Earnings Call: Q4 2020

Feb 25, 2021

Good afternoon, and welcome to WW International Fourth Quarter 2020 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I'd now like to turn the conference over To Ms. Corie Kinder, Vice President of Investor Relations. Thank you, everyone, for joining Today for WW Air National's 4th quarter and full year 2020 conference call. At about 4 p. M. Eastern Time today, we issued a press release reporting our 4th 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. Www.com. Supplemental 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. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward looking statements and the risks and uncertainties 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 today's call are Mindy Grossman, President and CEO Nick Hodgkin, COO and Amy O'Keefe, CFO. I will now turn the call over to Mindy. 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 7. At that time, none of us could have predicted that 2020 would change suddenly and dramatically. I am We are extremely proud of the work of our teams around the world and what they were able to accomplish in 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 an incredible sense of community and validate the resilience of our teams and our business. In 2020, our global teams had a singular focus on delivering a high quality differentiated technology enabled member providing guidance, support, community and inspiration, all while ensuring science based, 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, we'll 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. By aggressively responding to the changes in 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 Drive membership growth, grow digital subscribers 24%, maintain all time high member retention and engagement, drive e commerce growth capabilities and product expansion and successfully launch back to back innovations, MyWW and MyWW Plus, both of which have created an entirely new personalized experience for our members. As a result of these achievements, WW ended 2020 with 4,400,000 subscribers, up 4% year over year and at an all time year end high, delivered full year revenue of 1,400,000,000 Significantly expanded adjusted gross margin to 60% for the past 3 quarters and delivered adjusted EBITDA of $358,000,000 By successfully driving strong year over year growth in digital with subscriptions up an impressive 24 percent and revenues up 21% on a constant currency basis, we were largely able to offset the significant pressures that COVID 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 an uncertain and dynamic environment. The critical and agile actions of our team made this possible by the launch of MyWW, Not only executing the first ever 9 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. Built our first ever virtual workshop experience, bringing a new era of coaching and community to members, added even more value to the member experience with more in app features, content, Personalization and gamification with sleep and hydration tracking, fit on workout videos and challenges and even more community enablement in our Connect Platform. Integrated our e commerce platform into our app and expanded consumer product offerings, Driving over 300% growth in U. S. E commerce revenues in 2020. Advanced our WW Health Solutions business through technology investments and new partnerships such as CBS and WellTalk, amplified our commitment to inclusion and diversity and We founded the Healthy Living Coalition, advancing our efforts to democratize wellness and healthy living as a human right. In 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 MyWW Plus, Our first holistic non food program innovation is delivering a deeply enriching, more interactive and personalized app experience. Utilizing a personal assessment, MyWW 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 Corden, was enthusiastically received, driving significant media coverage at the start of the year. And once again, For the 11th year in 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 3 years ago, I was confident that we could have greater impact by elevating the brand, Digital 360, our new mid tier membership vertical, is an entirely new experience built on the platform of MyWW Plus, but adding a one to many coaching and content experience unlike anything that exists today. E360 provides daily inspiration, engaging coach live sessions and real time connection delivered in a modern and unique way through an entirely new cohort of inspiring and relatable coaches who are featured in our newest campaign assets. To bring Digital 360 to life, our production team who created our live arena tour and virtual experiences Digital 360 has been a standout success with over 100,000 sign ups to date. Without any external marketing and Prior to our new TV and digital creative campaign highlighting D360, over 30% of the sign ups were new WW and over 40% were returning digital members, demonstrating the potential as both an upsell and a way to attract new cohorts. Today, D360 is only available in the U. S. And U. K. And as I will discuss later, we'll be rolling out