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 today's presentation, there will be and opportunity to ask questions to ask a question you may.
Press Star then 1 on your Touchtone zone 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.
And for joining us today for Ww International second quarter, 2021 conference call and about 4 o'clock P. M. Eastern time today, we issued a press release reporting 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.
And general update on the company's progress.
The press release is available on the company's corporate website located at corporate Ww Dotcom.
And then it'll 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 are also available as part of the press release.
Before we begin let me remind everyone that this call will contain forward looking statements investors should be aware that any forward looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today.
These risk factors are explained in detail 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 any forward looking statements, whether as a result of new information future events or otherwise joining.
Joining today's call are Mindy Grossman, President and CEO, Nick Hodgkin's and C O O and IMMU, Keith CFO I will now turn the call over to Mindy.
Thank you Corey good afternoon, everyone.
When we spoke to you and me, we believe that as the World Reopens.
Many of which would vary by geography consumers would be increasingly inspired and restore their health and wellness journeys, creating 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 slowed and the second quarter as we cycled against strong digital performance and 2020.
And therefore, our results did not meet our revenue and operating income and expectations well people are acknowledging their need for recommitting to labor and wellness. Our recent consumer research shows and at the moment, they're also asking for a pause to enjoy and social reconnection.
With both traffic and search under pressure.
And and shift appears to be across the weight loss and wellness 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 movement. 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 2020..2 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 and further detail shortly.
First I'd like to review the key highlights and the second quarter.
We ended Q2 with $4.9 million subscribers down slightly year over year and from Q1 and.
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 continued.
Growth.
Well its strong level overall is down from 16% growth and Q1.
Now available and our 5 largest geographic markets.
<unk> 360, and did the quarter with approximately 230000 subscribers up from approximately 115000 at the end of Q1.
By modernizing how we deliver the Ww program is industry <unk> interactive coaching and content experience is generating excitement from both new and returning Ww digital members, who are upgrading to this premium membership.
And the period workshops subscribers were 748000 and Q2 up slightly from the end of Q1, a notable improvement and that trend as we unlock pent up demand from members, who find and in person coach community to be essential to their weight loss and wellness journey.
Our workshop business now has a more flexible cost structure we.
We are managing this business and a new way and can accommodate a range of volume scenarios, while still delivering strong gross margin.
Overall member retention continues to extend and all time high of over 10 months and it.
Dish and to continued strong digital retention, which is now nearly 11 months.
Workshop retention has improved sequentially each month since February recovering from a temporary contraction due to COVID-19.
As we have discussed many times, we are highly focused on continuing to grow retention and the aim of having and exceed 1 year achieving that goal, we provide and notable unlock and 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 and tour and.
And we believe it is a solid platform for continued growth.
Consumer product sales were in line with the prior year period, a below plan due to a combination of internal and macro factors and as we cycled against extremely strong performance a year ago as 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 and accelerated our digital transformation and successfully drove our business forward through innovation creativity and focus all while navigating and uncertain and dynamic environment.
Moving forward, we have a comprehensive plan and optimize performance and the second half and position Ww for growth in 2022 and beyond.
We'll speak more about on a go forward plans, including our upcoming 2022 and program innovation and marketing plan and 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 and $4.
And 1 million volume.
And with Keytruda and Thai.
And the expenses.
As Mindy discussed consumer behavior, and motivation of weight loss and enrollments to non spine and the way we had anticipated.
Instead sign up trends on a more typical seasonal pattern.
And therefore, the extended June and the U S campaign, and incremental marketing investments and TV and digital did not volume for the impacts that we had hoped.
And April decreased 16 launched in Germany, France, and Canada, delivering and interactive.
Coaching and content and experience uniquely adapted to each market.
Assuming approximately 230000 members and finally global markets.
Data and analytics capabilities from <unk>.
And then on translation of the D 360 experience driving engagement satisfaction and weight loss and expense.
While workshop attendance.
<unk> continues to be down year over year, which was due to the significantly loans starting base as a result of the pandemic pressure on recruitment and Toby.
The trend is improving.
U S workshops sign up trends have been positive.
While the recovery and foreign countries and Ive, not yet reopening and remained under tight restrictions.
Over the past SKU, we have realigned our physical footprint. So we are not only moving with the most flexible cost structure we have.
