Q2 2021 WW International Inc Earnings Call
[music].
Good afternoon, and welcome to the Ww International second quarter late 'twenty, 1 earnings conference call. All participants will be in 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 a question you May Press Star then 1 on your Touchtone phone to withdraw from the question queue. Please press Star then 2 please note. This event is being recorded I would now like to turn the conference over to Corey <unk> Investor Relations. Please go ahead.
Yeah.
Thank you everyone for joining us today for Ww International second quarter 2021 conference call at about 4 o'clock P. M. Eastern time today, we issued a press release reported our second quarter 'twenty 'twenty..1 results. The purpose of this call is to provide investors with some further details regarding the company's financial.
Results as well as provide a general update on the company's progress.
The press release is available on the company's corporate website located at corporate Ww Dot com.
Mental investor materials are also available on the company's corporate website in 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 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.
Risk factors are explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward looking statements and the risks and uncertainties of such statements. All forward looking statements are made as of today and except as required by law. The company undertakes no obligation to publicly update on.
Or revise any forward looking statements, whether as a result of new information future events or otherwise.
Joining today's call are Mindy Grossman, President and CEO, Nick Hotchkin C O O a new Keith CFO I will now turn the call over to Mindy.
Thank you Corey good afternoon, everyone.
When we spoke to you in May we believe that as the world Reopens.
Connie which would vary by geography consumer.
This would be increasingly inspired to restore their health and wellness journeys.
Meaning a demand lift outside of our typical seasonal cadence and positively impacting the entire category.
However, the strong digital year over year growth momentum in Q1 flow into second quarter as we cycled against strong digital performance in 2020. Therefore, our results did not meet our revenue and operating income expectations.
Well people are acknowledging their need for recommitting to weight loss and wellness. Our recent consumer research shows that at the moment. They are also asking for a pause to enjoy social reconnection.
With both traffic and search under pressure the sentiment shift appears to be across the weight loss numbers category.
Our updated financial outlook reflects our revised expectations for full year subscribers revenue and operating income.
Since we cannot assume that sentiment will snap back in our favor during the post labor day back to school season, which historically has been a reset moment at this time, we're planning appropriately and are implementing a comprehensive plan to optimize our second half performance.
We're extremely excited about on food program innovation launch and trajectory for 2022, we are continuing to manage through the evolving environment with agility and flexibility, while we make progress on developing and preparing for the upcoming innovation launch later this year.
We will discuss our performance improvement actions in further detail shortly but first I'd like to review the key highlights of the second quarter.
We ended Q2 with $4.9 million subscribers down slightly year over year and from Q1 ends.
We ended the quarter with digital subscribers of $4.1 million up 6% year over year and a record high for Q2 and with subscriber growth in each of our major markets, increasing retention and adoption of our new digital 360 membership helping drive continue.
Growth.
While a strong level overall it is down from 16% growth in Q1.
Now available in our 5 largest geographic markets digital 360, <unk> ended the quarter with approximately 230000 subscribers up from approximately 115000 at the end of Q1 by.
By modernizing how we deliver the Ww program is industry first interactive coaching and content experience is generating excitement for both new and returning Ww digital members or upgrading to the premium membership.
End of period workshops subscribers were 748000 in Q2 up slightly from the end of Q1.
Notable improvement in that trend as we unlock pent up demand from members, who find an in person coach community to be essential to their weight loss on wellness journey.
Our workshop business now has a more flexible cost structure.
We are managing this business in a new way that can accommodate a range of volume scenarios.
Still delivering strong gross margins.
Overall member retention continues to extend as an all time high of over 10 months.
Addition to continued strong digital retention, which is now nearly 11 months.
Workshop retention has improved sequentially each month since February recovering from the temporary contraction due to COVID-19.
As we have discussed many times, we are highly focused on continuing to grow retention EBITDA.
Of having it exceed 1 year achieving that goal we provided notable unlock in our subscription model and reduce the seasonality of our business.
Turning to our consumer products business, which includes our E Commerce channel.
It is only 18 months since we incorporated e-commerce into our App.
And we believe it is a solid platform for continued growth.