globally, which will be a key lever of growth, new audience acquisitions, retention and Brand Evolution. The same team was also behind our recent live virtual experience. WW presents Oprah's Your Life and Focus, We offered this free interactive virtual experience on Saturday, February 13, which had over 1,000,000 views and generated nearly 5,000,000,000 media impressions. Hosted by Oprah I'm featuring Jennifer Garner, Sierra, Doctor. Shefali and a first time sit down interview with James Corden discussing his WW journey and more. The event kicked off with a pre show featuring our D360 Coaches, allowing attendees to see the unique experience they are 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 to attract new members to the brand. It is important to remember and why all of these innovations have been so critical In Q1, we are comping the launch of MyWW, Oprah's 2020 Vision Tour and resulting media avalanche strong workshop sign up period. As a result, in Q1 2021, we're facing significant headwinds primarily from our workshop business. Most consumers, particularly lapsed members, associate this vertical with in person workshops, the majority of which have been closed. Importantly, however, we expect to deliver strong digital end of period Scriber growth in Q1 includes Digital 360. Looking ahead to our upcoming spring marketing, Our integrated campaign will highlight the inspiring real stories of our members, including James Gordon, who will be featured in our TV Commercials in the U. S. And U. K. I will speak later on our 2021 priorities and future outlook, 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 to a digital subscription model over the past Several years. We expect that by the end of 2021, our subscriber base will be 90% digital, including Digital 360 and 10% workshops, which includes in person and virtual workshops. This is a notable shift from a seventy-thirty mix in 2019 and an eighty five-fifteen mix in 2020. As it relates to revenue, a year ago, digital subscription revenues were equal to our workshop plus digital revenues. In Q4, Crystal subscription revenues are now more than 2x workshop and growing in every geographic market. We were already way down this path pre COVID, but in the past year, we have been able to significantly accelerate this transition. Our continued focus and investments in technology is critical to driving our business in 2021 and beyond. We now have 3 tech hubs and additional resources around the globe to support WW Products and Tech Innovation, Our growth levers and our always on focus on our app experience. As it relates to the geographic markets, It has been a unique year and that member sign up trends have varied more than usual for a number of reasons. With COVID restrictions, Markets such as the UK, which had a higher penetration of workshops, have had greater pressure, Whereas Germany and France have benefited from a higher mix of digital subscribers. COVID lockdown rules have also affected consumer behavior, especially as it relates to the reset mentality at the beginning of the year. The one thing that is true everywhere is that consumers are seeking economic value and trust. And so we have worked to Test and create relevant offer 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 at a record level for WW, With digital retention showing continued strength, we continue to focus on LTV, longer term commitment plans and reduced churn. In app purchase continues to work well for us with a conversion rate from pretrial About 55% and accounting for about 10% of member sign ups. The addition of our assessment tool leading to a 2 week free trial has been a strong recruitment vehicle. Important to note that we do not count free trials as sign ups or subscribers until they convert to a paid membership At the conclusion of the free trial, in app purchase members tend to be first time WW members, 65% At $29.95 per month, it's a premium to our digital membership. As Mindy mentioned, We have already had over 100,000 people sign up for G360 in the U. S. And the U. K. TV and digital campaigns have just launched featuring our new coaches and experience. We'll be rolling out to Germany, France and Canada during the first half of this year. Given the successful launch of Digital 360 And trends in our core $2,195 per month digital offering, we expect digital subscriber growth and gross margin improvement in 2021. Let me give you some context on our workshops business, Where we are today versus a year ago and how we are strategically planning and managing for the future. Globally, at the beginning of 2020, we had approximately 16,000 coaches and guides, 1100 WW Branded Studios and 10,000 third party locations. In 2021, we To have roughly 7,000 coaches and guides, 600 studios and depending on country specific COVID restrictions, 2,000 third party locations. For additional context within the U. S, our largest market, We began 2020 with a real estate footprint of 800 WW Branded Studios and 2,300 third party locations. In 2021, we'll have about 400 Studios and 250 third party locations. As you can clearly see, we've taken aggressive actions to right size this segment. We