Q3 2020 WW International Inc Earnings Call
[music].
Good day and welcome to the W. W. International third quarter 2020 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask question. You May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Corey Kinger Investor Relations. Please go ahead.
Thank you everyone for joining us today for W.W. Internationals third quarter 2020 conference call at about four P.M. Eastern time today, we issued a press release reporting our third quarter 2020 result.
Perfect that this call is to provide investors with some further details regarding the company's financial results as well to provide a general update on the company's progress.
Press release is available on the company's corporate website located at corporate that W.W. Dot com.
Supplemental investor materials are also available on the company's corporate website in the investors section under presentations anything.
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 Companys filings with 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 todays call are Mindy Grossman, President and CEO, Nick Hotchkin, COO, India, Keith CFO I will now turn the call over to Mindy.
Thank you Corey good afternoon, everyone. Thank you for joining our call today, our accomplishments throughout 2020 as we continue to navigate through an unprecedented environment has been a testament to the strength and resilience of our brand and business model, our ability to be agile and innovate and he is.
<unk> no work of our talented and passionate W.W. teams around the globe.
This was further demonstrated in our Q3 results despite the negative impact of Cove it on our studio revenue.
We grew digital subscribers by 23% with strong growth in every geographic market.
This accelerated digital growth enabled us to achieve your on your comparable operating income levels and EPS growth. This.
This performance highlights our leadership position as the most effective and trusted partner in weight loss and wellness are high margin digital business model, a great degree of flexibility in our cost structure and our uniquely talented W. W. T.
W. W is a technology company, having offered digital solutions to our members for nearly two decades.
Today, our digital platform powered by our unique App delivers a truly differentiated tech enabled member experience.
It is the foundation for all that we do in delivering a robust and impactful wellness experience to members globally.
All W.W. is 4.7 million members utilize our digital platforms with over 80% of our members being digital only and 20%, having both digital and workshop, whether virtual or physical access.
As a direct to consumer digital subscription business, we're constantly innovating on behalf of our members' needs with constant new releases in our App that are informed by data from our members interaction, which gives us the ability to generate improved and personal at the W. W experience in real time.
Cobot did not slow down or W.W. transformation in fact have accelerated our strategy. When we identified the critical need to find a virtual solution for our global workshops, we executed that shift in six days yeah.
The investments that we have made in our technology platform and our talent across the company and able to us to be nimble and agile and ensure that we were supporting our members with what is so important to them community, which is more critical now than ever and is also a key lever for both member acquisition and rich.
Attention.
It also enabled us to reduce our studio footprint, including the associated costs.
And focus on what we believe will be a different workshop experience of the future.
We launched E commerce in or at mid March which was already planned pre cobot.
Given the studio closures, where most of our products sales took place we were able to partially offset the impact and have seen sales to our ecommerce channel called 300% in Q3.
Member penetration grew up in the triple digits and repeat purchases grew in the double digits.
We also continued to accelerate the transformation of our W. W. How solutions business and we re imagined events and experiences for a virtual world.
Most important we continue to innovate and expand our reach in addition to reaching our W. W. Members, we intend for W. W to be the healthy living brands of choice for everyone.
We are greatly expanding our consumer products portfolio for both E Commerce and other distribution partners as we position the W.W. marketplace for exponential growth in the future.
As you recall, we are building out a robust marketplace across healthy eat healthy kitchen, and healthy lifestyle, which will include a range of products, including W.W. branded products, such as our new grab and go coffee co branded products, such as our new W.W. by Dash line and a variety of.
Curated products that are relevant to our members.
We are advancing our efforts through integrations with other leading technology platforms, our collaboration with Amazon with their launch of Amazon Halo provides consumers with the latest in health and wellness technology, demonstrating our shared commitment to offering consumers sides fact cutting edge tools.
We recently announced our collaboration with him becoming their health partner for the launch of arms in an online events platform as well is that an in app marketplace, which is coming soon these new experiences will bring the W.W. brand to life in new ways to millions of new users.
With helpful and engaging content and reminders to build healthy habits.
I'm pleased with all of these investments as we continue to broaden our exposure to new and different audiences.
We're also on track to deliver new and exciting W.W. innovations in Q4.
We will be building on the success of my W. W. With our newest and most comprehensive innovation outside the food innovation with the launch of my W.W. plus.
This is the first time, we haven't significantly new Tech driven program innovation focused on all of our pillars that we know have a measurable impact on weight loss and wellness Seth neutral.
Nutrition fitness mindset and sleep will be more personalized backed by AI and machine learning. The App will provide more insights features tools and value added content all informed by consumer demand.
My W.W. plus we'll be rolling out to all members globally in November and will be the centerpiece of our winter marketing recruitment campaign, which I will speak to later.
In addition to our new program innovation, we're also innovating across all of our membership tears and we are launching a totally new membership tier which will allow us to reach new audiences.