We are managing this business and a new way with a small and fixed footprint augmented by highly flexible schedule and all third party dedications as loans are highly scalable and virtual workshops and experience.
We have initiatives underway to further optimize this business and we aim to return and workshops to a 40% plus gross margin in 2022.
As part of our restructuring plans, we closed 64 among U S Studios in Q2.
Falling and the 5 million restructuring charge on this quarter on top of the 120% and closed during Q1 and about 150 closed during 2020.
As a reminder, we expect to.
Approximately 450 <unk>.
<unk> branded distributions and the U S and end of 2020, 1 down from about 800 pre COVID-19.
These locations on augment this plan highly price home networks with third parties to do on locations, which on very short term typically annually rental arrangements.
The demand environment continues to improve we anticipate ending the year with about 600, such locations from the us and ensuring the availability of Ww workshops to the majority of the population with over 70% from U S households, within a 15 minute drive from 1 location.
And about 90% within a 30 minute drive.
Our virtual workshops, which were created and as necessity at the beginning of Covid.
On <unk> to be a bow on the user experience even as members returned to their local and personal workshops as many amendments and joined the convenience and having both we believe virtual workshops will continue to beat and powerful tool on member engagement and retention.
Finally on consumer products business, we have confidence and the e-commerce growth opportunity and expenses.
And so this channel to be and approximately 100 million revenue business and 2021 up about 35% year over year positioning us for accelerated growth and 2022.
Even with all the E Commerce success, we have seen over the last 18 months since we relaunched this business and integrated it and.
We are still just scratching the surface on growth initiatives include.
Further integration into the and experience drawing volume repeat purchases.
And some ways and in week, 1 orders and enhancements to member marketing and offering a broadened assortment and products without carrying additional inventory through marketplace partners.
While traffic to on E Commerce shop was lower than anticipated in Q2, largely due to member sign ups coming in below forecast. We are pleased amendments on bank to shopping and on studios and the U S.
Total consumer product sales were relatively flat year over year on a global basis on the broader macro side a number of challenges are impacting global supply chain lead times, which resulted in many of our pulpwood products being out of stock during the quarter.
We are addressing these issues and our strength e-commerce sales to return to growth and Q3.
In summary, while our overall performance did not meet our expectations. We are taking cause corrective actions and have a clear plan to maximize performance and the second half.
And 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, our Q2 financial performance and outlook in more detail.
First I'd like to reiterate on our focus on the health.
And diabetes market.
And so you've discussed diabetes.
1 area of focus.
We see a clear opportunity and responsibility to provide a solution for this population and unique needs.
According to the American Diabetes Association and the U S alone nearly 27 million adults have been diagnosed with diabetes and there was 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 and 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 download.
And.
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 subscribers to be up in the double digits at the end of Q2, but strong digital performance and the prior year proved to be difficult to outpace and this environment.
And Q2 of 2021 total revenue of $311 million was down 10% year over year on a constant currency basis.
With a workshop subscription revenue decline of nearly $50 million or 43% and constant currency.
This was partially offset by growth and 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 and digital and in periods subscribers, largely offset the declines and workshops subscribers.
Q2, and 85% of our members or digital subscribers and <unk>.
<unk> 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.
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, resulting in a 1 time debt extinguishment charge of $29 million.
Incorporating a 36 cents negative impact of restructuring and debt extinguishment costs Q2, GAAP EPS was 12%.
Turning to our outlook for the full year and light of current trends, we are planning and the second half of the year more conservatively than our prior plan and 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 and workshop revenue.
Consistent with current trends, we are modeling and of periods subscribers to be more in line with historical seasonal patterns.
Despite continued improvement and retention and the support from the food program and a patient launched in Q4.
At year, and 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 and prioritizing investments and 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 to 275 and Elliot.
This reflects a more than $10 million reduction of G&A expense compared to our prior 2021 outlook.
In addition, we will continue to execute our marketing our marketing strategy as efficiently investing behind our fall and winter campaign 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 and 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.
And with US with your modeling of Q3 revenue is expected to be down and the low single digits, which is an improvement from the workshop driven declines and the first half.
Growth from digital revenue and consumer products and other revenues is expected to offset and nearly 25% year over year decline and the workshop business.
