Q1 2023 Weight Watchers International Inc Earnings Call
[music].
Good day and welcome to the W. W. W. International incorporated first quarter 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. Please note. This event is being recorded.
I would now like to turn the conference over to Corey <unk> of Investor Relations. Please go ahead.
Thank you everyone for joining us today for Ww International's first quarter 2023 conference call.
Four or five P. M. Eastern time today, we issued a press release reporting our first quarter 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.
Press release is available on the company's corporate website located at corporate Ww Dotcom.
Supplemental investor materials are also available on the company's corporate website in the investors section under presentations.
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 uncertainties that could cause actual results to differ materially from those discussed here. Today. These risk factors are explained in detail in the Companys filings with the Securities and Exchange Commission. Please refer.
Prior 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 seamless sistani CEO and Heather start CFO I will now turn the call over to Steven.
Thanks, Corey good afternoon, everyone. Thank you for joining US today 2023 is shaping up to be a pivotal and transformative year for weight watchers, one where our key initiatives and decisive actions will shape the future of our product experience operating model are final.
<unk> trajectory and most importantly, the member lives would positively impact.
As we enter our 16th anniversary and plan for upcoming celebrations with our members I've been reflecting on the incredible history of the company and looking back photos of our founder gene <unk> and.
And crowds members at Grace Madison Square Garden, and workshops weight Watchers started a movement 60 years ago.
And that excitement stems from our strong sense of community has been the foundation of our longevity.
The in person human connection in our workshops is what weight watchers has been known for.
And then the evolution to digital and in our subscriber base and sustain the company through the pandemic.
80% of our members now access whitewash, yeah, a mobile first experience.
But our digital experience can be so much more it can bring people together in new ways.
Spanned our reach and provide members with immediate support and inspiration.
And it can enhance the in person experience better enabling connectivity between members and members and coaches.
The weight watchers that our members know and love is our gold standard with a program that works millions of members 60 years of experience and ranking as U S News and World reports number one best diet for weight loss. The last 13 years in a row.
We have earned trust in a space, where new entrants come and go.
We are turning that solid foundation into best in class experiences for the future, including building new signed back pathways such as clinical.
Turning to our first quarter results.
We ended the quarter with just over 4 million subscribers slightly above our march guidance of approaching $4 million.
Sign ups exceeded our forecast.
This represents net additions of nearly 500000 subscribers up from the $3 5 million subs, we had at the year end.
This is a quarter over quarter step up of 100000 more net additions than in the year ago first quarter.
Importantly, this was accomplished with $19 million less marketing spend too.
To reiterate we achieved more net addition, with 18% less marketing spend versus the prior year first quarter.
This demonstrates that our new approach to marketing and our improved program are working and driving efficient acquisition.
This outperformance in subscriber growth resulted in revenues coming in higher than forecast and combined with greater cost discipline flowed into adjusted operating income results, beating our guidance.
We are better utilizing data throughout our business from digital engagement and activation to product experience from LTV CAC to financial forecasting.
This data informed culture is improving the way, we operate making the company more agile and results more predictable.
Our activation rate defined by a member's engagement and progress during their first month on the program has been trending up between 4% to 8% year over year, so far in 2023.
As a reminder, activation rate matters because activated members turn at a rate that is roughly half of a non activated member and are more successful on weight watchers over the long term so driving this metric upward as a key focus across our entire organization the sustainability of holding this year.
Year over year improvement in activation rates demonstrate that the changes we have made to the product and our program are working.
In addition to our activation rate, which is measured only in our members' first month, our engagement rates, which as measured across our entire membership base has turned positive and has been trending up between 6% to 7% year over year.
Further indication that our product updates are working for our members.
As discussed our current digital product roadmap is focused on creating community and enabling good decision as.
As measured by our members first month activation and Resultingly subscriber retention and member success.
One of the key features member chat has recently launched in beta and we look forward to learning Iterating and expanding its rollout in the months ahead.
We believe chat will be foundational for enriching our digital community, allowing 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.
Also coming in 2023 will be new streamline spaces in our apps, including and what to eat tab, which will help support members eating decisions in our 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 way.
Management progress.
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.
The longevity of weight Watchers brand has sustained because of ongoing innovation to maintain our position as a global leader in sustainable science backed weight management.
As the world evolves around a new understanding of living with overweight and obesity, we will sustain our leadership by leaning into our heritage. While also evolving alongside new intervention with our eye on the North star of connecting people meaningfully through the shared experience of a weight management journey.
With that in mind, we are coining a new term wait.
Wait health.
