WW International, Inc.

Q1 2024 Earnings Conference Call

5/2/2024

spk10: are in a 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 touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Corey Kinger, Investor Relations. Please go ahead.
spk05: Thank you everyone for joining us today for WW International's first quarter 2024 conference call. At about 4 p.m. Eastern time today, we issued a press release reporting our first quarter 2024 results. The purpose of this call is to provide investors with some further details regarding the company's financial results, as well as 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 of 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 uncertainties 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.
spk06: Thanks, Corey. Good afternoon, everyone, and thank you for joining us today. I'm proud to announce that Weight Watchers is off to a strong start. First, we delivered on our Q1 commitments with both top and bottom line results consistently. Second, we are succeeding in our expansion into clinical services as reflected by clinical subscribers of 91,000 at the end of the first quarter, ahead of our prior guidance of 85,000 subscribers. Our clinical business has undergone tremendous growth over the past year, now having nearly four times the subscribers since we announced the acquisition of Sequence in March, 2023. And we have grown this business in an environment of supply constraints for very in demand GLP-1 medications. Third, the improvements made to our core programs are yielding a tangible improvement in engagement and retention. For example, our activation rate, a metric defined by a member's food and weight tracking engagement and weight loss progress during their first 30 days on the program, continues to trend positively with Q1 up approximately 6% year over year and hitting its highest level since 2020. As a reminder, activation rate matters because activated members' attrition rate is roughly half of a non-activated member, and they are more successful on Weight Watchers over the long term. We are seeing improved user retention, particularly among newer cohorts, with the average subscriber now on the plan for slightly higher than 11 months. And fourth, our focus on cost discipline is paying off. we delivered another record-adjusted gross margin quarter, an impressive 68%. So in short, we are executing on our plan by focusing on returning the company to profitable growth while transforming our business model for the future. And we remain confident in the full-year guidance. While recent sign-up performance has been soft, much of this is due to an intentional shift in spend for an upcoming marketing campaign introducing our weight health approach. The coaching, accountability, and community found in Weight Watchers is key to our longevity and member satisfaction and success. But at the same time, we must evolve for the future, building out and enabling new offerings and features to serve a broader population with more solutions. 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. And when it comes to support, we have a distinct advantage with our 4 million members Weight Watcher community. As discussed in our last earnings call in February, we are focused on expanding care, expanding access, and expanding payment options. Together, the initiatives and project expansion will give us critical opportunities to further catalyze our growth, make our offerings more accessible, to more people, transform our business model, and deliver on our mission as the global leader in weight health. Turning to the three pillars of project expansion. First, expanding care. We are focused on expanding and enhancing the care options that members can access based on their specific weight health needs. Our trusted behavioral program is the foundation And we have a number of digital product improvements rolling out in 2024 to enhance the experience to members, including new features to simplify food decisions, greater in-app gamification, and new community spaces. Second, expanding access. As we think about the future and growing recognition of the critical importance of weight health and our leadership in it, we plan on making Weight Watchers a covered benefit. both for our core behavioral program and our clinic offering. Over time, this will take us from a D to C model to increasingly a B to B to C business. Recent business wins and substantially increased volume of new business conversations make us confident in our strategy. Our brand, our science, our consumer-centric experience, and full spectrum approach are all key differentiators that resonate with payers and employers alike. We are in active discussions with large national carriers and we are also in talks with large existing customers. While this motion has a long lead time, the expansion it represents for access to Weight Watchers is huge and we believe this channel to be a critical driver of growth and momentum in the years ahead. And third, expanding payment options. Our goal is to allow our members to use their insurance whenever possible taking the cost burden off the consumer. This provides greater opportunity for a larger pool of members to access incremental services and thereby drive greater ARPU. Over the next few months, we will be making insurance-covered registered dietitians consultations available to eligible Weight Watchers members in the U.S. We believe the capability to directly process insurance claims for Weight Watchers services will also have a positive impact to signups and retention over time. In short, we are enthusiastic about project expansion and its potential to transform the Weight Watchers business model and make our offerings more accessible to more people. There is a lot to look forward to in 2024. In addition to returning our business to adjusted operating income growth, I am confident our actions are making the company stronger and better positioned to capture the opportunities ahead. I will now turn the call over to Heather to discuss our financial results and 2024 outlook.