Marketing expense is expected to be approximately $40 million and the quarter relatively flat year over year, and G&A expenses 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 and a range of $6 million to $8 million related to our G&A cost savings initiatives.
Turning to our capital structure and cash priorities and Q2, and we had approximately $126 million and 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 and a $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 and 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 of 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 will now turn the call back to Mindy.
Thanks 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 force expanding into healthcare and diabetes to reach new audiences and have a greater impact on health outcomes.
In addition, we have developed a comprehensive plan to maximize performance and 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 and weight loss and wellness journey, we intend to continue focusing on.
And have Ww allows you to achieve your goals, while being able to enjoy life fully reinforcing our superior weight loss efficacy and sustainability and 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 that Oprah has been deeply involved and is excited about the potential to motivate people and they recommit to prioritizing their health and wellness now more than ever.
And 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 and 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.
Experience maximize engagement and efficacy enhanced marketing efficiency and expand lifetime value.
And finally managing costs tightly.
And 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.
And 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 a 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.
And combination with an enhanced and engaging member on boarding experience. We are confident that the new program on a weight loss and wellness, even more simple livable efficacious and sustainable.
Our leadership and credibility and science based weight loss and wellness and a 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 and weight as well as consumer acceptability Livability and wellbeing.
Our upcoming 2022 food program is an essential part of launching a dedicated ww 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 will receive an individualized plan tailored for their fleet needs.
We are currently conducting a clinical trial testing our diabetes program and consumer testing is also well underway.
And our pilot participants had been highly satisfied with our new suite program and its tailoring to people with diabetes and.
Fortunately the 2022 food program innovation is just the first phase of offering a comprehensive Ww diabetes program, we have a robust product.
And that for a broader launch and the second half of 2022 encompassing content features and support specific to this express consumer needs.
Our cross functional multi year effort behind this interface innovation was the most comprehensive and well executed and I have seen we.
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 the critical priorities that will drive profitable growth in 2022 and beyond.
There is no shortage of statistics and stories about week gained during the pandemic.
Our research letter published the Journal of American Medicine, and March 2021 day on that.
And Americans to shelter and place a more than a half a pound every 10 days, which could mean 20 plus pounds and a year and.
And the U K public Health, England Survey 5000 adults found that 41% said they have gained weight since March 2020, putting on nearly half a stone on average and 21% putting on and stone or more.
While the timing of everyone's next normal 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 and wellness journey.
So in closing I want to highlight the following points.
Overall member recruitment trends are following and more typical seasonal pattern than we'd anticipated early this year.
We continue to benefit from our flexible digital subscription based model with strong gross margin.
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.
And preparations 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 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 phone. 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 good afternoon, everyone and Mindy 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, we had a conversation about trend and why we were more bullish going into Q2.
And the momentum that we saw in Q1, which was significant double digit growth.
Was continuing and fees.
Sealing that with the world opening up that would incentivize people to want to go further on there and.
Well on this journey.
And that did not happen to the degree we expected, particularly as we were comping very significant digital growth across Q2.
As you know, we do significant qualitative and quantitative consumer sentiment work.
We had done that.
First quarters on in January and we did that again across multiple countries. What we did learn from that is that to my earlier point with people in many markets, particularly on our largest market.
And North America, and U S coming out and people wanting 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 and everything from Hulu.
And 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.
Yeah, and when you look the only thing.
The only thing I'd like to add.
As you heard and.
Our remarks and given the prevalence.
Weight gain during the.
The pandemic.
And does it feel like a temporary dislocation.
And we feel they exactly sure when it's going to balance.
Be ready with our spring excuse me with our Paul campaign to start in September.
2 to drive interest and <unk>.
On a program.
Okay. That's helpful. And then maybe any of the follow up cobalt and just what's contemplated in the guidance for the year and 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.
And 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 and particularly our digital growth and the back half.
As Nick mentioned, our campaign launches September obsessed.
Felt strongly about it as well as you heard me speak a lot about on.
Our launch of our innovation starting in November with our big marketing campaigns coming out after Christmas and 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, we're trying to.
Be appropriate and.
Specifically 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 and thank Bob for taking my question.
It seems like the.
And the dynamic happening is people and stuck at home.
And finally go out overlapping.
Not as excited to go and.
Focus on wellness.
How long do you think that's been a loss and are you seeing any.
And <unk>.
Regional differences.
And so around the world.