continue to focus on aligning the workshop's While our workshop plus digital business has become a smaller part of our mix, this high touch premium offering At $44.95 per month is an important differentiator in our portfolio and for our brand. Over our history, many millions of people have successfully lost weight by pulling the WW program with the guidance and inspiration from our Coaches and workshop member community. And today, we are finding new ways to provide this same support. Virtual workshops, which we launched just a year ago, are playing a pivotal role in keeping workshop 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 to provide some perspective, in the U. S, we are operating virtual workshops 16 hours a day, 7 days a week to create as much flexibility for our members as possible. As you know, subscriptions represents about 85% of our total revenue. Product sales and other represent the remaining 15%. We are extremely pleased with the performance of our e commerce business, which to remind you launched in our app Less than a year ago, after significant investments in the integrated experience and product assortment expansion, This has helped us to offset sales in studios. Previously, the primary sales channel Via our physical studios. Today, e commerce represents 80% of our product sales versus 30% a year ago. We expect that in 2021, e commerce will continue on a strong growth trajectory. We continue to build our branded, co branded and marketplace products portfolio and you can expect to see continued expansion and collaborations such as our recently announced collaboration with the Vitamin Shoppe. Finally, I'm also focused on the opportunity in healthcare and Beatty's, our Health Solutions business continues to be a key strategic growth lever for us. In addition to growth through expanding our relationships with employers, providers, payers and physicians, we now have plans In the U. S. Alone, more than 30,000,000 people are living with diabetes and despite the high correlation Between obesity and Type 2 diabetes, this population is underrepresented in the WW membership base. I'm thrilled that Doctor. Adam Kaufman has joined WW to oversee our Healthcare and Diabetes business. With Dierekt's responsibility for our WWHS business and partnership expansion in areas such as telehealth and In addition to his deep expertise in diabetes, Adam has unique experience We are building momentum and expect Strong WWHS revenue growth in 2021 with accelerated growth potential in 2022 and beyond. And now, I'll turn it over to Amy to discuss our financial performance and outlook. Thank you, Nick. As Mindy mentioned, we ended 2020 with a record 4,400,000 subscribers, Up 4% from the end of 2019 with digital subscriber growth of 24%, up 20% or more in all of our major geographic markets. We are extremely pleased that the growth in digital subscribers offset the substantial workshop pressures in this unusual year. For the full year 2020, total revenue was $1,400,000,000 down just 3% year over year on a constant currency basis, an impressive result considering that workshop subscription revenue declined over $50,000,000 in addition to significantly lower in studio product sales due to the COVID environment. Digital subscription revenue was up 21% on a constant currency basis for the full year. Adjusted gross margin was 58.1%, up approximately 2 50 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% in our digital business. Adjusted EBITDA was $358,000,000 in 2020, reflecting the impact of the digital mix shift and our ability to cost reductions to our Global Workshop operations by closing certain of our fixed locations. As a result, Our full year 2020 restructuring charge was $33,100,000 up from our prior estimate of $22,500,000 Incorporating the $0.63 negative impact from restructuring and other one time items, full year 2020 GAAP EPS was $1.07 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 Oprah's 2020 Vision Tour and strong member sign ups in both workshops and digital. In that context, for the Q1 of 2021, We expect revenue to decline compared to a record revenue quarter in Q1 of 2020, primarily driven by our workshop business, which we expect to be down approximately 50% year over year and the non recurring $16,000,000 revenue benefit we had in 20 20 from the Vision tour. As a result, we expect Q1 total revenue declines in the mid to high teens. Gross margins, however, are expected to increase over 500 basis points, benefiting from the growth in digital subscribers, Aggressive cost management efforts in our workshops business and the absence of costs related to the 2020 Vision tour. Due to the downsizing of our studio footprint, we anticipate taking an $18,000,000 restructuring charge in 2021, with the majority falling in Q1. Marketing and G and A are expected to be relatively in line with Q1 2020 levels. Given all these factors and excluding the impact from restructuring charges, we expect Q1 adjusted operating In 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 workshops. Looking beyond Q1, we expect Q2 to Q4 to deliver strengthening results on a year over year basis. Therefore, our