WW International, Inc.

Hello and welcome to the WW International's fourth quarter and full year 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. And to withdraw from the question queue, please press star then two. I would now like to hand the call to Corey Kinjer, VP, Investor Relations. Please go ahead.

Thank you, everyone, for joining us today for WWN National's fourth quarter and full year 2023 conference call. At about 4 p.m. Eastern time today, we issued a press release reporting our fourth quarter and full year 2023 results. The purpose of this call is to provide investors with some further details regarding the company's financial results, as well as to provide a general update on the company's progress. The press release is available on the company's corporate website located at corporate.ww.com. Supplemental investor materials are also available on the company's corporate website in the investor section under presentations and events. Reconciliations and non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are also available as part of the press release. Before we begin, let me remind everyone that this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and certainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and certainties of such statements. All forward-looking statements are made as of today and, except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Joining today's call are Seema Sastani, CEO, and Heather Stark, CFO. I will now turn the call over to Seema.

Thanks, Cori. Good afternoon, everyone, and thank you for joining us today. Last year saw huge shifts in the weight management industry. Weight Watchers is moving quickly and strategically to lead the future of weight health. In addition to being digital first, we believe the weight loss space will be led by the acknowledgement that weight loss is a matter of healthcare. This is a paradigm shift because weight loss has been, and unfortunately often still is, viewed as a vanity issue versus a health issue. The rise of second-generation GLP-1 medications for the treatment of obesity is changing the landscape. While GLP-1s are certainly not for everyone, without a doubt, they are changing the conversation to a broader embrace of medical weight loss. Weight Watchers has multiple pathways of science-backed solutions that improve weight health, and importantly, the FDA states that GLP-1 medications for weight management should only be used in conjunction with a program for behavior modification. And as a reminder, Weight Watchers is the number one doctor recommended behavior change program for weight loss. Weight Watchers is creating the category of weight health, and to do so requires us to go further in the transformation of our business and expansion of our offerings to deliver the support, services, and treatments that many consumers need to understand and advance their weight loss journeys in an accessible and affordable way. This is a multi-year effort, but one that will strengthen our business both today and tomorrow. More on that, but first turning to our 2023 performance. 2023 was a pivotal year marked by a great deal of change as we began transforming our business for the future. At the same time, through a revamped approach to performance marketing and aided by improvements to our product experience, We returned Weight Watchers to year-end subscriber growth for the first time in three years, ending 2023 with 3.8 million subscribers, up 7% year-over-year. Almost a year ago, we announced the acquisition of Sequence, which now operates as Weight Watchers Clinic. We ended the year with 67,000 clinical subscribers, up 47% sequentially, and nearly triple the subscribers since we announced the acquisition last year. And in just eight months, we reimagined our platform by combining behavioral and medical weight health solutions and launched an integrated member experience, a portfolio of solutions that meet members' specific needs, all operating in one place, all under one brand. We also completely revamped our organizational structure. When I joined Weight Watchers nearly two years ago, I was struck by how much it was organized and operating like a multinational consumer retail company, albeit one with an impressive tech stack and digital capabilities. So the bones were there, but the organizational structure hampered our ability to innovate and execute effectively. Over the last year, we have established a centralized organization across all key functions, exited non-subscription business lines, and substantially reduce our corporate headcounts. With a lean and focused team, we can operate with more agility against shared goals as a digital health company. I'm encouraged by many aspects of our performance, particularly around clinical subscriber growth, which we expect to continue growing sequentially each quarter this year. We are making intentional choices to prioritize the initiatives that we believe will have the greatest benefit for the long-term health of our business. We believe this puts us on the right track to deliver growth in total subscribers, growth in subscription revenue, growth in gross margin, and growth in operating income in 2024. As demonstrated by our year-end subscriber numbers, winter season got off to a good start with particular strength in clinical sign-ups in late December following the high visibility launch of Weight Watchers Clinic. In our research, we are finding that the relevance of a New Year's season has lessened with fewer consumers interested in making resolutions. This aligns with the overarching cultural shift