Thanks for joining us. My name is Bill Reuter, and I'm the High Yield Retail and Consumer Analyst here at BofA. Good to see all of you. Very pleased to have Heather Stark, the CFO, and Corey Kinger of Investor Relations with WW here to talk a little bit about what's been going on. With that, thanks for joining us, guys.
Thank you. Thanks for having us.
So maybe if we could just start big picture, there has been a whole lot of transition of the company. It's certainly been a turnaround story. Maybe if you could just start with a handful of bullet points of the major initiatives that you've undertaken, the status of those initiatives, and where we're going from here.
Yeah, absolutely. It's been an eventful couple of years, I would say, and a really good and interesting start to our turnaround. If you think of who Weight Watchers is and the fact that we have been in existence for 60 years as a peer-to-peer, accountability-led, behavior change weight loss program, a lot has changed in those 60 years, but really dramatically in the last 2.
If we think about sort of pre-COVID, our consumers were really shifting to start to engage with us digitally. We had started as a workshop business and in real life, peer-to-peer accountability experience, and really accelerated by COVID, we saw a dramatic shift to consumers wanting to engage with us digitally.
That presented an opportunity to us to lean into and really think about becoming a digital-first company. Our app was in existence pre COVID, but it was really as a second screen as a companion to the weight loss experience that people were experiencing with us in real life.
And we really leaned in to becoming a digital-first company, where this is the first screen experience, and taking from what we know to be the gold standard in our weight management business of coaching, accountability, and community, and figuring out ways to bring that to consumers digitally. Then, a year and a half ago, we were joined by our new CEO, Sima Sistani, and that has really propelled us forward under her leadership. She is a digital product leader, a community builder in her background.
When I think of the amazing accomplishments we've had so far in those 18 months, it's been an exciting time for us. Sima joined us and really quickly identified the need to simplify how we show up, to simplify our product. That was a really big initiative, and it's still underway. So looking at our app, our product, and saying: "What are consumers engaging in?
And let's deliver those things that consumers engage in most." So streamlining and simplifying the app experience was really important and sort of cleansing those things that consumers weren't engaging in and serving up a simpler version of the app on which to build forward an engaging experience. She also undertook an immense reorganization of our company, and we looked at every which way we were operating.
This is a business that she joined that was in successive years of decline, and she looked at ways to help us rethink our cost base. So we relooked our workshop footprint, we underwent a significant retail real estate restructuring this past year, and also end-to-end our team structure. So in operating expenses, those teams that are focused on our workshop business, we really had to rightsize how we were thinking about showing it up in that space to make sure we were having good throughput in margins in that business and also in our G&A.
So the cost structure of our teams globally, we really leaned into simplifying those globally. And you see that... You know, to your question, how are we seeing all of this read through?
We are seeing a more engaging app experience, with engagement trends increasing year over year in Q2 and Q3. We're also seeing record high gross margins in both Q2 and Q3 that we're really proud of, that we've, you know, we're managing a turnaround of this business, and doing it profitably and increasingly profitably is important. And another area that we undertook to change was how we approach performance marketing.
We have really taken a data-informed approach, and we're leaning in on efficient acquisition of consumers, and effectively spending our money more efficiently, when we're spending it, what channels we're spending it, and really undertook to approach marketing spend from a CLTV to CAC optimization perspective. And that's reading through now.
We were really pleased to share in our Q3 call that we had a return to sign-up growth, which we also had in Q2, but now we have a return to subscriber growth as well. So we're excited for the future. I would say the last big change I would flag here, too, and one I'm sure we'll talk about, is our entrance into the clinical market as well. So, yeah, we've got return to growth, return to stability and now to growth in the core business, doing so profitably with improving margins, and now we've expanded into the clinical offering as well. So,
...A lot.
A lot, I know. It's been a-
Yeah, a lot.
Fun couple of years to be part of, so.
Absolutely.
Yeah.
