Q4 2020 WW International Inc Earnings Call
First quarter of 2020 earnings conference call.
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Today's presentation there'll be an opportunity to ask questions. Please note that this event is being recorded.
And I'd like to turn the conference over to Ms. Corey.
Kindergarten, Vice President of Investor Relations.
Thank you everyone for joining us today for Ww International fourth quarter, and full year, 'twenty and 'twenty conference call and about four P. M. Eastern time today, we issued a press release reporting our fourth quarter and full year 2020 results. The purpose of this call is to provide investors with some further details regarding the company's financial results as well as to provide.
A general update on the company's progress.
The press release is available on the company's corporate website located at corporate debt Ww Dot com supplemental investor materials are also available on the company's corporate website and the investors section under presentations and events reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures.
They're 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.
Risk factors are explained in detail and the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward looking statements and the risks and uncertainties of such statements. All forward looking statements are made as of today and except as required by law. The company undertakes no obligation to publicly update or revise and.
The forward looking statements, whether as a result of new information future events or otherwise.
Joining today's call are Mindy Grossman, President and CEO, Nick Hotchkin, CFO and Amy O'keefe CFO I will now turn the call over to entity.
Thanks, Corey good afternoon, everyone and thank you for joining us today.
It's hard to believe that it was only a year ago that we were preparing for the finale of the spectacular Ww presents Oprah's 2020 vision tour in Denver on March seven.
At that time, none of us could have predicted that 'twenty and 'twenty would changed suddenly and dramatically.
I'm extremely proud of the work of our teams around the world and what they were able to accomplish and a period of extreme challenges.
Certainly not the year, we had imagined, but nonetheless, a year that showcased our ability to innovate adapt collaborate foster and incredible sense of community and validate the resilience of our team and our business.
In 'twenty and 'twenty, our global teams had a singular focus on delivering a high quality differentiated technology enabled member experience, providing guidance support community and inspiration all while ensuring science based proven efficacious and sustainable wellness.
And weight loss at a time and non members and the world need us more than ever.
Our focus on always on innovation accelerating our digital transformation and reinforcing our position as a technology experience company as well as our member first mindset will continue to view everything we do and will drive our strategic priorities and performance as we go forward.
Let me highlight our 2020 achievements and performance.
Aggressively responding to the changes and the environment and delivering a 360 degree holistic member experience through our innovative digital platform virtual content experiences new virtual workshop formats to meet our members where they are and foster community we were able to.
Two.
Drive membership growth.
Growth digital subscribers, 24% maintained all time high member retention and engagement.
But e-commerce growth capabilities and product expansion and successfully launched back to back innovations My Ww and my Ww plus both of which have created an entirely new personalized experience for our members.
As a result of these achievements Ww ended 2020 with $4 4 million subscribers up 4% year over year and had an all time year and high.
Delivered full year revenue of $1 4 billion.
Significantly expanded adjusted gross margin to 60% for the past three quarters and delivered adjusted EBITDA of $358 million.
By successfully driving strong year over year growth and digital with subscriptions up an impressive 24% and revenues up 21% on a constant currency basis.
We were largely able to offset the significant pressures that COVID-19 had on our workshop business globally.
By actively managing our cost structure, we preserve cash flows and profitability ending 2020 with ample financial flexibility as we navigate what is still and uncertain and dynamic environment.
The critical and agile actions of our team made this possible.
The launch of my Ww non.
And not only executing the first ever nine city Oprah's 2020 vision tour, but quickly pivoting to a global multi week virtual experience delivering much needed support and inspiration to millions of people around the globe.
Those are our first ever virtual workshop experience, bringing a new era of coaching and community members.
Adding even more value to the and member experience with more in App features content and personalization and gamification with sleep and hydration tracking and all workout videos and challenges and even more community enablement and our connect platform.
Integrated our e-commerce platform into our App and expanded consumer product offerings, driving over 300% growth and U S E Commerce revenues in 2020.
Advanced our Ww health solutions business through technology investment and new partnerships, such as Cvs and well talk.
Amplified our commitment to inclusion and diversity and founded the healthy living coalition advancing our efforts to democratize wellness and healthy living and the human rights.
And 2021, we will continue to innovate with a focus on the member experience fueled by technology and personalization and built as always on the power of community.
The global launch of my Ww, plus our first holistic non food program innovation is delivering a deeply enriching more interactive and personalized app experience.
Utilizing a personal assessment my Ww plus has been well received by members and was the focus of our winter marketing campaign, which brought this new and unique experience to life.
The announcement of our newest global Ambassador James Gordon was enthusiastically received and driving significant media coverage at the start of the year.
And once again for the 11th year and a row Ww is ranked as the number one best diet for weight loss by U S News and World report.
When I came to Ww over three years ago I was confident that we could have greater impact by elevating the brand enhancing and modernizing the digital experience and evolving and expanding our expertise and leadership and coaching.
Digital 360.
