Reported both top and bottom-line results that met Q1 commitments.
Achieved a record adjusted gross margin of 68%.
Subscription revenues declined 4% year-over-year to $204 million, partially offset by $19 million in clinical revenue.
Adjusted gross margin improved significantly to 67.9% from 57.1% the previous year.
Adjusted operating loss was reported at $6 million, with noncash impairment charges of approximately $258 million.
GAAP EPS was a loss of $4.39, including various adjustments.
Full year 2024 revenue expectations are between $830 million to $860 million, with clinical revenue expected to be between $100 million and $110 million.
Adjusted operating income for 2024 is projected to be between $100 million and $110 million.
Subscriber and Operational Performance
Ended Q1 with 4 million subscribers, including 91,000 clinical subscribers.
Clinical subscribers exceeded prior guidance, showing nearly 4x growth since March 2023.
Improved activation rate and user retention, with the average subscriber now staying on the plan for over 11 months.
Expects total WW subscribers to be in the range of 3.8 million to 4 million by year-end, with clinical subscribers projected to double from the end of 2023.
Strategic Initiatives and Outlook
Focused on expanding clinical services, enhancing core programs, and improving cost discipline.
Plans to introduce a weight health approach in an upcoming marketing campaign.
Project expansion focuses on expanding care, access, and payment options, aiming to transition from a D2C to a B2B2C business model.
Insurance coverage for registered dietitian consultations will be available to eligible U.S. members in the coming months.
Continues to leverage longer-term commitment offerings to maximize total LTV and revenue.
Financial Management and Capital Structure
Cash from operations in 2024 is expected to increase modestly year-over-year.
Full year interest expense is anticipated to be between $105 million and $110 million.
Capital expenditures are expected to be in the $20 million to $25 million range.
Net debt to adjusted EBITDA leverage ratio was 9.4x at the end of Q1.
Leadership and Future Direction
Welcomed Donna Boyer as the new Chief Product Officer, highlighting the company’s focus on product innovation and strategic shifts.
Emphasizes the need for execution in 2024 and 2025 to capitalize on B2B and payer opportunities for growth.
Question and Answer
Market Conditions and Advertising Inventory Pricing
Question
What are the current market conditions and advertising inventory pricing trends, particularly in light of the high costs observed in the first quarter and aggressive competitive behavior?
Answer
The company has observed an increase in the cost of media, but it is confident in its performance marketing function to manage these movements effectively.
Some softness in the base business was noted in April due to intentional shifts in marketing spending from April to May to align with marketing milestones and improve efficiency.
The company remains confident in its full-year outlook and the scaling of its clinical subscription business.
Clinical Business Marketing Strategy
Question
Are there any specific points of emphasis or changes in the marketing strategy for the clinical business, particularly in light of the upcoming Oprah special?
Answer
The overall marketing strategy focuses on promoting a unified membership approach, highlighting the benefits of both weight health and the WeightWatchers brand.
The company is taking a more aggressive acquisition approach towards the core business, which is expected to provide efficiency and leverage its existing lapse database.
Marketing Campaign and Subscriber Growth
Question
Does the anticipated acceleration in behavioral sub growth throughout the year primarily stem from the marketing campaign, and can you provide more details on the campaign, its timing, and expected impact on marketing costs?
Answer
While specific details are not yet ready to be shared, the company emphasizes the importance of a unified membership approach and learning from past marketing strategies to avoid confusing the market.
The company expects to see some acceleration in subscriber growth as the year progresses due to intentional shifts in marketing and the weight health campaign strategy.
New Member Growth and Marketing Strategy
Question
Given the intentional strategy of shifting marketing spend, how does the new member growth in April compare to expectations, and is it in line with the planned strategy?
Answer
The company observed lower growth in new subscribers in April, which is attributed to the marketing shift.
The timing of the shift was different than initially expected, based on the execution timing of the May event.
ARPU Trends and Clinical Subscriber Promotions
Question
Regarding the mid-single digit ARPU decline for the year, are there any specific points at which ARPU is expected to inflect and potentially become flat or increase year-over-year?
Answer
The ARPU referenced is for the total subscriber base, and the company expects to see stabilization and eventual expansion over time.
In the core business, Q1 2024 ARPU was stable compared to Q4 2023, despite a higher proportion of subscribers in long-term commitments.
ARPU is expected to further expand as the company executes plans to add clinical services for all U.S. members.