Total consumer product sales were in line with the prior year period of below plan due to a combination of internal and macro factors and as we cycled against extremely strong performance a year ago. It started the pandemic.
This is the fifth consecutive quarter, we delivered an adjusted gross margin of approximately 60% or higher demonstrating the strength of our high margin digital subscription model and the enhanced flexibility of our cost structure.
In summary over the past 12 months, our global teams accelerated our digital transformation and successfully drove our business forward through innovation creativity and focus all while navigating an uncertain and dynamic environment.
Moving forward, we have a comprehensive plan and optimize performance in the second half and position Ww for growth in 2022 and beyond.
We'll speak more about our go forward plans, including our upcoming 2022 program innovation and marketing plans shortly but first I will turn it over to Nick to discuss our operating performance in more detail.
Thank you Mindy I'd like to share some additional color on the performance.
Yes.
We ended the quarter with digital subscribers.
Moving on.
On the <unk> side this was low.
Moving on the expenses.
As Mindy discussed consumer behavior, and motivation of weight loss on moments to most on.
And the way we had anticipated.
Instead sign up trends on a more typical seasonal pattern.
Net pool, the extended June U S campaign, and incremental marketing investments on television and digital did not trying to be impacts that we had hoped.
In April decreased 16 launched in Germany, France, and Canada, delivering an interactive in the past.
Coaching and content experience uniquely adapted to each market.
Moving approximately 200.
30000 members on global markets on a data and analytics capabilities.
Finance.
And inform all translation of the D 360 experience driving engagement satisfaction and weight loss.
Yes.
While on workshop end of period subscribers continues to be down year over year, which was due to the significantly low starting base as a result of the pandemic pressure on recruitment total constitute the trend is improving.
U S smoothed chump sign up trends have been positive while the recovery is slower and countries.
Net reopening will remain under tight restrictions.
Over the past SKU, we have realigned our physical footprint. So we are not only moving where the most flexible cost structure we have.
We are managing this business on a new weight with a small on fixed footprint augmented by highly flexible <unk> all third party locations as well as the highly scalable virtual workshop experience.
We have initiatives underway to further optimize this business and we aim to return workshops drove 40% points gross margin in 2022.
As part of our restructuring plan, we closed on 64 among U S Studios in Q2, resulting in the $5 million restructuring charge on this quarter on top of the $1.20, each sentiment post during Q1 on about 150 closed during 2020.
As a reminder, we expect to have approximately 450 Ww branded studios in the U S. At the end of 2021.
From a balance of 800 pre COVID-19.
These locations on augment this plan highly price home networks from third parties to do on indications based on very short term typically annually rental arrangements as to the demand environment continues to improve we anticipate ending the year with about 600 such locations on the.
The U S and ensuring the availability of Ww workshops to the majority of the population with over 70% of U S households, within a 15 minute drive from a location and about 90% within a 30 minute drive.
On virtual workshops, which were created out of necessity at the beginning of Covid continues to be a bow on the user experience, even if members return to their local and personal loans shops as many members enjoy the convenience of having both we believe virtual workshops will continue to be.
Powerful tool on member engagement and retention.
Finally on consumer products business, we are confident in the e-commerce growth opportunity and expense.
This channel to be an approximately $100 million revenue business in 2021 up about 35% year over year positioning us for accelerated growth in 2022.
Even with all the e-commerce expense.
We have seen over the last 18 months since we relaunched this business on integrated inventory.
We are still just scratching the surface on growth initiatives include.
Further integration into the expense drawing, bringing repeat purchases maximizing week, 1 orders enhancements to member marketing and offering a broader assortment of products without carrying additional inventory through marketplace partners.
While traffic to on e-commerce shops was lower than anticipated in Q2.
Largely due to member sign ups coming in below forecast.
Pleased at Memphis went back to shopping and on studios in the U S.
Total consumer product sales were relatively flat year over year on a global basis on the broad on micro side, a number of challenges are impacting global supply chain lead times, which resulted in many of on the pulpwood products being out of stock during the quarter. We are addressing these issues and expect e-commerce sales to.
We returned to growth in Q3.
