WW International, Inc.

actually increased our estimate for the restructuring charge is actually increased to 27 million we took 19 million of the restructuring charge in q2 but importantly we've updated or increased our estimate of annualized savings on that so last time for the i think it was 16 to 22 million we expected we were going to deliver 30 of annual savings we've taken it to 27 we think we're going to be able to deliver 35. And so I'm quite pleased that we got ahead of that out of the gate here. And I think we'll obviously see the benefit of the full year impact of that going into 2023. And so, I mean, related to the restructuring itself, you know, we talked to you guys back in early May. We were just starting to execute on the plan. And as we got into the details, looking for cost synergies, we did think there was more there. So we went ahead and increased our estimate.

Okay. Fair enough. Thank you.

And our next question will come from Stephanie Wisnik with Jefferies. Please go ahead.

Everyone, it's Chris Neiman, and it's on for stuff. So you talked about a focus on stabilizing subscribers in the back half of the year, but then you followed that up with kind of expectations for steeper declines in the back half, more so than is typical, right? So two questions, I guess, is could you help me kind of reconcile that commentary? And then two, What kind of approach do you take to stabilizing subscribers specifically? I just ask because we've noticed some of the deeper discounts coming through on some of the longer signups. So is that part of the strategy here? And should we expect lower revenue per subscriber, I guess, in the back half of the year, if that is the case?

Hey, Chris, it's Amy. I'll start that one. On the sequential decline, so just to clarify that comment, you know, last time, Last time at the midpoint of the range, we guided that end of period subscribers in Q1 to end of the year, which is something we watch very closely. That slope of the decline was going to be about 16%. And that actually was pretty significantly higher than our historical trend, roughly right in the trailing five years prior to that. It was down about 12%. So I felt like I felt like we got the guide on end of period subs pretty close, but candidly, what we saw was additional pressure on digital signups in the quarter. So in Q2, digital signups on a year over year basis worsened more than I expected than the same number quarter over quarter in Q1. And what we're seeing really is it's that we're not filling up the bucket on sign-ups as fast as we have been. So it's really, in other words, it's really a sign-up trend issue. It's not a cancellation issue for clarity. And so this is just all about sign-up performance. Thought we found... the bottom to hit a down 16% end of period sub from Q1 trend and we're trending a little bit worse than that. From a trending performance, what we've talked about is stabilizing those trends, getting ourselves on the right path so that we can get back to sign up growth in 2023.

Yeah, and I mean, on the discounting of the promotional pricing, I would just add that, I mean, nothing has really changed. We're always testing and learning from new and different pricing and promotion strategies.

Yeah, that's super helpful, both of you, I guess. Has kind of the discounted cost kind of resulted in any learning thus far in terms of kind of price and new customer and new subscriber signups?

Yeah, so from a discounting perspective, our behavior hasn't changed very much. In fact, you guys know I look at revenue per paid week. If I look apples to apples on a year-over-year basis in digital, we're actually up 2%. And so we've been taking base price increases to offset some of the impact of the discounting. So net-net-net, You know, we're actually a little ahead. You know, from my perspective, we still continue to see urgency and discounting in the market moving signups. And, you know, we've got, you know, we've obviously talked a lot internally about how to get past that. But we still see it as pretty effective in the marketplace. But overall, we're not losing rates. And we're still... you know, expanding margin on a quarter-by-quarter basis.

Yeah, and I would just add to that that the average discount price between, you know, one to six months is roughly the same as most of our competitors. And, I mean, ultimately, we need to compete on value, not on price. And, you know, that takes some time as we deliver our new product roadmap. But, you know, it's something we're focused on as we continue to test various pricing strategies.

Okay, great. That's super helpful. Maybe just last one for me, just moving away from subs, but you talked about kind of a weaker spring campaign and kind of moving into a fall campaign. So should we be expecting any changes to the approach in how you kind of market versus what you've done historically, or at least versus the spring? Thanks.

Yeah, I mean, you know, we... I think I mentioned at the top that I don't think we did ourselves any favors by moving away from a clear weight loss message. And we're going to be leaving more unapologetically about weight loss. So we're looking forward to that. And when we're looking at the fall, for instance, we need to start building that narrative. It just doesn't happen overnight. You have to... start positioning ourselves for change and building that mind share with the consumer into the winter. So, you know, you'll also see us testing and learning on that front as well, but I'm really excited about it because, you know, ultimately we've been rooted in science. We're one of the few programs that fulfills all of the criteria that expert panels deem necessary in order for behavioral lifestyle weight loss interventions to be effective and I just think we need to shout that from the roof.

And our next question will come from Alex Furman with Craig Holland Capital Group. Please go ahead.