spk01: Thanks, Seema. Turning to our first quarter 2024 results, note that all year-over-year financial comparisons are on a constant currency basis. We ended Q1 with 4 million subscribers. This included 91,000 clinical subscribers, and we continue to be encouraged by growth in the business. Revenue totaled 207 million. Subscription revenues of $204 million declined 4% year-over-year, driven by a higher mix of subscribers within initial lower-priced commitment periods, mixed shift from workshops to digital subscriptions, and lower sign-ups for Weight Watchers behavioral offerings versus the prior year first quarter, with the sign-up trend reflecting the lower level of spend dedicated to the core program versus Q1 2023. This was partially offset by $19 million in clinical revenue. Adjusted gross margin of 67.9% was another record high and up from 57.1% in the prior year, primarily driven by our actions to reduce our fixed cost base and subscriber mix shift. In addition, the prior year quarter gross margin was negatively impacted by subscription and consumer product promotional bundles. Marketing expenses of $90 million were up 2% year over year, reflecting higher online advertising spend. including for our new clinical offering that was not in the year-ago period, partially offset by lower spend of TV advertising and non-working spend. Adjusted G&A of $56 million was up 7% versus prior year, primarily due to the inclusion of expenses for our clinical business. Adjusted operating loss was $6 million. Restructuring charges totaled $6 million in the quarter related to prior year plans. We recorded non-cash impairment charges in the quarter for franchise rights acquired balances totaling approximately $258 million. These impairments were primarily driven by an increase in the company's weighted average cost of capital, reflecting market factors. Income tax expense was $55 million, which reflected the impact of an unusually high negative annual effective tax rate, driven by the valuation allowance and small pre-tax loss reflected in the company's full-year fiscal 2024 guidance. GAAP EPS was a loss of $4.39, which incorporates the net negative impact items impacting comparability, including the valuation allowance, non-cash impairment charges, and net restructuring charges. Shifting to our outlook. We believe we are on the right track to start 2024. As Seema mentioned, we're seeing encouraging retention and LTV data and are enthusiastic about our product roadmap and marketing plans for the rest of the year. At the same time, we're operating more efficiently from a cost perspective. We continue to leverage longer-term commitment offerings in order to maximize total LTV and revenue. We're beginning to see retention expansion with recent product improvements, and we continue to anticipate stable subscription LTV year over year in 2024. While we still expect behavioral ARPU, measured as revenue per paid week, to be down in the mid-single digits in 2024, we've seen green shoots with LTV starting to improve in Q2 versus the prior two quarters. To expand behavioral subscriber ARPU over time, it is essential to execute on the strategic initiatives Seema highlighted, including expanding care through the addition of new premium add-on services. We're maintaining our expectation to end the year with total Weight Watchers subscribers in the range of 3.8 to 4 million. Within our total subscriber guidance, we expect behavioral subscribers to end the year at least flat with 2023, despite a steep nearly 20% decline in workshop subscribers. Clinical subscribers are expected to end the year in the range of $140,000 to $160,000, so more than doubling from the end of 2023. We continue to expect full-year total Weight Watchers revenue to be $830 to $860 million. Within this, we continue to expect clinical revenue to be between $100 and $110 million. This reflects a modest increase in subscriber revenue year over year. Other revenue, which is primarily our high-margin licensing business, is expected to contribute up to $10 million in 2024. Adjusted gross margin is expected to be approximately 66% for the full year, up from adjusted gross margin of 62% in 2023, reflecting a mixed shift and continued read-through of fixed cost actions. We continue to expect full-year marketing spend to be roughly flat with 2023, and adjusted G&A expense to be between $210 and $220 million for the year. which is slightly lower than 2023 due to our restructuring efforts and cost discipline and reflecting strategic investment to expand our clinical offering and our B2B business. Additionally, 2024 includes one additional quarter of clinical expenses compared to 2023. Therefore, we expect adjusted operating income to be between 100 and 110 million and adjusted EBITDA to be between 155 and 165 million. For the full year, expect income tax expense to be up to $5 million, impacted by the valuation allowance and impairment mentioned earlier. Excluding the impact of the valuation allowance and impairment, we continue to expect an income tax benefit of up to $10 million. We expect cash taxes to be between $20 and $30 million for the year. As a reminder, given the small pre-tax loss reflected in the company's full year fiscal 2024 guidance, Any updates to the expected pre-tax loss or income tax expense can result in significant impacts in quarterly income tax results. Turning to our capital structure and cash flows, we ended