In summary, while our overall performance did not meet our expectations. We are taking corrective actions and have a clear plan to maximize performance in the second half.
On a record high of 61% adjusted gross margin is testament to the reductions on our fixed cost structure and to the strength of our digital subscription model.
Before I turn it over to Amy to review Q2 financial performance and outlook in more detail.
First I'd like to reiterate on our focus on the health cash.
On diabetes market.
As we have discussed diabetes is a particular area of focus.
See a clear opportunity and responsibility to provide a solution includes populations unique needs.
According to the American Diabetes Association and the U S alone nearly 27 million adults have been diagnosed with diabetes and there is a high correlation between obesity and type 2 diabetes diabetes.
As Mindy will discuss shortly by introducing a tailored food plan for people with diabetes in 2022, we aim to better serve this population with on science space effective.
And proven program and now I'll turn it over to Amy to discuss on our financial performance and that approach.
Thank you Nick.
Compared to our prior outlook Q2 was a challenging quarter for the top line, we anticipated the year over year revenue decline and workshops of nearly $50 million. However, we did not deliver on our plan for digital subscription revenue and consumer product sales, while up 6% we expected digital.
Fibers to be up in the double digits at the end of Q2, but strong digital performance in the prior year proved to be difficult to outpace in this environment.
In Q2 of 2021 total revenue of $311 million went down 10% year over year on a constant currency basis.
With a workshop subscription revenue decline of nearly $50 million or <unk>, 43% in constant currency.
This was partially offset by a growth in digital subscription revenue, which increased 11% year over year on a constant currency basis in Q2.
Digital subscription revenue is now 75% of total subscription revenues.
We ended Q2 with $4.9 million subscribers down 2% year over year, the 6% increase in digital end of period subscribers largely offset the declines in workshops subscribers at Q2, and 85% of our members were digital subscribers.
Adjusted gross margin was 61% up approximately 100 basis points from the prior year as a result of the mix shift to a larger digital subscriber base. Additionally, timely cost reduction actions taken to right size the fixed cost base of the workshop business mitigated further deleverage.
<unk>.
The planned reductions to our workshop real estate footprint continued in Q2, resulting in a $5 million restructuring charge in the quarter.
In addition, our refinancing transaction closed within Q2.
<unk> and a 1 time debt extinguishment charge of $29 million.
Incorporating the 36 cents negative impact of restructuring and debt extinguishment costs Q2, GAAP EPS was 12%.
Turning to our outlook for the full year in light of current trends. We are planning the second half of the year more conservatively than our prior plan.
On a reinstating our practice of providing full year guidance.
Incorporating Q2 members sign up trends net to our full year outlook. We now expect full year 2021 revenue to approach $1.3 billion.
Digital revenue was expected to be up approximately 10% year over year offsetting more than half of the expected decline in workshop revenue.
Consistent with current trends, we are modeling end of period subscribers to be more in line with historical seasonal patterns.
Despite continued improvement in retention and the support from the food program innovation launch in Q4.
At year end, we expect the mix of digital and workshops subscribers to be consistent with last year.
Gross margin for the full year is expected to expand by approximately 275 basis points from prior year, which is up from our prior estimate.
As Mindy mentioned, we continue to be focused on cost management to maximize back half financial performance with a revised revenue outlook.
The same disciplined approach that we took to evaluate on our workshop fixed cost structure is applied to every investment decision prioritizing investments in digital and technology growth initiatives that drive member engagement and retention.
Excluding restructuring charges, we now expect full year G&A expense to be approximately $270 million to $275 million.
This reflects a more than a $10 million reduction of G&A expense compared to our prior 2021 outlook.
In addition, we will continue to execute our marketing extract our marketing strategy as efficiently investing behind our fall and winter campaigns to maximize member recruitment, while remaining flexible to balance investment with impact.
We expect full year adjusted operating income in the range of $240 million to $255 million.
GAAP EPS, which incorporates an approximately 53 per share negative impact from 1 time items is expected to be in the range of $1.10 to $1.25, which is above the $1.7 we reported last year.
Note. This reflects the benefit of lower interest expense from our debt refinancing.