A lot of legs to that stool. So you mentioned Sequence clearly at the end, which I think everyone is curious about. So I guess first, if you could talk about the outlook for clinical as a category, any of the challenges that you're seeing there, and then also talk about why Sequence was the right partner for WW within the competitive landscape there. And then I guess the ways in which you think the two businesses can work together that are going to drive, hopefully, some revenue synergies.
Yeah. So first, on the market opportunity, it was very apparent to us. We have an in-house insights and science team that are looking to guide us as an organization to drive, drive our, our product, what we serve up to the consumer, in where consumer demand meets science.
So when consumer demand overlaps with science, that's what we look at to launch in our product roadmap or in any food plan we've ever launched, anything like that. It's, it's based on consumer insights and science. We also have a scientific advisory board, made up of advisors that help us think about where we should be approaching a path forward in a science-based way.
And we saw such strong evidence of that, consumer interest in the space and the scientific evidence that this was really an important space for us to be in. We became increasingly aware that behavior change alone isn't enough for some people to help them with their weight health.
And we are so dedicated to helping people with their weight health and to become aware of the, you know, the need, but also the ability to help people with weight loss through these medications. It was just so clearly and obviously a space that we should be thinking about being a part of. So then forward to the acquisition of Sequence. In parallel, we looked at build versus buy. We're a product tech organization.
We could build something in this space, but at the time that we looked at it, we also looked at buying in parallel and made the choice for time and buying and the bet on Sequence themselves based on what we saw when we looked at Sequence as well as other competitors in the space.
We actually looked at over 30 competitors in the space quickly narrowed it to you know a top runner list, but it became overwhelmingly clear that Sequence was the leader in this space, that we should be looking at acquiring. The big leading factors for what differentiated Sequence in the space were really the platform that we acquired.
This is a platform built by engineers that looked at a problem to solve and thought about, like: How do we build something scalable in this space? There are a lot of other players in this space, and they haven't necessarily thought of it in terms of how do we take an approach to building a platform that's going to allow for non-linear, linear scaling of this.
A lot of the players in the space were doing things very manually, you know, wanting to help people get telehealth access to these obesity medications, but hadn't necessarily looked at a platform to be able to scale it beyond a human constraint. So this platform brings together the clinicians, a care team, and the consumer all seamlessly in one platform. And it also helps...
In the platform, there is help with improved outcomes in insurance filing. So as consumers come in and they'll meet with a clinician, they will, if they qualify, be prescribed with a medication, and then the next stage for a consumer is getting insurance help.
So filing a prior authorization is one of the steps along the way, obviously, to getting your insurance completed, and it's a requirement of most insurers, and we, with this platform, have improved outcomes on the success of a first-time prior authorization. So we see or we understand there to be about a 20%-25% coverage for these medications for Americans, and we're seeing upwards of 30%-35% success rates on these first-time prior auths. And that comes from machine learning.
We're figuring out ways with a platform to have greater success in getting a first-time approval done, learning what certain insurers need in the steps to filling things out, and being able to do this on a platform rather than, you know, overly leveraging human capacity. So again, supporting in that nonlinear growth that we expect to have happen. Another differentiator for Sequence was that they had grown.
At the time we announced the acquisition, they had grown to 24,000 subscribers, and they did that organically. They did that without spending into marketing, and that was a huge differentiator. Everyone else in this space is experiencing incredibly high cost to acquire and one that is just so remarkably inefficient, and Sequence was able to do this organically. And why?
I would believe that to be a high satisfaction of the clinicians who want to work with us, talking about this platform and bringing in people to work on this, and high consumer satisfaction on the platform, talking about the experience that they're having. Then you add to that, WeightWatchers is the acquirer. You know, we are leaders in the weight loss space. We have a trusted name, and we bring our marketing machine with us, the performance marketing machine I referenced earlier in this as well. And altogether, we think this is a really exciting future pathway for us.
Absolutely. Clearly, I clearly the market got some a pretty high level of excitement when it got announced. So, I think one of the core topics that people are, you know, trying to get their head around is the increase in subscribers, which is the first time in a couple of years that we've seen this.
Since 2020.