objective for 2021 is to meet, if not exceed, 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. Therefore, for the remaining 9 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 in our digital business, accelerated by the success of D360 and a strong spring marketing campaign. We also expect that year over year sign ups in our workshop business will turn positive and will build over time as consumers get more comfortable returning to an in person environment in addition to having access to unlimited virtual workshop. We expect to expand gross margins by over 200 basis points for the full year, driven by strong digital growth. We will continue our focus on rightsizing our cost structure throughout the organization. However, please note that in 2020, G Innate benefited from $25,000,000 in temporary reductions in compensation. As we demonstrated in 2020, we will be responsive to an evolving environment and will balance cost discipline with investment to best position WW for growth in 2022. Turning to our capital structure and cash priorities. At year end 2020, we had approximately 100 $66,000,000 in cash and an undrawn revolver. We ended the year with a net debt to EBITDA leverage ratio of 3.7 times or 2.8 times levered on a 1st lien debt basis. Reflecting the current interest rates on our debt, at this time, our full year interest expense is expected to be 111,000,000 Given the strength of our balance sheet and dependent on market conditions, we are evaluating opportunities to reprice our debt in the near term. For illustration purposes, a 100 basis point reduction in our blended interest rate would equate to $15,000,000 in pre tax savings annually. Excluding the impact of restructuring charges on our P and 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 in the $40,000,000 range in 2021. D and A is expected to be 52,000,000 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 franchise territories and are in discussions with several franchisees. In summary, we believe we are focused on the right initiatives to fuel long term growth of revenue and earnings, drive strong cash generation and maximize I will now turn the call back to Mindy. Thanks, Amy. Creating a healthier, more profitable and more sustainable business model. It was clear pre COVID 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 The weight loss and wellness partner of choice for people, families, communities, the world, for everyone. 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 in 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 for today and for the future. To that, we are focused on the following key priorities. First, the member experience. Investments in our app experience and an always on innovation roadmap to give our members the intuitive and personalized experience that they need. This is key to both the recruitment pathway and increased retention. From the moment of consideration to our assessment, on boarding and ongoing engagement, we will continue to innovate and invest in the technology to create a frictionless and differentiated digital experience. We are building a new data platform and proprietary dashboard To measure and guide everything from the efficacy of onboarding, to habit formation, to greater personalization, Enhance discoverability and ultimately expanding LTV. These proprietary engagement KPIs Look at our member cohorts in an entirely new way. Instead of grouping them by demographics, focusing on their behaviors And then within these behavior driven groups measuring activation, engagement, tenure and efficacy to deliver actionable insights into how we can optimize the member experience. 2nd, Digital360. As I mentioned, we are thrilled with the launch of D360 Members choosing D360 as an upsell on rejoining. Members are enjoying engaging with our coaches and content, particularly the Coach Live experiences. We will accelerate our global rollout for 2021 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 1 on 1 platform. However, we will continue to offer the 1 on 1 coaching experience that we have today. The focus on Digital 360 will benefit the entirety of our coaching experiences across digital, virtual and 1 on 1. 3rd, our 2022 Food Innovation. Our science team are experts in constantly using the best in breakthrough innovation Across nutrition, behavior change, technology and psychology to constantly identify ways to make our member success Across wellness and weight loss, even more simple, more livable, more efficacious and more sustainable. Our entire team has never been more excited about food innovation. The development process, technology and testing is ahead of any other year. We've had strong consumer feedback and results to date, and we believe it will be a significant member recruitment driver for 2022. And finally, healthcare and diabetes. As Nick mentioned, we have invested in our WW Health Solutions business over the Past 3 years, building an entirely new technology platform, expanding the resources team and talent and advancing relationships with employers, providers, But the opportunity is greater. We will be focused on the broader healthcare market as well as diabetes