Similar to how heart health or mental health reframe the conversation around their chronic conditions reduce stigma and improved accessibility and standards of care, we believe weight health should be the future of our space.
We are focused on leading this change do you stigmatizing and Demystifying obesity, and weight management, and making evidenced based solutions more achievable and accessible to those in need.
Wait health is the degree to which an individual's weight affects their metabolic health and wellbeing.
<unk> health is impacted by genetic biological hormonal environmental and behavioral factors unique to each individual.
Wait healthy living aims to prevent and better manage the chronic diseases that result from excess body fat, including type two diabetes high cholesterol and cardiovascular disease with the ultimate goal of improving health, well being and quality of life.
Okay.
Weight watchers will be synonymous with delivering weight help through our pillars of coaching accountability and community through evidence based intervention.
Which brings me to our acquisition of weekend health doing business S sequence.
This announcement captured significant attention and generated a lot of excitement.
And excitement that we share about the opportunity ahead to impact many more lives with improved health outcomes.
Sequence is a subscription digital health platform offering clinical access to prescription chronic weight management medication jump.
Jumpstarting our entry into the clinical space.
Sequences technology platform integrates patient and clinician experience, providing eligible members with ongoing access to online clinical care and medication for weight management.
We strongly believe the multi year growth opportunity for sequence is significant but.
But importantly, this year, we are carefully balancing the continued strong growth momentum of this business, while taking a thoughtful approach to integration of scaling to ensure we continue to deliver a high quality differentiated member experience that exceeds expectations with high satisfaction driving both stickiness.
And efficient acquisition.
Conversation around G. L P ones in weight watchers entrants into the clinical market has been widespread and we now have an opportunity to build upon our position in weight health.
Encouragingly, our customer is viewing the news positively in a survey we conducted last month, 60% of our core demographics that acquisition made them think more positively about weight watchers and.
And 80% of those surveyed believed weight watchers is keeping up with the latest scientific research with this announcement.
At the same time, we need to bring our current members along with the evolution.
Our.
Occasion as critical we are focused on educating that pursuing a clinical pathway is a personal choice and not something we are actively pushing them to do the weight watchers. They know and love will continue to be the gold standard of what we deliver.
At the same time in our survey among those who are currently weight watchers members, 18% said they are interested in trying weight loss medication.
Trusting us to bring credibility to the space. So there is an opportunity to better serve these members with an integrated clinical solution.
Their top three expectations for our clinical program.
Our access to G. L P. One medication.
Insurance coordination and the program designed for people living on these medications.
We are focused on delivering a differentiated experience across these needs and more.
To expand on each first access to G. L. P. One medication.
What we deliver through sequence is a connection with a clinician who is experienced in prescribing chronic weight management medication in consultation with the patient the clinician can determine if a G. L. P. One or another medication is appropriate.
And if the medication as prescribed sequence has a seamless easy process for prescription fulfillment and for managing dosing overtime.
Second insurance coordination.
A prevailing concern about G. L. Pic ones is that they are not widely covered by medical insurance and therefore are prohibitively expensive for most people.
While not covered on all health plans. They are increasingly covered at some level for those who medically qualify and who have previously and are actively participating in a behavior change program.
The insurance Preauthorization process is known to be highly manual.
Low error prone and a frequent pain point for patients and medical professionals.
<unk> has put the insurance process on tech rails to streamline much of this process, adding accuracy thoroughness and speed of insurance approvals.
And third our lifestyle program encompassing nutrition fitness and coaching specifically designed for people living on these medications as we integrate and build out this vertical we will be learning and creating a behavior change program. This distinct member journey I believe this will be another key differentiator.
Cheater, particularly for our lapsed member base, who know and trust weight watchers.
Who are also looking for a clinical solution and.
And behavioral program paired with a clinical intervention is critical and F. D. A recommended to help people on medications develop and maintain healthy habits.
From prioritizing nutrient dense food and managing against muscle loss. There are several key areas, where weight watchers can provide guidance and support to ensure our members' weight loss journey are done in a healthy sustainable way.
Finally, we believe a well designed community experience will add value to the taking these medications while community is that the top driver for members to sign up for a clinical solution. We know from interviews with people using weight management medication that they would appreciate a community of people to learn from and compare.
No.
Similar to what we see in our principal program people come for weight loss, but they stay for community and we look forward to creating a robust community experience for all our members.
We will be paring weight, watchers nutrition, and behavioral science expertise and community with the sequence platform to create a comprehensive solution.
More to come on our plans as they develop in the quarters ahead.
I am encouraged by our early results in 2023, which only further increases my confidence that the initiatives. We have underway are working.
