Good afternoon, and welcome to the WW International Second Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Corey Kinger, Investor Relations. Please go ahead.

Thank you to everyone for joining us today for WW International's second quarter 2021 conference call. At about 4 o'clock PM Eastern Time today, we issued a press release reporting our second quarter 2021 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.

Thank you, Corey. Good afternoon, everyone. When we spoke to you in May, we believed that as the world reopened, the timing of which would vary by geography, consumers would be increasingly inspired to restart their health and wellness journeys creating a demand lift outside of our typical seasonal cadence and positively impacting the entire category. However, the strong digital year-over-year growth momentum in Q1 slowed in the second quarter as we cycled against strong digital performance in 2020. Therefore our results did not meet our revenue and operating income expectations. While people are acknowledging their need for re-committing to weight loss and wellness our recent consumer research shows that at the moment they're also asking for a pause to enjoy social reconnection. With both traffic and search under pressure, this sentiment shift appears to be across the Weight Loss and Wellness category. Our updated financial outlook reflects our revised expectations for full-year subscribers' revenue and operating income. Since we cannot assume that sentiment will snap back in our favor during the post Labor Day back-to-school season, which historically has been a reset moment. At this time we're planning appropriately and are implementing a comprehensive plan to optimize our second half performance. We're extremely excited about our Food Program Innovation launch and trajectory for 2022. We are continuing to manage through the evolving environment with agility and flexibility while we made progress on developing and preparing for the upcoming innovation launch later this year. We will discuss our performance improvement actions in further detail shortly, but first I'd like to review the key highlights of the second quarter. We ended Q2 with 4.9 million subscribers, down slightly year-over-year and from Q1 end. We ended the quarter with digital subscribers of 4.1 million, up 6% year-over-year, and a record high for…

Thank you, Mindy. I'd like to share some additional color on the performance of our global markets. We ended the quarter with digital subscribers of 4.1 million. While the Q2 ends high this was lower than expected. As Mindy discussed, consumer behavior and motivation for weight loss and wellness did not spike in the way we had anticipated. Instead sign of trends followed a more typical seasonal pattern. Therefore, the expanded June U.S. campaign and incremental marketing investments in TV and digital did not dive the impact that we had hoped. In April, D360 launched in Germany, France and Canada delivering an interactive in-app coaching and content experience uniquely adapted to each market. Serving approximately 230,000 members in five global markets, our data and analytics capabilities continued to advance and inform our optimization of the D360 experience driving engagement, satisfaction and weight loss success. While workshop end-of-period subscribers continued to be down year-over-year, which was due to the significantly low starting base as a result of the pandemic pressure on recruitment over the past year, the trend is improving. U.S. Workshops sign of trends have been positive while the recovery is slower in countries that have not yet reopened or remain under tight restrictions. Over the past year, we have realigned our physical footprint, so we are now moving with the most flexible cost structure we have ever had. We are managing this business in a new way with a small footprint augmented by highly flexible studio apps or third-party locations as well as a highly scalable virtual workshop experience. We have initiatives underway to further optimize this business and we aim to return workshops to a 40% plus gross margin in 2022. As part of our restructuring plans, we closed 64 of our U.S. studios in Q2, resulting in…

Thank you, Nick. Compared to our prior outlook, Q2 was a challenging quarter for the top line. We anticipated the year-over-year revenue decline in workshops of nearly $50 million. However, we did not deliver on our plan for digital subscription revenue and consumer product sales. While up 6%, we expected digital subscribers to be up in the double digits at the end of Q2 but strong digital performance in the prior year proved to be difficult to outpace in this environment. In Q2 of 2021, total revenue of $311 million was down 10% year-over-year on a constant currency basis with a workshop subscription revenue decline of nearly $50 million or 43% in constant currency. This was partially offset by a growth in digital subscription revenue, which increased 11% year-over-year on a constant currency basis in Q2. Digital subscription revenue is now 75% of total subscription revenues. We ended Q2 with 4.9 million subscribers, down 2% year-over-year. The 6% increase in digital and End of Period subscribers, largely offset the declines in workshop subscribers. At Q2 end, 85% of our members were digital subscribers. Adjusted gross margin was 61%, up approximately 100 basis points from the prior year as a result of the mix shift to a larger digital subscriber base. Additionally, timely cost reduction actions taken to right-size the fixed cost base of the Workshop business mitigated further deleverage. The planned reduction to our workshop real estate footprint continued in Q2 resulting in a $5 million restructuring charge in the quarter. In addition, our refinancing transaction closed within Q2 resulting in a one-time debt extinguishment charge of $29 million. Incorporating the $0.36 negative impact of restructuring and debt extinguishment costs, Q2 GAAP EPS was $0.12. Turning to our outlook for the full year, in light of current trends we are…