Q1 with approximately $67 million of cash plus an undrawn revolver. As a reminder, our first half of the year cash needs are much higher than the second due to increased marketing, compensation timing, and the sequence acquisition anniversary payments. with cash then expected to build through the balance of the year. With our cash position plus our revolving credit facility, we believe we have sufficient liquidity for our working capital needs, including in-year cash outlays related to our restructuring actions and servicing our debt. Cash from operations in 2024 is expected to increase modestly year over year. As a reminder, 2023 included approximately $45 million of cash payments for restructuring, And we expect 2024 to include approximately 20 million of restructuring payments associated with the 2023 restructuring plan. Full year interest expense is expected to be between 105 and 110 million, with the year-over-year increase largely driven by the expiration of our $500 million hedge at the start of Q2 2024. Given current market conditions, we have decided not to add new hedges at this time. CapEx, which is primarily due to capitalized software, is still expected to be in the $20 to $25 million range. Depreciation and amortization is expected to be in the $40 million range. At Q1, our net debt to adjusted EBITDA leverage ratio was 9.4 times. With our 2024 outlook, we expect our trailing 12-month leverage ratio to further increase in the coming quarters due to lower EBITDA levels before showing year-over-year improvement at year-end 2024. As a reminder, we have very attractive debt terms with no maturities until 2028 and 2029, and we are comfortable with our liquidity profile, which gives us ample time to deliver on our transformation strategy. We will continue to opportunistically evaluate options to reduce our leverage ratio on terms we believe are strategically beneficial. In summary, we are operating more efficiently and are strategically positioning Weight Watchers for the future. We believe by scaling clinic and executing on our expansion initiatives, we will drive another year of operating income growth in 2025 with momentum and revenue returning to the business. I'll now turn the call back to Seema.
spk06: Thanks, Heather. 2024 and 2025 are critical years, and execution is of paramount importance. We've made significant progress with the integration of sequence and learned a lot during the winter season on key product and brand opportunities. We've been moving rapidly to incorporate those learnings into our product roadmap and marketing plans. At the same time, we believe Weight Watchers is uniquely positioned to dominate in the B2B and payer space. We expect this area of the business will contribute more meaningfully from a financial perspective in 2025 and beyond. We have conviction that payers and employers are the unlock for weight health in the medium to long term, and we need to start winning share in this market today. Before we wrap up, I would like to welcome Donna Boyer, our new chief product officer to Weight Watchers. Most recently, Donna was the chief product officer at Teladoc Health, where she led the strategic shift from a single product to a multi-product portfolio organization. Prior to Teladoc, Donna held product leadership positions at Stitch Fix and Airbnb. Our execution can only be as strong as a team executing, and I am confident that Donna is the right product leader to ensure a cohesive one-membership value proposition across core, IRL, B2B, and clinic. Thanks for joining us. We are now happy to take your questions.
spk10: We will now begin the question and answer session to ask a question. you may press star then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Our first question comes from Jack Wallace with Guggenheim. Please go ahead.
spk02: Hey, thanks for taking my questions and congrats on a really nice start to the year. Just wanted to ask you a little bit about what you're seeing in terms of market conditions as we entered the second quarter, particularly with advertising inventory pricing as well as competitive behavior, particularly in light with just how expensive advertising was in the first quarter and what appeared to be some really aggressive competitive behavior. Thank you.
spk06: Hey, Jack. Thank you. Yes, we have seen the cost of media going up. And in general, you know, I think that's why we have a great performance marketing function that, you know, accounts for those types of movements. And we have had, you know, seen some softness in the base business in April. But we're not overly concerned about that. That was an intentional shift in money out of April and into May so that we can align to more of our, you know, marketing milestones, which in general obviously improve the funnel and make the dollars spent more efficient. So we're really confident in our full year outlook and excited also, of course, about our clinical subscription business and how it's scaling.
spk02: Excellent. That's helpful. And then to that last point, you mentioned in your prepared remarks that there'll be an increased focus on promoting the clinical business. Obviously, we've got the special with Oprah later this month. Are there any other points of emphasis you'd like to disclose today in terms of your marketing strategy around clinical and maybe the percentage of the budget being dedicated towards the clinical strategy. Thank you.