To assist with your modeling of Q3 revenue was expected to be down on the low single digits, which is an improvement from the workshop driven declines in the first half.
Growth from digital revenue and consumer products and other revenues is expected to offset nearly 25% year over year decline in the workshop business.
Marketing expense is expected to be approximately $40 million in the quarter relatively flat year over year and G&A expense is expected to be under $70 million up about $10 million year over year as we lap the temporary cost savings initiatives in the year ago quarter.
We expect to incur 1 time restructuring costs in the range of $6 million to $8 million related to our G&A cost savings initiatives.
Turning to our capital structure and cash priorities Q2, and we had approximately $126 million in cash and an undrawn $175 million revolver.
We ended the quarter with a net debt to EBITDA leverage ratio of 4.3 times.
Reflecting the new interest rates on our debt and our full year interest expense is now expected to be $88 million.
Excluding the impact of restructuring charges on our P&L, we expect our full year tax rate to be approximately 22%.
Which assumes no changes to the current statutory rate.
Capex, primarily driven by capitalized software is expected to be in the $40 million range. In 2021, DNA is expected to be $46 million, including accelerated depreciation related to studio closures.
We expect that our yearend net debt leverage ratio to be closer to 4 times by year end.
In addition to continued investments in technology, and digital product resources, which fuel the future growth of the business. We will continue to evaluate the potential to acquire remaining franchise territories.
In summary, we are taking decisive actions to mitigate the impact that the current demand environment. We are confident that we are effectively balancing near term performance expectations with advancing growth opportunities in 2022 and beyond.
I'll now turn the call back to Mindy.
Amy.
As we discussed on our last call we have been focused on 4 key priorities for 2021.
1, creating greater engagement and elevating the member experience, which is clearly driving retention.
Second building out digital 360 to expand and diversify our member base by elevating content coaching and community.
Third preparing for the success of our 2022 food program innovation, leveraging science leadership to drive growth and for us.
Is it health care in diabetes to reach new audiences and have a greater impact on health outcomes.
In addition, we have developed a comprehensive plan to maximize performance in the back half of the year.
Our focus is on executing key marketing initiatives as we plan on our fall marketing campaign. Our research showed that deliverability of the Ww program continues to resonate with consumers who are in the mindset to start a weight loss and wellness journey, we intend to continue focusing on.
Ww allows you to achieve your goals, while being able to enjoy life fully reinforcing our superior weight loss efficacy and sustainability messaging.
Our fall advertising creative will feature will Ww members sharing their stories and celebrating success, you'll see these messages across all touch points across paid earned and owned channels.
As we prepare to launch our new food program innovation with the most comprehensive winter campaign in our history. We are thrilled debt Oprah has been deeply involved and is excited about the potential to motivate people as they recommit to prioritizing their health and wellness.
Now more than ever she feels at Ww can be that partner to help people live their best healthiest lives.
Second advancing our data science and analytics capability.
Over the past year, we have re architected many of our processes and systems to provide greater insights into member engagement and behaviors and instill a data driven culture across every area of the business. We're applying key insights from our data teams across every aspect of our operations to further personalize the member at <unk>.
<unk> maximize engagement and efficacy enhanced marketing efficiency and expand lifetime value.
And finally managing costs tightly.
As Amy discussed we are applying strong cost discipline to our organization, taking cost out of G&A and investing only in the areas that will drive growth.
Now I'd like to close with an update on our 2022 food program innovation plans.
As we've previewed earlier, our 2022 food program innovation will make our program even that much more personalized where my Ww created our first program that matched you with the food program that will work for you. Our next program, we'll design a plan uniquely and specifically.
Typically for you by incorporating your personal preferences to create a flexible customizable holistic plan that is as unique as you are.
In combination with an enhanced and engaging member on boarding experience. We are confident that the new program will make weight loss and wellness, even more simple livable applications and sustainable.
Our leadership and credibility and science based weight loss and wellness. The key competitive advantage and is why our members Trust Ww.
We are highly encouraged by the 3 months data from University of Connecticut study of our new food program, which showed impressive improvements in weight as well as consumer acceptability Livability and wellbeing.