Yeah.
Yeah.
But then we also had lower revenue per subscriber.
Mm-hmm.
Clearly there are some changes in terms of the length of contract terms, which I think are expected to generate longer, more sustainable revenue streams. Can you talk a little bit about what the changes to the marketing strategy has been in terms of pricing and what you've seen from consumer adoption?
Sure. I'll start with revenue, though. You know, our place where we are in revenue is about where we are in return to growth and the fact that we're a subscription company. So, you know, as you were saying, that I interjected with since 2020, we have been in successive decline since the end of 2020.
And when you're in a subscription business, you have consumers who are in this commitment pricing period. So they join us, and they commit to 9 or 12 months, and they get commitment pricing while they're in that period. And then when their commitment is over, they flip into a recur bill, month-to-month pricing.
With the successive declines leading into Q3 2023, where we shared excitingly a return to subscriber growth, the tail of recur Bill subscribers is shrinking repeatedly as you're going towards there. So when you look at a revenue per subscriber, you're increasingly losing the powerful tail of those recur Bill subscribers.
But now we've hit this inflection point and a return to growth, and over time, you should see that read through into, again, compounding a tail of recur Bill subscribers that should, over time, increase revenue per subscriber. Then to your other part of your question around commitment pricing, we also have subscribers choosing longer and longer-term commitments with us. So this time last year, we had subscribers committing to about five months on average with us as they joined and chose a commitment period.
This year, we're seeing subscribers commit to nearly eight months. They're about 7.9 months, I think, in Q3. And that means the lower commitment price being paid is stretching further into your commitment with us and delaying that time when you flip over into recur bill. So again, that puts pressure on average revenue per user.
And then back to the very first comment I made, I think was more and more our consumers are shifting to digital and away from workshop, and our digital subscription comes at a lower price, but I would note at a much richer margin for us. So when you put all of that together, where we are in our return to growth, the picture in a moment in time is lower rate per user, lower revenue per user, but we've just returned to growth.
This is all going to take time to read through in the return to growth story. And then on commitment pricing, I would add, we are confident that this is the right decision for us to be making in our approach to pricing. We A/B test all of our pricing, and we know that the actions we take and the plans that we put in front of people are maximizing the conversions that we're getting. In a return to growth, it is extremely important that we grow that population of subscribers and that we optimize and grow our top-line revenue, and that's what we're doing with our commitment pricing.
Can I just ask a question on that topic?
Sure.
Sure.
The Street is obviously concerned about everything that you just articulated, and I was curious if you felt like there was a need to push back at all on the Street's concerns, or it's just simply a function of: "We believe this is the right strategy, and we'll talk to you in a year," or something like that?
I firmly believe this is the right strategy, and it's informed by data and our, our, you know, our view to all of our retention curves and all of our cohort curves. And I think that my biggest takeaway from the, the pushback, as you say, from the Street, is that I've got work to do to help people understand the remix of the base, to understand the impact and implications of a subscriber base that is more digital versus workshop.
And next year will be increasingly clinical versus digital versus workshop. So there's a remix of the subscriber base, and importantly for me and our team, is going to be helping everybody along to understand how to model this and understand the growth pathways forward. And I think to appreciate that we're focused on subscriber growth. We are focused on profitable revenue growth.
You see that reading through in, you know, record-high gross margin posted for the last two consecutive quarters. I think we're focused on the right things, and we're committed to and know we're making the right decisions in this commitment pricing. Thank you.
Thank you.
We haven't touched upon the incremental growth opportunity of B2B-
Mm-hmm
... on the clinical side and working with employers, corporates. I guess, can you talk about what the outlook is there? Has this... You know, at what point will this begin to be a growth driver for, for that side of the business?
Yeah. Thank you. So, Sequence, as we acquired, and now WeightWatchers Clinic, as we speak to it, is primarily a D2C offering. And we knew going into this acquisition, and certainly know going forward, that B2B is going to be a critical play for growth in this space.