0.2 is evidence that they hold for those markets.
Our going through FY, the RCT, and Vodafone, which provide us with some level of confidence and encouragement from before.
We are short loop type dynamic.
Yes, just to give you a perspective typically on seasonality you see.
Research and jobs after labor day going into the fall season, and Thats the normal seasonal curve.
And that we would normally expect.
But as I mentioned before we're trying to be strategic and appropriate and the guidance, but clearly we're putting all our efforts into maximizing default season going into winter I can talk a little bit more about kind of market differentiation.
And in terms of market differentiation.
Our goods.
Digital trends around the globe more similar than different and so the main difference.
Trends.
<unk> bin.
Positive trends and.
Workshops, particularly.
And the United States.
Expect a lot of the international countries being effectively.
On lockdown.
As we as we look forward to your question, but couldnt be exactly sure whether it will bounce back.
<unk> been a strong moment those company, we do know book, we've got it great.
Food plan innovation coming to net.
And hopefully there is.
Lifted all boats and spin up typically.
Good moment to bring lapsed.
Workshop and digital methods.
Back to the brand with a simple.
And 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 will 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 were there any obstacles that you see standing on your way.
And lead 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.
And with tremendous strength.
If you look at Q1 and 2020, even with the challenges in the last few weeks and everything that shut down for Covid with 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 and 2020.
Really focused on right sizing workshop business some of the challenges theyre continuing to focus on our digital subscription business, our technology et cetera. So.
And we feel that the opportunities certainly in 2022 is to get back to the trajectory.
And we feel the business has an opportunity to achieve.
And even and put some more color on that Michael maybe you mentioned, the Q4 to Q1 and lift.
Food innovation launch if you go back to 2016 for example.
<unk> lifted ended period subscribers by almost 30% free style lifted and periods subscribers by a little over 40% and so.
We're really excited about the impact of the food program innovation at 2022 growth.
Thank you so much.
And the next question is from Edward <unk> of Keybanc capital markets. Please go ahead.
Hey, good afternoon, and thanks for taking the questions I guess first.
As you look at I know that you normally have a consumer that maybe coming back every couple of years to the program are you seeing any trends and the return on consumers in terms of the frequency by which are coming are the interval and in particular are you seeing any changes and whether the re entering digitally or on the physical studios and.
And as part of a bigger picture question, we've seen a lot of discussion over many years on the body positivity.
And I know a lot of people lose weight for different reasons health and.
Do you think that's fair and a bigger picture changes that are maybe changing the interest and weight loss.
Or talk to them both in terms of our member profile.
And what we didn't see is this.
Huge returning influx of studio members go into digital and what we're seeing now is studio members that missed their studios coming back because they want that coach they want that community. So and I think that's important to note and we're seeing the trend of studios.
Coming back obviously and the markets where things are are more open.
And what we also tend to see in particular and a food program innovation here is a very strong influx of lapsed. So if you recall in 2020 and.
Not only did we have strong digital subscription growth in.
Quarter, we had strong studio.
Growth as well.
And both labs, and so we see that opportunity there I'd say the third thing with the launch and D 360, we're seeing diversification.
Our member base as well as digital members coming in and upgrading to the more.
Pulled from vertical which obviously is at.
And at a higher price point, so its a benefit to us so thats like the member sign on.
I would say on the body positivity side I think what people.
Don't realize is where probably the biggest proponents of body positivity and are in the marketplace. We don't we don't tell people what they issue when 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 day wanted to be.
And that message from us is carried and 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.
And to what extent was kind of a higher marketing and great environment, a headwind to recruitment within the quarter and then offer you could give any update on the health solutions business and I know previously you had talked about that being a potential boost kind of counter cyclically to second half subscribers are you still potentially expecting that on the back.
Thank you.
Can you repeat the marketing question 1 more time.
Yes.
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 field.
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.
And so that's what we really focused on and a particular you will see that focus in our fall marketing campaign across platforms I'll, let Nick talk channel solutions.
And look forward.
Very bullish on our.
The long term health care and diabetes.
Growth opportunities and Adam and coffee and the team are very focused on.
<unk>.
Thanks, Greg.
Health solutions side wonderful growth.
Potential.
Right.
And considering our.
Sales efforts with our aggregator partnerships.
Assumptions.
CBS and physician referral etcetera and as you.
