WW International, Inc. (WW) Earnings Call Transcript & Summary

Thank you for joining us. My name is Lauren Schenk. I'm Morgan Stanley's small and mid-cap internet analyst. I'm thrilled to be joined this morning by Mindy Grossman, WW's Chief Executive Officer, since July 2017; and Michael Lysaght, WW's Chief Digital Officer since 2019. I want to thank you both for joining us today. Before we get started, a quick disclaimer, please note that this webcast is for Morgan Stanley clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley research discloser website at www.morganstaley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley salesperson.

All right. So with that out of the way, thank you both for joining us. I'm going to start with a few high-level questions, and then I want to open up to investor questions. [Operator Instructions] So great. Maybe, Mindy, just starting with you, starting with the theme of the conference, talk to us about how COVID has changed the business over the past 8 months? And your 2 to 3 key learnings over that time frame for the business?

Sure. Look, there is no question that COVID has changed every aspect of consumers' lives. And what that's resulted in is everyone having a radical reappraisal of how they live, how they work, how they play, how they spend. And everyone really has to take that into consideration given their business. As it relates to WW, what this has really meant is not a wholesale change in our business, but a dramatic acceleration of what it is that we have been looking to accomplish relative to our transformation over the past number of years. And this move from certainly being the most efficacious, sustainable weight loss program on the planet built on community. But what we've done over the past number of years in building a much more holistic approach to all the areas of wellness. So nutrition, activity, mindset, motivation, all again, built on community empowered by our incredible weight loss expertise has been more important than ever as people are really looking to how they are going to take control of their lives. I'd say the second piece has been the investments we have made in product, in technology to really create a seamless experience 24/7 for people has accelerated as well. Our ability to really shift all our physical experiences to virtual experiences overnight has really been because of the expertise and the agility and what we've been able to build. And if you think about it, what we've been trying to accomplish is how do you take technology, data and meaning and give people all the tools to live a better connected life. And that truly is what we're seeing. I think wellness has also gone from having been perceived as a luxury to a necessity. And in all the qualitative and quantitative data we've done, we've really seen a shift in consumer behavior where other concerns may have been at a higher level. And now health, being healthy for myself, being healthy for others has had a significant impact. And if you look, COVID has been the #1 factor -- I mean, I'm sorry, obesity has been the #1 factor, and COVID thus. And I think we really have recognized that people need the support more than ever. So this move to our digital transformation, our ability to give people more assets to engage with. Just during this time, we launched our sleep vertical. We launched e-commerce in our app to be able to support. We launched hydration. We launched more content. And all of those things are because we had put so much investment and work into the strategy for moving forward in our transformation pre-COVID.

Great. So I guess on that acceleration, on the earnings call 2 weeks ago, so you announced the launch or a refresh of 4 new product tiers: myWW+; digital 360, which is the product we've all been referring to as virtual group coaching; digital plus unlimited workshops; and personal one-on-one coaching. So maybe just walk us through what's new about each platform, the rollout timing for each and then the marketing strategy for those new tiers as we head into the prime recruitment season?

Sure. So let me clarify the difference between program and membership vertical. So myWW+, which is launching next week, we are very excited, it is the most personalized AI and data-fueled innovation that the company has ever launched. And it's also the first time we have a very focused innovation that is not specifically food-related, but crosses every aspect of wellness. And certainly, because of that, we'll be efficacious as it relates to weight loss. And that becomes the core fundamental foundation of our app and our digital assets. So to give you an idea, some of the things, there is a very full robust assessment. If you remember, myWW had an assessment to marry you with the food plan. Now it's an assessment to make the entire program more personalized for you. Personalized in your food choices, personalized in your activity choices, personalized in your 5-minute coaching, personalized in what we're recommending for you, personalized in your sleep habits. So it's taken to a degree where every single member feels it's there, myWW+. And that's very critical right now. We have just seen how personalization and know-me is so important in how consumers want to engage and what they trust and what they want. So that launches next week, certainly across all our current members as well as new members. It's also one of the first times we've had an assessment prepay wall, postpay wall, to really give people an opportunity to experience who WW really is and why it's for them. So think of that as the significant program innovation launch. Then what we have done is really defined the specific verticals that you can determine are what you need for both your support, your accountability and your lifestyle. So our digital membership is the core of every membership. It's what everyone gets, no matter what. The new membership, which is called digital 360. And what I say, it's built by millennials for millennials, as we look to expand our cohorts, which we have seen over the course of this pandemic that our new digital consumers coming in are younger and we have been building to that. But this offering, in addition to having the core platform, is a very coach-led, content-led, community-oriented experience. These are all new coaches with specific followings of their own, but that either have expertise in fitness, nutrition, mindset. So it gives someone the ability to have an on-demand, both live and content-driven experience to be able to choose their coach, their community and their support. So we've really been excited about that and the feedback and what we're seeing from our trials have been very exciting. And that will launch in the U.S. and U.K. in December and then roll out from there. And then the third tier is digital plus unlimited workshops. Equally excited. Because now we are not bound by geography. We are not bound by a particular physical location. People can really have the support of the community based on what's important to them. So it could be a coach, it could be a cohort, it could be young moms, it could be men who people want to interact with. And so this gives them the ability to be able to -- and then just to give you a perspective in the U.S., we will be 16 hours a day, 7 days a week of virtual workshops. And we will still manage our physical environment. Even though we have reduced our footprint, we still can service about 80% of our members between our studios and the work that we've been doing to have workshops in hotels, et cetera, but this gives people ultimate choice. And then finally, in 2021, we will be relaunching our one-on-one personal coaching platform for those who really want that guided support. So between the programmatic, which is our big marketing vehicle, which you will see us really focused on in winter, which is exciting news that we will be able to come out with. And then giving people, through the assessment, a recommendation of what accountability and membership is going to work for them and then giving them the choice. So if you look at where we think consumer behavior is going around personalization and, for me, this covers it across all those platforms.