Our new mid tier membership vertical isn't entirely new experience built on the platform of my Ww, plus and adding a one to many coaching and content experience. Unlike anything that exists today.
360 provides daily inspiration engaging coach live sessions, and real time connection delivered and a modern and unique way through an entirely new cohort of inspiring and related coaches who are featured in our newest campaign assets.
To bring digital 360 to light our production team, who created our live Arena tour and virtual experiences partnered with our technology digital product and brand teams together, creating a truly re imagine member and coaching experience.
Digital 360, and it's been a standout success with over 100000 sign ups to date.
Without any external marketing and prior to our new TV and digital creative campaign, highlighting D 360 over 30% of the sign ups were new to Ww and over 40% were returning digital members demonstrating the potential as both an upsell and a way to attract new cohort.
<unk>.
Day, 360 is only available and the U S and U K and as I will discuss later will be rolling out globally, which will be a key lever of growth audience acquisition retention and brand evolution.
The same team was also behind our recent live virtual experience Ww presents Oprah's your life and focus either love you need we offer this free interactive virtual experience on Saturday February 13th which had over 1 million views and generated nearly 5 billion media impressions.
<unk> hosted by Oprah and featuring Jennifer Garner.
Ara go after share Folly.
And at first time sit down and interview with James Corden discussing his Ww journey and more.
The event kicked off of the pre show featuring our <unk> hundred 60 coaches, allowing attendees to see the unique experience, they're creating every day.
Oprah's your life and focus series will be held quarterly throughout 2021 and will showcase the power of the Ww community and create an opportunity to attract new members to the brand.
It is important to remember and why all of these innovations have been so critical at in Q1, we are comping the launch of my Ww.
2020 vision tour, and resulting media avalanche and and exceptionally strong workshop sign up period.
As a result in Q1 2021 were facing significant headwinds primarily from our workshop business.
Most consumers, particularly lapsed members and associate this vertical with in person workshops, and majority of which had been closed.
Importantly, however, we expect to deliver strong digital end of period subscriber growth in Q1, which includes digital 316.
Looking ahead to our upcoming spring marketing our integrated campaign will highlight inspiring real stories of our members, including James Gordon who will be featured in our television commercials and the U S and U K.
I will speak later on our 2021 priorities and future outlook and I will now turn it over to Nick to discuss key highlights and quarter to date operating performance.
Thank you Mindy our business has gone through a significant shift from.
A description and model over the past several years.
We expect that by the end of 2021 subscriber base will be 90% digital.
Moving digital 360, and 10% workshops.
It includes in person and virtual workshops.
This is a notable shift from a 70 30 mix in 2019, and and 80 515 mix and 2020.
As it relates to revenue.
A year ago digital subscription revenues were equal to our workshop plus digital revenues.
And Q4 subsea.
Subscription revenues and now more than two X workshop and growing in every geographic market.
And we're already way down this path pre COVID-19, but in the past year rehab and been able to significantly accelerate this transition.
Our continued focus and investments and technology is critical to driving our business in 2021 and beyond.
And now have three tech hubs and additional resources around the globe to support Ww products and tech and innovation, our growth levers and <unk>.
He is on and focus on our App experience.
As it relates to the geographic markets. It has been a unique year and that members sign up trends have varied more than usual and a number of reasons.
Covid restrictions market such as the <unk>.
U K, which had a higher penetration of workshops have had greater pressure.
Germany, and France have benefited from a higher mix of digital subscribers.
Over the Lockdown rules are also affected consumer behavior, especially.
Right to the reset mentality and the beginning of the year.
The one thing that is true everywhere is that consumers are seeking economic value and trust and so.
And we have worked to test and create relevance office strategies that emphasize economic value, but also have the benefit of longer term commitments.
On a global basis average retention remains over 10 months and that's a record level for Ww.
Total retention and showing continued strength.
We continue to focus on LTV and longer term commitment plans and reduce churn.
And not to purchase continues to work well for us with a conversion rate from free trial of about 55% and accounting for about 10% of member sign ups.
The addition of our assessment tool leading to a two week free trial has been a strong recruitment and vehicle.
It's important to note that.
We do not count free trials and sign up subscribers until they convert to a paid membership at the conclusion of the free trial.
And that purchase members tend to be first time Ww members.
65% used 45 or younger.
Digital 360 has had a strong start and a $29 95 per month as a premium to our digital membership.
And as Mindy mentioned have already had over 100000 people sign up for 360, and the U S and the UK.
TV and digital campaigns have just launched featuring our new coaches and experience.
We'll be rolling out and <unk> hundred 60 to Germany, France, and Canada during the first half of this year.
Given the successful launch of digital 360 and <unk>.
Trends and our core 21 95 per month digital offering.
Expect digital subscriber growth and gross margin improvement from 2021.
Let me give you some context on our workshops business and we are today versus a year ago, and how we are strategically planning and managing and for the future.
Globally at the beginning of 'twenty and 'twenty, we had approximately 16 pounds and coaches and guides.