as a core WW We are thrilled to have Doctor. Adam Kauffman join our team to lead these efforts, which will include WW Health Solutions, diabetes and strategic partnerships in telehealth, telemedicine and healthcare working with the teams globally. We are confident in our ability to drive revenue and earnings growth over the course of the year. We have an expansive vision and a radical focus, The combination of which will drive our efforts and sequential progress in 2021 and allow us to deliver multiyear growth and profit objectives as well as on our global impact and improving people's lives through their partnership with WW. In closing, this past This year has reinforced our vision and belief in 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 to be able to maximize our opportunity and solidify our path for value creation and growth. With that, I will now take your questions. First question comes from Steph Wissink, Jefferies. Please go ahead. Thank you. Good afternoon, everyone. We have a couple of questions. The first is actually, Mindy, on your comments at the end, I think you mentioned confidence in sales and EPS growth this year. Maybe we could 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 Q1 again, I think you mentioned workshops down 50% And the digital business up, but maybe help us think through the composition of the start to the year and then how you expect that arc or that waterfall to progress as the year progresses? Thank you. Sure. I think the first thing I would say is this It's definitively not a typical year in terms of a normal arc of seasonality because of COVID. So you're going to have to Look at it a little differently. And so what we were articulating is that Particularly on the studio side of the business, because at the beginning of 2020, we had very strong studio sign ups, Particularly in that Q1. And that's what we are comping. So even though we mentioned that we will have Strong digital growth at the end of Q1, that's where you have the gap. 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 D360, which is a premium to our digital business and to that point, right now, just in the U. S. And UK, with no marketing efforts whatsoever, we're already seeing over 100,000 Sign ups. So that will be a trajectory throughout the balance of the year in addition to our other marketing efforts. Nick spoke about our WW Health Solutions business and our efforts in that, which also does not have the typical cadence Of seasonality, because it really is based on sales into employers, etcetera. So it's a different cadence of business. And with our partnerships with CVS, WellTalk and we just announced Castlight, you will be building on memberships over that time. In addition, we did not launch e commerce in our app until March 7th of 2020. And that business is scaling significantly, as we have more and more of our members And we have more product expansion in the business. So it's why we have been talking about kind of a different curve of trajectory for the year than you would traditionally see, which is why we feel the revenue and earnings growth over the course The year is what we're confident in. Great. And if I could follow-up, Vinya, on one comment you just made, which is your e commerce business with inside your app. Is there an opportunity to develop a 3rd party partnership or a marketplace model where you feel like you could curate and deliver a selection of products And maybe even services that would be beneficial to your user base that would be done through a Yes. I'm really glad brought that up because our goal is to be a fully health and wellness operational marketplace. Just to give you a perspective, when I came into the company, basically All, it's most, if not all our sales of products were in our studios, And they weren't products that we felt fit the brand. So over the course of the time, we got out of 100% of the products we sold, We launched all our new products and have been rolling that out while we've rebuilt our e commerce platform globally. And that new global platform is what launched March 7th in addition to product expansion. Currently, The product assortments are branded WW products that we develop, source, etcetera. We've built a co branded portfolio. So for example, small electrics with DASH, our partnership with Vitamin Shoppe for supplements, and you'll Seeing 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 for me, coming from a product background and development, it's exciting to Both the member engagement and engagement in general with what we're doing on the product side. Great. Thank you very much. Thank you. Next question comes from Lauren Shanks of Morgan Stanley. Please go ahead. Hi. This is Nathan on for Lauren. Just a quick one for me. Can you provide some color on what you're seeing in the early Digital 360 customer behavior, engagement and retention when compared to Behavior engagement and retention when compared to a core digital or studio member. Yes. What we're really excited about is that In addition to attracting new audience and really being an 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 exposed our coaches to a significant degree. And just one comment on the coaching, Those coaches who we developed and identified for D360 are influences on their own and are creating their own Treatment mechanism. 