Q4 2022 WW International Inc Earnings Call

Thanks, Corey good afternoon, everyone and thank you for joining us today before I get into our results I want to highlight our plans to enter the clinical weight management space.

Weight watchers is the most trusted provider of proven and sustainable weight loss grounded in the latest nutritional and behavioral science, we support members across the full weight loss spectrum.

Obesity is a complex chronic condition that includes both biological and behavioral components.

There's growing scientific evidence that for Sun prescription chronic weight management medications can address the biological components of obesity.

To support and accelerate our entry into this space, we have entered into a definitive agreement to acquire weekend health doing business a sequence a subscription digital health platform offering clinical access to prescription chronic weight management medications.

Sequence is a technology platform that integrates patient and clinician experience, providing eligible members with ongoing access to online clinical care and medication management.

We will be paring weight, watchers nutrition, and behavioral science expertise and community with the sequence platform to create a comprehensive solution.

Importantly.

This solution will not be for everyone. We are hard at work enhancing our member experience around coaching accountability and community with a number of features on our product roadmap rolling out this year in order to make weight watchers, even better.

At the same time, we will expand our scope to also serve the cohort of people in need of a solution that incorporates prescription medications I.

I will discuss the details on this acquisition and our clinical strategy more shortly.

But first turning to our 2022 results and recent performance.

We ended 2022 with $3 5 million subscribers, approximately 100000 higher than our forecast due to sign ups in cancellation trends outperforming our expectations, improving our starting point and momentum heading into the new year.

It has been nearly one year since I joined weight watchers and that year has been a time of significant transition rationalization and bold moves throughout the organization to position the company for Tomorrow.

Over the past year, we took several decisive actions to streamline the business.

<unk>, our global teams established data inform processes and culture simplify our program and execute on the ambitious roadmap focused on community accountability and coaching setting the foundation for an improving.

Member experience and returning subscribers to a growth trajectory.

Turning to our peak season performance.

The execution of our marketing approach was very different from what you have seen from us previously with.

With improved global team operations driven.

By more accurate forecasting data visibility and in housing or performance marketing, we were able to drive stronger results.

We made the strategic decision to focus on efficient performance marketing prioritizing high quality sign ups, while spending less this drove a greater ROI with LTV CAC for these sign ups being 10% more efficient than at the same time last year. So while sign ups are down year over year. This was an intentional.

<unk>, we took to better maximize the impact of our dollars throughout the year.

Historically, approximately 40% of annual sign ups occurred during Q1, and the cadence of our marketing spend reflected this approach.

This year, we are intentionally shifting a portion of our annual marketing spend from Q1 into the fall as we look to focus our spend alongside the launch of digital plus community first product experiences.

Therefore, we expect marketing expenses to increase year over year in the second half of the year likely putting our full year spend to be roughly flat with 2022.

In addition, we are encouraged by improvements we are seeing in our member engagement and satisfaction metrics, which indicate that our actions to improve our product experience and brand are having a positive impact.

Three examples.

First activation rate, which had been on a downward trajectory began began to uptick in the second half of the of last year.

It caught up with the previous year in November and in 2023 has been up over 5% year over year.

As a reminder, activation rate a relatively new metric we've been tracking internally is defined by a member's engagement and progress during the first month on the program and is directly tied to success.

Our data shows that activated members churn at a rate that is roughly half of a non activated remember. In addition, these members will be more successful on weight watchers over the longer term.

Second M P S and measure of member satisfaction for our App experience is up seven points year over year in Q1, among digital members and up 10 points year over year among workshop members.

And third brand affinity is up four points. This January versus 2022 with more surveyed members agreeing that weight watchers is the plan for them.

At the same time, we are in the midst of an evolving landscape in how the medical community and many consumers view weight loss.

The science is evolving.

More people are now recognizing obesity as a chronic condition understanding its causes including behavior and biology, and therefore, an increased openness to clinical interventions to help.

Weight watchers is at a pivotal point, where we can build new capabilities that expand our market reinforced by our foundational strengths.