100, and Ww brand and studios and 10003rd party locations and.
And 2021.
We expect to have roughly 7000 coaches and guides.
600 studios and depending on the countries specific COVID-19 restrictions.
2003rd Party locations.
For additional context within the U S. Our largest market we began in 2020 with our real estate footprint of 800, Ww branded studios and 'twenty 303rd Party locations.
And 2021 will have about 400 studios and 253rd party locations.
And once you can clearly see we've taken aggressive actions to right size the segment.
Continue to focus on aligning the workshops and cost structure, managing from maximum flexibility and leveraging strategic partnerships.
While our workshop plus digital business has become a smaller part of our mix.
High touch premium offering at 44 and 95 per month.
As an important differentiator and our portfolio.
And for our brand.
Over our history. Many millions of people have successfully lost weight by pulling the Ww program the guidance and inspiration from our coaches and workshop and member community and two.
The day, we are finding new ways to provide the same support.
<unk> workshops, which we launched just a year ago are playing a pivotal role in keeping workshop and members engaged.
The typical virtual workshop attracts approximately 100 members per workshop and some workshops are becoming mega events, attracting up to 500 members and.
And it provides some perspective and the U S.
Our operating virtual workshops 16 hours a day seven days a week to create as much flexibility for our members.
Possible.
And you know subscriptions represent about 85% of our total revenue.
Product sales and another represent the remaining 15%.
We are extremely pleased with the performance of our E Commerce business.
And just to remind you launched and our App.
And a year ago.
After significant investments and the integrated experience and product assortment expansion.
This has helped us to offset sales.
Yes.
Previously the primary sales channel was buyer physical studios.
Good day ecommerce represents 80% of our product and sales this is 30% a year ago.
In spite of and in 2021 and E. Commerce will continue on a strong growth trajectory.
We continue to build our branded co branded and marketplace products portfolio and.
Can I expect to see continued expansion and and collaborations.
This is our recently announced collaboration with the vitamin Shoppe.
Finally, I'm also focused on the opportunity and health care and diabetes.
Our health solutions business continues to be a key strategic growth lever for us and.
In addition to growth through expanding our relationships with employers and providers payers and physicians and <unk>.
Now have plans and develop a dedicated consumer offering.
Typically designed for people with diabetes.
And the U S alone more than 30 million people are living with diabetes and despite the high correlation between obesity and type two diabetes. This population is under represented and the Ww and membership base.
And I'm thrilled and Doctor, Adam and Kaufmann has joined Ww to oversee our health care and diabetes business with direct responsibility.
Ww Hs business and partnership expansion and areas, such as telehealth and telemedicine and.
In addition to his deep expertise and diabetes, Adam has unique experience and technology to improvement of health care services.
We are building momentum and expect strong Ww HRS revenue growth and 2021 with accelerated growth potential and 2022 and beyond.
And now I'll turn it over to D V and discuss our financial performance and outlook.
Thank you Nick.
As Mindy mentioned, we ended 2020 with a record $4 4 million subscribers up 4% from the end of 2019 with digital subscriber growth of 24%.
Up 20% or more and all of our major geographic markets.
We are extremely pleased that the growth and digital subscribers offset this is substantial workshop pressures in net unusual here.
For the full year 2020, total revenue was $1 4 billion down just 3% year over year on a constant currency basis.
And impressive result, considering that workshop subscription revenue declined over $150 million. In addition to significantly lower even studio and product sales due to the COVID-19 environment.
Digital subscription revenue was up 21% on a constant currency basis for the full year.
Adjusted gross margin was 58, 1% up approximately 250 basis points from the prior year, a testament to quick actions taken on our cost structure.
In addition, the shift to a larger digital subscriber mix benefited gross margin, which is over 80% and our digital business and.
Adjusted EBITDA was $358 million in 2020, reflecting the impact of the digital mix shift and our ability to flex the workshop business cost structure to demand.
During Q4, we made the decision to implement additional cost reductions to our global workshop operation by clothing and certain of our fixed location.
As a result, our full year 'twenty and 'twenty restructuring charge was $33 1 million up.
From our prior estimate of $22 5 million.
Incorporating the 63 negative impact from restructuring and other one time items full year 2020, GAAP EPS was $1 seven.
Turning now to our outlook as Mindy highlighted prior to the impact of Covid in mid March of 2020, we had an exceptional start last year.
We just launched a new food program had significant media momentum from over 2020 vision tour and strong number sign up and both workshop and digital.
And that contact for the first quarter of 2021, we expect revenue to decline compared to a record revenue quarter and Q1 and 2020.
Primarily driven by our workshop business, which we expect to be down approximately 50% year over year, and the nonrecurring and $16 million revenue benefit and we had in 2020 from the vision tour. As a result, we expect Q1 total revenue decline in the mid to high teens.
And with margins. However are expected to increase over 500 basis points benefiting from the growth and the digital subscribers.