Thanks, Amy. As we discussed on our last call, we have been focused on four key priorities for 2021. One, creating greater engagement and elevating the member experience, which is clearly driving retention. Second, building our Digital 360 to expand and diversify our member base by elevating content, coaching and community. Third, preparing for the success of our 2022 Food Program Innovation leveraging science leadership to drive growth. And fourth, expanding into healthcare and diabetes to reach new audiences and have a greater impact on health outcomes. In addition, we have developed a comprehensive plan to maximize performance in the back half of the year. Our focus is on executing key marketing initiatives. As we plan our fall marketing campaign our research shows that the livability of the WW program continues to resonate with consumers who are in the mindset to start a weight loss and wellness journey. We intend to continue focusing and now WW allows you to achieve your goals while being able to enjoy life fully reinforcing our superior weight loss efficacy and sustainability messaging. Our fall advertising creative will feature real WW member sharing their stories and celebrating success. You'll see these messages across all touch points across paid, earned and owned channels. As we prepare to launch our new Food Program Innovation with the most comprehensive winter campaign in our history we are thrilled that Oprah has been deeply involved and is excited about the potential to motivate people as they recommit to prioritizing their health and wellness. Now, more than ever, she feels that WW can be that partner to help people live their best healthiest live. Second, advancing our data science analytics capability; over the past year, we have re-architected many of our processes and systems to provide greater insights into member engagement…

[Operator Instructions] The first question is from Steph Wissink of Jefferies. Please go ahead.

Thank you. Good afternoon, everyone. Mindy, I wanted to come back to a comment into your opening remarks regarding just the overall level of fatigue with wellness and give us some other data points that you're seeing that might signal that it's not just WW, but maybe a more broad or macro issue related to just the overall level of attention on wellness?

Sure, I'll answer that, but let me kind of give you some context of what we saw from the last time we had a conversation about trend and why we were more bullish going into Q2. The momentum that we saw in Q1, which was significant double-digit growth, was continuing and feeling that with the world opening up that would incentivize people to want to go further on their weight and wellness journey. That did not happened to the degree we expected, particularly as we were comping very significant digital growth across Q2. As you know, we do significant qualitative and quantitative consumer sentiment work. We had done that in first quarter starting in January and we did that again across multiple countries. What we did learn from that, is that to my earlier point with people in many markets, particularly our largest market in North America and U.S. coming out. People wanted to focus more on their enjoyment than immediately going into a weight loss program, particularly in the summer months. Additionally, we have been following the data points of everything from growth trends, other data points. And we have seen suppression overall in the weight loss category. So it's a combination of those things that did not enable us to achieve our original expectations for the quarter.

Yes Mindy, look the only thing, the only thing I’d like to add there is as you heard in our remarks, so given the prevalence of weight gain join the pandemic, it does feel like a temporary dislocation. We can't be exactly sure when it's going to balance back, but we'll be ready with - our fall campaign that starts September 5 to drive interest in our program.

Okay, that's helpful. And then maybe Amy, as a follow-up to that, just what's contemplated in the guidance for the year? Do you think about the second half and the effectiveness of that fall marketing campaign or are you carrying forward the current run rate that you saw exiting the second quarter?

Yes, if you look at the current spread of guidance, we felt it was appropriate to take a more conservative approach. Clearly, we're doing everything we can to maximize our performance and - particularly our digital growth in the back half. As we've mentioned our campaign launches September 5. We feel strongly about it as well as you heard me speak a lot about our launch of our innovation starting in November with our big marketing campaigns coming out after Christmas. So the combination of those three things obviously, we feel we have the potential to accelerate growth, but in the current guidance given what we experienced in Q2 we're trying to be appropriate.

And then specifically our guidance reflects that our end of period subscriber curve follows a more historic seasonal trend. And so I think that you'll find it's a more conservative approach to the back half and we're looking at our cost base accordingly and making changes as appropriate.

The next question is from Michael Lasser of UBS. Please go ahead.

Thanks a lot for taking my question. So it seems like the dynamic that's happening is, people have been stuck at home. They're home based, they are excited to get out. So the last thing - or they're not as excited to go and focus on their wellness. How long do you think that's going to last? And are you seeing any regional differences whether in the U.S. or around the world that you could point to as evidence to say, hey, for those markets that are - are going through X, Y, Z are actually think that a trend which provide us with some level of confidence and encouragement so this will be a short wave type dynamic?

Yes, just to give you a perspective, typically on the seasonality, you see a resurge up after Labor Day going into the fall season. That's the normal seasonal curve that we would normally expect. But as I mentioned before, we're trying to be strategic and appropriate in the guidance, but clearly we're putting all our efforts into maximizing the fall season going into winter. I can let Nick talk a little bit more about kind of market differentiation.