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, we see this as a very important growth element. And lastly, for us as a brand, the one to 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 walk tours with people like Oprah, Sanjay Gupta, Matthew McConaughey. So there's a very highly engaged and our satisfaction scores are very high, Which is what's giving us the confidence to be very aggressive on both the rollout and the marketing. Yes, it's Nick. I just had so excited about the D360 launch and with similar retention characteristics to digital, but at 29 95 price, it can have higher LTV than our core digital offering. Great. Thank you. Thank you. And the next question comes from Alex Fuhrman of Craig Hallum. Please go ahead. Great. Thanks very much for taking my question. I wanted to ask about, it seems like you have kind of a once in a lifetime opportunity here Really rebuild the studio business for the modern era. Other than, you mentioned, Mindy, some definitely different points 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 as you build that business back in terms of the experience and how the workshops are conducted? Absolutely. 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. Where we are today is it does give us the optionality as we see people come back to react very quickly On a flexible basis, it also gives it's going to give us the ability to pilot new experience concepts That are very different than what we traditionally had in a branded 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 in 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 coaches. And that's what people are really responding to. Now, obviously, in the short term, They're closed in a lot of our markets. But it's definitely going to give us, as you said, a kind of once in a 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 Yarmol, KeyBanc Capital Markets. Please go ahead. Hi. This is Brennan Cutler on for Ed. So you've had a year since you relaunched CPG. Any thoughts on how it's gone and what you can do to We have a great opportunity in our consumer products business. And the areas that we're very focused on right now are 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, it's coffee products and You're going to see continued marketplace expansion there. Healthy Kitchen, which are all are everything from small electrics to kitchen tools to measurement to everything having to do with Healthy eating. Health tech and healthy lifestyle, you'll start to see built out, And it's way beyond what I would call our scaled businesses, but other aspects of health tech. And then as I mentioned before, Really also being able to build out, the marketplace portion. A really good Example of what we've done in a partnership, I use the Vitamin Shoppe because it's not just about a product creation. Yes, we did launch PillPack, both for healthy living as well as heart health, but we're Delivering those for commerce both in Vitamin Shoppe's digital platform, our digital platform, And in their physical locations, we also have WW areas with all our other products And we've also trained 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 in these strategic partnerships, which also gives us an opportunity to reach more audience. Yes, I could, Linda. I just had, look, thrilled with the growth in e commerce. Look, in 2020, we tripled the number of SKUs That we sell and doubled both penetration with our members and our repeat purchase rate. But Despite that, this is a business where we feel we're just scratching the surface on the opportunity and that's why we're very confident in strong growth in 21 and beyond in e commerce. Great. Thank you. Thank you. Next question comes from Michael Lasser, UBS. Please go ahead. Hi. This is Mike Schwartz on for Michael Lasser. Thanks for taking our questions. One of the key aspects of the WWE story has been an ability to build durable relationships with members over a long period of time, even if there were gaps along the way leading to 10 plus year relationships, as you begin to target a younger demographic with digital offerings, you think you can create a similar relationship with this age cohort even if you don't have that personal connection of 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 everything that we've built and integrated from the personal Before you join to being matched to a program to all of the personalization throughout your journey, As well as building the digital community in our core platform with Connect, But also now with D360, with building the Coach relationship, and we've seen retention continue to build Across our digital platform, so that gives us confidence regardless of the age range. It's been consistent across. Thank you. And as a quick follow-up, can you give us a sense of how customer acquisition costs have trended over the past year and whether you're still Around that target 5:one ratio with LTV? Yes. Look, LTV to CAC, comfortably No, 5 to 1, we