Breath and cost management efforts, and our workshop business and the absence of costs related to the 2020 vision tour.
Due to the downsizing of our studio footprint, we anticipate taking and $18 million restructuring charge in 2021 with the majority and following in Q1.
Marketing and G&A are expected to be relatively in line with Q1 and 2020 level.
Given all these factors and excluding the impact from restructuring charges. We expect Q1 adjusted operating income to be down from last year's 25 million.
Leading to Q1 operating income in the low single digit millions.
And just a few short weeks, we will begin to anniversary the negative effect Covid has had on our business, particularly with regard to its impact on workshop.
Looking beyond Q1, we expect Q2 to Q4 to deliver strengthening results on a year over year basis there.
Therefore, our objective for 2021 is to meet if not exceed free.
Full year 2020 revenue and adjusted operating income.
We expect to see strong year over year member sign up growth starting in the last few weeks of Q1, and therefore for the remaining nine months of the year in aggregate, we expect to return to year over year revenue and earnings growth.
We expect this will be led by continued revenue and subscriber growth and our digital business accelerated by the success of D 360, and a strong spring marketing campaign.
We also expect that year over year sign ups and our workshop business will turn positive and will build over time as consumers get more comfortable returning to an in person and the environment. In addition to having access to unlimited virtual workshop.
We expect to expand gross margin by over 200 basis points for the full year driven by strong digital growth.
We will continue our focus on right sizing our cost structure throughout the organization. However, please note that in 2020, G&A benefited from $25 million and temporary reductions in compensation.
And we demonstrated in 2020, we will be responsive to and evolving environment, and we will balance cost discipline with investments to best position Ww from growth in 2022.
Turning to our capital structure and cash priorities at year end 2020, we had approximately 160 <unk> 66 million in cash and.
And an undrawn revolver.
We ended the year with a net debt to EBITDA leverage ratio of three seven times or two eight times levered on a first lien debt basis.
Reflecting the current interest rates on our debt at this time, our full year interest expense is expected to be $111 million.
And given the strength of our balance sheet and dependent on market conditions, we are evaluating opportunities to re price our debt in the near term.
For illustration purposes, a 100 basis point reduction and our blended interest rate would equate to $15 million in pre tax savings annually.
Excluding the impact of restructuring charges on our P&L, we expect our full year tax rate to be approximately 24%.
Which assumes no changes to the current statutory rate.
Capex, primarily driven by tech spend and capitalized software is anticipated to be and the $40 million range. In 2021, DNA is expected to be $52 million.
In addition to investing in technology, and digital product resources, and talent, which fuel the future growth of the business. We will continue to evaluate potential tuck in acquisitions of technology companies. We are also seeing opportunities for acquiring and franchise territory and are in discussions with several franchisees.
In summary, we believe we were focused on the right initiatives to fuel long term growth of revenue and earnings drive strong cash generation and maximize financial flexibility.
I will now turn the call back to Mindy.
Thanks Amy.
A day Ww is the leading weight loss and wellness digital subscription platform with multiple membership verticals and revenue streams, and creating a healthier more profitable and more sustainable business model.
It was clear pre COVID-19 and even more so given what we've experienced over the past year that the world needs health and wellness now more than ever before we are singularly focused on making ww weight.
Weight loss and wellness partner of choice for people families communities and the world for everyone and consumers.
Consumers are seeking solutions, but they are looking for more than tactical tools. They are looking for coaching community personalized solutions and connection we have reflected this and our marketing our technology experience our platform engagement and our programmatic offerings.
To achieve these objectives, we have established a culture of rigorous prioritization, focusing our efforts and resources on the initiatives in 2021 that will have the greatest impact for today and for the future.
To that we are focused on the following key priorities.
And the member experience and.
Estimates and our App experience and and always on innovation roadmap to give our members the intuitive and personalized experience that they need.
And this is key to both the recruitment pathway and increase retention.
From the moment of consideration to our assessment Onboarding and ongoing engagement, we will continue to innovate and invest and the technology to create a frictionless and differentiated digital experience.
We are building and new data platform and proprietary dashboard to measure and guide everything from the efficacy of Onboarding, the habit formation to greater personalization and half discover ability and ultimately expanding LTV.
These proprietary engagement Kpis look at our member cohorts and an entirely new way instead of grouping them by demographics focusing on their behaviors and then within these behavior driven groups measuring activation and engagement tenure and efficacy to deliver actionable insights into how we can opt.
<unk> the member experience.
Second digital 360, as I mentioned, we are thrilled with the launch of <unk> hundred 60, and the U S and U K the strong sign ups from new Ww members as well as from returning digital members choosing D 360, as an upsell on rejoining.
Members are enjoying engaging with our coaches and content, particularly the coach live experiences.
And we'll accelerate our global rollout for 'twenty and 'twenty, one as well as to continue to optimize the experience and expand and amplify our coaching expertise.
This will be in advance of the relaunch of our one on one platform. However, we will continue to offer the one on one coaching experience that we have today.