Our upcoming 2022 food program is an essential part of launching a dedicated WWE offering specifically designed for people with diabetes.
As part of the overall food program innovation launch later this year members, who indicate they have diabetes, where we have seen an individualized plan tailored to their fleet needs.
We are currently conducting a clinical trial testing our diabetes program and consumer testing is also well underway.
In our pilot participants had been highly satisfied with our new suite program and its tailoring to people with diabetes.
Fortunately the 2022 food program innovation is just the first phase of offering a comprehensive Ww diabetes program, we have a robust product.
With Matt for a broader launch in the second half of 2022 encompassing content features and support specific to this express consumer needs.
The cross functional multi year effort behind this integrate innovation with the most comprehensive and well executed I have seen.
We believe our food program innovation will be a significant member recruitment driver in 2022.
Clearly, we are taking actions to improve the near term trajectory of the business and we remain focused on executing critical priorities that will drive profitable growth in 2022 and beyond.
There is no shortage of statistics and stories about weight gain during the pandemic.
Our research letter published the journal of American Medicine in March 2021.
On an American to shelter in place a more than a half a pound every 10 days.
It could mean 20 plus pounds in a year.
In the U K public Health, England Survey 5000, adults on that 41% debt they've gained weight since March 2020, putting on nearly half a stone on average and 21% putting on stone or more.
While the timing of everyone's next formal is highly personal and may vary greatly by market and individual situation. It is clear that the world needs Ww more than ever as the number 1 doctor recommended weight loss program, we will be there providing guidance motivation and support whenever they are.
Ready to begin their weight loss on wellness journey.
So in closing I want to highlight the following points.
Overall member recruitment trends are following a more typical seasonal pattern than we anticipated early this year.
We continue to benefit from our flexible digital subscription based model with strong gross margins.
We are seeing interesting workshops increase as the economy reopens, demonstrating the relevance of our workshop offering.
Retention is at an all time high as we see strong engagement amongst our members.
We are managing our cost structure, particularly in the second half of this year.
In preparation for the launch of our 2022 food innovation program are well underway and we are excited about developing our diabetes offering.
Overall, we are confident we will expand our global impact and deliver on our vision for value creation and growth. Thanks.
Thanks for joining us today, and we are now happy to take your questions.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone zone. If you are using a speakerphone. Please pick up your handset before pressing the key to withdraw from the question queue. Please press Star then 2.
The first question is from Steph Wissink of Jefferies. Please go ahead.
Thank you and good afternoon, everyone on Monday, I wanted to come back to a comment on your opening remarks regarding just the overall level of fatigue with wellness and give us some other data points that youre seeing that might signal that it's not just ww, but maybe more broader macro issue related to just the overall level of attention on wellness.
Or I'll answer that but let me kind of give you some context of what we saw from the last time, you had a conversation about trend and why we were more bullish going into Q2.
On the momentum that we saw in Q1, which was a significant double digit growth.
Was continuing and fees.
Sealing that with the world opening up that would incentive.
People to want to go further on their end.
Well on this journey.
On that did not happen to the degree we expecting particularly as we were comping very significant digital growth across Q2 <unk>.
As you know, we do significant qualitative and quantitative consumer sentiment work.
We had done that first.
First quarter signing in January and we did that again across multiple countries.
We did learn from that is that to my earlier point with people in meeting market, particularly in our largest market.
North America and U S.
Coming out people wanted to focus more on their enjoyment then immediately going into a weight loss program, particularly in the summer months. Additionally, we have been following the data points everything from Google trends other data points.
And we have seen suppression overall in the weight loss category. So it was a combination of those things.
Net.
Did not enable us to achieve our original expectations for the quarter.
Yes, Indeed look the only thing.
The only thing I'd like to add.
As you head on.
Our remarks, given the prevalence.
Weight gain during the.
The pandemic.
It does feel like a temporary dislocation deal day exactly sure when it's going to balance.
Be ready with US spring excuse me with our Paul campaign. This September.
2 to drive interest and on.
On our program.