spk06: Right. So the overall marketing strategy is a one membership strategy. And I think that that's what we can uniquely do is by marketing and speaking to the benefit of weight health and Weight Watchers, a brand that has been around for 60 years, that is the number one doctor recommended program, most clinically tested program. that we are able to make a more efficient acquisition. Also, as we had noted previously, we're seeing conversion from within our core business to clinic. So it behooves us to take more aggressive approach in terms of our acquisition strategy towards the core business. And we're seeing that, you know, this is providing a lot of efficiency overall. in how we go to market not to mention um you know our last database that we're able to continue to utilize as a um when when we see opportunities between our performance strategy and our non-paid strategy yeah that's helpful thank you i'll hop back into you
spk10: The next question comes from Nathan Feather with Morgan Stanley. Please go ahead.
spk07: Hey, everyone. Thanks for taking the question. So the end-of-year behavioral sub-guide does imply some acceleration through the year. Is it primarily the marketing campaign that you're launching to get you confidence in that? And then can you give more detail on that marketing campaign, you know, timing, expected impact on marketing cost, those kinds of stuff? Thank you.
spk06: Yeah, I mean, there's not a lot that we're ready to share at this point. Obviously, we've announced our event next week with Oprah. But in general, it's about coming to the market as one membership. And we learned a lot from the winter season that between all of the different ways that we were confusing the market with a lot of different solutions. Moving forward, it's all about one membership. Come to Weight Watchers. Our program can increase in its personalization and support based on the level of care that's needed. And we're there for people throughout their various life stages.
spk07: Great. That's helpful. And then you beat the clinical sub-guide for 1Q. Maintain a full year guide. How should we think about the key puts and takes? that could lead that to come in at the high end or be the range of the year?
spk06: Yeah, so we, as we mentioned, you know, if you follow that and even at the bottom end of the subscriber guidance, we're really confident in our revenue and adjusted OI. So we had made some intentional shifts based on what we were seeing in the market as well as to maximize within that weight health marketing campaign strategy. So yeah, we do expect to see some acceleration moving throughout the year.
spk10: Great, thank you. And the next question comes from Linda Bolton with DA Davidson. Please go ahead.
spk00: Yes, hi. You know, you referred to this intentional strategy of shifting marketing spend, which, you know, you talked about on the last call. Given that, was the new member growth weaker than even what you would have expected, or is it kind of in line, given that you had planned this strategy to shift marketing? So how is it relative to your expectations?
spk04: It is.
spk01: So, Linda, thanks for the question. Looking at the comments we made, we did see lower growth in new subscribers in April, and this is related to the marketing shift that we're referencing. So we shifted our marketing spend to line up better with the activities that we're executing on, specifically starting with the event next week and then further into the marketing campaign that CMO is referencing.
spk00: So was that in line with what you would have expected given the marketing plan?
spk01: So it is not. It's a different timing than what we expected when we spoke last in February. And we shifted that based on the timing of our May event execution.
spk00: OK. And then in terms of the ARPU being down mid-single digit for the year, You said you saw green shoots of improvement, I guess, in the second quarter. You said you saw green shoots here. So are you saying there's a point at which during the year the ARPU will actually inflect to be flat to up year over year, or will it be down through each point in the year?
spk01: So yeah, so the ARPU that we've referenced, that's the total subscriber base. So if I speak just to a digital subscriber as an example, it's easier to talk about one at a time, I think. This is about the mix of in-commitment versus recur-bill membership. We do see green shoots as we reference to this stabilizing. And in fact, in the core business, Q1-24's ARPU was stable to Q4-23. And that's even with proportionately more subscribers in long-term commitment. So we had about 56% of members in long-term commitment exiting Q4, whereas 59% in long-term commitment exiting Q1. So we expect to see ARPU expanding over time. And specific to comments that Seema made on the call, we do expect it to further expand as we execute on the plans to add clinical services for all members in the U.S.
spk00: Okay. Um, and, um, just on the clinical side is, um, are you doing promotions to gather clinical subscribers and are those promotions in line with what you're originally planned or are you having to do more promotion to, to, to get those subscribers?