Digital membership will be enhanced by the launch of my W.W. plots and will continue to be the core foundation of all membership tiers.
Coming in December in the U.S. and the UK, we will be introducing a mid tier entirely new experience called digital 316 in prior calls you may have heard me refer to this as virtual coach led communities.
Digital Threesixty builds on the learnings and success of Oprah's Twentytwenty vision tour and as a premium coaching experience with always on accountability through live and on demand content.
The new generation of coach is relevant to millennials anywhere experts it digitally delivering engaging and inspiring content rooted in nutritional and behavior change science digital Threesixty will build community in new ways for a new audience.
We see this as an opportunity to both attract new members and give our digital members the opportunity to upgrade to a more immersive experience. This will be rolled out to all markets.
In spring 2021.
Digital plus unlimited workshops will replace our digital plus studio tier.
Building on the success of our virtual workshops, we will now be able to diversify our workshop offerings beyond the limitations of a geographic location.
Members, we'll still have the option of a physical workshop that they will now also be able to choose unlimited virtual workshops with the optionality to choose a coach cohort. The lifestyle group is similar interests or time of day, that's best for them for.
For example, we've already started a black women virtual group with over 200 attendees per workshop and are building on the learnings of these workshops to create additional cohort groups such as Spanish speaking groups and life stage cohorts that meets members unique needs.
Launching in winter the revamp digital plus unlimited workshops, offering will provide W.W. members, who want the workshop experience with more flexibility and convenience than ever before.
And to further deepen our personal interaction with our members who want additional guidance and support later in 2021, we will be relaunching, our personal coaching platform, which will deliver enhance the one on one virtual accessed with W.W. coach with a more customized and personalized.
And support.
Dark I like many of you listened intently to the February earnings call learn more about the incredible remember response to my Ww the strength of the marketing program. The enthusiasm found on tour and the strong recruitment momentum across all global markets.
All of this was extremely attractive as was the high gross margin and cash generation of of direct to consumer subscription model.
Then as the COVID-19 situation unfolded over the next several months I was able to watch the company perform and respond in a time of crisis.
As a ww remember myself I knew Ww was well positioned with technology to be responsive in a remote environment.
But I was extremely impressed to see how quickly the company responded by launching virtual workshops to address members needs and then the second quarter with a record number of digital subscribers.
And of course as a CFO I was pleased to know that the company immediately took a hard look at it fixed costs and took action.
In short order the company put a plan in place to reduce its 2020 cost plan by $100 million.
Reduce the real estate footprints and rationalize head count <unk>.
Flexibility and cost discipline will continue to be key in our business planning going forward as we aim to transition to even more of a variable cost model.
Turning to Q3 performance.
We ended the quarter with four 7 million subscribers up 5% year over year at a record level for the end of Q3.
Member recruitment trends for digital continue to be strong through the third quarter driven by continued nimbleness in our marketing strategies as we adapted well to ongoing shifts in the consumer mindset and demonstrated how ww not only delivers weight loss, but as part of a holistic approach to bettering health we.
Ended the quarter with three 8 million digital subscribers globally up 23% year over year in.
In Q3, nearly 90% of members sign up chose our digital membership up from approximately 70% in 2019.
As we expected workshops subscribers or studio plus digital were down 36% year over year, two 850000 due to significantly lower member sign up as a result of the pandemic.
As discussed previously we anticipate that this overall trend will continue to pressure or workshops business going forward as in in person gatherings remained limited.
We are right sizing the cost structure of our workshop business in response to this trend, while ensuring a high quality remember experienced via virtual workshops.
Member retention continues to be very strong at an all time high of over 10 months.
Revenues were down, 8% or 9% year over year on a constant currency bases to $321 million.
Digital revenues were up 21% year over year on a constant currency basis.
Consistent with the outlook provided in August the strength was offset by the anticipated declines in workshop fees and overall product sales as a result of Covid pressures.
A year ago digital subscription revenues were roughly the same size as our studio plus digital fees fast forward to Q3 2020 digital subscription revenues are now two times studio and are growing in each of our geographic markets.
Adjusted gross margin of approximately 60% in the quarter was up over 350 basis points year over year.
We are intensely focused on right sizing our cost structure for the new operating environment and shifting to a more variable model. This strong cost focus combined with the mix shifts to our high margin digital subscription business, where digital gross margins work over 80% in Q3 provide us <unk>.
It would foundation for expanding gross margins over the long term.
In Q3, we delivered adjusted operating income of $95 million matching the year ago quarter operating income despite lower revenue demonstrating the impact of our high margin subscription model.
Our gap EPS in Q3 was 78 cents compared to 68 and the prior quarter Q.
Q3, 2020, EPS was positively impact by nine cents in one time items.
Unusually low tax rate of 13.6% in the quarter was due to a catch up benefit from the updated regulations around guilty permitting companies to elect to exclude foreign income already subject to a high effective tax rate.