In addition to our ongoing focus on digital and community enablement, our highest priority in 2023 is to deliver clinical interventions per pairing the coaching accountability and community that we know delivers effective weight loss with the option for new pharma pathways that can improve outcomes.

For some consumers living with obesity.

To be clear clinical intervention and medications are not for everyone. We will absolutely continue to deliver the proven weight management program. We are famous for.

But for those who medically qualified meaning they have a BMI of 27 or greater and have been diagnosed with one weight related ailment or have a BMI of 30 or greater and choose these medications.

We will be creating a new offering specifically for their unique needs.

In short weight watchers will be the science backed trusted solution of choice for everyone.

The last 18 months has been marked by rapid growing consumer interest in these chronic weight management medication research is finding a new generation of medications as more effective however, among people living with obesity only 2% are treated with anti obesity medications.

The number of people using such medications, particularly G. L. P. One was relatively low in 2022 due to their new this limited availability injectable formulation and often significant financial expense.

Now that supply chain challenges are being resolved and more insurance plans are covering these medications access is expected to increase.

The FDA indicates that chronic weight management medications should only be prescribed as an adjunct to behavioral lifestyle changes. However, there has been a lack of holistic care to partner with these medications.

They are not magic pill like anything there are side effects and challenges to navigate and manage while taking these medications.

And behavioral program paired with clinical intervention is critical to help people on medications developed and maintained healthy habits.

From prioritizing nutrient dense food managing against muscle loss to understanding that these medications may be a lifelong commitment.

These are the areas where weight watchers can provide the guidance and support to ensure members weight loss journeys are done in a healthy sustainable way.

Startup culture is often known for the mantra move fast and break things.

When it comes to something as emotional as weight loss and as critical as health that approach can be highly irresponsible.

Weight watchers does not participate in fabs or quick fix trends that we do not view as healthy or sustainable even when they are highly popular.

But we view the use of certain prescription weight management medications under the guidance of a medical professional very differently.

If someone has a condition that one of these G. L. P. One can medically treat they deserve to fully understand what these medications are how they work and how best to leverage them on an ongoing basis.

These pharma enabled pathways are considered important scientific breakthroughs.

And when administered responsibly alongside lifestyle changes can provide people with effective and sustainable weight management as well as significant improvement in our obesity related medical conditions.

As noted before we entered into an agreement to acquire weekend health or sequence, a subscription telehealth provider offering access to prescription chronic weight management medications.

I am excited for weight watchers to enter the clinical space.

Consumers Trust, our brand because of our science and our community we can bring that differentiation to this emerging space.

It seems that every day, there's a new headline about G. L. P. One spanning major networks newspapers, all over social media it's everywhere.

So is misinformation.

It is our responsibility to lead the conversation from a point of science and to support those interested in exploring if clinical interventions are right for them.

There is significant opportunity to improve consumer outcomes with better education access care management community and integration of our complementary lifestyle program.

In addition, as we integrate and build out this vertical we will be learning and likely tailoring our nutrition program for this distinct member journey remember.

Members are medications, particularly <unk> will have different needs than members that or not we want to ensure we have the best programs and experiences for both our science advances weight watchers does too.

This is a market in which we are well positioned to lead as it builds off our core programs strengths and competitive moat.

In particular come to mind.

One unmatched expertise in food science and behavior change, having the number one doctor recommended program a diabetes tailored plan and expert advisory board and our own science team, we have the expertise and the credentials to meet consumer needs and continue to push the science forward as we have with our 140 <unk>.

<unk> scientific peer reviewed studies and.

And including over 35 randomized clinical trials over more than four decades.

Two brand trust with 60 years of experience in ranking as the U S News and World reports number one best diet for weight loss. The last 13 years in a row, we have earned the trust of our members.

Three community with millions of members and a high level of member engagement, we have a network like no other.

For Omnichannel presence with a digital first product mindset complemented by IRL premium experiences in our studios and studio App.

<unk> five <unk>.

While startups look to stand up <unk> relationships weight Watchers health solutions is already partnered with over 500 employers and payers, including clients such as the city of New York and the Cleveland Clinic.

