WW International Inc.(WW) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company ended Q2 with 5 million subscribers, a 9% year-over-year increase, and a record level for the end of Q2 [12] - Total revenues were $334 million, down 9% year-over-year on a constant currency basis, primarily due to a shift towards higher-margin digital subscriptions [14][32] - Adjusted gross margin was 60%, up nearly 200 basis points year-over-year, marking the highest adjusted gross margin in the past eight years [14][32] - Adjusted operating income margin was 28%, flat year-over-year, demonstrating resilience in the business model [15][32] - GAAP EPS was $0.20, negatively impacted by one-time charges totaling $0.47, while adjusted EPS would have been $0.67 compared to $0.78 in the prior year [33][34] Business Line Data and Key Metrics Changes - Digital revenues increased by 50% on a constant currency basis, while studio fees and product sales declined due to COVID-related closures [14] - Digital subscribers reached 3.9 million, a 23% year-over-year increase, with approximately 80% of members being digital-only [13] - The company is strategically repositioning its studio business to have a smaller footprint, having permanently closed over 100 branded studios [37][40] Market Data and Key Metrics Changes - The demographic of new members shifted, with 51% of new members in Q2 being under the age of 45, indicating a younger audience [13][85] - The company reported strong engagement trends across all verticals, driven by personalized offerings and community-focused initiatives [86] Company Strategy and Development Direction - The company is focused on a digital-first strategy, enhancing its technology and content offerings to drive engagement and retention [10][21] - Plans include launching a new premium experience targeting millennials, which will be a separate vertical from existing offerings [73] - The company aims to expand its e-commerce presence, with Q2 e-commerce sales up 300% year-over-year [62] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the digital transformation and its ability to drive long-term growth, despite macro uncertainties [43] - The company anticipates Q3 revenue trends to mirror Q2, with strong digital growth offsetting declines in studio revenues [44] - Management emphasized the importance of community and human connection in delivering wellness solutions [68][69] Other Important Information - The company has made diversity and inclusion a priority, committing $1 million to related initiatives and appointing a Head of Inclusive Leadership [50][51] - The company is exploring potential tuck-in acquisitions to enhance its technology capabilities [48] Q&A Session Summary Question: Is the premium experience targeting millennials aligned with the virtual coaching model? - Management clarified that it is a separate vertical aimed at attracting a new audience while providing more engagement and community [73] Question: How should we think about the normal seasonality of the business? - Management noted that Q2 subscriber levels were at an all-time high, indicating a positive trend that may defy historical seasonal patterns [75] Question: What is the long-term vision for branded studio locations and potential savings? - Management indicated a flexible real estate strategy, with a focus on branded studios and a commitment to achieving $100 million in cost savings [80] Question: Can you provide insights on the characteristics of recent subscribers? - Management reported a diversification in the audience, with increased engagement across all verticals, particularly among younger demographics [85][86] Question: How has the pricing strategy evolved in the first half of the year? - Management stated that the pricing and promotions strategy has remained stable, with successful initiatives like the two-week free trial driving new member sign-ups [90][91]