This reversal benefited EPS by 11 per share. In addition, EPS include a two cents per share negative impact from our organizational restructuring.
While we have confidence in our plans given the continued macro uncertainty, we're not providing subscriber revenue or EPS guidance at this time, but we would like to provide you with a few directional assumptions for your modeling.
On the top line, we expect the overall trend that we saw in Q3 to continue in queue for with strong growth in digital offset by declines in studio related revenues.
As usual our queue for gross margin will be impacted by program launch costs and training.
A reminder, that fiscal 2020 includes a 53rd week, which bridges. The last week of December 2020, and ends on January 2nd 2021.
Due to the heavy marketing activity during that week, we expect queue for marketing spend to be approximately $15 million higher in Q4 versus the prior year quarter.
We continue to take Swift and deliberate cost action and we are on track for the $100 million cost savings plan that we announced in Q1 as a result, we are increasing the estimated expense of our previously disclosed cost savings initiatives to 22.5 million.
Up from a $14 million estimate previously provided to.
Driven by a strategic cost reductions to our global studio operations to adjust to anticipated consumer demand.
Full year interest expense is expected to be approximately $120 million.
We continue to expect our full year 2020 gap tax rate to be approximately 20%.
Which implies in approximately 26% tax rate before restructuring charges in queue for.
While we're not providing guidance on 2021 at this time or intent for the upcoming winter season is to maximize recruitment opportunities across all membership types.
We expect the subscriber mix shift and declines in studio subscribers will result in in approximately $50 million full year revenue headwind in 2021.
In addition, a reminder, that Q1 2020 also had a $16 million revenue benefit from Oprah 2020 Vision tour, which was fully offset by tour related expenses.
Ww is a highly cash generative business with strong liquidity, we have a covenant late that structure and our term loan and bond maturity dates are not until November of 2024 and December of 2025, respectively.
Our cash balance at the end of Q3 was $204 million and a revolver was undrawn.
We ended the quarter with a three seven times net debt to adjusted EBITDA ratio or two eight times levered on our first lien debt basis.
Reducing our leverage continues to be our overall capital structure priority.
In addition to investing in technology and digital product resources and talent, we will continue to evaluate potential tuck in acquisitions of technology companies in.
In addition, we are seeing good opportunities for acquiring franchise territories. Just this week, we acquired the Arizona franchise and are in discussions with several other franchisees.
In summary, we believe we are focused on the right initiatives in areas of growth to fuel longterm profitability.
I will now turn the call over to Nick to talk about these areas of growth.
Thank you Amy I can speak to put everyone is ww when I say, we are thrilled to have you on board.
Oh, I am focused on global performance with coordination collaboration and execution across all markets as well as cultivating gross vehicles, such as Ww health solutions and E Commerce.
Looking to winter we are building on the success of a proven my Ww food program, making it more personalized across the key pillars of nutrition activity mine said I'm asleep.
In support of the new might Ww plus program almost comprehensive known food innovation to date, we will be launching a deeply enriching or interactive and personalized to end up experience for all members.
An additional took pictures and all new Crystal assessment, which will match members to the truth plan and the membership type right for them might Ww plus will deliver personalised content along that journey.
Followed by a smocks personalization of platform that user's machine learning.
To identify the preferences of each unique member so the more you engage with the content and pieces the mall might Ww plus will deliver the meal planning and recipe recommendations that are relevant to you.
This capability is an important breakthrough in personalized program leveraging predictive analytics, we believe my Ww plus will help lead those be even more successful because we will know them better and inspire healthy habits across all pillars of weight loss and wellness.
In addition to the new personalized assessment mice, Ww pluses and preaches will include a new Personalised my dashboard in the App improved goal setting and progress reports and the other end of the new features.
Ww is the leader and clinically proven sustainable weight loss in management due to Ah unparalleled expertise and behavioral science.
Science team led by Doctor Gary Foster was deeply engaged in every aspect of the developments of my Ww plus from the questions and the personal assessment to each feature focusing on the behavior change techniques and strategies that have proven to keep members motivated.
Aged and successful on the wellness journey.
As Lindsay mentioned this winter, we will have a comprehensive relaunch of us digital plus jujo business, which will be called digital plus unlimited workshops, while we will continue to offer impersonal Ww workshops in Australia goes virtual workshops expand our workshop.
Offerings beyond the limitations of studio drove it darker gray.
Bring more flexibility.
Before and.
In the US live face to face spiritual workshops will be held 16 hours a day seven days a week with multiple sessions occurring simultaneously at peak times led by a selection of coaches, who are especially talented and trained to deliver in engaging virtual workshop experience.
<unk>.
Special workshops have proven to be especially fond of engaging driving word of mouth endorsement by our members and that's why we are relaunched workshops globally. This winter focusing on a convenience and believe fiscal position is to maximize this vertical in 2021.
And beyond.