maintain such a strong part of our business model, very efficient marketing model and Team is doing a great job, continuing the shift from TV and video and to Some really fantastic work building out our digital marketing strategy also, and I expect that to continue in 2021. Thank you. Thank you. Next question is from Brian Nagel, Oppenheimer. Please go ahead. Hi, good evening. Hi, Brian. Hi. So I think this has been asked before, so I apologize. But I'm still not totally certain What's the message on the current trajectory of the digital subscription growth is so far here in 'twenty one? And within the parameters, the guidance you gave for Q1, how we should think about digital growth there? Yes. Well, what we spoke to is that we are going to see strong digital growth in Q1. The pressure is on the studio business. And then as we're tracking right now, Europe begins to difficult comparisons. Is that how the business should get better as Q1 progresses? Absolutely. Yes. So as we mentioned, if I can just add, we will begin to comp against the COVID comp in 2020 In just a couple of weeks, and Mindy had mentioned that we had a record quarter in Q1 of 2020 with Strong workshop and digital sign ups, plus the OprahVision tour and a strong marketing campaign. And so We are seeing comparative pressure to a peak Q1 performance. And so we are guiding for 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 these this tough comp quarter. Yes. 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, I guess, a little bit longer term in nature, but maybe more for Nick. You talked about We talked for a while the business is shifting to digital. And then you also have this shift happening with your the legacy Studio business going to virtual from Visible, how should we think about it? Is that transitions against hopefully a backdrop where The COVID headwinds are abating. But how should we think about just the expense implications of the positive expense implications of that? Well, actually, and I'll let Nick go into it in more detail, but the actions we took on the rightsizing of the Studio has given us tremendous flexibility to be able to respond to what we're seeing in consumer behavior, which also gives us the opportunity to improve margins in that segment of the business, albeit it's a Smaller portion of the business and the digital and D360 are at the significantly higher margins. No, that's still right. Look, if you pace it Today, you look in many countries like the UK, France, Canada, Our studios aren't open right now and we're still incurring costs. And that's why the shift to virtual workshops has been so essential to keep Our members engaged. Post COVID, as people become more willing to meet in person, We'll have a wonderfully flexible workshop cost structure. Today, obviously, social distancing, Only about 10 to 12 people in a location even when it's open. We can quickly increase capacity both in Our remaining 400 locations in the United States and studio ads, which are very cost effective to meet demand. Got it. Thank you. Thank you. The next question is from Linda Bolton Weiser of D. A. Davidson. Please go ahead. Thanks. So I guess we're up to the point here where it's a year in diet In 2022 where we would have a major program innovation, is that something you're planning for? Is there any color you can give us on the magnitude of that That, coming up for the next diet season. Thanks. Yes, the 2022 innovation That is launching. I try to express how excited I was about it based on what we're seeing. It's very innovative. It's very breakthrough, and even in early results. So we feel really good going into 2020. And as you know, we launched at the end of 2021, so we'll be able to have benefits from that as well, but it's very strong. Thanks. And I just wanted to clarify too that I understood what you said about the cadence of Seasonality, are you suggesting that subscribers could actually grow sequentially as we go through the year or will we still end The year with subscribers below the Q1 level? What you're going to see is sequential improvement Quarter by quarter. So we're going to see the reverse. I'm calling it more of a COVID year than a traditional Seasonality here, you will see growth sequentially over the course of the year, yes. Okay. Thanks very much. Thank you. Next question, Jason English, Goldman Sachs. Please go ahead. So I guess a couple of questions, and I want to come back to the expectation of the typical slope. But first and foremost, clarity on the Q1. It's a sort of back of the envelope. I'm walking into walking back to And implied digital rev figure of around $200,000,000 Does that, A, does that strike you as sort of reasonable? And B, what does that In terms of recruitment for digital, it looks like you're carrying over a fair amount of sub growth or a high degree of subscribers and that would be It would be absolutely the weakest sequential growth figure that we've seen from a 4Q to 1Q. So to start with just right setting expectations on Q1, as I mentioned, we do expect So to be clear, we believe that our quarter 1 total revenue will decline in the mid to high Teens driven by workshop. And