And six scale with LTV CAC efficiencies in marketing to ongoing partnerships, we are uniquely in a position to grow this market profitably.

In short while the clinical market provides an innovative solution for those who can benefit from biologically based treatments when combined with our lifestyle solution. It is an important opportunity to help more people and drive additional scale.

But I want to stress that while the acquisition of sequence is expected to have near term benefits. Following closing it will take time to integrate and scale up this offering that said, we strongly believe the multi year growth opportunity is significant.

We know weight loss isn't one size fits all and we remain committed to bringing scalable science based solutions to all weight management pathways, whether medications are part of an individual's journey or not.

Our current program will continue to remain the recommended pathway for millions.

But for others, who decide to use them and qualify we will offer weight watchers expertise alongside prescription medications and full service care.

As we approach weight watchers, 60th anniversary I am energized by the permanence of our brand.

But I don't take for granted that in order to maintain our leadership, we need to be fearless introspective and embrace change I.

I will now turn the call over to Heather for a financial update and will then come back to provide more color on the upcoming milestones on our product roadmap.

Thanks Hema.

Before reviewing our results and outlook I would like to cover the details of our planned acquisition of sequence.

Since its launch in late 2021, the company has quickly grown into a $25 million annual revenue run rate business, serving 24000 members across the U S by effectively scaling its technology platform through word of mouth.

Ww will acquire the company in a transaction valued at $132 million inclusive of a minimum of $26 million of sequences cash assets on the balance sheet. The effective purchase price is $106 million net of the cash assets.

The transaction, which is subject to customary closing conditions and regulatory approvals is expected to close during the second quarter of 2023.

Upon closing Ww will pay the owners $65 million in cash, which will require $39 million from us net of sequences cash assets and $35 million will be paid in approximately 8 million newly issued shares of common stock of Ww.

Subsequent cash payments of 16 million. Each will then be paid on both the first and second anniversaries of the closing the.

Acquisition is expected to be accretive to Ww earnings per share by the fourth quarter of 2023.

Now turning to our 2022 full year results.

We finished 2022 with $3 5 million subscribers ahead of our guidance by approximately 100000 subscribers with both sign ups and cancels outperforming our forecast in the fourth quarter.

In line with our guidance full year revenue of $1 4 billion was down 14% were down 11% on a constant currency basis.

Adjusted gross margin of 65% for the full year was down approximately 70 basis points from the prior year, primarily related to the mix of subscription revenue.

30 basis points of that decline was due to unfavorable foreign exchange.

Marketing expenses of $245 million were down 6% year over year, reflecting lower spend on television advertising in our international markets lower nonworking spend and a benefit from foreign exchange adjust.

Adjusted G&A of $231 million was down $33 million or 12% versus prior year, reflecting savings from our restructuring actions.

They're all expense discipline as well as the benefit from foreign exchange.

Adjusted operating income was $153 million for full year 2022 in line with our guidance and down $63 million versus the prior year, primarily due to revenue pressure and foreign exchange headwind.

Restructuring charges totaled $39 7 million for the full year, which includes $13 6 million related to our 2023 restructuring plan.

In 2022, we recorded noncash impairment charges totaling $396 7 million.

The $57 6 million franchise rights acquired and goodwill impairment charge in Q4 was largely driven by an increase in the company's weighted average cost of capital, reflecting market factors, including higher interest rates and the trading values of the company's equity and debt.

GAAP net loss per share was $3 58, which incorporates the negative impact of $4 38.

Of items impacting comparability, including noncash intangible impairment net restructuring charges and net tax related items.

Last month, we announced a restructuring for 2023 further streamlining and centralizing our organizational structure rationalizing certain non strategic business lines and continuing the rebalancing of our real estate portfolio.

First with respect to centralizing our structure.

While we completed a restructuring last year as we went through our planning process for 2023, it became clear that we haven't gone far enough. The leadership team resolved last year to better align resources and systems with our strategic priorities and centralized our global management of certain functions.

The 2023 actions will take this further by centralizing teams and scope across countries, creating a truly global team, helping us manage resources more effectively and execute more efficiently and consistently.