spk01: I think Seema already spoke to the marketing execution being focused on one membership. But when you talk about promotions, we look at long-term commitment plans for our subscribers. And we have started doing long-term commitment plans for our clinical subscribers. And I would say they're in line with how we operate promotional activity across all of our memberships.
spk00: Okay, and then can you talk about under what conditions you would lose access to your revolver? Like if your EBITDA were to drop to a certain level or just what would trigger not having access to that revolver?
spk01: No, there's no further trigger to losing on the revolver. So we have access to $61 million of the revolver.
spk04: Okay.
spk01: Okay.
spk04: Okay, thanks.
spk00: I'll leave it there. Thanks, Linda.
spk10: The next question comes from Michael Lasser with UBS. Please go ahead.
spk11: Good evening. This is Henry Caron from Michael Lasser. Thanks a lot for taking our question. So Weight Watchers recently sent out a letter to its members and former members noting that it understands the frustration with the closure of many of its physical meeting locations. How does Weight Watchers plan to address this? And is this why the segment's submetric is under so much pressure?
spk06: Thanks, Henry, for the question. So the workshop business has been under pressure for several years now as we have transitioned to a more flexible model and had to close out some of the businesses and move to at locations. And yeah, that's impacted members, as you can imagine. And so we are still really committed to IRL. I believe that being in community in person is still the best way to be together. And some of the things that we outlined in that letter were ways that we were committed to the workshop business. For instance, opening up specific coach group chats that allow them to stay connected in case they're at location is a further drive than their original location used to be, creating new affinity-based groups through virtual workshop meetings and giving them the opportunity to let us know if they have a location that they would like to suggest for us to open a new app space. still something we're extremely committed to doing and excited about some of the sentiment that we're seeing from those members receiving those communications.
spk11: Thank you. And as a follow-up, I just want to ask, as the competitive landscape continues to get more and more intense, I think a large warehouse retailer just recently announced the a partnership with a marketplace to offer GLP-1 memberships and access to memberships. I guess, how does this intensifying competitive landscape play into your promotional strategy? And how is Weight Watchers going to – how is the ability to attract new members going to change when we move off of this promotional strategy?
spk06: right so at the i i would say that our focus right now is is it's it's not about uh acquisition it's really about retention with the clinic business and um you know you you've probably seen us take a more cautious posture still on that part of our business given the supply constraints which we're certainly still seeing and so we haven't really dedicated a significant portion of marketing motion to that effort because of the supply constraints. And it's important to us. People are coming to us for a subscription. And that subscription is only as powerful as their ability to get a comprehensive care plan, which includes and insurance support for those medications. And so if the medications are not there, that reflects poorly on us. And that means we're going to grow this business thoughtfully and over time. And so honestly, I'm not that worried about the competitive landscape rather than making sure that we are doing our best with regard to the member experience. And I'm really happy to see some of the supply coming back on market and our ability to help members get insured. We're still seeing about a 40% to 45% rate on the pre-offs, which is, we believe, better than what's out there for the insured population.
spk10: Thank you so much. Thanks. The next question comes from Alex Fuhrman with Craig Hallam Capital Group. Please go ahead.
spk08: Hey guys, thanks very much for taking my question. Seema, you talked a little bit on the conference call about making Weight Watchers a covered benefit. I think some of your predecessors had talked about trying to strike insurance and B2B partnerships over the years that never really turned into anything too substantial. Can you just kind of tell us what makes things different this time and when we might expect to see some progress on that front?
spk06: Thanks for the question, Alex. I think the main thing that is different is our understanding of weight and weight health has considerably changed and, you know, the recognition around it being a disease. And we're saying that these medications are lifesaving, and I believe in the same way that we saw a change over time with cardiovascular health and then with mental health, you are going to see the same thing happen with weight health. And so, yes, we have new changes here within Weight Watchers, but this is a complete paradigm shift in our, in this space and in this category. And so that's the main thing that has changed. Outside of that, I think, you know, we're spending a lot of time with payers and their employees are asking for this. And it's going to start with private sector in my mind. It's going to move to public policy. But the future of our business is as a covered benefit. And it's just a matter of time that that starts rolling out. And we are already making progress in terms of the conversations and Our ability to do this is really more of an operational lift, honestly. We started that with the registered dietitians consultations, which we mentioned on the call. Again, we'll start rolling that out in the next few months. Obviously, we do insurance support right now within the clinic business, and then claims billing will start to come over time, and we're very encouraged by the conversations that we're having with insurance companies.