so as a result, our digital revenue is Expected to be up significantly on a year over year basis. Yes, you gave the 50% number and then you can back in and it implies Sequentially, there's it's not up at all. I just want to make sure I understand. I know it will be up year on year because you finished the year. I'm just trying to make sure I'm sort of But I'm contextualizing the slope correctly. So we actually so I don't think so, right? No. It's the short answer In order to back into that number. So we are expecting growth. We're not prepared to provide the split at this point, but we are expecting higher growth in that It's revenue in Q1. Yes, because you also have to remember, even with the decline, what percent of the overall business it is. Yes. No, I do. That's helpful though. You're expecting not only sizable year on year growth, but real quarter on quarter growth. So that is helpful. Okay. And Mindy, clearly, where your guide in 1Q would suggest We use normal seasonality that your revenue is on track to decline 7%, 8% or so for the year. You're expecting to defy normal seasonality because we're coming out of COVID. I hear you. So you're kind of looking for a new off cycle resolution period, which knock on wood, I hope happens. What are the guideposts that you think we should be looking at 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. You have MyWW Plus and a very strong engagement in our digital business. You have the growth and expansion of In our digital business, you have the growth and expansion of D360. You have a reset around the comps of Studio and then you have growth in other areas of the business such as commerce and consumer growth with WW Health Solutions. So you start building on that quarter by quarter and you're going to see sequential growth. Yes. And look in the near term, as we mentioned, I'm Really excited for our spring marketing campaign, including James Gordon, who will be Tisha, then our TV commercials in the U. S. And the U. K. So I think that's going to drive a lot of interest in our brand. And just to circle back to your digital question, don't forget that we had a $16,000,000 revenue comp Year over year from the Oprah Vision tour, in addition to that, in store product sales We'll be down significantly with workshop revenue. So I think that's the piece that you're missing. Yes, the $16,000,000 could be the piece. Thank you. Thank you. And our final question today comes from Vikram Kesavapatla of Guggenheim. Please go ahead. Yes. Thanks for taking the question. You talked about the opportunity on the Health Solutions business a few times. I'm just curious if you can give us some more color on some of the specific goals you have there for fiscal 2021 and what we should be looking for throughout the year to kind of measure progress on that front? Thanks. Sure. I'm just going to give you some background and I'm going to let Nick talk to it as well. We've had the WW Health Solutions business for a year. I came in and realized this is not the business That is really going to take us into the future. So the 1st number of years, which you didn't hear me talk about it very much, We're completely rebuilding that business. The platform, the technology, that's why we opened the Tech Hub in Toronto, as well as the team as well as what our offering was across employers, payers, physicians, etcetera. And so the platform now that we have is what we can really move forward with. So as I mentioned, we're now with CVSs and Wealth Talks and Other areas and that is going to build based on the timing of when they sell in over the course of the year. So we have fairly 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. I think that's right, Mindy. So like multiple growth levers here focusing on small and medium sized businesses, Of course, the aggregators, CVS will talk in our cash slide that Mindy's mentioned. And physician referral is a strong focus area also. And now with Adam Kaufman joining us to lead the WH has business and develop a diabetes offering. I think there are real synergies between Healthcare and diabetes, so I think the future is bright for this combined business vertical. Okay, great. Thank you. I mean, we'll be able to give you updates on this every quarter, but we are confident in the growth vehicle. This concludes our question and answer session. Now I'd like to turn the conference back over Mindy Grossman, CEO, for closing remarks. Well, thank you, everyone. I think you can tell I'm confident in our strategy as well as The rigorous focus we have on the key initiatives that will have the greatest impact, and what we're focused on is the recruitment, retention and diversification of our of our member base, delivering strong digital subscriber and revenue growth, driving total revenue and earnings growth for the balance of 20 21 to accelerate growth in 2022 and beyond. I just want to once again thank our talented Teams around the world for their exceptional work during this time, which has reinforced our leadership as a technology experience company to 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 The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.