These changes will be reflected in our business segments. Starting in Q1 2023, our new reporting segments will be North America and international.

In short our Continental Europe , UK, and the Australia, New Zealand and Brazil operations from our other segment will be consolidated into the new International segment.

The North American segment will continue to include the U S and Canada and will now also include franchise revenues.

Second in terms of non strategic business lines. We previously discussed our decision to rationalize our consumer product Skus in North America and to discontinue our consumer products business in our international markets a process, which is expected to be completed in the first half of 2023.

An additional review we have decided to further rationalize the consumer products business in North America, focusing only on our best selling products, which will significantly reduce the infrastructure and expenses required to operate this business.

We anticipate having less than 50 active skus by the end of the year versus the 358, we had a year ago.

While this will negatively impact 2023 revenues. It is expected to have a neutral impact on operating income.

We expect consumer products and other to contribute 70 to 75 million in revenues during 2023.

Third for our real estate and workshops, we are focused on reducing our fixed overhead and making our studio footprint more flexible in.

In the U S. We will be rebalancing, our workshop footprint significantly reducing our fixed lease studio count.

We will retain approximately 100 fixed locations shifting workshop delivery to flexible third party or studio at locations, bringing that total to approximately 725.

Overall in person workshops will continue to be wildly widely accessible through a mix of studios studio ads and our expenses calendar of virtual workshops.

We estimate the charges related to the 2023 restructuring plan will range between 39% to $46 million in the aggregate consisting of approximately 15% to $18 million and organizational restructuring charges of which $13 $6 million has been recorded in the fourth quarter of 2022 at the time of management's resolution.

And approximately 24% to $28 million in real estate restructuring consisting of lease terminations and other related costs. The majority of which will be recorded in the first six months of fiscal 2023.

The restructuring will reduce our fixed cost base and lead to adjusted gross margin sequential improvement as we move through the year. However, G&A savings are being largely offset by increased compensation expense, reflecting key investments in talent critical hires as well as merit and cost of living increases.

As discussed total sign ups, so far in 2023 remain down year over year, but the sign ups. We are acquiring are worth more to us we expect them to pay us more and stay for longer meaning we are operating with a greatly improved LTV to CAC efficiency.

This improved efficiency is largely being driven by our success with our long term commitment plan offers.

These offers reduced the average rate per paid week, but watkins subscribers for longer duration. So far in Q1, approximately 80% of global sign ups choose a six months or longer plan up from about 70% year ago, and most notably 41% of sign ups are for a nine month or longer plan up from 12% year ago.

In addition, we have improved our price realization versus last year on those plans and notable achievements.

Looking to Q1, we expect to end Q1, 2023 with subscribers approaching 4 million Q1 revenue is expected to be approximately $235 million.

Adjusted gross margin is expected to be down roughly 500 basis points year over year in Q1 due to subscription mix deleverage in the workshop business and an increase in the number of sign ups choosing longer tenured plan.

Restructuring charges entirely in cost of revenues are expected to be approximately $20 million in the quarter.

For marketing, we anticipate Q1 expense of approximately $90 million down approximately $18 million as we better maximize the impact of our spend and redeploy into the back half.

Q1, G&A expense is expected to be approximately $55 million down in the mid teens versus last year. Therefore, we expect an adjusted operating loss in the range of $10 million to $15 million in Q1.

As mentioned, we expect performance trends to improve through the year as we benefit from our data informed approach to member acquisition increased operating efficiency from our streamlined operations and as we deliver on an enhanced member experience following upcoming launches to our product roadmap.

However, we will not be providing full year guidance today, we hope to resume our practice of providing annual guidance. Following the completion of our acquisition of sequence and when we can provide a deeper line of sight on our expectations for the integrated offering.

Turning to our capital structure.

We ended 2022 with approximately $178 million of cash plus an undrawn revolver.

With our cash position plus our revolving credit facility, we have more than sufficient liquidity for our working capital needs, including in your cash outlays related to our restructuring actions servicing our debt and the cash payment for the purchase of sequence.