Okay. That's helpful. And then maybe any of the follow up for Bob What's contemplated in the guidance for the year on do you think about the second half on.
The effect of most of that fall marketing campaign are you carrying forward the current run rate.
That you saw exiting the second quarter, Yes, if you look at the current spread of guidance. We felt it was appropriate to take a more conservative approach clearly we're doing everything we can to maximize our performance and particularly our digital growth in the back half.
As Nick mentioned, our campaign launches September obsessed.
We felt strongly about it as well as you heard me speak a lot about.
Our launch of our innovation starting in November with our big marketing campaigns coming out after Christmas. So the combination of those 3 things obviously, we feel we have the potential to accelerate growth within the current guidance given what we experienced in Q2 were trying.
It would be appropriate.
And specifically on our guidance reflects that our end of period subscriber curve follows a more historic seasonal trends and so.
I think that Youll find its a more conservative approach to the back half and we're looking at our cost base, accordingly, and making changes as appropriate.
Okay. That's great. Thanks for all the help.
The next question is from Michael Lasser of UBS. Please go ahead.
Good evening, Thanks, a lot for taking my question.
It seems like the.
Dynamic happening.
And stuck at home.
We're excited to get out of collapsing.
Not as excited to go in and focus on their wellness.
How long do you think thats going to last.
<unk>.
Regional differences.
In the U S or around the world.
0.2 is evidence that they hold for those markets.
Going through FY, the RCC, which.
<unk> us with some level of confidence on encouragement.
On the short loop type dynamic.
Yes, just to give you a perspective typically on.
The seasonality you see the.
We surge up after labor day going into the fall season, and Thats the normal seasonal curve.
On that we would normally expect.
But as I mentioned before we're trying to be strategic and appropriate in the guidance, but clearly we're putting all our efforts into maximizing the fall season going into winter I can let Nick talk a little bit more about kind of market differentiation.
In terms of market differentiation.
Our.
Digital low trends around the globe, so more similar than.
So the main difference.
Trends.
<unk> bin.
Positive trends in.
Shops, particularly.
In the United States.
Expect a lot of the international countries being effectively.
On lockdown.
As we look forward to your question.
<unk> be exactly sure, but it will bounce back.
<unk> been a strong moment those company, we do know that we've got a great <unk>.
Food plan innovation coming to net.
Historically.
Lifted all boats on the spin are typically.
Good moment to bring.
<unk>.
<unk>.
Workshop on digital Memphis, Bye bye to the brand.
With a planned.
Planned innovation.
And I know, it's early but as you look out towards 2022, you're going to have the new food innovation out youre going to have.
The consumer being further into the reopening and maybe at that point, a little bit more focused on wellness.
You'll have more time with some of these strategies under your belt is 2022, a year that we can expect your performance will be nicely higher than 2019 are there any obstacles that you see standing on your way.
Moving to longer lasting challenges that youre going to have to face.
Yes, Michael that would be our expectation and if you recall, we entered 2020, having launched my Ww.
With tremendous strength.
If you look at Q1.2020, even with the challenges in the last few weeks on everything that shut down for Covid was very strong performance, particularly from Q4 to Q1, and then just Q1 year on year in general.
Obviously, we spent a significant amount of time in 2020.
Really focused on right sizing workshop business some of the challenges there continues to focus on our digital subscription business, our technology et cetera.
So we feel that the opportunities certainly in 2022 is to get back to the trajectory.
We feel the business has an opportunity to achieve.
And even to put some more color on that Michael maybe you mentioned the Q4 to Q1 left in our food innovation launch if you go back to 2016 for example.
Mark points lifted ended period subscribers by almost 30% free style lifted end of period subscribers by a little over 40% and so we're on.
We're really excited about the impact of the food program innovation at 2022 growth.
Thank you so much.
The next question is from Edward <unk> of Keybanc capital markets. Please go ahead.
Hey, good afternoon, thanks for taking the questions I guess first.
As you look at I know that you normally have a consumer that maybe comes back every couple of years to the program or you were seeing any trends in the return on consumers in terms of the frequency by which are coming are the interval and in particular are you seeing any changes on whether the re entering digitally or in the physical studio.
