WW INTERNATIONAL, INC. Q2 FY2024 earnings call

Weight Watchers is reimagining its operations to become the leading digital weight health provider. It has a strategy focused on expanding care, access, and payment options. In expanding care, it began offering insurance-covered nutrition counseling with registered dietitians in a New Jersey pilot and expanded to eligible behavioral members, and launched a programmatic GLP-1 medication supply tracker. For expanding access, the B2B team is in active discussions with potential and existing customers, with a recent B2B win at Labcorp showing a nearly 10% subscriber conversion rate in 6 months. In expanding payment options, it offers insurance-covered registered dietitian visits to eligible members. The company is streamlining its operational structure, reducing global headcount, particularly in corporate roles, with a planned restructuring charge in the second half of the year to achieve $100 million in annualized cost savings.

In the second quarter of 2024, Weight Watchers ended with 3.8 million subscribers, a 6% year-over-year decline. Revenue totaled $202 million. Subscription revenues were $200 million, down 5% year-over-year, driven by a higher mix of subscribers in lower-priced commitment periods and lower signups for behavioral offerings, partially offset by a nearly 120% increase in clinical revenue to $20 million (up $12 million year-over-year). Other revenue decreased by $13 million due to the discontinuation of the low-margin consumer products business. Adjusted gross margin reached a record high of 67.9%, up from 63.4% in the prior year, primarily due to the discontinuation of the lower-margin consumer products business and cost-reduction efforts.

For the full year 2024, Weight Watchers expects year-end total subscribers of at least 3.1 million, total revenue of at least $770 million, adjusted operating income of at least $100 million, and adjusted EBITDA of at least $150 million. The company targets $100 million in annualized cost savings, including $20 million already reflected in 2024 guidance. It anticipates a modest use of cash from operations for the full year, CapEx in the range of $20 million to $25 million, and depreciation and amortization around $40 million. It has sufficient liquidity with $43 million of cash plus an undrawn revolver.

The company faces risks such as GLP-1 shortages, an increasing number of compounded and counterfeit medications entering the ecosystem, leading to a fragmented landscape and increased media costs, health plans contracting coverage of obesity medications raising health equity concerns, and a dynamic and rapidly shifting external environment impacting signups.

Q: About the clinical business and headwinds, especially marketing and compounded GLP-1s.

A: Sima mentioned a significant increase in clinic customer acquisition cost (CAC) in the second quarter due to more competitors offering compounded medications, higher media costs, but retention in the clinical business is up to 6.5 months with a 12-month high in Net Promoter Score (NPS), and they are focusing on performance marketing.

Q: On B2B pipeline and expected contribution next year.

A: Sima said they closed five deals in the last quarter and have four lined up this quarter, with larger player deals representing over 10,000 lives, but individual deals are not yet material to the bottom line.

Q: On subscribers and promotional strategies.

A: Sima said the digital average commitment length increased to 8.9 months, retention is up, and they are leveraging long-term commitments (LTCs) to optimize lifetime value (LTV) to customer acquisition cost (CAC).

Q: On returning clinic business to growth.

A: Sima said they are working on the Weight Watchers as one platform strategy, using the 'FitsU' campaign to drive CAC efficiency and the one membership strategy, with early indicators from the pilot being promising.

Q: On affordable medical weight loss and strategy.

A: Sima said they prefer FDA-approved medications but are investigating alternative paths to improve member access and health equity.

Q: On B2B channel and account management.

A: Sima said the B2B channel is both direct sales and partnerships, and they are well-positioned with a leaner sales motion due to their existing client base and 33 years of experience.

Q: On year end sub-count and revision.

A: Sima said it is due to increased competition and compounding in the space, and they factored new realities into their guidance, focusing on profitability and cost control.

Q: On compounding timeline and alternatives.

A: Sima had no further details to share on the timeline for compounding or alternatives.

Q: On capital structure.

A: Heather said they are focused on improving leverage, have attractive long-term debt agreements, and will opportunistically evaluate options to reduce the leverage ratio.