what we pay a apple or a commission on those oh pricing strategy in the App store.

Comprehends that so the incremental margins on those sign ups or are a terrific for us and I'm, sorry, I might have missed the middle part of the question.

And no I'd I'd actually yeah, you Oh I'd be reopening studios when you when you have seen markets, where you've been able to reopen yeah any significant commentary on performance. There yeah. It's been really interesting because we really were not a hazard within sure what the.

We actually was gonna be once we were opening we put into place a scheduling tool because obviously, we can't have as many people there at one time, so we've had more meetings with less people.

And so people reserve and sign up and just in the first couple of days, we were sold out so people really.

The ones that really feel that they are cut their community and their codes are important have come back and have engaged just in smaller and smaller groups, but the next point, we've been very focused on the studios that we are branded own and operate.

It is and albeit we will have a smaller footprint that still cover a significant percentage of our member and our real focus is how do we make them more and more a destination.

Great. Thanks, so much does.

Our next question will come from Brian Nagel with Oppenheimer. Please go ahead.

Hi, good evening.

Hi.

Thanks for taking my question.

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First question I have it needs.

A follow up a couple of prior questions what could be.

The sequential trend in.

Prescribing it really remarkable how well Q2 was held up relative to Q1 in watching that normal seasonal pay because you look at the data.

What you how do you what gives you the confidence that this is.

Much more reflection of the wind efforts of W.W. versus some type work right now.

The corporate landscape.

It's definitely.

The work that we've done and the power of our trusted brand why people are really coming to us at this time.

You know if you think of all.

The innovation and what we've done over the course of the number here and really building out this entire ecosystem of support and that's what's made a difference. It's not you know we've been able now certainly to accelerated and we just launched hydration. We just one we are.

I mentioned before we are seeing a higher engagement year on year, we're seeing and were monitoring when people join as you remember you know what is their motivation and we are.

Equivocally, because were trusted where about sustainable livable.

Hey, if your change and they know that they will also have the support of community.

And that's been pretty constant and that's why it's been accelerating.

Your next Monday.

Then a follow up yet when the first off congratulations on their role.

Do you want to ask you are just maybe one final financial question before you had range over.

[laughter] just like we see talk about the longwall talk about the ongoing digital transformation W. W. Again include one successor, how should we think about the investments they're ongoing investment needed to continue were maybe potentially complete this transformation.

Well, let you know we've been investing in additional expense can continually and that's why we've got such a oh a market leading a award winning.

And digital experience now so you know that I celleration, if that digital first trashy is.

Very evident in our Q2 results, but it it's not it's not new and this is not that long term approach, that's enabling us now to rapidly become a technology expands completely go going going forward I don't see any change to the key tenets of the business model.

In terms of a low capex highly cash generative business model being the biggest change sort of business model as a mix shifts towards a richer mix official subscribers and you see this summer in our Q2 results with that 60% gross margin, you'll see us be versus you know where we were with.

Hi mix of studio, you'll see us be a lower revenue, but a higher margin complete and we've definitely got margin expansion opportunities with this strong digital mix and the higher revenue.

It's still a product that many you just talked about the well launching this winter.

Thank you very much.

Our final question, so that will come from Alex Fuhrman with Craig Hallum. Please go ahead.

Alex.

Hi, Thanks for taking my question, a nice to speak with you all I want to ask Andy about something that you didn't they prepared remarks, I think you'd said about 51% of the new members that that you signed up over the past few months have been below the age of 45 can you talk a little bit about how that compares to.

Well you normally seen over the years. It is that tend to be a number that has fluctuated over the years or had that generally been pretty constant and and can you talk a little bit about how much that might be driven by just didn't mix shifts with digital becoming a bigger part of the business. This year or do you also seen a changing your.

Your your incoming customer rate within the digital product.

So I think I think it's a combination of thing it definitely has accelerated.

As we have moved toward a more digital experience and the weight of sign up you know in this quarter on the digital side being so strong, but we really saw that sits there.

That's number one number two I think part of it is.

We've had a strategy to go after you quote cohorts and modernize the brand. So I think that definitely is is a factor as well.

And you know the biggest opportunity you know for is always word of mouth. We're community based business or you know in addition to having great marketing I also think that the digital marketing effort and social marketing efforts.

Over the past year has been fantastic. So I think it's a combination of all of those thing.

Great. That's really helpful. Thank you very much.

This concludes our question and answer session I would like to turn the conference back over to Mindy Grossman CEO for any closing remarks, well. Thank you everyone and while 2020, that's certainly won't be the year any of US had envisioned just five.

Months ago, I'd say the way our global teams quickly adapted to this changing environment and they were ready to reimagine anything and everything they do and more agile and pivoted to deliver the best experience for our members and that has been both motivating and inspiring.

And we continue to be focused on delivering coaching community creative content and thought leadership to our member in ways that our personal and authentic and by providing behavior change in human connection who technology. We can now truly deliver upon our purpose to inspire healthy habits for real.

Life for people families in the world for everyone. So.

So thank you for joining us today and I look forward to speaking with everyone again soon.

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

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