spk08: Okay, that's really helpful. Thanks, Seema.
spk10: The next question comes from Stephanie Davis with Barclays. Please go ahead.
spk03: Hey, guys. Thank you for taking my question. Seema, I applaud the B2B shift. I do think it makes a lot of sense, but I do want to acknowledge that when digital health companies make a pivot from D2C to B2B, there's a lot of investment costs around back-end rebuild and sales force structure that's necessary to accept insurance and sell to employers and payers. And that also means a lot of headcount costs. So with that in mind, can you just walk us through how we should think about the forward investment spend to make some of these shifts you've talked about? And given the scrutiny being put on vendor health by some of these payers and employers as they look to go and sign up new folks, I know you guys have a great brand, but How are you talking through your leverage as you have these conversations?
spk06: Thanks for the question, Stephanie. Good news. I'm here to report. We've been in this business for like two decades. And so the infrastructure is there and yes, the sales motion is a bit different now. Uh, as we move from perks to, um, a covered benefit, but a lot of that infrastructure is, is already here and had been simmering and it's really exciting. that we get to put that business to work now. And in terms of the build out, as I mentioned, you would be surprised. Most of it, I would say, is already in our GNA. So this is really just about engaging in the strategic conversations. And what we're finding is a lot of excitement for a trusted brand to drive the right level of enrollment and engagement that makes the ROI worth it. And the payers, they're looking for cost mitigation. They're looking for lasting outcomes. They want ROI for metabolic conditions, and we have a unified solution.
spk01: I just want to add on to that, Stephanie, that To Seema's comment on GNA, we have guided to expecting GNA of 210 to 220 million, which is down from 223 in 2023. And that includes the net new clinical business, obviously, but also the investment in B2B. So when Seema says it's included in there, it's included in there, but it's done withholding our GNA, you know, below flat year over year with the investment that we're making.
spk03: Understood. A quick follow-up on that. I get that you've sold to employers before. I've seen the B2B booth, but accepting insurance requires a lot of back-end programming in an app. So is that all factored in in G&A? Is that like a build-out that you've already done and you've hired that kind of headcount? How should we think about that? And then you touched on this, my actual follow-up. about accessibility headwinds, but it was brought up by some of the drug distributors as something that could be a headwind for the year. So how are you managing access to the treatment, and are you have any willingness this year to compound alternatives as there's demand?
spk06: Okay, let me, I'll follow up.
spk01: Long question, I know. Very long question.
spk06: Okay, no, I'll let Heather handle leverage, but on the follow up, I think what, So what you're talking about more is the claims billing. And yes, that is obviously there is an operational... It's an annoying process to go through. Exactly. And so, yes, we are doing that work to contract with insurance carriers to allow for billing for services. Currently, we're pursuing both in-house strategies as well as partnerships. And we expect to be rolling this out in phases, the first of which was on the RDs that we mentioned, but we'll be getting into labs as well as clinicians and doing all the requisite contracting and provisioning that is required. So, absolutely, that's a lift and shift and it's happening.
spk01: And then the other part of your question was around system and people investments, and yes, those are included in our G&A. Some of it is in our gross margin, depending the type of system that it is, but these are factored in.
spk03: Awesome. Thank you, guys.
spk10: You're welcome. The next question comes from Carew Martinson with Jefferies. Please go ahead.
spk09: Good afternoon. I think the last caller referenced this, but in terms of the medication supply, what are you seeing there, and is that a headwind for you guys in terms of growing clinical this year?
spk06: I mean, yes, we're in a cautious posture, as I mentioned. We are seeing that, you know, with the entry of Zepal, that there has been some more opportunity there. And, you know, we can only report out what we're seeing between, you know, what the Novo and Lilly are sharing out. But what we are doing is within the clinic business, we have a programmatic way of reporting out which pharmacies have the the supply. And so when a member is unable to get their supply from a certain location, we can then basically point them to the nearest location with supply. And this has been a really great feature that has helped our retention. It's proprietary data, and we have been using that to help our members in the meantime. But yeah, we have that, you know, the same public information that you all do. But alongside this proprietary information that we're getting through the pharmacies, we feel good about our ability to sort of work through the supply-constrained environment.