happening in weight loss. Not to say that January still isn't a key season for signups, but just not to the degree it once was. Therefore, we are well positioned in our strategic decision to pursue an evergreen product innovation and marketing strategy. reducing the seasonality of our business. This shows up in the Q1 to Q4 seasonal slope in the end-of-period subscribers and also in how signups are distributed throughout the year. In 2022 and prior years, approximately 40% of our annual signups occurred during Q1. In 2023, we intentionally recalibrated our marketing spend to better maximize LTD tax which shifted several percentage points of sign-ups from Q1 into Q3. We plan to take that same approach in 2024. This is the first Q1 where we also have our clinical offering in addition to our well-known behavior change program. So while our total marketing spend in Q1 is expected to be roughly the same as in the first quarter of 2023, the spend dedicated to driving sign-ups to our core program is expected to be down year over year, as well as we allocate a portion of our spend toward our clinical offering and B2B-related brand building, which we expect to result in lower total signups year over year for our core offerings. However, with the strong growth we are seeing in clinic, we believe this is the best approach to prioritize our investments in growth areas while still delivering growth in total subscribers and driving greater operating income in 2024. And with clinical continuing to ramp along with growth in digital core subscribers, we are on a path to deliver year-over-year end-of-period total subscriber growth in each quarter of 2024. And despite significant declines in workshops, we expect subscription revenue to grow year-over-year in 2024. Our subscriber base is benefiting from improvements in activation and engagement over the past year, which are starting to show green shoots in retention, which ultimately would benefit LTV. Our team has done significant work in streamlining our app, and now we are focused on selectively adding capabilities that drive member success. On our core digital product, we are already beginning to better understand and leverage AI. And I believe this is just the beginning of how we can add greater value to members in a modernized digital first experience. Also, Coming soon are new features and integrations that enhance community, coach connection, and making food decisions, which are foundational to any weight health journey. This is all part of our ongoing digital product strategy to enhance member satisfaction and success, the impact of which builds over time. Now let's further expand on our clinical performance and the landscapes. We continue to drive growth in clinical subscribers that we believe is ahead of the growth rate of new GLP-1 prescriptions dispensed, suggesting that we are taking share in this market and are well positioned to grow alongside the momentum in our category. Supply constraints continue to challenge this category, particularly the availability of GLP-1 starter doses. While many competitors in the market are utilizing compounding pharmacies, We are steadfast in our commitment that Weight Watchers Clinic will only prescribe FDA approved medications to our members and not prescribe compounded medications. We are confident this is the right decision for the clinical safety of our members and our business, both for the immediate and the long term. Our position is aligned with the FDA's guidance which urges patients to obtain prescription drugs only from state licensed pharmacies where the FDA and state authorities can assure the quality of drug manufacturing, packaging, distribution, and labeling. The FDA has received adverse event reports after patients used compounded semaglutide. While others may choose to be opportunistic at this time, and turn to compounding to help boost recruitment and retention, this is an issue that we will not compromise on. We have a 60-plus year track record of science-backed solutions and not hopping onto fads and snake oils for the weight loss. Our members and partners trust us, and I plan to respect that trust and maintain our high standards and values, especially around clinical protocols. I am confident that as the supply of GLP-1 medications improves, we are very well positioned to recruit and retain members in our clinic offering at an attractive LTV CAC beyond the success we are already seeing today. In the meantime, we have been educating consumers with top-of-funnel initiatives about the Weight Watchers evolution and the category evolution. But as supply returns, we will be adjusting our marketing approach, moving more into performance-based tactics for clinics and highlighting our sustainable approach to medical weight loss. In addition to providing comprehensive high touch and personalized weight healthcare, which is the real value of Weight Watchers Clinic, the tech platform supporting it is what makes it scalable and creates a better member experience. 