Hey guys, thanks for taking my question. I wanted to ask about the membership shortfall that you experienced in the second quarter. If I'm understanding your comments correctly, it sounds like that was mostly from a reduction in new members. coming into the program, it seems like that would be a pretty big shortfall, 100,000 just in the months of May and June, considering those are typically pretty small recruiting months. Has there been any change to your existing members' retention, any kind of drop-off on membership that you wouldn't be normally seeing as part of the normal membership curve, just trying to reconcile that fairly big shortfall during a period that normally you wouldn't have a ton of people coming into the brand anyway.

Yeah, understand. So a couple of things. One, it's mostly coming from digital. So if I look at end of period subs at the end, and bear in mind also there's some noise in here related to D360, but Just to clarify, I tried to go through that on a call because it's kind of complicated in the quarter. So we did Sunset D360, pushed those subscribers into workshop. And so the workshop balance has about 127,000 more subs, and digital has less compared to previously reported. So I'm going to talk to it on a restated basis here for a second. So digital end-of-period subs at the end of Q2 – you know, we're down 13%, restated workshop subs were down six. And I understand where you're coming from. I think that digital certainly came in. The performance sequentially declined on a year-over-year basis from Q1 to Q2. And it was at a much higher pace from a sign-up perspective. than we expected. And so, you know, there were a lot of moving pieces for sure in this market, you know, really felt like in the guide and the forecast that we found the bottom. And so I think some of this is, you know, I think some of this is just, you know, hey, did we factor in did we get into the guide, you know, all of the moving pieces, right? And so the other part of this, Alex, is that we also within the quarter, you know, so we expected to spend about $5 million more in marketing than we actually spent. And it all came out of Europe. And so Europe, given some of the macro headwinds they were facing, didn't feel like they were going to be able to get the share of mindset with everything that was sort of going on in a region and really stepped on the brakes. And I think that it's so while we got the cost efficiency benefit of $5 million of marketing, recruits or sign-ups, you know, sort of were that much lower than we had anticipated. So, yeah, I agree that 100 was a pretty good guide miss, but given a reduction of, you know, $5 million of marketing, I think we just hadn't found the bottom. I mean, Seema?

Yeah, I mean, I just want to add to that that, you know, we talked about personal points could have performed better for us, and Q1 we saw now you know looking back at our engagement metrics that even though it delivers on the same at the same level in terms of nutritional and science efficacy it's a complicated program and so if you aren't as activated then you're not spreading the word and that impacted us in Q2 And the good news is we can fix that. We're already working on a thesis around the path forward. And I think that certainly we're able to rectify and improve that engagement. So we're looking forward to doing that and continuing to evolve the program So, again, we're not saying it didn't work, but it could have been a lot better, and we know what we need to do to improve it.

Okay. That makes a lot of sense. Thank you both.

And our next question will come from Linda Bolden-Weiser with DA Davidson. Please go ahead.

Yes. Hello. Seema, on the last call, you talked and you referred to, you know, IRL, and you talked about how important strategically it is, that in-person kind of workshop experience, almost saying that you didn't think it could be replicated in the digital world. And today, I don't know, maybe I'm imagining it, but it sounds like you're changing that a little bit by now saying that you need to find a way to bring that experience to digital. So can you clarify your thinking? And also you had alluded to maybe the idea of a one product, one price offering that all subscribers should have access to a workshop-type experience. Can you let us know what you're thinking currently on that? Thanks.

Sure, sure. So let me clarify. When I'm talking about IRL experiences, I'm definitely saying that alluding to the workshop experience is about a peer-to-peer experience. It's the coaches they're facilitating, but people are on a journey together. They're coming for the weight loss, but they're staying there because of the belonging, because of the connection, because people are supporting each other through their weight loss journey. That's the part that I'm saying is missing from digital. Digital ends up being a very lonely experience. Remember, we're coming out of two years of COVID where people feel lonelier than ever. And weight loss is an emotional problem. In order to solve it, you need an emotional solution. And that's only something that other humans can provide. So, you know, just as a reminder, I... I've been a part of this program since 2014. I came in with a clear vision of where I think we should go and what's going to catalyze the future of this product. I spent decades building sticky social and gaming experiences that do just that, bring empathy to online experiences. So when I'm saying that we need to bring more of that magic online, I'm not saying it literally. I mean it figuratively. that we can build better community. You come for the weight loss, but you stay for the community. Does that answer your question?

Yeah, absolutely. And what about the idea that maybe you have to simplify even further to one product offering?

Yeah, we're testing a lot of different pricing strategies. I think that we can simplify how we show up on the guest site and more on that front. Nothing to report at this time.

Okay. And then when you were talking about, you kind of referred to a strong program backlog. Is that referring to, like, I'm just curious your thoughts on the cadence of new program innovation. So it's been kind of every other year that there's been a major launch. Are you kind of rethinking that, or do you expect that cadence to be the same kind of going forward?