We continue to manage us studio real estate footprint prudently to demonstrate at you and and the US we expect to have approximately 650 Ww branded studio locations with that footprint augmented by approximately 200.
50 hotel locations, which are proving to be a great new venue for our workshops. This highly flexible footprint of studios and schedule ads will be within a 30 minute drive of 80% of our members.
As a reminder, at the start of the year, we had approximately 800 studios plus 20 303rd party.
Workshop locations importantly, we are considering to meet a memphis needs, while significantly reducing our real estate footprint.
To make a real estate, even more flexible we continue to explore partnership Hulk Attunity and this winter, we will be piloting ww wellness hubs six Cvs retail stores.
Consumers can learn more about W. W and members can drop by for wellness check ins and one unwanted coaching sessions. This real estate strategy helps us nimbly manage our cost structure and in addition, virtual workshops have a margin profile that far exceeds.
Persons Soochow model.
As many mentioned in December we will also introduce an all new membership tier digital 360, which will feature an on demand always of experience through a coach content and community centric experience delivering what they want when they want it this.
360 members will have access to exclusive and that coaching and premium content hubs designed specifically for millennials. This more modern experience for a new and younger audience separate from our existing membership has has been created by the same ww team that produced a high.
<unk> successful Oprah's 2020 efficient tool and our virtual tour experience.
In addition to unique lines and don't demand contents coach coach there will be additional exclusive premium content for this new membership too which will include a wide variety of motivational and inspirational stories podcasts video series and unique events.
In December we will introduce this new tier in the us and the UK with plans for a full launch globally in spring 2021.
Digital 360, as an opportunity to upsell current digital members as well as reach new audiences.
Looking to 2021, we have confidence in a differentiated program marketing technology and growth drivers. In addition to amendment recruitment and retention. We will also focus on realizing growth opportunities in areas, such as WWF health solutions and E Commerce.
And Ah Ww Health solutions business, we are seeing strong engagement, among our clients and member retention as as in the all time highs.
We recently partnered with CBS to add W. W. Two it's point solutions management platform, making it easier for employers and plan sponsors that uses Cvs caremark full pharmacy benefits management to offer Ww two employees.
In addition.
Seeing that well talk who has relationships with the nation's leading payers employers health systems is adding ww to that connect ecosystem, which allows clients to conveniently select from mature rated list of programs and resources.
Our goal is to be the best digital health solutions for organizations to help that population is lose weight stay healthy and prevent chronic conditions that.
The date health solutions contributes approximately 50 million in annual revenue, but the opportunity is much greater looking to 2021, we will start building momentum through initiatives, including aggregator or channel partnerships targeting mid sized employers and.
Physician referral and expect strong revenue growth in 2021 with accelerated growth potential in 2022 in the years ahead.
Consumer products represents a significant growth opportunity for Ww.
The advancement sought team has made to enhance our comments experience have been exceptional and our strategy is working and while early we are seeing strong signs of sustainable long term growth recall, we only added ww's shop in the afternoon launch and while already 10%.
Of our members are discovering and buying Ww products.
We clearly have great growth opportunities, both in 2021 and in the longer term and consumer products.
Excited by the opportunities in front of Ww and believe we are focused on the ride initiatives to fuel a longterm growth and with that I will turn it back over to Lindy.
Thanks, Nick.
I would like to know provide some commentary on our winter lunch and marketing plan share details of the newly launched healthy living coalition and reinforced our priorities for 2020 and beyond.
It is clear that the world needs W. W more than ever.
We have been living in a covid world, where we are constantly reminded that needs to be our number one priority.
C. D. C. Recently officially confirmed what we have known that obesity worsens outcomes for COVID-19.
In that statement the C D C highlights to being active and eating a healthy diet can support optimal immune function and help prevent or manage chronic diseases that works and outcomes from COVID-19.
The days of wellness being considered a luxury R O y.
<unk> is a necessity.
The global pandemic is elevated the critical need for the democratization and accessibility of wellness for all.
People are going to a radical reappraisal of how they live how they work and what they value at one in their life.
It is critical that we support motivate educate inspire and meet our members where they are on their wellness journeys.
Consumers wanted to be healthier and they're looking for a trusted partner with credible science.
Community of support and the tools and techniques that will help them to build a foundation of structure that is livable and sustainable.
The launch of my W. W plus will provide consumers with all of this and more.
We will launch a multi platform campaign, focusing on this new experience and highlighting a diverse range of consumers and creative assets that will engage in a trap existing laps and new audiences.
I went to marketing will feature Oprah Winfrey, who is the ultimate motivator.
Had a great passive member ambassadors all of US have had great success on W. W.
We will also be including Sierra our newest ambassador like embraced it W. W program and lifestyle.
Yeah, right is a Grammy award, winning multi platinum singer and songwriter made her debut at the W. W. Investor in late September following the birth of her third child.
Sure her wellness journey as a new mother of three help educate others and had cancer themselves and inspire them to live a healthier lifestyle.