At year end, our net debt to adjusted EBITDA leverage ratio was six times from five two times at the end of Q3, we expect our trailing 12 months leverage ratio to further increase during 2023.

At this time full year interest expense is expected to be approximately $95 million note that we have a $500 million hedged to protect us against rising interest rates on our variable rate term loan of $945 million.

And our $500 million.

And note our fixed rate therefore, 31% of our total debt is floating.

Capex, which is primarily due to capitalized software and depreciation and amortization are both expected to be in the $45 million range for the full year 2023.

In summary, we are focused on improving our execution and delivering upon our key milestones our efforts to streamline and centralize our reading through into an improved cost basis for our business and we are confident that 2023 is the year, we implement the key capabilities for the future and turned the company back to a growth trajectory.

<unk>.

I will now turn the call back to Soma.

Thanks Heather.

We are encouraged by trends indicative of a positive trajectory. During 2023. This year, our digital product focus is on creating community and enabling food decisions. During members first months, which we know drives their activation and resultant Lee subscriber retention a strong connected community is the glue that keeps members coming back to wait.

Watchers to better enable these connections member chat functionality is expected to be in beta in early Q2. We believe this will allow members to create relationships. They are excited about members with each other coaches with members workshop groups even people on your existing network. If you wish to bring them along your journey.

That will lay the foundation for a rich digital community based on an interest graft.

We are also developing new streamline spaces in our app, including a what to eat tab, which will help support members eating decisions, including guides to common challenges improve mill planning, a restaurant finder recipes and more and as space dedicated to progress and trends, allowing members to better see the connection between.

Core behaviors like food activity and weight tracking as it relates to their weight management progress.

Then behind the scenes, we're making foundational improvements to our search algorithm food database and tracking close to remove friction from the central accountability mechanism of our program.

And to improve our coach experience, we plan to launch a new platform for our coaches that will help them better engage with members in real life as well as digitally.

As I've highlighted before our App is evolving from being a second screen tool to a truly digital first experience from enhanced community features to device integrations. There are significant opportunities for us to match, our premium workshop experience with a premium digital counterpart.

In summary, we are focused on improving our sign up trends and for the second half of the year returning to year over year growth.

Improving member activation rate, which would drive gains in retention.

Exercising strong cost discipline throughout the organization.

And executing on a narrow list of priorities, including our entrance into clinical interventions for weight management.

All of which we believe are the critical drivers for returning the company to a growth trajectory.

Thanks for joining us today, and we are now happy to take your questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

If you were using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Our first question is from Alex Fuhrman with Craig Hallum Capital Group. Please go ahead.

Hey, guys. Thanks, very much for taking my question.

Some interesting announcements here, especially about the acquisition of.

Sequence here.

If we could start with that.

Certainly seems like there's been a lot more.

Moves from the pharmaceutical industry to get involved in in weight management here, how do you envision deciding who in your program you really going to market. This approach to I think sema in your prepared remarks, you mentioned, some BMI criteria about who would even be eligible for the clinical approach but.

I think the numbers you've kind of sketched out are describing something in the neighborhood of half of the adults in America, and presumably more than half of your own membership. So can you can you just give us a sense of as you get into the back half of the year and closed. This acquisition. How are you going to go after that opportunity and who in your membership base will be targeted for that.

Hey, Alex Thanks for your question, Yes, I mean, we're we're really excited about being able to provide our members with a clinical intervention and.

As I noted these.

These medications they are not for everyone and theres been a lot of hype in the media, let's say and I think that's even more reason why we need to lead the conversation from a point of responsibility.

Chronic weight management medications provide a really amazing opportunity to address the biological underpinnings of people who are dealing with a chronic condition around obesity.

Sure.

In terms of.

The market look at the end of the day the decision is between the clinician and the patient.

This is a subscription based weight management platform and.

I think the really interesting aspect about it outside of it being a very seamless UX experience for both the patient and the clinician is that it is truly a.

A tech platform, meaning they have taken in the complex.

The complex parts around insurance authorization and they put it on <unk> and so that allows us to scale in a way that is unlike other other companies in the space and really increase access to those who medically qualified.