Yes, in terms of market differentiation, our digital trends around the world are - say a more similar than different. The main difference in our trends has been positive trends in workshops, particularly in the United States as you'd expect with a lot of the international countries being effectively on lockdown until early June. As we look forward to you question, Michael, can't be exactly sure whether it will bounce back. Back-to-school season has definitely been the strong moment for this company. We do know that we've got a great Food Plan Innovation coming and that historically has lifted all boats and has been a typically a good moment to bring lapsed workshop and digital members back to the brand with a Food Plan Innovation.

And I know it's early, but as we look out towards 2022, you're going to have the new food innovation out, you're going to have the consumer being further into the reopening and maybe at that point a little bit more focused on wellness. You'll have more time with some of these strategies under your belt? Is 2022 a year that we can expect your performance will be nicely higher than 2019? Are there any obstacles that you see is getting in your way that will lead to longer-lasting challenges that you're going to have to face?

Michael that would be our expectation and if you recall, we entered 2020 having launched myWW with tremendous strength. If you look at Q1 2020, even with the challenges in the last few weeks and everything that shutdown for COVID was very strong performance particularly from Q4 to Q1 and then just Q1 year-on-year in general. Obviously, we spend a significant amount of time in 2020 really focused on rightsizing workshop business, some of the challenges there; continue to focus on our digital subscription business, our technology, et cetera. So we feel that the opportunity, certainly in 2022 is to get back to the trajectory that we feel the business has an opportunity to achieve.

And even to put some more color on that Michael, Mindy mentioned the Q4 to Q1 lift in the Food Innovation launch. If you go back to 2016, for example, SmartPoints lifted end of period subscribers by almost 30%, Freestyle lifted end of period subscribers by a little over 40%. And so we're really excited about the impact of the Food Program Innovation and 2022 growth.

The next question is from Edward Yruma of KeyBanc Capital Markets. Please go ahead.

Good afternoon and thanks for taking the questions. I guess first, as you look at - I know that you only have a consumer that maybe comes back every couple of years to the program. Are you seeing any trends in the return of consumers in terms of the frequency by which they're coming or the interval? And in particular, are you seeing any changes on whether they're re-entering digitally or in the physical studios? And then there's kind of a bigger picture question - we've seen a lot of discussion over many years on body positivity. I know a lot of people lose weight for different reasons health and aesthetics. Do you think that there are any - bigger picture changes that are maybe changing the interest in weight loss? Thanks.

Sure. I'll talk to them both. In terms of our member profile, what we didn't see is this huge returning influx of studio members going to digital. What we're seeing now is studio members - that mix of studios coming back because they want that coach, they want that community. So I think that's important to note and we're seeing the trend of studios coming back, obviously in the markets where things are more open. What we also tend to see, in particular in a Food Program Innovation year is a very strong influx of lapsed. So, if you recall in 2020 in the - not only did we have strong digital subscription growth in the quarter, we had strong studio growth as well in both lapsed and new. So we see that opportunity there. I'd say the third thing with the launch of D360 we are seeing diversification of our member base as well as digital members coming in and upgrading to the more fulsome vertical, which obviously is at a higher price point. So it's a benefit to us. So that's like the member side. I would say on the body positivity side, I think, what people don't realize is, we're probably the biggest proponents of body positivity in the marketplace. We don't tell people what they should weigh. We say, what does healthy mean to you? And that was very significant in our move to a holistic approach to wellness certainly incorporating weight loss, but to really build out our full ecosystem of health to be able for people to determine what they wanted to be. And that message from us is carried and very clear because to your point, it definitely is a movement.

The next question is from Lauren Schenk of Morgan Stanley. Please go ahead.

This is [Nathan Carter] on for Lauren. Just two quick ones from me. On the first part, to what extent was kind of a higher marketing rate environment a headwind to recruitment within the quarter? And then are you able to give any update on the Health Solutions business? And I know previously you had talked about that being a potential boost kind of counter cyclically to second half subscribers. Are you still potentially expecting that in the back half? Thank you.

Can you repeat the marketing question one more time?

Yes, so just on marketing, did you see any potential headwinds from an efficiency perspective from the higher rates in the quarter?

So we have done a tremendous amount of work over the past years in really working on the efficacy of our marketing spend. Clearly, in some channels there are certain pressures. We've also diversified our marketing spend across platform and channels. So that's what we really focused on. And in particular, you'll see that focus in our fall marketing campaign across platforms. I'll let Nick talk to Health Solutions.

Yes, look, we're very bullish on our long-term healthcare and diabetes growth opportunities and Adam Kaufman and the team are very focused on delivering that growth. On the health solutions side, wonderful growth potential there considering our sales that has with our aggregator partnerships such as CVS, physician referral, et cetera. And as you heard we are particularly excited about this entry into the diabetes market. In tandem with our Food Plan Innovation for people with diabetes being able to identify themselves and get a tailored individual food plan that suits their needs is a huge step forward for us in serving a very important segment.