As part of a bigger picture question.
A lot of discussion over many years on body positivity.
And I know a lot of people lose weight for different reasons.
Anesthetic do you think that there is a bigger picture changes that are maybe changing the interest in weight loss.
Or.
Talk to them both in terms of our member.
File.
What we didn't see is this.
Huge returning influx of studio members go into digital what we're seeing now is studio members that net <unk> studios coming back.
Cause they want that coach they want that PV.
I think that's important to note and where we're seeing the trend of studios coming back obviously in the markets where things are are more open.
What we also tend to see in particular in a food program innovation here is a very strong influx of lapsed.
If you recall in 2020 is not.
Not only did we have strong digital subscription growth in the.
Quarter, we had strong studio.
Growth as well in both labs, and so we see that opportunity there I'd say the third thing was the launch of <unk> 360, we're seeing diversification.
Of our member base as well as digital members coming in and upgrading to the more.
Fulsome vertical, which obviously is that on.
A higher price point, so its a benefit to us so thats like the member side.
I would say on the body positivity size I think what people.
Don't realize is where probably the biggest proponents of body positivity and in the marketplace. We don't we don't tell people what they issue way, we say what healthy means to you and that was very significant in our move to a holistic approach to wellness certainly incorporating weight loss.
But to really build out our full ecosystem of health to be able to for people to determine what the day wanted to be on.
And that message from US is carried in very clear because to your point it definitely is a movement.
Thank you.
The next question is from Lauren Chung of Morgan Stanley. Please go ahead.
Hi, This is Nathan feather on for Lauren.
Just 2 quick ones from me on.
The first part.
To what extent was kind of a higher marketing sales environment, a headwind to recruitment within the quarter. And then are you believe you have any update on the health solutions business. I know previously you had talked about that being a potential boost kind of counter cyclical to the second half subscribers are you still potentially expected net.
Thank you.
Can you repeat the marketing question 1 more time.
Yes, so just on marketing did you see any potential headwinds from an efficiency perspective from a higher rate per quarter.
Yes, so we have done a tremendous amount of work over the.
Past years, and really working on the efficacy of our marketing spend clearly in some channels. There are certain pressures we've also diversified.
On our marketing spend across platforms and channels.
So thats, what we really focused on any particular, you will see that focus in our fall marketing campaign across platforms I'll, let Nick talk channel solutions.
Yeah look.
Very bullish on our.
Long term health care in diabetes.
Growth opportunities, Adam Carsten and the team are very focused on day.
Delivering.
Great.
Health solutions side wonderful growth.
Potential.
Right.
Considering our.
Sales efforts with our aggregator partnerships.
Assumptions.
CBS physician referral et cetera.
We're particularly excited about.
Entry.
Into the diabetes market in tandem with.
Food plan innovation.
No.
For people with diabetes being able to identify themselves some debt a tailor individual plan that suits their needs.
A huge step forward for us on serving a very important cycle.
Okay, great. Thank you.
The next question is from Jason English of Goldman Sachs. Please go ahead.
Hey, folks thanks for ASP on me and good evening.
Okay, 1 quick questions first.
Indian team I know on the past, we've talked about addressable market.
He said listen your biggest competition is moving.
Turning to source pharmacies do it it's the DIY consumer.
By nature implies at the biggest competition and if we look at packaged foods sales like Atkins is habit on a banner year right now with sales up handily about 2019 and last time I looked at Slimfast It looks similar.
So the data that doesn't suggest that a consumer is disengaged with weight loss and instead. It suggests that you've just may be engaged with weight loss on a DIY basis.
Love to hear you weigh in on that view, because it sounds like you've taken a holistic view of the market.
Perhaps maybe a bit more of a myopic view would love to.
Here's how you put that in perspective on what we're seeing on the DIY side versus what youre seeing as a broader consumer movement or lack of movement towards weight weight loss right now.
Well I would say.
It's a combination we have always said that our biggest competition is.
Consumers trying to lose weight and get healthy themselves.
That we don't see changing right I think.
That's been the history of the company whenever we talked about competition.
We've always said that competition is competition directly in the category paid competition is.