The winter campaign launch on December 26, and we are excited to bring my W. W to the world.
At W. W. We believe that help you living as a human right and that everyone deserves access to basic nutrition.
Our global a promise is to help those in need and continue our commitment to democratize wellness.
But we also recognize the power of collective impact and on October 16th.
Now the healthy living coalition and a lion's for action and solutions focused on improving food systems, and helping clothes nutrition gaps that disproportionately impacts underserved communities.
We launch with 18 powerful private and nonprofit sector partners, including J P. Morgan Chase Bank of America Beyond me right Health Panera bread, the vitamin Shoppe Oak view group, the American Diabetes Foundation, and feeding America amongst other purpose driven organizations.
We aim to activate 100, new corporate voices and resources in the first year towards shared solutions and calls that tackle this crisis.
These private and nonprofit sector leaders alongside experts and voices from business science local communities will join forces to drive progress under the United Nations Sustainable development calls with a particular focus on it's called a zero hunger and good food for all.
Last year, an estimated 25.9% of the global population experienced moderate to severe food insecurity and the current crisis will only exacerbate. This further.
We look forward to galvanizing this powerful group to collectively impact the help trajectory of the world and deliver on our mission to inspire healthy habits for all for people family communities the world for everyone.
At W. W. We have built a smart personalised wellness and weight loss platform that provides our members to content coaching community core program and commerce needed to build healthy habits for life.
Our app delivers immersing tools and experiences that create engagement and success for members our science works and our brand is trusted more than ever at a time when trust is a critical factor in consumer choice.
Unity continues to be the cornerstone of Wdw and we are providing even more opportunities for people to fine and engage with the communities that are right for them and connect with others striving for the same goal.
<unk> will be available across all platforms and new ways with a diverse group of motivators and educators, providing the level of support that's right for you and program will be personalised and delivered individualized content.
Both are direct to consumer and our W. W. How solution business.
Which gives us access to employers providers physicians in pairs give us a significant opportunity to grow our base and our expanded marketplace will provide it curated assortment of food kitchen and lifestyle products that can help everyone build and sustain healthy habit.
We have invested in our transformation to truly become a technology experience company with a human approach built on the power of community to help consumers achieve their wellness and weight loss goals are high margin digital subscription business model flexibility in our cost structure growing retention and engagement.
Multiple paths to grow and highly talented team are cornerstones of W. W. And we had the right strategies in place to maximize our opportunity with that I will now take your questions.
We will now begin the question and answer session to ask a question you May press start then one on your Touchtone phone.
You are using a speaker phone please pick up your handset before pressing the keys.
At any time you question has been address and you would like to withdraw. Your question. Please press Star then too at this time, we will pause momentarily to assembler roster.
Our first question comes from Lauren Cassatt was born Morgan Stanley. Please go ahead.
Great. Thanks, so much lots of exciting innovation to come of it over the next few months, which should add tremendous scientist subscribers that gets how are you thinking about changing if at all the pricing architecture of the different subscription tears in in the reworked studio offering and then physically where do you see the pricing of the.
Digital 360 offering in the U S. And then one for neck, the real estate I I think it was really helpful. How should we think about what the footprint looks like one year from now is is 650, the right number of branded studios or do you think there's there's for the room for consolidation there. Thank you so much.
Okay to your to your point, we are excited about the my Ww launch really is the marketing vehicle to bring people into the right membership tier for that so I think that way you can think about digital 360, and we're finalizing all pricing testing right now it will.
Sit as a mid tier in between our.
Digital and are.
Unlimited workshops in digital business, but we're we're finalizing exactly but that's how you can think about it and then when we launch the one on one coaching platform in 2021 that will be at a higher tier because it's very high.
One on one individual coaching.
And look at least.
Studio footprint side.
You too as aggressively managing the cost structure that business. So entering Windsor was 900 locations in the United States 650 brand at the studio soon.
250, hotels, which I think are great New Avenue.
It does not not least the social distancing, we can have more people attend in a hotel setting that total 900, probably done on about 78% locations in the US where we started the year you ask.
2021 footprint, we have roughly 190 no lease renewals in 2021, so we have lots of flexibility to continue to manage our cost structure and continue to meet numbers so wet weather.
80% of the United States population with this much reduced studio footprint and obviously supplemented by.
Visual workshops available like never before more convenience more flexibility six hours a day seven days a week. So people can attend additional workshops too.
Great. Thank you.
Our next question comes from Steph with sync with Jeffries. Please go ahead.
Thank you good afternoon, everyone and the first question for you. It's just on the test the digital 360, what are some of the things that you've learned W.
Tinkered with that experience.
And then Amy a question for you I just want to go back to your prepared remarks, I'm marketing expenses for the fourth quarter I know you talked about the 53rd week, specifically, but how should we think about the baseline marketing investment I'd, just giving them Mindy has shared about some of the plan. Thank you.