Okay. That's really interesting. Thank you for that explanation and then just to make sure. We're all on the same page here I think you mentioned in the prepared remarks.

Being in a position to return to growth in the second half of the year.

Can we interpret that to mean year over year revenue growth in the third or fourth quarter and is that with your business as it stands today or is that the expectation of after you acquire sequence that will help get you to that growth.

So that was.

Of the announcement around the acquisition of sequence I mean, we've always stated that we last year was all about stabilizing and this year was the year that we expected to see topline meaning sign ups.

ROE in the second half of the year now with this acquisition.

We have some work to do to understand.

The impact but.

That's something that we expect to update.

In the future after closing so that is not part of our current position.

<unk> around seeing that activation MTS engagement have all been improving and giving us all the indications that we can expect to see signs of growth in the second half of the year.

Okay. That's very helpful. Thank you very much.

Alex.

The next question is from Brian Nagel with Oppenheimer. Please go ahead.

Hi, good afternoon.

Hi, Brian My first question good morning, or good afternoon. So my first question just with respect to the.

The shifted marketing so.

I know this is difficult.

The answer, but if you look at G shifted marketing with now more of a focus later in the year and that had an impact.

Upon subscriber growth here.

Early in 2003, so I guess the question I have there is I mean do you have any idea like how much of that shift is held back subscriber growth youre early in the year and then second to that.

Like you mentioned in your prepared comments, but historically, we watch as you experienced most of its growth side. If they are only part of the year, you're working to kind of normalize out through the year, but as the marketing message the same or would you be going after a different type of subscriber as you push marketing.

And the year.

Yeah. Thanks for your question, Brian So so.

As we noted we were really focused on bringing LTV CAC efficiencies and we were able to improve in January 11% higher than January of 2022.

And so we have it we made a very intentional decision to push that spend to the second half of the year or too aligned to not only.

More efficient spend but to align to key product launches and so even with media spend being down 20, 24% year over year in January .

I think we outperformed our internal expectations and we.

We expect to use the spend in the second half, but more efficient.

Ratios and just improve both.

Total lineup for the year.

From a marketing standpoint, I mean are reasons to believe.

Thank God.

<unk> are a really breaking through with more.

Culturally and more modern.

Both performance marketing and brand messaging.

You might have noticed we moved more to let's call it either payment type of approach versus and influencers versus celebrities.

That led to a four point increase in brand affinity so.

We're seeing a lot of indications that.

We're on the we're on the right path to two.

Modernizing our brand and increasing the appeal, but our our target her remains the same.

Hi, Brian .

This is Heather I would just say that.

We are modeling marketing for the full year to be flat year over year.

So the with the shift in spend we are expecting overall efficiency of spend improvement and an alignment to the spend to our product roadmap and as well with the acquisition of sequencing closing in the second quarter and I just want to add too around the product launches and the new features we expect to come.

I keep saying.

A big point of.

Improving our product as the product needs to do the marketing for us weight loss is a very word of mouth.

<unk> experience and so we expect people to come for the weight loss, we want them to stay for the connection the community and our success ultimately drives NPS and <unk>.

We noted the NPS on digital was seven points higher on workshops that with 10 points higher. So those are all indicators that we're headed in the right direction to increase the organic acquisition funnels as well as paid.

That's very helpful.

101 unrelated follow up so with respect to the pre acquisition I mean, I'd fall apology for Walmart.

I'm thinking about this correctly is the first time that weight watchers has made an acquisition like this.

Obviously unique time in the health.

Space with what's going on but where should we think about this as a one off or.

As we walked yours now.

Actively seeking more acquisition opportunities to build out the product offerings.

Oh look this represents a paradigm shift in our in our industry and one that we felt that it was important to.

Addressed with a full stack solution, we we did build versus buy analysis here and ultimately realize that as the weight loss spectrum.

Advances to include clinical pathways as the leader in weight loss management solutions that was something that we needed to provide alongside of our behavior change program and gives us the unique ability to provide a whole lot of holistic solution and nobody else out there can do what we can do when you get to.