<unk> competition, particularly in the digital World is the less weight experience someone hat so on that being true. What we're seeing is in addition to that we definitely saw some macro pressure specifically around desire for immediate weight loss.
Coming out of kind of the Covid lockdown that that's kind of what we saw.
Okay.
But it does look like the bigger challenge is not getting consumer is focused on losing weight gain them focused on pain or subscription based service to lose weight.
I think it's a combination.
Maybe it maybe it might be I think you were at 94% on the consumer DIY and whats the 5 percentage pay.
So it could be but either way.
I know Amy mentioned that this product program is.
<unk> is expected to bring a lot of a lot of energy.
I think you actually comparative to smart points and freestyle, which were pretty big sweeping program changes, so maybe I am not really underestimating.
Upgrade if you're putting on the same playing field as those so can you give us some more context and color around the magnitude like what Youre brainy what is the support that's going to give us the kind of energy we saw from those 2 big program changes.
We actually added <unk> <unk>.
Ww was at.
That is significant.
On 1 of the things that is.
Definitively 1 of our greatest assets is the scientific work that we do around innovation and constantly iterating on our program to make it more livable more efficacious and definitely in this circumstance more personalized so the think of.
Every person having their personalized Ww program and very powerful at a very strong message I mentioned before that we're very pleased with our clinical trials. We're further ahead than we've been in years past, so being able to craft our message.
Again, our launch strategies.
And you can tell my enthusiasm I was here for the launch of free style and my Ww. So this is a launch that we plan on amplifying significantly.
Okay, I'm eager to hear Mark. Thank you so much I'll pass it on sure.
The next question is from Doug Lane of Lane Research. Please go ahead.
Yes, hi, good afternoon everybody.
Drill down a little bit more on the digital 360 effort.
How is that performing relative to expectations what have you learned so far.
A couple of quarters into it and then what do you see on the horizon for changes heading into 2022.
Yeah.
Yeah, So we on.
We're very enthused about the opportunity for <unk> 16.
If you recall the reason we created this new vertical was very specifically to go after.
Young of our audience.
Very specifically to focus on this idea of coach Inc. On demand content and community and.
And that is what we are seeing.
Now, obviously with a very new vertical that's very different.
An entirely new cohort of coaches in every market that's been launched much more external facing on.
On that what our traditional coaches for for example in the field. So the product teams have been working very closely with <unk>.
Content teams.
On 2 really key.
Holding the experience to keep elevating the engagement, which we're continuing to see so we can be ready to really more aggressively market and go after new audience, but everything that we're seeing 2 day relative to the vertical.
Very positive.
Good day.
So I just said about 50 percentage.
So first time 2 to $3.60 in Memphis.
On millennials, so it's really attracting a broader audience.
Okay, I'm, sorry, I I slept on me there isn't.
Moving up to expectations.
Yes, yes.
Attracting.
50% millennials or younger.
First on <unk> hundred 60, <unk> join US then.
Now if you.
ASP in December I would've said I'd be thrilled to have 230000 subscribers.
Okay. Thanks, that's helpful.
This concludes our question and answer session I would like to turn the conference back over to Mindy Grossman for closing remarks.
Well, thank you everyone.
A few here today.
Have a very comprehensive plan to optimize performance in the second half of the year and in addition, insured debt we're positioning ourselves for growth in 2022.
On fall campaign launches September 5th we will be amplified across all platforms.
To take advantage of what we know is.
The seasonal engagement in that.
An area.
We're excited to launch our new food program Innovation November, which we're confident will drive year over year growth in member recruitment and certainly position us for a successful 2002.
We're seeing improved performance in the studio business now with a significantly more flexible cost structure.
Retention continues to expand.
<unk> hundred 60 has momentum and our flexible digital subscription based model is delivering strong gross margins on it.
I think those are the important things to take away.
And I'd also like to thank our teams around the world for their work their agility their focus which has certainly been essential and accelerating on digital transformation over the past 18 months, allowing us to provide even more value to members and delivering continued community in new ways.
So thank you again for joining us today, and we certainly look forward to keeping you updated on our progress throughout the year.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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