Sure what we've really found the digital 360, and I would say yes.
Yeah.
<unk> for millennials by millennials right and a core attribute of the program are really coaching content and community, but in a 24 seven always on demand platform.
And we've seen really high engagement and this is a new suite of coaches all up.
Are there any geared towards a digital content on demand platform and to have their own social and digital followings to engage recruit and certainly retain members.
Members will have the opportunity to engage with multiple coaches, we have coaches, who are in fitness and nutrition and mindset and meditation. So there's really an opportunity to be able to really have that on demand personal.
Alrighty and in addition, the my Ww plus platform, which is the basis of all our platform has a very high level of personalization.
With utilization of AI to really make the experience for you. So the combination of that to us is exciting and the digital 360 platform.
And that combined with our new virtual platform allows us to really reach new audiences.
As it relates to week 53 marketing as I mentioned in my comments, it's an unusually heavy week of marketing and so we wanted to make sure that you were able to adjust your modeling accordingly.
In my view, the underlying spurn, excluding the impact of of weak fifty-three will be about flat to queue for a 2019.
Thank you.
Our next question comes from Jason English with Goldman Sachs. Please go ahead.
Hey, good evening folks.
I appreciate it.
Okay. So.
So a couple a couple of quick questions first on the median subscriber.
Not surprisingly where it was seen continue.
Continue to drop off of subscribers given the situation out there I'm curious what percentage of those who fall out of the program are picking you back up on the digital only offering.
Hey, Jason Snake delicate, we don't really see much switching I mean the.
Offerings.
Different most people that light that immersive ww.
Cushing is groups and workshops.
Tend to stick with it so.
No more than usual I would say that what's driving the digital growth is people choosing ww.
Digital and.
Award winning.
Whether you're winning.
So the number of people who are transferring from studio to digital is a very small proportion of the folks choosing ww digital but one thing we have seen and I think why we have our retention still at an all time high is because we have.
Great degree certainly have our studio numbers now in the virtual workshops, but what the big opportunity is is to really relaunch are all assets workshops and build new new cohort framework set aren't restricted by G.
<unk>.
So we're able to really bring lifestyle cohorts coach cohort and others together and in the initial tests that we've had really great response and feedback terrific opportunity to win back still sort of workshop members absolutely.
Oh, Yeah, you guys have a lot of different programs coming to market I guess back to the question. An earlier question that came out earlier about pricing architecture, you mentioned, you're you're launching digital 360 somewhere in the middle of where the others are I think to my years from Rosemary from all your.
Kind of have like a four tier offering digital digital 360 meaningful institutional and personal coach correct me, if I'm wrong on that but as you locked more premium I guess are you are you are you contemplating pushing down the digital access or the visual only price point any changes to be to be mindful of on those components yeah.
What we're seeing is if you just think of the value that we have added into our digital platform in the last two years and now with the launch of my Iww plots being extremely personalised an immersive.
We really feel the value is certainly there and what's interesting I think you know we had mentioned that for the first time we had.
Offered free trial in the App and I think the reason we are converting at a very high rate is people are recognizing the value of glassware, providing them.
And where do they Trinity up too sorry.
And what percentage of those people, who are taking the free trial or actually converting into a page Oh gosh.
Any generally close to 60%.
Well that's great yeah.
At night.
A lot of it is giving people the opportunity to really experience us as.
As to who we are today and what we have to offer and I think that's really been an asset.
[noise] itself. Thank you guys I'll pass it all thank you.
Our next question comes from Brian Nagel with Oppenheimer. Please go ahead.
Brian Hi.
Good evening, Thanks for taking my questions.
Congratulations on all the initiatives.
So I had a couple of questions.
A short term, Oregon, something worse future the short term.
I think I also need someone last quarter as well, but if you look at your numbers and particularly they there'll be impressive grow from the digital subscriptions you saw here the third quarter, Here's your waited course, Audi Covid crisis.
Is affecting those numbers in any way or was there some type of Covid factor and then the second question I have just with respect to put in your new initiatives, particularly that digital 360.
As you think about now and as soon as you've done your initial testing yep.
Recognize minutes early bird is this do you think this will be more bay.
Tool to allow you to really cater to a larger consumer a larger tank I'm, a new customer or is it more is there a piece of it that's gonna allow you to go.
Further do you to existing customers a baby on the retention side. Thanks.
Brian.
Impressive.
So.
Both.
I think it's sustainable based on.
The best.
Conditional product spiritedness of the wonderful features.
But we've had and so with what we're launching in the winter.
It is so wonderful.
My Ww more personalized approach with innovative feature.
I think our growth will be driven by what we do in the pieces, we add in the digital experience. We provide now look certainly people learn of Covid will need health and wellness more than ever, but I think our growth as being propelled by the wonderful product we're providing.
We are also seeing of that digital.
Membership growth, we're seeing a skewed too.