Focus on digital 360 will benefit the entirety of our coaching experiences across digital and virtual and wildlife.
Third our 2022 food innovation.
Our science team are experts and constantly using the best and breakthrough innovation across nutrition behavior change technology, and psychology to constantly identify ways to make our members' success across wellness and weight loss, even more simple more livable more efficacious.
Yes, and more sustainable and our entire team has never been more excited about food innovation and.
A development process technology and testing is ahead of any other year.
And had strong consumer feedback and results to date and we believe it will be a significant member recruitment driver for 'twenty and 'twenty two.
And finally health care and diabetes as Nick mentioned, we have invested and our Ww health solutions business over the past three years building and an entirely new technology platform, expanding the resources team and talent and advancing relationships with employers providers payers and physicians, but the.
<unk> opportunity is greater.
We'll be focused on the broader health care market as well as diabetes is a core of Ww vertical offering we are thrilled to have Dr. Adam Kaufman and join our team to lead. These efforts, which will include Ww health solutions diabetes, and strategic partnerships and telehealth telemedicine and health care and working with the team.
And as globally.
We are confident and our ability to drive revenue and earnings growth over the course of the year.
And I have an expansive vision and a radical focus the combination of which will drive our efforts and sequential progress in 2021 and <unk>.
Low us to deliver multi year growth and profit objectives as well as on our global impact and improving People's lives through their partnership with Ww and.
Closing this past year has reinforced our vision and belief and the strength of our new business model. The discipline that we've applied to our investment thesis and the talent and team that we've cultivated and be able to maximize our opportunity and solidify our path for value creation and growth with that I will now.
Take your questions.
And I'll begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys.
And your question. Please press Star then two.
At this time, we'll pause momentarily to assemble our roster.
First question comes from Steph Wissink.
Jefferies. Please go ahead.
Thank you good afternoon, everyone and we have a couple of questions. The first is actually moving on your comments at the and I think you mentioned confidence and sales and EPS growth this year.
And if we can contrast that a bit to the guidance, which implies kind of a stable rate.
Maybe share with us a little bit about where you see some of the upside potential coming and then if you could just walk us through the first quarter again, and thank you mentioned workshop down 50%.
And the digital business up and maybe help us think through the composition of the start to the year and then how you expect that aren't without waterfall to progress as the year progresses. Thank you.
Sure I think the first thing I would say is this is definitively not a typical year in terms of a normal arc of seasonality because of Covid. So you're gonna have to look at it a little differently.
And so what what we were articulating is that particularly on the studio side of the business because at the beginning of 'twenty and 'twenty, we had very strong studio sign ups, particularly in that first quarter and that's what we are accomplishing so even though we.
Mentioned that we will have strong digital growth at the end of Q1, and that's where you have the GAAP starting at the back of March you will go into the sequential improvement and cadence of comp, particularly in the digital business. The second piece is I mentioned.
<unk> <unk>, which is a premium to our digital business and.
And to that point right now just in the U S and UK with no marketing efforts whatsoever, we're already seeing over 100000 sign ups. So that will be a trajectory throughout the balance of the year and addition to our other marketing efforts.
Spoke about our Ww health solutions business, and our efforts and that which also does not have the typical cadence.
Of seasonality because it really is based on sales.
And to employers et cetera, so, it's a different cadence of business and with our partnerships with Cvs well.
And well talk and we just announced cash like.
You will be building on memberships over that time.
In addition, you we did not launch e-commerce, and our App until March 7th of 'twenty, and 'twenty and that business is scaling significantly and as.
As we have more and more of our members and we have more product expansion and the business. So it's why we have been talking about kind of a different curve up trajectory for the year. Then you would traditionally see which is why we feel the revenue and earnings.
Growth over the course of the year is what we're confident there.
Great and if I could follow up and you're on one comment you just made which is your e-commerce business with inside your App is there an opportunity to develop a third party partnership or a marketplace model, where you feel like you could curate and deliver a selection of products and.
And maybe even services that would be beneficial to your user base that would be done through Oh, I'm really glad you brought that up because our goal is to be.
A fully health and wellness operational marketplace. So just to give you a perspective.
You know when and when I came into the company basically all most if not all are sales of products or in our studios and they werent products that we felt fit the brand. So over the course of the time, we got out of a 100% of the products we sold.
We launched to all our new products and have been rolling that out well, we've rebuilt our e-commerce platform globally and that new global platform is what launched March 7th and addition to product expansion.
Currently.
The product Assortments, our branded Ww products that we develop source et cetera, we felt a co branded portfolio. So for example, small electrics with dash, our partnership with vitamin shop for supplements and.
You'll see more co branded and then the third is really building out more of a marketplace.
And you will see a lot more of that as we expand our drop ship capabilities and even potentially have other subscription businesses be able to integrate.
Within the App and you know from.
For me coming from a product background and development. It is exciting to see both the member engagement and engagement and general with what we're doing on the product side.
Great. Thank you very much.
