WW INTERNATIONAL, INC. Q4 FY2024 earnings call

• Business thinking: WeightWatchers has faced significant disruption, including COVID-19 impact, GLP-1 medication reshaping the landscape, and past business adjustments. It aims to stabilize, recover, and lay the path to long-term sustainable growth.
• Recent trends: Fourth quarter revenue down 10%, behavioral business down 12%, clinical business up 58%. Full year 2024 revenue $786 million, above prior guidance but down 12% year-over-year.
• Key operational highlights: Focus on improving end-to-end member experience, including simplifying the member journey and integrating the clinical business. Launched new features like an AI-powered food scanner, online recipe importer, and macro nutrient tracking. Expanded access to one-on-one registered dietitian services. Work on marketing, shifting to a bolder aesthetic and highlighting member success stories. Continued cost control, with adjusted G&A down 22% in the fourth quarter versus the prior year, and on track to achieve $100 million in run rate cost savings by the end of 2025.
• Clinical business: Acquired Weekend Health (Sequence) in April 2023, with integration ongoing. Believes in the power of a full continuum of care for members, with members engaging across offerings doing better. Seeing promising traction in B2B expansion with partners like Labcorp and CVS.

In the fourth quarter, revenue totaled $184 million, down 10% year-over-year. The behavioral business was down 12%, while clinical revenue grew nearly 60%. For the full year 2024, revenue was $786 million, down 12% year-over-year. Clinical revenue totaled $78 million. End of Period Subscribers were 3.3 million, a decline of 12% year-over-year, but clinical subscribers ended the year at 92,000, growing 18% from the third quarter and 38% on the prior year. Subscription revenue overall was down 7% in the fourth quarter, but clinical revenue provided partial offset to the decline in behavioral revenue.

• 2025 is a year of significant reset, focusing on stabilization, recovery, and rebuilding. Not providing full year 2025 guidance at this time. Quarter-to-date, revenue starts with a headwind from 2024 ending subscriber levels, but continues disciplined cost management. Clinical subscriber growth was strong in January and February but may have volatility due to compounded semaglutide uncertainties. Q1 will be the highest marketing spend quarter of the year with elevated CACs. Evaluating marketing strategy for 2025, may scale back less profitable spend and reallocate to higher strategic impact areas. 2025 fiscal year has a 53rd week, which is expected to have a modest negative impact on EBITDA and operating income.

• GLP-1 medication supply challenges: In the fourth quarter, branded semaglutide and tirzepatide were in stock just 6% and 5% respectively during pharmacy stock checks. Uncertainty around the impact of the FDA's decision on compounded semaglutide in the future. High leverage and associated annual interest payments ($100 million) pose a challenge to investing in future growth initiatives. Recruitment challenges in the behavioral business may continue in the short to midterm.

Q: Hey, everyone. Thanks for taking the question. I want to dig a little bit more into peak season and the trends you saw through there. Have the changes you’ve made to the product and marketing translated to improving gross adds or LTVCAC? Just any way to get a sense of kind of the early green shoots if any, there And then can you provide some color to how the marketing environment evolved and what you understand that’s been under pressure, but certainly seems like a lot of competitive activity there?

A: Yes. As it relates to peak, we shared some color in the prepared remarks. We were encouraged with some of our trends coming out of quarter four and into peak as it relates to the performance. More of the same candidly as it relates to challenges and headwinds in the behavioral business. And I think we’re going to continue to see those for a while as we work through some of the strategic initiatives that we shared as it relates to both improving that experience and driving conversion and retention in that member experience. We -- Felicia maybe wants to jump on marketing. But yes, listen, before we do that in terms of green shoots, we shared some of them. We have some great product launches and some feature launches for peak, and some much requested after extended periods of time from our members, not least macros. And the engagement that we saw there, both in terms of actively engaged members and some less engaged members coming back to engage in those features was really encouraging. Same with some of the brands metrics that we talked about. So these are all leading indicators that it flows through to the P&L or sort of top line growth KPIs immediately. But we think there are signs that we’re heading in the right direction with a lot of this work. But you’re not run-in a competitive marketing environment. Felicia, do you want to jump on that one?

Q: Good evening. Thank you so much for taking my question. Tara, how do you work to avoid this downward virtuous cycle where Weight Watchers has fewer subscribers, thus less resources to drive subscriber growth and it becomes a virtuous cycle down, especially at a time where there are so many distractions in alternatives for those who are looking to lose weight?