The next question is from Jason English of Goldman Sachs. Please go ahead.

Thanks for slotting me in and good evening. A couple of quick questions, first, Mindy and team, I know in the past, we've talked about addressable market you've consistently said this and your biggest competition is - your biggest opportunity is source from - is the DIY consumer, which by nature implies is the biggest competition. And if we look at packaged foods sales like Atkins is having a banner year right now with sales up handedly above 2019? The last time I looked at SlimFast it looked similar. So the data there doesn't suggest that a consumer is disengaged with weight loss and instead it suggests they've just may be engaged with weight loss on a DIY basis. Love to hear you weigh in on that view because it sounds like you've taken a holistic view of the market? I perhaps maybe have a bit more of a myopic view. Would love to be able - to hear how you put that in perspective of what we're seeing on the DIY side versus what you're saying is a broader consumer movement or lack of movement towards weight loss right now?

Well, I would say, it's a combination. We have always said it, that our biggest competition is consumers trying to lose weight and get healthy themselves. That we don't see changing, right? I think that's been the history of the company whenever we talked about competition. We've always said that competition is competition directly in the category - paid competition is DIY and competition, particularly in the digital world is the less weight experience someone had. So all that being true, what we're saying is in addition to that, we definitely saw some macro pressures specifically around desire for immediate weight loss coming out of kind of the COVID lockdown. That's kind of what we saw.

But it does look like the bigger challenge is not getting consumers focused on losing weight. It's getting them focused on paying for a subscription-based service to lose weight?

No, I think it's a combination.

Maybe, maybe, it might be. I think what, 94% of the consumer is DIY and it's the 5% that pay. So it could be, but either way, I know Amy mentioned that this product program is expected to bring a lot of energy and I think you actually compared it to SmartPoints and Freestyle, which were pretty big sweeping program changes? So maybe I'm not really underestimating this product upgrade if you're putting it on the same playing field as those. So can you give us some more context and color around the magnitude, like what you're branding, what is the support that's going to give us the kind of energy we saw from those two big program changes?

Yes, and I'm going to actually add a third, myWW was as significant. One of the things that is definitively one of our greatest assets is the scientific work that we do around innovation and constantly iterating on our program to make it more livable, more efficacious and definitely in this circumstance, more personalized. So think of every person having their personalized WW program, that's very powerful, that's a very strong message. I mentioned before that we're very pleased with our clinical trials. We're further ahead than we've been in years past. So being able to craft our messaging, our launch strategies and couldn’t - tell my enthusiasm, I was here for the launch of Freestyle and myWW. So this is a launch that we plan on amplifying significantly.

The next question is from Doug Lane of Lane Research. Please go ahead.

Can I drill down a little bit more on the Digital 360 effort? How is that performing relative to expectations? What have you learned so far a couple of quarters into it? And then what do you see on the horizon for changes heading into 2022?

Yes, so we're very enthused about the opportunity D360. If you recall, the reason we created this new vertical very specifically to go after younger audience very specifically to focus on this idea of coaching on-demand content and community and that is what we are seeing. Now, obviously with a very new vertical that's very different an entirely new cohort of coaches in every market that's been launched much more external facing that what our traditional coaches for example in the field. So the product teams have been working very closely with content teams to really keep honing the experience, to keep elevating the engagement, which we're continuing to see so we can be ready to really more aggressively market and go after new audience. But everything that we are seeing to-date relative to the vertical is very positive.

So, I'd just say about 50% of first-time D360 members are Millennials. So it's really attracting a broader audience.

Okay I’m sorry. I stepped on you there Nick, but is it living up to expectations?

Yes, yes, attracting 50% Millennials or younger in terms of first-time D360 join us, and if you - as in December, I would have said it would be thrilled to have 230,000 subscribers.

This concludes our question-and-answer session. I would like to turn the conference back over to Mindy Grossman for closing remarks.

Thank you everyone. As you've heard today, we have a very comprehensive plan to optimize performance in the second half of the year. And in addition, ensure that we are positioning ourselves for growth in 2022. Our fall campaign launched in September 5 will be amplified across all platforms to take advantage of what we know is the seasonal engagement in that area. We are excited to launch our new Food Program Innovation in November, which we're confident will drive year-over-year growth in member recruitment and certainly position us for a successful 2022. We're seeing improved performance in the Studio business now with a significantly more flexible cost structure. Retention continues to expand. D360 has momentum and our flexible digital subscription-based model is delivering strong gross margins. And I think those are the important things to take away. But I'd also like to thank our teams around the world for their work, their agility, their focus, which has certainly been essential accelerating our digital transformation over the past 18 months. Allowing us to provide even more value to members and delivering coaching and community in new ways so, thank you again for joining us today and we certainly look forward to keeping you updated on our progress throughout the year.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.