Thank you next question comes from Laurence Wang from Morgan Stanley. Please go ahead.
Hi, This is Nathan on for Lauren just a quick one from me can you provide some color on what youre seeing in the early and digital 360 customer behavior engagement and retention when compared to our core digital or studio member.
Yeah, what we're really excited about is that.
In addition to attracting new audience, and really being and upsell for lapsed digital we are definitely seeing the significant portion of that consumer as under 45 and again that was before we did our heavier marketing that really expose our coaches.
And to a significant degree and just one comment on the coaching those coaches, who we developed and identify for D. 360 are influences on their own and are creating their own recruitment.
And as I'm, so that's exciting as well and you look at our ability to offer this new vertical which also has margins closer to our digital margins.
And we see this as a very important growth element and lastly for us as a brand that once and many coaching has been part of who we are and now be able to do it through a robust digital platform, where we can integrate content.
And then lastly.
The team working with that the coaches are the content, but we're developing content beyond that to create greater engagement. So for example, we have walked towards with people like Oprah Sanjay grouped our Matthew Mcconaughey, So theres, a very highly engaged and our satisfaction scores.
And our very high which is what's giving us the confidence to be very aggressive on both the rollout and the marketing.
And that catch us so excited about the day 360 launch and with similar retention characteristics to digital but a 29 95 price it can have higher LTV and our core digital offer.
Great. Thank you.
Thank you and our next question comes from Alex from Craig Hoagland. Please go ahead.
Okay.
Great. Thanks, very much for taking my question and I wanted to ask about <unk>.
Seems like you have kind of a once in a lifetime opportunity here and really rebuild the studio business for the modern era.
And then you mentioned many of them and definitely different points of distribution and where we could see the meetings taking place are there any other kind of big picture changes that you're envisioning over the next couple of years and as you build that business back in terms of the experience and how the workshops are conducted.
Absolutely and if you look at the aggressive changes we made and this is why we wanted to give everybody a global perspective on just how significantly we looked at the business.
And where we are today is it does give us the optionality as we see people come back to react very quickly.
Flexible basis. It also gives its going to give us the ability to pilot.
New experience concepts.
That are very different than what we traditionally had and our brand and studio location.
And it also gives us the ability to meld, the virtual and the physical to be able to amplify and service our audience and a very different way. So they could have their local physical studio, but they can also have access to virtual studios with different cohorts and different.
Coach at and.
And that's what people are really responding to now obviously and the short term, they're closed and a lot of our market.
But it's definitely gone and give us as you said kind of once and our lifetime to reframe. What this entire membership vertical is going to be for the future.
That's very exciting thank you Mindy.
Thank you next question comes from Edward Your Mall Keybanc capital markets. Please go ahead.
Hi, This is Brent and color on for Ed.
So you've had a year since you've relaunched CPG any thoughts on how it's gone and what you can do to accelerate growth there.
We have a great opportunity and our consumer products business and the areas that we're very focused on right now or what we call healthy eats which is all our food products that we have been expanding significantly beyond just snack products, it's pasta products at.
Coffee products and Youre going to see continued.
Marketplace expansion and.
And Theyre healthy kitchen, which are all are everything from small electrics to kitchen tools and measurement everything having to do with healthy eating.
And on health Tech and healthy lifestyle, you'll start to see built out and it's way beyond what I would call are scale businesses.
But other aspects of health Tech and then as I mentioned before really also being able to build out.
And the marketplace portion a really good example of what we've done and our partnership I use of vitamin Shoppe, because it's not just about our product creation, yes, we did launch pill packs, both for healthy living as well as heart health.
But we're delivering those for commerce, both and vitamin shops digital platform, our digital platform and in their physical locations. We also have ww areas with all our other products and we have also trained.
And their associates for Ww and so we also have the capability of doing sign ups within the stores. So what we're trying to do is be creative and these strategic partnerships, which also gives us an opportunity to reach more audience.
Yes, it could be that you just had looked thrilled with the growth and E. Commerce look in 2020, we tripled the number of Skus.
And we sell and doubled both.
And the penetration with our members and our repeat purchase rate, but despite that and this is a business, but we feel we're just scratching the surface on the opportunity and that's why they tones and <unk> strong growth and 21 and beyond and ecommerce.
Great. Thank you.
Thank you next.
Our next question comes from Michael Lasser of UBS. Please go ahead.
Hi, This is Mike Swartz on for Michael asked and thanks for taking our questions. One of the key aspects of the Ww story has been and ability to build durable relationships with members over a long period of time, even if there were gaps along the way leading to a 10 plus year relationships as you begin to target a younger demographic with digital offerings. Do you think you can create a similar relationship with this.
Each quarter and even if you don't have that personal connection and peer to peer workshops.
Actually we're already seeing that our digital retention is significant and we've seen an increase and the real key to that is engagement.
And you know everything that we built and integrated from the personal assessment before you joined to being matched to a program to all of the personalization throughout your journey.