A: Michael, we focus on substance. And when we look at Weight Watchers and everything that we have built over 62 years, why we were created 62 years ago and why we exist today, -- we look at the value that, that can offer our members and subscribers today and in the future and how we use those fundamentals to get back to growth, along with innovation in new product features, potentially product extensions and improving the existing products that we already have as well as some of the other initiatives that we touched on as it relates to adjacencies like Rs, how we think about going back to going to our marketing strategy and so on and so forth. And so fundamentally, we believe we have the world's leading trusted brand as it relates to weight management as it relates to livable weight management. And we shared a couple of these claims on the call, we have 62 years' worth of claims that shows that Weight Watchers works. that Weight Watchers was historically a nutritional and a community-based program. Today, it is a nutritional community-based digital supported program that also has clinical access. And we're really unique in that breadth of offering. To answer your question, listen, we're very counted about it. I'm very counted about it. We have a lot of work to do to remind the world, both our existing consumers and our existing subscribers and future consumers, future subscribers, the extent of that value proposition that Weight Watchers really brings to bear. As more and more people seek medication, they're also seeking livability of that treatment, support around that treatment, guidance around that treatment. Many people don't want to stay on medications for the long term or can't stay on medication for the long term. How do they ramp up, how do we support them with that. We have this incredible platform. And refocusing on that as we talk about all these different product and initiatives, as well as innovating around it. And we've shared a couple today, but there are many more, not we touched high level today on data. We didn't go into any sort of detail, but we have this vast data platform and data set, proprietary data set that candidly, we haven't done a ton with as it relates to product innovation, product improvement and how we really leverage that in delivering greater benefit to our members. So all of that to say, we believe we've got a huge suite of assets at our disposal as we stabilize and then we set this business for growth. We have to use them. We have to improve some of them. We have to invest in some of them. We believe we can also expand around them. So we're really bullish about the levers that we have for the mid- to long term. But it's -- this is a journey. We have work to do to get there. But even sharing things like our activation rate, which was, as we mentioned, our highest entering activation rate since 2020, NPS going up dramatically in our clinic business, retention extending, brand survey metrics going up. Green shoots are encouraging. We're highly analytical in terms of how we're measuring our progress. And we believe we have a lot of what we need even in a world of restrained resources. But it does mean that we need to be very smart with the capital that we have. And it's certainly -- the $100 million of interest is certainly a challenge on our business as it relates to proactively making significant investment ahead of the curve that potentially others with a different balance sheet may be able to do. So it's challenging, but we are focused, we are bullish, and we are doubling down on everything we've been through for the last 62 years and everything that we need for the next 62 and I have a high degree of confidence in our ability to get there and the team's ability to get there.

Q: Hey, guys. Thanks very much for taking my question here. Can we talk through a little bit more the possible outcomes this year based on whether you're able to continue selling semaglutide or not on a compounded basis? It seems to me like WeightWatchers is a little late to the game having a compounded offering. And as a result, the business really struggled last year, plateaued pretty early on in the year and kind of bled subscribers up until the point where you've launched the compounded offering and that seems to have really turned things around in Q4 and so far in Q1. Can you talk about the different strategies that you might have, whether you're able to continue offering compounded semaglutide or if you're not, is there really any strategy in place to keep the clinical business from resuming those sequential declines if you're forced to go back to a branded-only business?

A: I'm happy to take that one. I think one thing I want to stress is, again, the access. So when we launched compounding in Q4, the key motivator for that was the lack of branded availability for that. And getting that access back, where our people were so supply constrained, really was what drove that acceleration through Q4. So we are so well positioned to as shortages resolve to go back to branded medication that we continue to believe that both shortages will resolve and as new medications continue to go to market at lower prices that branded medication will be a key part of our overall portfolio as it was when we entered the space. Again, overall, safe access remains our top priority, and it's a quickly evolving situation with, again, understanding like we're still at more of our -- like what we've seen from the data, as Tara mentioned, is still at 5% to 6% of our overall supply stock, and so we're going to continue to watch that. We are actively evaluating our options, again, expanding our formulary. We are considering liraglutide. We have been offering Zepbound vials since September, right? And we are continuing to watch the changes quickly. As with the Zepbound coming off shortages, we saw the time lines change with the FDA, and we're continuing to watch that carefully as well. So it is a new freshly evolving situation. We are well prepared to go back to branded medication and continue to ramp that, leveraging the platform that we built for this as those shortages continue to resolve and that grows. We are also prepared to look at other alternatives, including liraglutide and also continue to stay very in touch with the supply -- the actual supply and continuing to making sure that we have that availability for our members as it evolves. So it's rapidly evolving. We are continuing to evaluate our options. But given the breadth of our formulary, we do not expect to see the return to the slowdown that we saw when there just was no supply available. Rather, we expect to see the growth that we had when we were focused on branded initially and supply was available.