Grip for these medications is medically advised to do it alongside a lifestyle behavior change program and as you know we are the number one doctor recommended behavior change program and so the two things combined are what help people have consumers have.

A better outcome and so.

I think that this is going to be a first of its kind solution and.

And it is an and and offering on top of what we already do with our.

Core and premium programs.

Well, thank you very much I appreciate it.

Thank you Brian .

The next question is from Linda Bolton Weiser with D. A Davidson. Please go ahead.

Yes, thank you very much.

Excuse me I'm. So I'm just wondering on the drug side of things here or there have been weight loss drugs available.

Over the years at different points in time, new drugs coming in what is it that's really different now that makes you really want to merge this aspect with your existing business like what is what is it that's different is it the insurance aspect or can you give a little more color on that.

Happy to Linda Thank you.

I mean, we strongly believe that these latest advancements in prescription.

Chronic weight management medications represent and innovation in our in our space today and we're at this pivotal point, where we can build new capabilities to expand our market and.

Obviously reinforced by our foundational strength.

And the thing is with these particularly <unk>.

Due to their newness limited availability.

<unk>.

The significant financial expense.

They haven't been adopted more broadly yet and yes, we expect to help people gain access through this preauthorization insurance engine and we see this as a real opportunity for the future to be a holistic care partner.

And how.

Help our members navigate the side effects and the challenges that come up with taking these medications.

And then.

I might add here actually Linda.

What's interesting to note.

Just in general on our space. If you if you if you look at the 2010 and the interest in weight loss and the interest in weight watchers, they used to track each other.

Over the last decade, we've seen the those.

That interest in weight watchers diverging from the interest in weight loss.

Over the last 18 months, there's been a real rise in popularity and interest in these medications.

For all the reasons that you know that.

The drug companies have had.

Have detailed limited side effects.

<unk>.

Our success, but it ultimately now that the supply chain challenges are being resolved and more insurance plans are covering these medications.

Access is expected to increase and that will be an opportunity for us to expand in the market and and continue to be the science backed leader and provider of choice across all pathways, whether whether clinical or lifestyle or front or functional for that matter.

Thanks, and can I just ask.

You've mentioned several kpis that are kind of going in the right direction.

But I guess, we're just almost interested in new member sign ups is there any a little bit more color you could give like is it improving in other words less down year over year month by month as you go along or is year to date first quarter much better than the fourth quarter can you is there anything you can give to give us confidence its going in the right.

<unk>.

Yeah, I mean, the trend is improving.

I just want to keep pointing to the fact that we intentionally intentionally chose to drop our media spend.

And as.

And as we noted in last call we saw that the trend to improve over Q3, Q2, and Q3 as well as into Q4 and our peak so.

We're feeling we're feeling good about that and.

Expect to update more in the next call I would add to that as well we do.

Two.

Spend into Q3 at a more efficient LTV to CAC ratio and we do expect to see a return to improved trends in the second half.

Okay. Thanks very much.

Thanks Linda.

The next question is from Michael Lasser with UBS. Please go ahead.

Good evening. Thanks, a lot for taking my question on the strategic rationale behind the acquisition to what degree do you think your difficulty in signing up new members is because of the.

Logical evolution.

Making weight loss different today than it's been in the past.

So this is in effect trying to hedge an existential risk weight watchers might be facing over time and as part of that how do you manage the cultural challenge of integrating these two businesses because for so long we watchers messaging culture has all been about.

The behavioral modification rather than.

Thanks, Mike.

Thank you.

Thank you Michael So no I mean, I don't believe that.

Have had a meaningful impact on our business thus far.

The number of people is actually people using such medications, particularly <unk> was relatively low in 2022.

Again limited availability injectable formulation significant financial expense. This is about an opportunity we see for the future.

Again, a lack of holistic care to partner with these medications and.

And and we and we have because of our lifestyle program that you mentioned because of our behavior change program. Our nutritional science, we have an ability to service. These members alongside our program, helping them prioritize nutrient dense foods managing against muscle loss understanding.

