Good afternoon, and welcome to WW International Fourth Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. Now I’d like to turn the conference over to Ms. Corey Kinger, Vice President of Investor Relations.

Thank you, everyone for joining us today for WW International’s fourth quarter and full year 2020 conference call. At about 4:00 PM Eastern Time today, we issued a press release reporting our fourth quarter and full year 2020 results. The purpose of this call is to provide investors with some further details regarding the company’s financial results, as well as to provide a general update on the company’s progress. The press release is available on the company’s corporate website located at corporate.ww.com. Supplemental investor materials are also available on the company’s corporate website in the Investors section under Presentations & 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 Hotchkin, 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 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 experience, providing guidance, support community, and inspiration all while ensuring science-based proven efficacious and sustainable wellness and weight loss at a time when our members and the world need us more than ever. Our focus 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, our 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, that e-commerce growth capabilities and product expansion, and successfully launched back to back innovations. myWW and myWW+ both…

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 70/30 mix in 2019 and an 85/15 mix in 2020. As it relates to revenue a year ago, digital subscription revenues were equal to our workshop plus digital revenues. In Q4, digital 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 have three 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 in that member signup 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. Over the 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 office strategies that emphasize economic value, but also have the benefit of longer-term commitments. On a global basis, average retention remains…

Thanks, Amy. Today, WW is the leading weight loss and wellness digital subscription platform with multiple membership verticals and revenue streams, 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 impact 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 increase retention. From the moment of consideration to our assessment onboarding 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 and an entirely new way. Instead of grouping them by demographics, focusing on their behaviors and then within these behavior driven groups, measuring activation, engagement,…

[Operator Instructions] 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 first quarter again, I think you mentioned workshops down 50% and the digital business up. Maybe help us think through the composition of the start to the year. And then how you expect that arc for that waterfall to progress as the year progresses. Thank you.

Sure. I think the first thing I would say is, this is definitively not a typical year in terms of a normal arc of seasonality, because of COVID. So you’re 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 first quarter. 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 signups. 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, et cetera. So it’s a different cadence of business. And with our partnerships with CVS, Welltok 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 7 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 of the year is what we’re confident then.

Great. And if I could follow-up in the one comment you just made, which is your e-commerce business with inside your app. Is there an opportunity to develop a third-party partnership or a marketplace model, where you feel like you could curate and deliver a selection of products, and maybe even services that would be beneficial to your user base that would be done through…

Yes. I’m really glad you brought that up, because our goal is to be a fully health and wellness operational marketplace. So just to give you a perspective, when I came into the company, basically all, if most, if not all our sales of products or 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 relaunched all our new products and have been rolling that out while we rebuilt our e-commerce platform globally. And that new global platform is what launched March 7, in addition to product expansion. Currently, the product assortments are branded WW products that we develop source, et cetera, we’ve built a co-branded portfolio. So for example, smaller electrics with gas our partnership with Vitamin Shoppe for supplements, and you’ll see more co-branded. And then the third is really building out more of a marketplace. And you will see a lot more of that as we expand our drop ship capabilities and even potentially have other subscription businesses be able to integrate within the app. And for me, coming from a product background and development, it’s exciting to see 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 Schenk 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 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 lapse 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 recruitment 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 is 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 or the content, but we’re developing content beyond that to create greater engagement. So for example, we have walked towards with people like Oprah, Sanjay 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 add. So excited about the D360 launch and with similar retention characteristics to digital, but at $2,995 price, it can have higher LTV than our core digital offering.

Great. Thank you.

Thank you. The next question comes from Alex Fuhrman with 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 to really rebuild the studio business for the modern era. Other than you mentioned many of them, some, definitely different points of distribution and where we could see the meeting 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, obviously in the short-term, they’re closed lot of our market. 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 Yruma, KeyBanc Capital Markets. Please go ahead.

ahead. Hi, this is [indiscernible] on for Ed. So you’ve had a year since you relaunch CPG. Any thoughts on how it’s gone and what you can do to accelerate growth there.

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 has 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 our – everything from small electrics to kitchen tools to measurement 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 scales 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 platforms, and in their physical locations, we also have WW areas with all our other products. And we’ve also trained their associate 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, if I could Mindy I just had looked thrilled with the growth in e-commerce look in 2020, we tripled the number of skews that we sell and doubled both penetration with our members and our repeat purchase rate. Despite that, this is a business by we feel, we’re just scratching the surface on the opportunity. And that’s why we’re very confident and strong growth in 2021 and beyond in e-commerce great.

Great. Thank you.

Thank you. Next question comes from Michael Lasser, UBS. Please go ahead.

Hi, this is Mike Schwartz on from Michael Lasser. Thanks for taking our questions. One of the key aspects of the WW story has been inability to build durable relationships with members over a long period of time. Even if there were gaps along the way, leading to templates your relationships. Is you begin to target a younger demographic with digital offerings. Do you think you can create a similar relationship with this age cohort, even if you don’t have that personal connection to 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 built and integrated from the personal assessment before you joined to being matched to a program to all of the personalization throughout your journey, as well as building the digital community in our core platform with Connect, but also now with D360 was building the coach relationship, and we’ve seen retention continue to build across our digital platforms. So that gives us confidence regardless of the age range, it’s been consistent across.

Thank you. And it’s a quick follow-up. Can you give a sense of how customer acquisition cost and turn it over the past year and whether you’re still around that target five to one ratio with LTV?