Younger audience. So we're already seeing that in the digital growth and to the question.
The 360, we see two opportunity, we definitely see an opportunity for new customer acquisition, particularly around the younger call Howard Court, but we absolutely see the opportunity for a digital member to be able to upgrade to a more immersive experience that gives them a different level.
Of accountability, and we will be marketing that and giving the ability for our digital member.
To have an experience to be able to get down to upgrade so two different opportunities.
Well, thank you very much.
Thanks.
Our next question comes from Linda Bolton Wiser with da Davidson. Please go ahead.
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Hi, I'm kind of a question on the numbers last quarter, there was a fairly big gap between digital subscriber growth of 23% in revenue digital revenue growth of 15% fairly big gap there that gap is still there, but it's more narrow this quarter with 23% digital.
Sub growth and digital revenues up 20, 21% can you explain why that gap has narrowed his the end is the difference because of promotions that you're using but can you just kind of explain why those numbers come out the way they are thanks.
Locate look focused on using the right.
Pricing and promotions.
No absolutely.
He's with our price realization, particularly on the.
Digital side.
During during during Q3, so I think it's just really continued.
Strong performance to provide the.
Strong app and.
Types of market.
Thanks, and then can I just ask you know with with people staying at home more there's been trends with more cooking at home do you think that that is benefiting your weight loss program versus other programs that involve sale of food.
Well.
We had one of the number one engaging aspects that our members are loving in our app.
Our extensive food recipe and database and actually we implemented within the at the ability to.
Search across any kind of dietary food and it will create the recipes for you it will create.
More and both tracking fitness and overall engagement is very very high. So we do see that people are looking at us for those cooking tips. We also see it with our instant grandma's cooking classes and things like that what we're excited about is one of the new.
Customized.
By Ww plus takes that even further and actually will personalize your meal planning your recipes and based on what you even have at home.
If we could just coming back a little bit more detail on your initial question look.
Digital retention is fantastic as easily as good as studio retention. So the fact that people join us on digital and the state for more than 10 months then.
Beauty of the flywheel of a subscription business into three we got all the revenue full quarters of revenue from the people that joined those in queue to select thus part of the dynamic also.
Thank you very much.
Our next question comes from Edward you rumour with Keybanc capital markets. Please go ahead.
Hi, Thanks for taking the question. This is Katie O'brien on for Ed.
HM.
Hi, historically digital has had very high contribution margins approaching I believe 50% how about the new AI part offering and the more premium personal coaching program compare.
Well My Ww plus is is the program that is integrated into the core digital program.
Everything we do so that's not really about margin that's a bad experience or digital margins. Obviously are very very high and we will continue to be so.
Actually.
Digital 360 being primarily digital is also a high margin and now with the addition.
Unlimited workshop.
With Cigna.
Significant portion of that being virtual which also has higher margins, we think the blended.
Opportunity to continue to drive higher margins over the coming.
Months years et cetera is certainly significant.
Great. Thank you.
Our next question.
Question comes from Michael Lasser with UBS. Please go ahead.
Hi, This is Mike Schwartz on for Michael after Thanks for taking a question.
Question is when will studio subscribers in North America stabilized and do you think it can happen without changes in the underlying virus backdrop.
So the way I I'd like to kind of express that is we are looking.
At the entire digital plus.
Unlimited workshop cohort as one okay.
As Nick said are going to be very very diligent and what that footprint will look like certainly putting safety and security of all our members first but making sure we not only give that an option, but that that virtual option is for new members to want to come in and have an.
And the second thing is we will continue to look at other options for where we would have those face.
Face to face workshop experiences, where we don't have the overhead costs is Vic mentioned will be taking a hard look at that going into 2021. So we're looking at as a more holistic workshop members strategy going forward.
Like if you looked about 20.
Performance on the heels of those wonderful lunch of my Ww was a business was firing and also those including a studio really nicely until covid.
So obviously that's a.
Five years, we looked into two four.
And and.
Q1, but I think you've seen the Q3 result.
But with 80%.
Subscribers being fully digital and that products, having 80% plus gross margin and growing nicely.
That's where the.
Golly creation until the company is in the past growing high margin digital subscription business and of course, we'll look to maximize opportunities for a workshop members too.
Thank you and as a quick follow up under your expectation of a continuation of top line transit in the fourth quarter realistic.
Profit dollars is there blood.
Well I'm looking into queue for as I mentioned in in my comments, we expect the revenue trends for both digital and studio to remain about the same from a margin perspective, we do tend to invest a bit more in.
Product launches and training in queue for so I would expect.
Sequential margin from Q3 to queue for to be down slightly.
Thank you.
Our next question comes from Olivia tongue with Bank of America. Please go ahead.
Great. Thank you good evening, what's your these new program sounds really interesting. So I just want to understand your view on the margin profile.