We have a current B2B business that is really a perks-type business, so an employer can come to us and gain access to WeightWatchers for their employees at a discount. It's about $25 million of our top line. It's really being pivoted to being a WeightWatchers Pathways program. And Pathways is about helping employers and payers address their concerns. They've got two really critical concerns.
One is the affordability of covering this for their population, and two is having pathways that help help them sustain the outcomes that people get once they get access to these medications. So driving good health outcomes, but then driving sustainability of those outcomes is of key importance in all of the payer conversations that we're having.
Then from the employee side, employees are obviously pressuring employers to provide coverage for this. And the way that we're approaching this, and the differentiator for Weight Watchers in approaching this, is this pathways approach. We are here to help employers cover their entire population. Their entire population has different needs when it comes to their weight health, and we can be there anywhere in the spectrum of weight health to help them with their needs.
So, you know, one employee may have a need that can be satisfied with behavior change alone, and we have a great WeightWatchers app that can help you with behavior change alone. You may need some added accountability that you'd like to get from more human interaction.
We've got a workshop that you can go to. And then there is an increasingly large part of our population that are indicated for help with a clinical pathway, and here we are. We can help them with that clinical pathway. And really importantly, we can also help that population deescalate off of these medications with behavior change alone, if that's indicated for them. So the pathways approach is really about individualized care for the employee while providing care at an affordable rate for the employer.
And by affordability, we are trying to help employers understand the ROI of actually providing coverage for WeightWatchers, for all of the Pathways, but really specifically on clinical. Big concern for everybody is the cost of these medications, and we've done work with an actuarial firm to help us understand the ROI of providing coverage for these medications alongside our Pathways program, which has the access to clinical alongside behavior change.
And the analysis shows a 3.9 times ROI over the course of two years of covering these medications. And that comes from, you know, our ability to help lastingly with behavior change, but also, when you look at the benefit of covering these medications from an employer's perspective of, you know, improved presenteeism, improved health outcomes, allowing for other medication, off-boarding, et cetera.
So, should be an exciting growth pathway for us. From the second part of your question, though, we haven't included any of this in our guidance for 2023, and I would say that there's a long sales cycle to this type of business, and I would expect growth to be on its way, but really a 2025 and beyond material impact.
So this is a pretty seasonally important time of the year. I know a huge percentage of your new subscribers enter in January. So I guess two questions there. One, what's the marketing message that we're gonna hear this year, given the evolution of the business? And then two, last year, there you had a little bit of a shift, hoping for kind of a back to school.
We had a little bit of a shift from first quarter to third quarter. Will you stick with the marketing spending timing that you did last year, or will you revert to kind of the legacy timing, really focused on the first quarter?
So from a messaging perspective, I think that what you will see and hear is really importantly a reintroduction of us. A let us reintroduce ourselves type message. We are Weight Watchers, and we are here, whether it's with Weight Watchers Clinic or Weight Watchers Core, with our behavior change. We will be speaking about ourselves as Weight Watchers, and reintroducing ourselves.
And then from a spend perspective, we have learned so much this past year and are so confident that we made good choices in how to rethink our spending. We took this data-informed, nimble approach to all of our performance marketing. We really re-seasonalized when we spend.
To your point, from this year, we actually took about $20 million out of our marketing spend in Q1 and moved it into the third quarter. And we did that based on our understanding of LTV CAC performance and knowing that there was an opportunity for greater efficiency in sort of an undersaturated spend timing, which was actually before back to school.
So when we moved the money into Q3, we actually moved it predominantly into July and August and not necessarily September, because September had been an area of focus for us before, knowing there is a natural back-to-school interest in weight loss. So to your question, though, will we keep doing what we're doing? Absolutely.
We know, as we look at where we are so far this year, Q3 year-to-date, we have spent 4% less year-over-year in marketing, and we have returned to sign-up growth and returned to subscriber growth, and we're really pleased with that. We know that we've done that in large part with this, changed approach to how we're spending and acquiring.
I guess I want to give people in the audience, if they have questions, an opportunity. Is there anyone who wants to ask a question?