We are particularly excited about.
And tree.
And to the side.
Diabetes market in tandem with.
Food plan innovation.
No.
And people with diabetes and being able to identify themselves and get a tailor individual plan that suits their needs.
A huge step forward for us and.
Serving a very important cycle.
Okay, great. Thank you.
The next question is from Jason English of Goldman Sachs. Please go ahead.
Okay folks thanks for letting me in and good evening.
1 quick questions first.
And maybe and team I know on the past we've talked about addressable market.
And he said listen your biggest competition and some of these opportunities.
And to source from the DIY consumer.
Which by nature and placing the biggest competition and if we look at packaged foods sales like Atkins is habit and a banner year right now with sales up handily about 2019 and last time I looked at from past it looks similar.
And so the data that doesn't suggest that the consumer's disengaged with weight loss and instead. It suggests that you've just may be engaged with weight loss and a DIY basis.
Love to hear your way and 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 be able to hear how you put that in perspective on what we're seeing on the DIY side versus what youre seeing as a broader.
<unk> movement and park and 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.
Tumors trying to lose weight and get healthy themselves.
That we don't see changing right I think.
And that's been the history of the company whenever we talked about competition.
And we've always said that competition is competition directly and the category.
And competition is.
DIY and competition, particularly in the digital world is less with experienced someone hat. So all that being true. What we're seeing is in addition to that we definitely saw some macro pressure specifically around desire for immediate late.
<unk>.
And out of kind of the Covid lockdown.
That's kind of what we saw.
Okay.
But it does look like the bigger challenge is not getting consumers focused on losing weight gain and focused on pain.
Subscription based service to lose weight.
And I think I think it's a combination.
Maybe and maybe it might be I think you were at 94% and the consumers DIY and whats the 5 percentage.
So it could be either way.
I know Amy mentioned that this product program is expected to bring a lot of a lot of energy and I.
Thank you actually compare it to smart points and freestyle, which were pretty big sweeping program changes. So maybe I am not really underestimating. This product upgrade if you're 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 your branding and what is the support that's going to give us the kind of energy we saw from those 2.
2 big program changes.
And we actually added third my Ww was added.
And it's significant.
On 1 of the things that is.
Definitively 1 of our greatest assets is and scientific work that we do around innovation and constantly iterating on our program to make it more livable more applications and definitely in this circumstance more personalized so think of.
Every person, having their personalized Ww program and <unk>.
Very powerful as a very strong message I mentioned before that we're very pleased with our clinical trials. We're further ahead and we've been in years past, so being able to craft our messaging our launch strategies.
And you can tell on line 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.
And I drill down a little bit more on the digital print and 60 effort.
How is that performing relative to expectations what have you learned so far.
On a couple of quarters into it and then what do you see on the horizon per changes heading into 2022.
Okay.
Yeah, So we on.
We're very enthused about the opportunity for G III and <unk>.
You recall the reason we created this new vertical with very specifically to go after.
Younger audience.
Gary specifically to focus on this idea of coaching on demand content and community.
And that is what we are seeing.
Now, obviously with a very new vertical that's very different.
And entirely new cohort of coaches and every market that's been launched much more external facing on.
And then what our traditional coaches for for example in the field. So the product teams have been working very closely with <unk>.
Content and teams.
On 2 really key.
Wholly in 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 and <unk>.
Very positive.
At the beginning.
So I would just say that at about 50 percentage.
So first time and $3.60 and Memphis.
On millennials, so it's really attracting a broader audience.
Okay, I'm, sorry, I got on the there isn't.
Moving up to expectations.
Yes, yes.
And tracking.
50% millennials or younger and in terms of first time day 360 join us and.
No.
ASP in December I would've said I'd be thrilled to have 230000 and the subsets.
Okay. Thanks Thats 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.
And her today.
Have a very comprehensive plan to optimize performance and the second half of the year and in addition, ensure that we're positioning ourselves for growth from 2020.2.
On fall campaign launches September 5th we will be amplified across all platforms.
And to take advantage of what we know is the seasonal engagement in that.
And area.
We're excited to launch our new food program innovation and November, which we're confident will drive year over year growth and member recruitment and certainly position us for and successful 22.
We're seeing improved performance and 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 and I.
And then 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 and 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 delivery and continued community and 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.