Access to Revolver
Question
Under what conditions would the company potentially lose access to its revolver, particularly if EBITDA were to drop to a certain level?
Answer
There are no further triggers that would lead to losing access to the revolver, and the company currently has access to $61 million of the revolver.
Workshop Business and Member Engagement
Question
How does the company plan to address the frustration among members and former members regarding the closure of physical meeting locations, and is this a contributing factor to the pressure on the segment’s sub metrics?
Answer
The workshop business has been under pressure for several years as the company transitioned to a more flexible model and closed some physical locations.
The company remains committed to in-person workshops and is implementing various initiatives to support and engage members, such as coach group chats, virtual workshop meetings, and member suggestions for new workshop locations.
Competitive Landscape and Clinic Business Promotion
Question
How does the intensifying competitive landscape, including partnerships with large retailers, impact the company’s promotional strategy and its ability to attract new clinic business members?
Answer
The current focus is on retention rather than acquisition for the clinic business, given the supply constraints for medications.
The company is taking a cautious approach to clinic business growth and is prioritizing the member experience and ensuring access to comprehensive care plans.
B2B Partnerships and Insurance Coverage
Question
Can you elaborate on the B2B shift and potential insurance coverage for WeightWatchers services, particularly regarding the company’s past efforts in this area and what makes the current approach different?
Answer
The main difference in the current approach is the evolving understanding of weight and weight health as a disease, with medications being recognized as life-saving and a paradigm shift in the space.
The company is actively engaging with payers and expects the future of its business to involve covered benefits, with progress already being made through operational preparations and encouraging conversations with insurance companies.
B2B Investment Costs and Leverage
Question
Given the potential investment costs associated with the B2B shift, particularly around back-end rebuilds and sales force structure, how should we think about the forward investment spend and the company’s leverage in conversations with payers and employers?
Answer
The company’s existing infrastructure and experience in the B2B space, combined with its trusted brand and ability to drive enrollment and engagement, are key factors in its conversations with payers and employers.
The B2B investments are already factored into the G&A guidance, which reflects a decrease from 2023 and includes the net new clinical business and B2B investment.
B2B Back-End Build-Out and Accessibility Headwinds
Question
How is the company managing the back-end build-out required for insurance acceptance and claims billing, and are there any potential accessibility headwinds, such as supply constraints or willingness to steer to compound alternatives?
Answer
The company is actively working on contracting with insurance carriers to enable billing for services, both through in-house strategies and partnerships, with a phased rollout planned.
System and people investments for the build-out are included in G&A, with some also factored into gross margin depending on the type of system.
Medication Supply and Clinical Business Growth
Question
What is the current status of medication supply and its potential impact on the growth of the clinical business this year?
Answer
The company is in a cautious posture regarding clinic business growth due to supply constraints, but it has observed some improvement with the entry of additional suppliers.
WeightWatchers has a programmatic way of tracking pharmacy supply and has been using this data to help members locate medications, contributing to retention efforts.
Liquidity and Restructuring Payments
Question
Can you provide more details on the first quarter cash outflow related to restructuring and the remaining cash payments for restructuring?
Answer
The $20 million cash outflow for restructuring is the full-year 2024 estimate, with approximately $13 million occurring in Q1.
The first quarter typically experiences higher cash use due to marketing, compensation, and other factors, but the company expects cash to build through the second half of the year and anticipates a modest increase in cash from operations year-over-year.
Personify Health Partnership and B2B Strategy
Question
How does the recent Personify Health partnership accelerate the B2B strategy, and should we view this as the start of a broader partnership strategy in the B2B space?
Answer
The Personify Health partnership is expected to facilitate access to large employers and carriers, particularly those connected to Cigna, and is a significant step in the company’s B2B strategy.
This partnership represents ongoing work in the B2B space and is not a one-off initiative, with numerous B2B conversations currently taking place.
Product Improvements and Impact on Activation
Question
Can you discuss the product improvements planned for 2024 and their potential impact, and provide a retrospective on the major product enhancements in 2023, such as peer-to-peer messaging and WW together?
Answer
The company is seeing positive trends in activation rates, with the best performance since 2020 and core retention exceeding 11 months.
Product improvements are focused on enhancing the care experience and providing members with the tools needed for success and healthy habit formation.
The company’s product roadmap is driven by solving member problems, and ongoing data and insights from each cohort inform the development and refinement of features.
The improvements are designed to address challenges related to food decisions, community engagement, and progress tracking, building upon previous strategies like “What to Eat” and WW together.