I can tell that this middle tier, which will coaching and then the the the top tier the one on one because obviously, there's some incremental expenditure with that as well so.
Uhm Studios like 40, and digital 88.
Is 360 like 60, and one on one is a bumblebee or you know just if you could help us out under help us understand the margin profile of the new program.
Yeah like I say.
Good good question and obviously.
Will.
Look forward to launching their products in the winter and seeing the uptake, but yeah look with a digital.
Gibson margin.
80%.
Or to possibly a studio modular historically 40 less less less today, that's why we're moving hot too aggressively right side of the cost side look clearly, what we're launching this'll workshops and digital 360.
Digital.
Products and so you can expect those margins to be more akin to a digital subscription.
No margin.
Obviously, some rich content community and coach leather experience so.
I would expect the modules of those businesses to be.
In the middle of a probably closer to a digital them studio because of the characteristics of the.
So products.
Alright, Thanks, and then Amy nice to meet you first I want my name's Janine too.
Sort of your approach on on guidance going forward.
You know that.
You know because of the macro conditions and what have you that there are some guidance right now.
So.
Is it more of a function of you know like.
As long as Covid covered here, you're probably not going to to guide for the whole year because of the lack of visibility or is it.
Or is it something else and then you obviously despite the lack of guide you did give a lot of color into queue for between suggest a fairly.
Sizable downshift and and P. S.
That could be spending.
But as you think about you know to go forward just kind of curious if there's anything else that we need to be mindful of sort of thinking about the school 21.
You want to see Avalon programs too. Thank you.
Understood as it relates to to guidance.
In this period of uncertainty I think it was it was prudent for the company to withhold guidance.
We continue that practice for Q4, well, we'll certainly reevaluated at year end on the February call, we're headed into the winter marketing season, we're headed into.
A very active subscriber period, and so we will definitely revisit.
As we get through quarter for.
On your I think you had I had a hard time hearing you I think you had a week 53 question could you repeat that please.
Sure Uhm, so I'm just trying to understand that you can do you think a fair number of pieces on queue for which would seem to adjust that.
There's a fairly sizeable township into P. S. For Q4. So you know first just wanted to confirm that.
The main piece of that obviously is that an incremental spending as we sort of look through Q for you you said sales kind of plus or minus about similar to somewhere around a year over year basis to Q3 first margins, obviously benefiting quite nicely from from from the mix shit, but the marketing.
Offsets and then tax rate goes up pretty dramatically too. So I just wanted to make sure that I understood all those pieces.
Suggest a fairly big couch.
Welcome to try that.
Nick can weigh in here as well so so just to clarify there will be an incremental $15 million of marketing as it relates to two two week 53, we just want to make sure everybody gets that right, but there's also an incremental weaker revenue and so the net EEP. So so the intention was.
Not to guide down 15, because of incremental marketing spend just to be clear, we expect for the net EPS impact of week 53 to be approximately three.
And so that's not a change it's just a clarification and a reminder is how is how I look at that I mean, do you have anything else to add noise.
He was.
Absolutely right.
And place.
Driving up to $20 million revenue, we just want to make sure folks last week 53 contemplated yes.
Models.
Certainly not a downshifted no and such like that first week of winter.
A very big recruitment and then actually look at it.
Obviously, you've seen a strong trends in our Q3, we've seen those trends continue through October also strong continued additional momentum and continued.
Studio recruitment weaknesses, we expected.
Exactly that's weird guidance on our outlook October is a strong stock beautiful alright, and obviously very optimistic about our about our new launches in the fourth quarter.
Great. Thank you so much for the clarification I appreciate it sure okay.
Our final question comes from Alex for a man with Craig Hallum. Please go ahead.
Great. Thank you very much for taking my question you know one thing I wanted to ask you about is just looking at your results for the digital plus studio offering it looked like it was down more or less uniformly in all of the Geography's you report I I'm curious even since you have such a big presence all over the world.
Have you seen that appetite to get back into your studios has has been different than any of your different countries any anything major does to call out there.
No nothing nothing dramatic.
I think obviously different markets were able to be open at a different time and to know the point different markets are closing right. So I think it's been pretty.
Consistent and I think it's more about the ability to even go back because someone is not necessarily going to sign up for a studio experience that they can't physically go too.
That's different than our existing member so feel that at least having the virtual experience for them keep Sam continued to be motivated.
Great. That's helpful. Thank you very much.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Mindy Grossman CEO for any closing remarks, great, but first I want to once again, thank our talented and passionate teams around the globe for their exceptional work during this time.
We continue to accelerate our strategy, enabling us to create a truly differentiated technology fueled human centric remember experience. We continue to maximize our high margins is digital business subscription model, the agile and flexible in our cost structure.
Focus on growing with tension and engagement and developing new paths for growth.
We're very excited about our new launches in plants for the winter season, and we actually really look forward to sharing more over the next months. So thanks to everyone for joining us today.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Okay.
Uh-huh.
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