So I said product backlog. So just to be clear, I mean features that we will be shipping within the product that help modernize our UI and basically help deliver a better app experience. The program innovation... You know, look, I think that the program has done the human's work for us over the past years, and what we really need to do is get into a place where we have a more evergreen approach. But, you know, and we're seeing that right now. We're not going to wait two years to solve issues that we see in this program at the moment. We're going to roll them out, and we're going to evolve and continue to improve But just to be clear about when I was talking about the backlog, I was referring to our product roadmap. And by product, I mean the mobile app experience.

Okay, great. Thank you so much. Thanks, Linda.

And our next question will come from Lauren Shank with Morgan Stanley.

Please go ahead. Hey, this is Nathan Featheron for Lauren. You noted pulling back in marketing and the EU given the kind of weaker macro backdrop there. How would you think about the trajectory of subscribers if the U.S. consumer started acting a little bit more like the EU consumer? And then a second point on Curbo, can you just talk a little bit about what didn't work there and then how we should think about the financial impact for the rest of the year? Thanks.

Hey, this is Amy. Just to be clear, performance in North America and Europe in the quarter was quite similar. So, for example, if I look at end-of-period subscribers by segment, right, North America was down 11%. CE was down, continental Europe was down 12%. So just to clarify my comment, Europe actually pulled back on marketing on a year-over-year basis, right? because they didn't think that they were going to get the share of mindset that they felt like they were, you know, that they felt like that investment would have warranted. But they still ended up, from an end-of-period perspective, kind of roughly in the same place. In North America, it was a little bit, but we actually invested about, I think it was just about a million bucks on a year-over-year basis in Q2 And Europe and North America ended up in the same spot from an end-of-period perspective. And so there wasn't so performance in each market ended up roughly in the same spot. But if you look at segments like, for example, operating income in Europe ended up in a better spot on a year-over-year basis than North America did because we pulled back on that marketing. I don't know if that's what you're getting at or not. Did that answer that part of your question?

I guess just kind of thinking about to the extent that the performance was the same across the two, how should we think about that macro impact going forward to the extent that if the marketing pulls back and the trajectory is the same, it's not necessarily a bad thing, right, because of the lower tax. I guess just trying to think more about maybe more broadly the macro impact there to the extent the consumer weakens more generally.

Yeah, I mean... I think what it told us in Q2 was that we made the right decision in Europe, right? Pulling back, ending up in the same spot. I think the flip side to that, right, is that the challenge, you know, the performance challenge was more in the U.S. than it was in Europe. And, you know, we've talked about The reasons that, you know, at least some of the reasons or some of the factors that we think are driving that, I think, hit disproportionately in the U.S., for example. You know, we've talked about some of the macro trends, some of the shifts in consumer sentiment. We've talked about the D360 trend. conversion, that certainly made the quarter a little bit noisier than it otherwise would have. You know, and Seamus talked about the impact of personal points. And so that's, you know, that is the trend that we are trying to stabilize, you know, in the back half.

Yeah, and I would just also say, you know, we're We've now in-housed our performance marketing function, and so we have the ability to move nimbly, and that's also part of the reason we're looking at fall, because we see an opportunity to spend more efficiently. But moving to the second part of your question on Curbo, honestly, that's a really small part of our business, and I think that the that there was initially a thesis that we could help curb scale and make a dent with pediatric obesity. But I just think that the synergies in reality were not there. And on a personal note, my mother actually has done pediatric obesity consulting. And this is a cause I care deeply about. And kids have unique needs. And I just don't think that we are the best to provide a solution.

All right, great. Helpful. Thanks, both.

And our next question will come from Sean Dunlop with Morningstar. Please go ahead.

Hi, thanks for taking the question. My first one is just about the long-term profitability of the business. So I recognize it's pretty tough to guide from here, but Amy, maybe you can help us think about a baseline for G&A. So take maybe last year's turn 69 million, mock it up by 3% for inflation, knock 20 million off of that, and then the incremental 15 for 2023. Is that kind of the way to think about the new base?

And I'll pause there. That was fast and very forward-looking. And so I think I'm not in a position to guide on that. Here's what I will say, though. You know, I think in Q2, we were at a run rate of, you know, G&A was at 57 million, right? I think you add some inflation. I think you add some inflation to that. and a little bit of the full-year impact of the restructuring savings that haven't hit yet. And we're looking at G&A being down in 2023 on a year-over-year basis from what we guided today. Right now, I think I'm not in a great position to nail that down for 2023. I would say over time, however. the goal would be for us to get G&A back under 20% as we exit this year with a really scalable fixed cost structure for when we bring back sign-up growth.