spk09: Okay. And then when we look at liquidity, first quarter, if you can remind me again, about $20 million of cash went out for the restructuring that you had accrued last year. And then kind of what are the remaining cash payments for the restructuring that you need to make?
spk01: Yeah, so the 20 million that we referenced associated with cash going out for restructuring is the full year 2024 estimate. Q1 was approximately 13 in cash of that 20. And in terms of cash use, our first quarter is obviously a high cash use first quarter with marketing. certain compensation items like bonus. And then entering the second quarter, we also had the sequence acquisition. And then obviously our interest coverage as well.
spk09: And that sequence acquisition was made on April 10th, I believe? That's right. All right.
spk01: So we do expect cash to build through the second half of the year. And as we share, we expect a modest increase in cash from operations year over year.
spk09: Thank you very much. Appreciate it.
spk01: Thanks, Chris.
spk10: The next question comes from Jack Wallace with Guggenheim. Please go ahead.
spk02: Hey, thanks for letting me back in the queue. I just wanted to ask about the Personify Health Partnership you announced earlier this month and how that's going to be accelerating your B2B strategy. Thank you.
spk06: Sure. Welcome back, Jack. We are really excited about this channel. We have a few large prospects that are asking to work with us but have requested that we come through either their carrier or Virgin Pulse. So landing these deals are really critical and to our overall strategy with some of those larger employers. and yeah personify health works with thousands of large and jumbo employers and they're the preferred wellness platform for cigna employers so we're hoping to start turning that on to customers uh by mid-year through the end of the year and should we think about this as the start of as opposed to a one-off of a partnership strategy um on the b2b front This is the ongoing work that we're doing on the B2B front that's certainly not a one-off. There's a lot of volume happening in terms of our B2B conversations right now.
spk10: Great. Thank you. And the next question comes from Nathan Feather with Morgan Stanley.
spk07: Please go ahead. Thanks. I just wanted to look at some of the product improvements. So it's an interesting, any improvements you have scheduled for 24 that you put out in the deck. You know, maybe to help think about the potential impact, it may be interesting to go back and do a bit of a retrospective on the major product that featured in 23, and I think it primarily peer-to-peer messaging and the what to eat to tab, and how those have impacted the product experience, and maybe those are some of the things that are driving up activation rate in the course.
spk06: right well so you may i'm sure notice that we talked about how our activation rate is the best that it's been since 2020 um you know we are seeing core retention now over 11 months a lot of product improvements also happening on the clinic side as well and so it takes time for these these improvements to read through and so much of our business is word of mouth and the more activated that the more we are able to activate our members, the more likely they are to be successful and tell a friend. And so we're really excited about the next sort of fleet of changes, if you will, and really kind of honing in on that care experience and feeling like somebody who comes in is just going to have everything that they need to be successful and make the healthy habits that they need. And ultimately, you know, any great product roadmap starts with solving member problems. And so as we continue to sort of get to know the insights and the data from each new cohort, we continue to develop and shift our roadmap alongside of that. And so what a lot of those things that you're seeing are the problems that we are addressing having to do with making better food decisions that built on, for instance, the what to eat strategy from last year or The work that we are doing on WW Together and the opening up of the clinic tab is also an extension of the work that we started to do around progress and community. And so these are just ongoing builds to helping our members be more activated, have more success, increases NPS.
spk04: Does that help answer the question, Nathan, or do you have a follow-up?
spk07: Yep, that's helpful. Thank you.
spk10: This concludes our question and answer session. I would like to turn the conference back over to Seema Sistani for any closing remarks.
spk06: So just to recap, we are proud of the results we are seeing so far in 2024, really encouraged by our progress in improving retention in our four Weight Watchers programs. growing our clinical business, and building momentum in B2B. I'm looking forward to our live virtual event next week, Making the Shift, A New Way to Think About Weight with Oprah Winfrey. Joining the conversation will be diverse and influential voices and leading medical experts. The May 9th event, it's going to start at 6 p.m. Eastern, will be live streamed on YouTube and remain available for on-demand viewing. We are really dedicated to shifting the culture, changing the conversation from weight loss to weight health. And I believe this will be a highly visible cultural moment that's going to help us amplify that commitment.
spk04: And I thank you all.
spk10: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer

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Q1WW 2024

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