As well as building the digital community and our core platform with connect but also now would be 30, 60 and with building the coach relationship.
And we've seen retention continued to build across our digital platforms. So that gives us confidence regardless of the age range its been consistent across.
Thank you and as a quick follow up can you give us a sense about customer acquisition cost and turn it over the past year and whether you're still.
Around that target five to one ratio with the L. T D.
Yeah, and look at LTV to CAC.
And it carefully.
Sure.
And I for one and maintain social strength.
That business model very efficient marketing model and she was doing a great job.
<unk> K and the shift from.
<unk> and <unk> and two.
Fantastic work building out our digital marketing strategy also a nice buy clubs continuing in 'twenty one.
Yeah.
Thank you.
Thank you next question is from Brian Nagel from Oppenheimer. Please go ahead.
Hi, good evening.
Okay.
And I think this has been asked before so I apologize, but I just wanna towards certain.
And with the message on the on the current trajectory.
Digital subscription growth as it so far here in 'twenty, one and and within the guide the parameters and the guidance you gave for Q Q1, how we should think about digital growth there.
Yeah, well, what we spoke to is that we're going to see strong digital growth and Q1.
The pressure is on the studio business.
And then.
And as we're tracking right now Europe youre up against the difficult comparisons.
Okay and then.
Business should get better and Q1 progresses.
Absolutely.
Yeah. So as we mentioned if I can just add.
We will begin to comp against the Covid comp in 2020, and just a couple of weeks and Mindy you had mentioned that we had a we had a record quarter in Q1 of 2020.
Strong workshop and digital sign up plus the old provision tour and a strong marketing campaign and so we are seeing.
Comparative pressure to our peak Q1 performance and so we are guiding from revenue down in Q1 in the mid to high teens, but we do expect revenue and earnings growth from Q2 to Q4 in the aggregate as we move past the tough.
Comcast and you will still see digital subscriber growth healthy digital subscriber growth at the end of Q1.
Got it okay. Thank you and then the second part.
I guess, a little bit longer term in nature, but maybe more predict you talked about.
<unk> talked for while and the business is shifting to digital and then you also have this shift happening with with your day.
And the legacy studio business going to virtual from from physical how should we think about it as that transitions against hopefully a backdrop, where the COVID-19 headwinds are abating, but how should we think about just the expenses locations and the deposit expense implications about.
Well actually and I'll, let Nick go into it and more detail, but the actions we took on the right sizing of the studio has given us tremendous flexibility to be able to respond to what we're seeing and consumer behavior, which also gives us.
And the opportunity to improve margins and that segment of the business.
And b it its a smaller portion of the business and the digital and day 360 are at significantly higher margins.
That's about right because if you pay for it.
Today, you look and and.
And in many countries.
Like the U K, France.
Canada, Our studios on to open right now and we're still.
And two and costs and that's why the shift to virtual workshops and theres been so essential to keep our members.
And gauge post COVID-19 as people become more willing to.
And the person.
We'll have a wonderfully flexible.
Workshop.
Cash today.
And today, obviously with social distancing and only about 10 to 12 people and <unk>.
Location, even windows open we can quickly.
Increased capacity both in.
The remaining 400 locations and the United States and add does studio at switch a very cost effective to meet demand.
Okay.
Thank you.
Thank you next question is from Linda Bolton Weiser of D. A Davidson. Please go ahead.
Okay.
Thanks, So I guess, we're up to the point here, where it's a year and diet season, 'twenty 'twenty, two where we would have a major program innovation is that something you are planning for is there any color you can give us on the magnitude of that coming up for the next diet season. Thanks.
And then.
'twenty 'twenty.
Two innovation that is launching.
And I tried to express.
How excited are.
And what about it based on what we're seeing.
It's very innovative and it's very breakthrough.
And even and early results. So we felt really good going into 'twenty and 'twenty and as you know.
And we launch at the end of 'twenty and 'twenty, one and so we'll be able to be able to have benefits from that as well, but it is very strong.
Thanks, and I just wanted to clarify too that I understood. What you said about the cadence of seasonality or are you, suggesting that subscribers could actually grow sequentially. As we go through the year or will we still and the year with subscribers below the first quarter level.
But what what what youre going to see a sequential improvement quarter by quarter. So we're going to see the reverse I'm, calling it more of a COVID-19 year that traditional.
Seasonality and year, you will see growth sequentially over the course of the year yet.
Okay. Thanks very much.
Thank you next question in.
And English from Goldman Sachs. Please go ahead.
Okay.
Hey, good evening folks.
Hi, Thank you for slipping me and so I guess, a couple of questions and I.
I want to come back to the expectation of from.
Of the day.
The typical slope.
First and foremost clarity on the first quarter.
And just sort of back of the envelope I'm walking into a walking back to <unk> and <unk>.
<unk> digital growth figure of around $200 million.
Does that.
Does that strike you as sort of reasonable and B what does it imply in terms of recruitment for digital it looks like youre carrying over a fair amount of sub growth.