And I'll just add, and I know we keep saying this, but I feel like it's worth repeating, but the need for weight loss is higher than ever before. And we're doing all the right things to turn the tide. Improving the program simplicity, focusing on our critical pillars around community, accountability, coaching, pivoting the marketing. And as I said, we've already seen the progress. We're running A-B tests that we haven't rolled out yet. We're seeing the lift, and it gives me confidence that we're on the right path to growth.

Got it. That's helpful. So I guess... Quickly for Amy, if we're thinking about this business as clawing back towards sort of high teens operating margins, maybe below 20% operating margin, is that altogether inappropriate or is that about what you're looking at internally? And then maybe for Seema, as we start to think about a lot of the programs that we're rolling out and a lot of the investments that we're making in workshops and marketing and so on, What are sort of the metrics that you're monitoring internally that we should be looking at in terms of saying we're out of the worst of this? Is that going to be lengthening sub time? Is it going to be, you know, a bump in subs beginning next year? What are you kind of looking for with respect to that?

As it relates to operating margins, you know, I think my overall goal, right, we're in a structure where we've got, you know, 60 plus percent. I mean, we were running close to 62% in Q2. So we've got, you know, a really strong gross margin that I think is scalable with growth, right? So we've done a lot of work on turning our operating expenses from fixed to variable, particularly with the real estate on the workshop side of business. And by the way, workshop gross margin is in Q2 was up to 37%, right? So we were kind of 40% pre-pandemic and we've been climbing back up. And so I think that we're doing all of the right things to take costs out of the business on a timely basis and shift fixed costs to variable costs. So if I had to sort of pontificate out loud about what my goals would be for operating margin, I would love to keep gross margin you know, above 60%. I'd love to get G&A back into the 20% or some 20% range, right? And I think marketing, you know, we've seen marketing as a percent of sales over the last several years increase pretty significantly with inflation, particularly impacting that spend. And so if we had, you know, for example, marketing in the 22 to 23% range, that would get me like, my goal is to get this business back to 20% operating margin. I think the hard part for me to answer is. How long is that going to take? Right. And so I think, I think that is variable doable over time. I need signups to, to, to return to growth, um, in order to start returning to earnings growth and getting the leverage on that cost structure.

I'll pick up on the metrics. Obviously, we're not going to share the details for competitive reasons, but I can say we're looking at regular engagement and weight loss progress during the first month. That's key. Second, starts with identifying the moments that matter, those aha moments I described earlier. And then the much larger and essential step is predictive behaviors. What are the encouragements, the triggers that make members more likely to actively engage? Those were the metrics that revealed that we could be doing better on our points program, for instance. And while we're working on these, we're simultaneously simplifying and enhancing the app experience, watching all those engagement trends closely as we ship those various features. So the end result is going to be weight loss success, and that ultimately leads to more people saying they found success with Weight Watchers. That word of mouth is a critical driver of subs for us. So that's what we're focused on right now.

Very helpful. Thanks so much.

And our next question will come from Michael Lasser with UBS. Please go ahead.

Good evening. Thanks a lot for taking my question. Do you think anything needs to happen in the external environment, either from a competitive standpoint or an economic standpoint, in order for you to reverse the subscriber growth trend?

Hey, Michael. No, I don't, actually. I think this is our responsibility is to break through and to operate in whatever environment we're given. And I would actually say more than anything, it's the cultural landscape that has shifted, and we haven't moved with it. So we need to change the paradigm. We're doing all the right things to turn the tide, and, you know, I I think that ultimately we haven't done ourselves any favors by ceding and hiding behind wellness over the last few years. And you're going to see us coming out with much more provocative message moving forward.

One that's focused on weight loss presumably? Exactly. Okay. Do you think you need to... reemphasize the Weight Watchers brand name in order to get subscribers back to where they've been historically because the WW moniker just doesn't resonate as well as Weight Watchers does?

We're embracing Weight Watchers. It's an important part of our heritage and our legacy. You know, WW is still our corporate name and it's there and, you know, I mentioned before it's It's our nickname, if you will. But Weight Watchers, you'll see that much more prominently, yes.

Okay. Thank you very much, and good luck.

Thank you, Michael.

And this will conclude our question and answer session. I'd like to turn the conference back over to Seema Sastani for any closing remarks.

So we know the need for weight loss is higher than ever, and as I just mentioned, the onus is on us to remind people that health is not a discretionary matter. Since 1963, Weight Watchers has been rooted in science. We are one of the few programs that fulfills all the criteria that expert panels deem necessary in order for behavioral lifestyle weight loss interventions to be effective. I've been on this program since 2014. I came in with a clear vision of where I think it should go, what will catalyze our product, and ultimately our business. We're focused on improving program simplicity, enhancing those critical product pillars, and delivering a marketing message that makes us undeniable. We have a strong thesis on the path forward. I'm confident we're doing all the right things to return the company to growth, and I just want to thank you all for joining us today. We look forward to keeping you updated throughout the year.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.