40 to 45% of clinic members that have prior authorization submitted get one approved for insurance coverage, which is five to 10 percentage points higher than at the end of June and compared to 22% of US employers, according to the International Foundation of Employee Benefit Plans. Insurance coordination is a frequent pain point for consumers, so to have a solution that makes that process quick and easy is a great differentiator. In 2024, we are focused on building on our differentiators by expanding care, expanding access, and expanding payment options. We call this project expansion. These changes will have a real impact on our business model. Importantly, the financial guidance we are providing today does not include any significant revenue benefit from these exciting initiatives. So first, let's talk about expanded care. I think of Weight Watchers as having one membership. Everyone under our umbrella is a Weight Watchers member. So while we speak to members being digital, workshops, or clinical, the future is in members having our foundational behavior change offering as a basis and the ability to add on and move between membership types depending on the level of support needed. For instance, a digital subscriber coming in today on a long-term commitment for $10 a month can easily become a member at a significantly higher monthly rate down the road if another one of our solutions is a better fit to their individual needs. Approximately 70% of our clinic signups since December are from current or last Weight Watchers members. And within that, 20% of the clinical signups were active members of our core program choosing to upgrade to clinical via the new tab in our app. The successful conversion rate from active subscribers at essentially zero CAC both enhances a member's weight loss journey and delivers greater ARPU for those members. This demonstrates how we can effectively leverage our existing member base with an integrated platform. Our vision is to expand the care options that members can access based on their specific weight health needs, which would include subscription services such as metabolic lab tests, and dietician support, as well as specialized care, depending on life stage and chronic conditions. This helps make their weight health experience less fragmented and more personalized. Now, regarding expanding access. Throughout our history, Weight Watchers has been the leading provider and trusted brand name in the weight loss industry. Our buyer was primarily the individual consumer, Because of the massive shift in our category, we know the end buyer is going to evolve. Today it's consumers, tomorrow employers, payers, government. They will all play a larger role. We plan on making Weight Watchers a covered benefit, both for our core behavioral program and our clinical offering. This is a process that won't be accomplished overnight. but one I am very enthusiastic about for the mid and longer terms and one we will be pursuing aggressively. Our B2B team is making good progress in expanding the employer business. We recently announced that LabCorp, a leader in lab services, will offer Weight Watchers as a covered benefit to its U.S. employees, as well as their spouses, domestic partners, covered under the LabCorp medical plan. This includes the full weight health spectrum from behavior change to clinic. In order to receive prescriptions of GLP-1 weight loss medications through their health benefit, LabCorp employees will need to be using Weight Watchers Behavior Change Programs. Other recent new business wins for offering our Weight Watchers Behavioral Program as 100% covered benefit include Deutsche Bank and Bosch Health. The reasons these employers choose to work with us include, first, our brand equity. Weight Watchers is a trusted partner that their employees see as a choice benefit. Our brand recognition possesses a rich, multi-generational history that resonates with consumers who are also employers. Second, our science. Weight Watchers is the most studied weight loss program. It is clinically proven that we provide better outcomes with our personalized approach and behavior change program. We have the unique ability with our large data set and clinical studies to inform and recognize phenotypes that can deescalate to more cost-effective and sustainable weight management. As part of this ongoing effort, we launched a clinical trial in partnership with the Cleveland Clinic and look forward to reporting out these outcomes. And finally, our consumer experience. We operate at a size and cost-effective scale that few other companies in our category can match. and we do so with a powerful and differentiated consumer experience. While no single employer is expected to be a material driver of total subscribers or revenue this year, we are building momentum in this channel and believe it to be a critical growth driver for 2025 and beyond. In addition to expanding access, we intend to expand payment options across our clinical services Our goal is to allow members to use their insurance whenever possible rather than having to shoulder the cost out of pocket. This will be an ongoing initiative which we intend to roll out in phases. While it takes time, this is really important because we believe the future of Wade Health will be predominantly covered by insurance. We believe the capability to directly process insurance claims for Weight Watchers services will have a positive impact to signups, retention, subscribers, and ARPU over time. By leveraging and further advancing our technology, including AI for processing claims, we expect to be able to transform our go-to-market model in a highly scalable and profitable way. In summary, 2024 is shaping up to be another critical year in Weight Watchers transformation. I am proud to say we have returned the company to a positive trajectory with anticipated growth in subscribers, subscription revenue, gross margin, and operating income. And project expansion gives us critical opportunities to further catalyze our growth and mission as the global leader in weight health. I will now turn the call over to Heather to discuss our financial results and 2024 outlook. Thanks, Seema.