High degree with subscribers and that would be one of the weakest and I'm one of the there would be absolutely the weakest of sequential growth figures, we've seen and from a <unk>.
So to start with just setting expectations on Q1 as I mentioned, we do expect significant headwinds. So so to be clear, we believe that our quarter. One total revenue will decline and the mid to high teens drip.
Driven by workshop and.
And so so.
So as a result, our digital revenue was expected to be up significantly on a year over year basis.
You gave the 50% number and then you come back yet and it implies sequentially Theres, if not up at all I just want to make sure because I know you it will be up year on year, because you've finished the year.
I'm, just trying to make sure I'm I'm sorry.
Studied and contextualize the slope correctly.
So.
We actually so so I don't think so right now for sure is the short answer.
And ordered in order to back into that number. So we are expecting we're expecting growth.
We're not prepared to provide the split at this point, but but we are expecting higher growth higher gross and net absolute revenue in Q1, because you also have to remember even with a decline what percent of the overall business. It is.
Yes.
That's helpful. Do you expect you don't want to talk about your and your growth, but real quarter on quarter growth.
And so that is helping that.
Oh, Okay and and Mindy.
Clearly were weird Guy and once you would suggest if we use normal seasonality that you. Your revenue is on track to declined 70% or so for the year, you're expecting to define normal seasonality, because we're coming out of COVID-19.
I hear you. So what are you currently looking for a new off cycle.
A resolution period, which would knock on wood I hope happens what what are the guideposts and I think we should be looking at that to see if this is coming to fruition.
Well similar to how we've looked at the balance of the year. It's also what are we doing that's going to drive that growth, it's not just the comp.
And you have my Ww, plus and a very strong engagement and our digital business you have the growth and expansion of D 360.
You have a we sat around the comps of studio and then you have growth and other areas of the business and.
Such as commerce, and consumer growth with Ww health solution. So you start building on that quarter by quarter, and you're going to see sequential growth.
And looking at in the near term.
Mentioned and mix.
Really excited for spring.
Opinion campaign, including James Gordon and we'll be patient.
And TV commercials, and the U S and the U K, so and so I think that's going to drive a lot of interest and a break.
And just to just to circle back to your to your digital question don't forget and we added 16 million dollar revenue comp year over year from the Oh provision tour. In addition to that in store product sales will be down significantly with workshop revenue. So I think.
That's the piece that you're missing.
Yes, the $60 million piece. Thank you.
Thank you.
And our final question today comes from.
The grim.
And so Bob Houghton law.
Please go ahead.
Yeah. Thanks for taking the question you talked about the opportunity on the health solutions business, a few times and I'm. Just curious if you can give us some more color on some of the specific goals you have there for fiscal 'twenty, one and what we should be looking for throughout the year to kind of measure progress on that front. Thanks.
Or I'm, just going to give you some background and I'm going to let Nick talk to it as well.
And you know we've had the Ww health solutions business for year I came in and realize this is not the business that is really going to take us into the future. So the first number of years, which you didn't hear me talk about it very much with completely rebuilding that business.
The platform the technology, that's why we opened the tech hub and Toronto as well as the team as well as what our offering was across employers payers physicians et cetera.
And so the platform now that we have.
Is what we can really move forward with.
As I mentioned you know, we're now with the Cvs is and.
<unk> talks and the other.
Other areas and that is going to build.
Based on the timing of when they sell in over the course of the year. So you have.
And good visibility to be confident to say that we're going to see growth in that business over the course of 2021 that can then scale that much more significantly in 2022 based on the timing.
And I think that's fine Mindy.
Multiple <unk>.
<unk> levels here are focusing on small and medium size businesses of course, they aggregate is CBS botox and our cash slide that wendy's.
Mentioned.
Physician referral is a strong focus area. We're also now with the.
No Adam Cochrane and joining us to lead the Ww Hs business and develop our diabetes offering I think the real synergies between health and diabetes. So I think the picture is bright for this combined business vertical.
Okay, great, Thanks, and I mean Tonight, and we'll be well well well be able to give you updates on this every quarter, but we are we're confident and a growth vehicle.
This concludes our question and answer session.
And turn the conference back over to Mindy Grossman CEO for closing remarks.
Well. Thank you everyone. I think you can tell I'm confident and our strategy as well as the rigorous focus we have on the key initiatives that will have the greatest impact them and what we're focused on is the recruitment retention and diversification of our member base and delivering strong digital subscriber and <unk>.
Revenue growth.
Driving total revenue and earnings growth and the balance of 2021 to accelerate growth in 2022 and beyond.
I just want and once again, thank our talented teams around the world for their exceptional work during this time.
It has reinforced our leadership as a technology experience company.
And our differentiated member experience at a time when it's more critical than ever. So thank you everyone for joining us today and I look forward to keep you updated throughout the year.
Conference is now concluded.
Thank you for attending today's presentation you may now disconnect.
Okay.