Yes. Look LTV to CAC comfortably five to one maintain such a strong part of our business model, very efficient marketing model. And team’s doing a great job, containing 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.

So I think this has been asked before, so I apologize, but I’m still not totally certain, what the message on the current trajectory of the digital subscription growth is so far here in 2021. And within the guide – the parameters, the guidance you gave for Q1, how we should think about digital growth there.

Well, what we spoke to is that we’re going to see strong digital growth in Q1. The pressure is on the studio business.

And then as we’re tracking right now, you’re up against the difficult comparisons. Is that there’s [indiscernible] then the business should get better as their Q1 progresses? Amy O’Keefe: 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 signups plus the Oprah Vision tour and a strong marketing campaign. And so we are seeing comparative pressure to a peak Q1 performance. And so we are guiding some 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 tough comp quarters. 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 there’s how the – we’ve talked for a while the business is shifting to digital, and then you also have this shift happening with your the winter legacy studio business going to virtual from physical. 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 expensive locations, the positive expensive locations about it?

But actually and I’ll let Nick go into it in more detail, but the actions we took on the right sizing of the studio has given us tremendous flexibility to be able to respond to what we’re seeing 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.

That’s right, because look, if you’re patient today you look in many countries, like UK, France, Canada, our studios on to open right now, and we’re still incurring costs. And that’s why the shift of virtual workshops has been so essential to keep our members engaged. Our post-COVID does the 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 add a studio at such a very cost-effective to meet demand.

Got it. Thank you.

Thank you. Next question is from Linda Bolton Weiser, D.A. Davidson. Please go ahead.

Thanks. So I guess we’re up to the point here where it’s a year in diet season 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 coming up for the next diet season? Thanks.

Yes, we have the 2022 innovation that is launching. I tried 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 felt really good going into 2020. And as you know, we launch at the end of 2021. So we’ll be able to – 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 first quarter 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 year. You will see growth sequentially over the course of the year. Yes.

Okay. Thanks very much.

Thank you. Next question Jason English of Goldman Sachs. Please go ahead.

Hey, good evening, folks.

Hi.

Thank you for let me in. 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 first quarter, just sort of back of the envelope, I’m walking into – walking back to an applied digital road figure of around $200 million. Does that – a, does that strike you as sort of reasonable? And b, what does it imply in terms of recruitment for digital looks like you are carrying over a fair amount of sub growth or high degree of subscribers. And that would be one of the weakest and one of the – they would be the absolutely the weakest sequential growth figure that we’ve seen from a 4Q to 1Q. Amy O’Keefe: So to start with just right setting expectations on Q1, as I mentioned, we do expect significant headwinds. So to be clear, we believe that our quarter one total revenue will decline in the mid-to-high teens driven by workshops. 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 if not up at all. I just want to make sure. I know it’s will be up year-on-year because you finished the year up. I’m just trying to make sure I’m sort of setting that I’m contextualizing the slope correctly. Amy O’Keefe: So we actually, so I don’t think so right, 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, yes, higher growth in that revenue in Q1.

Yes, because you also have to remember even with the decline, what percent of the overall business it is.

Yes, yes, I do. That’s helpful though. Are you – you’re expecting only sizable year-on-year growth, but real quarter-on-quarter growth. So that is helpful. Okay. And Mindy, clearly where you’re guiding 1Q would suggest that we use normal seasonality, that your revenue is on track to declined 7%, 8% or so for the year. You’re expecting to defy normal seasonality because they’re coming out of COVID. I hear you. So where you kind of looking for a new off cycle resolution period, which nothing what 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 a comp. You have myWW+ and a very strong engagement in our digital business. You have the growth and expansion of D360. You have a reset around the comp 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. Look in the near-term, as we mentioned, I’m really excited for our spring marketing campaign including James Corden will be a featured in our TV commercials in the U.S. and the UK. So I think that’s going to guide a lot of interest in our brand. Amy O’Keefe: Yes. And just to circle back to your digital question, don’t forget that we had a $16 million revenue comp year-over-year from the Oprah Vision tour. In addition to that in store product sales will be down significantly with workshop revenue. So I think that’s the piece that you’re missing.

Yes. The $16 million could be the piece. Thank you. Amy O’Keefe: Thank you.

And our final question today comes from Vikram Kesavabhotla 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 would you 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 first number of years, which you didn’t hear me talk about it very much with completely rebuilding that business, the platform, the technology, that’s why we opened the tech hub in Toronto, as well as the team, as well as what our offering was across employers, payers, physicians, et cetera. And so the platform now that we have is what we can really move forward with. So as I mentioned, we’re now with CVS’s and Welltok’s 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 fine, Mindy, so like multiple growth levers here focusing on small and medium size businesses. Of course the aggregate is CVS, Welltok and Castlight, that Mindy’s mentioned physician referral is a strong focus area also. And now with Adam Kaufman joining us to lead the WWHS business and no developed a diabetes offering, I think there are real synergies between health care and diabetes. So I think the future is bright for this combined business vertical.

Okay, great. Thank you. Amy O’Keefe: Now we’ll be saying, 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. I would like to turn the conference back over to Mindy Grossman, CEO, for closing remarks.

Well, thank you everyone. I think you can tell in 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 member base, delivering strong digital subscriber and revenue growth, driving total revenue and earnings growth to the balance of 2021 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 through our differentiated member experience at a time when it’s more critical than ever. So thank you, everyone for joining us today. And I look forward to keep you updated throughout the year.

Conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.