These medications may be in some cases, a lifelong commitment and these are areas, where weight watchers can provide guidance and support.

Ensure that members weight loss journeys are done in a healthy sustainable way.

And I actually think that this is right alongside of our messaging, we've always been the science backed solution and as we noted this is where the science has advanced and.

I think that.

Again, when the science advances so should we.

In the same way that we started to update our food algorithm to take.

<unk> taken to consideration saturated versus unsaturated fat faster.

Fiber rich foods. This is a the.

The evolution of the <unk>.

First ending.

A lot of ways that those who are who are struggling with obesity and in some cases, those Elisa Jones, our biological factors their genetic factors in it and willpower alone isn't going to get you there.

So it's a it's a real opportunity to lead the discussion.

To help people manage the dietary issues associated with these drugs.

And and and and honestly I think members they have.

Those who for those who medically qualified they have a right to know what these what their options are how it works and if they choose to take it clinical intervention to ensure that it's administered responsibly.

And managed over over the course of their.

Over the course of their membership.

My follow up question is on the leverage situation.

Do you have any covenants.

Our other conditions that need to be met over the next few quarters.

So trip any.

Contractual obligations that you have with you guys.

Okay.

So we came into 2023 with $178 million on our balance sheet access to our revolver and even with this acquisition, we have ample liquidity to meet our operating needs and to service our debt and the debt itself is.

Is very favorable and with very limited covenants that we don't expect any instrument.

Yeah.

Thank you very much.

The next question is from Jason English with Goldman Sachs. Please go ahead, yes, hi folks thanks for sneaking me in.

Couple of questions first the first quarter revenue guidance of 235, what does the Q1 end of period subscriber count that that revenue figures based on.

We expect 4 million end of period subscribers at the end of Q1.

Thank you and sorry, if you gave that number earlier.

The restructuring you ran through a number of restructuring initiatives on the call.

Can you give me.

I apologize I lost track of a lot of it and I'm sure others more I can get back out of the transcript.

What is the total cash outlay for restructuring and I'll see you walked through a few specifics on the deal what's the cash outlay for the acquisition this year as well.

So I'll speak first to the acquisition question Jason.

The total cash outlay in the current year.

And is $39 million in cash okay.

And then the restructuring cash outlays for this year.

It's approximately $36 million in the current year. Thank you.

Loved all the stats you dropped on.

Brand health engagement et cetera.

But frankly I'd be very disappointed if you werent seeing material improvement for survivor bias alone, presumably it's the more loyal more engaged hour.

Satisfied customers, who are not leaving your franchise.

So have you been able to go through and tease out the noise from the survivor bias and if so what is it telling you.

So actually activation rate, Jason is a measure of a new member in the first 30 days, so I don't I.

I don't think that there is survivor bias.

And we've noted that is up 5% year over year, yes.

But you gave three at least three other metrics that were related to surveys of existing members.

That is true and we split those cohorts by by tenure and.

It's all it's all very similar so yes that is a very reasonable thing to think about and consider and certainly we look at that but no. The NPS being up in the brand affinity being up it's true across all of our cohorts in fact in some cases and the newer members, we're seeing them to be actually higher because.

They are coming into our new simplified program and having a really great experience where for some existing members. Sometimes these changes can be hard.

Uh-huh for sure Awesome. Thank you I'll pass it on.

This.

Our question and answer session I would like to turn the conference back over to CMS as Tony for any closing remarks.

We are extremely excited about the future of weight watchers, and our ability to positively impact. So many millions of people to achieve their weight loss goals and a healthy sustainable and scientifically recommended way our move into the clinical space will allow us to help even more people with a holistic program no one else can deliver.

At the same time, we're going to make very significant improvements across coaching community and accountability to take our already excellent offerings to an even higher level.

We are already seeing improvements in engagement from these efforts, but even bigger improvements are coming 2023 will be a year of dramatic improvement in our ability to help members achieve their goals.

For joining us today looking forward to speaking with many of you including at the Morgan Stanley Technology Conference on Wednesday.

We will look forward to keeping you updated on initiatives we have underway. Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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Hum.

Yes.

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