Right. Wonderful. I think that's probably a good transition over to Michael. myWW+ is the first sort of new tech-driven program innovation we've seen. Could you talk maybe about some of the big technology investments WW has made over the past 3 to 5 years that laid the groundwork for this sort of innovation?

Absolutely. So look, I would say, first of all, WW's first investment in technology goes back to 2001. I actually give that team a huge amount of credit for building a dot-com business when a lot of other dot-com businesses were going bust. I think the problem for us was that in 2014, we were still on that platform. So -- and that was truly inhibiting our ability to innovate at pace. We were only doing 2 deployments a year. And so we really needed to rebuild everything from the ground up. And we had to look at many different areas. We started with our people. And at the time we outsourced a lot of development. We didn't have many mobile engineers, for example. So we really understood that we had to build that capability ourselves internally. We started by hiring a lot of people in New York City. We went and acquired 3 start-ups at a time in San Francisco and since then, had immersed start-up and built out a technology hub there. We opened a location in Toronto and have been building out the team there. So really attracting world-class talents that is digital and technology-first and understands how modern technology companies work. And we also had to look at our technology. So we had to replatform everything. We moved to the cloud. We rebuilt our back ends. We rebuilt the apps, the websites and so really invest in embracing modern technologies that would allow us to innovate at a electrical pace. And the third thing that we did was we focused on our processes. So becoming agile, becoming lean, hyper focus on understanding our members, their needs and solving for those as well as embracing things like automation. And what that allowed us to do was to go from doing 2 deployments a year to thousands of deployments a year. And now we actually deploy a new version of the app every couple of weeks. And as Mindy said, we've delivered a lot of added value for our members over the last 12 months, and it's this investment that has allowed that to happen. I think what's interesting more than anything else is the type of people that we bring. We have a diverse team. They're passionate about our mission, and that is driving innovation as well. And we layer on top of that the work that Mindy and Gail have done in terms of leading the brand transformation. The result is that our app today has a 4.8 star app rating with 1.3 million reviews, and we are one of the world's leading health and fitness apps. And like truly have become a digital subscription business -- direct-to-consumer digital subscription business. And it's because of all that investment that we've made.

Wonderful. Yes, I mean, I think the digital transformation of the business, not just from a consumer perspective, but internally as well is one of the more underappreciated aspects of the story. Maybe just provide us a little bit more color on technology's role throughout WW as an organization?

Yes. I mean, look, so we -- when we look at how we solve problems, our technology and product team, we look at our customers, try to understand their needs. We took the exact same approach when we looked at our internal teams and how could they collaborate and work better together. I think back a couple of years ago and on a snow day, we would have had been challenged to get everybody onto the network and as we looked around the globe, we had a mishmash of technologies that were all trying to do the same thing. So we really took a global-first approach. And we wanted to focus on enabling a strong set of tools that will enable collaboration within the company. And so we rolled out things like Workplace by Facebook, which allows Mindy and all of us to communicate in a very rich way with all our team globally. We rolled out things like Zoom, Slack and Google Apps and many, many more initiatives internally. And I think the biggest testament to the success of that was on March 13, I think, when we went -- when we left the offices and we went completely virtual. On day 1, we were completely focused on the members' needs, we weren't trying to figure out how do we get access to the network. And that allowed us, within 6 to 7 days, to roll out virtual workshops live and move all of that online as well.

Great. Beyond myWW+, how do you think about the possibilities for personalization in the future? Are there any functionalities you're particularly excited about from a user experience perspective with the rollout of these new 4 product tiers?

Yes. I mean, look, so first of all, at its core, when we think of personalization, what we're trying to do is we're trying to understand every unique member's journey, which is completely different for everybody. So a couple of years ago, we decided to invest in our data science team. And really, what we're seeing now with myWW+ is the first real return of investment on that as we really personalize the experience for the member. What I'm excited about is the more you engage with us, the more you reiterate on the underlying models and even add further models through which the experience is going to come over time. And I think that's really exciting. This is truly a platform that's going to allow us to innovate and do more and more over time. And personalization and data science have become really key strategic drivers for us as a business. Look, when you're asking me what are my favorite features, that's almost like asking me who's my favorite shop. But I think I'm incredibly excited about digital 360, which is going to bring coaching to life in a very new way for us. A digital-native way that we haven't seen before. And also, when I think of the launch of unlimited workshops, the ability to find your coach no matter where you are that resonates with you and your community is incredibly exciting.