Hi, thanks for doing this. Just going back to Sequence for a minute. Obviously, you know, GLP-1s are exploding, every story, everywhere, everything. So obviously, Sequence seems like it has a great opportunity. But how do you think about that set versus, you know, a Weight Watchers subscriber just going to their normal general practitioner and now having access to a litany of these, you know, products without having to go through Sequence or through Weight Watchers to obtain that?
Yeah, absolutely. We've thought a lot about that, and when you come to Sequence or now a WeightWatchers Clinic, you will have available to you a clinician, should you need it. You would have help with all of your insurance application and filling. You have a care team there to help you along the way with anything you're experiencing during your journey with us. Also importantly, behavior change is an FDA recommendation alongside these medications, and we will be launching ahead of peak season, our GLP-1 Companion Program.
This is a program to help people with what they need help with while on these medications. Nutrient density, looking at protein in your recipes, looking at lean muscle mass retaining exercises. That GLP-1 Companion Program will be available as part of our core offering as well.
So there are going to be people who will be able to go to their GP. You do need to go once a month to get your prescription, so, you know, we're sort of helping with the hard part of GP access by offering clinician access through telehealth. But there will be people who choose to do this through a GP.
There will also be people who cash pay for this because they don't have insurance coverage, so our WW Clinic might not be the right choice for them. But absolutely, our GLP-1 Companion Program, as part of our core offering, will be. So, you know, this approach is something that we're approaching on both sides of the business, with behavior change and with access to the clinical offering. So yeah.
What's the production capacity for Sequence, and how do you see that ramping? Are you currently underproducing vis-a-vis demand, and you're trying to catch up, or are both growing at about the same pace?
So we've been in a supply-constrained environment since soon after the acquisition was announced, and we really leaned into integration and scaling readiness ahead of when we expect supply to revert.
So we have spent the last couple of quarters leaning in on the back-end integration and making sure that we can be ready when supply reverts to having a back end that's integrated pay, that's integrated funnel, that's integrated. We've also leaned in, obviously, on the GLP-1 Companion Program readiness that will be launching ahead of peak season. And very importantly, making sure that we have clinician and care team, the human element capacity, scaling and ready. So we're ready for supply reversion.
We've all seen the Zepbound news of late, so we do expect the, you know, supply in the new year to be starting to rebuild. You know, you've got competitors in this space who are going to be incentivized to get supply back on the rails, and we will be ready to get our share of that growth, and we're looking forward to it.
Increased supply.
I would look to suppliers to be doing that. We are in the business of subscriptions, not, not supply. But I would say we're readying for it and looking forward to it. And I would also say, we bought Sequence with the view of the long-term pathway and opportunity of being in this space. We didn't buy it for 2023.
We know we're in supply constraint. We have not leaned into marketing or trying to grow our subscriber base during this time. It has grown. Since acquisition, we've actually grown our new subscribers into Sequence by 90%, and we've actually grown that ahead of new prescriptions in the space. So we've outsized our performance relative to new prescriptions, or starter prescriptions into the medication.
We believe we're doing the right things, and we're focused on the right things with integration, so we're ready for supply reverting. Thank you.
I think we can do one more.
In the back. I'm going again if someone else has one. Just with respect to the GLP companion program, obviously, that's great, and at some point, GLPs will be covered, and prescriptions will be exponentially larger than they are today.
I apologize if this is a stupid question, but are you doing anything... Right now, it sounds like from the way you describe it, people through the app are either finding GPs or, or gonna go to, let's just call it Ozempic, that way. Are you doing anything on the marketing side of things with either Eli Lilly or whomever or the GPs themselves, such that when Ozempic or whatever, Wegovy, gets prescribed, WeightWatchers is sort of a companion suggestion from the GP side of things?
I would say it's. We're in conversations with the manufacturers themselves as well, but I would say there's nothing to share at this point. Thank you.
Well, Heather and Corey, thank you so much for joining us today.
Thank you.
This was super interesting. Thank all of you for joining us as well and participating.
Thank you.