We continue to be focused on improving our sign up trends and for the second half of the year returning to year over year sign up growth.
Improving member activation, which would drive gains in retention.
Exercising strong cost discipline throughout the organization.
And executing on a narrow list of objectives, including our entrance into clinical interventions for waste management.
Before our financial update I'm pleased to announce that Heather Stark has been appointed Chief financial officer of weight Watchers.
Since taking on the interim role in December Heather has been an incredible partner to me and the entire leadership team.
Her experience, including 12 years at weight Watchers, and operational finance forecasting managing teams are navigating change have been a tremendous asset to this organization I look forward to continuing to work with her and its elevated position.
I will now turn the call over to Heather.
And we will then come back to further discuss our strategic priorities for 2023.
Eczema.
I'm honored to be taking on the chief financial officer role at weight Watchers, It's rare to work at a company that positively impact the lives of millions in such a personal and important way.
I look forward to continuing to work with FEMA and the rest of our leadership team and being part of the next stage of this company's transformation.
Turning to our first quarter results.
We ended Q1 with 4 million subscribers with both sign ups and cancel slightly outperforming our forecast in the quarter.
I've seen I mentioned this is a quarter over quarter increase of nearly 500000 subscribers, which is a step up of approximately 100000 more than the step up of nearly 400000 in the year ago first quarter.
Revenue totaled $242 million, which.
Which is slightly above our forecast, but down 19% year over year or 17% on a constant currency basis versus the prior year period, primarily due to the lower subscriber levels entering the year as well as the planned scale down of our consumer products business.
Adjusted gross margin of 57, 1% for the quarter was down 335 basis points from the prior year with overdrive on cost savings, resulting in a beat versus our guidance the.
The year over year decline was primarily due to a revenue mix shift from our higher margin digital business.
Leverage as well as the accounting for subscription and consumer product promotional bundles in the quarter.
Marketing expenses of $88 million were down 18% year over year, reflecting lower spend on television advertising and lower non working spend as we optimize our performance marketing approach and drive member acquisition with strong LTV to CAC subscription.
Subscription lifetime value to customer acquisition cost efficiency.
Adjusted G&A of 56 million was down 12% versus the prior year, reflecting savings from our restructuring actions and overall expense discipline, partially offset by $3 million in costs related to the sequence acquisition.
We had an adjusted operating loss of $6 million in the first quarter, beating our expectations.
Restructuring charges totaled $23 million in the quarter.
As previously announced in 2023, we are further streamlining and centralizing our organizational structure rationalizing certain non strategic business line and continuing the rebalancing of our real estate portfolio.
Income tax expense in Q1, 2023 was $68 million, which reflected the impact of an unusually high negative annual effective tax rate driven by a valuation allowance and small pretax loss reflected in the companys full year fiscal 2023 guidance.
GAAP net loss per share was $1 68, which incorporates the negative impact of $1 50 for items impacting comparability, including that restructuring charges and the valuation allowance.
Turning to sequence as we discussed at the time of our announcement in early March since sequences launch in late 2021. The company has quickly grown to serve thousands of members across the U S by effectively scaling its technology platform through word of mouth.
We closed the acquisition on April 10, so it will be reflected in our results starting next quarter's earnings report.
Clothing sequence had approximately 27000 members.
At this time, new members to sequence initially pay of $49 consultation fee and should they qualify and except treatment subscribed for $99 per month thereafter, only after they begin the $99 monthly plan are they counted as a subscriber.
Gross margins for sequence are north of 40%, so a bit better than those in our workshops business and on an annualized operating income basis. The business is modestly profitable at current revenue levels, but has significant upside opportunity upon achieving greater scale.
After transaction expenses are behind US the acquisition is expected to be accretive to ww's earnings per share by the fourth quarter.
Well sequence is expected to continue its growth trajectory in 2023, it will take time to integrate and truly scale up the suffering that said, we strongly believe the multi year growth opportunity is significant.
We expect performance trends in our principal weight watchers business 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.
In addition, the sequence acquisition will be reflected in our results starting in Q2.
We plan to redeploy our Q1 year over year marketing savings primarily into Q3, where we can better maximize LTV to CAC efficiency essentially driving more sign ups per dollar spent.
We are confident that shifting the timing of this investment will help drive sign ups year over year in Q3.
For the full year, we expect to end the year with weight watchers subscribers, excluding sequence subscribers roughly flat to year end 2022, including sequence or clinical subscribers total subscribers are expected to approach $3 6 million.
Last time, we ended the year with flat or higher subscribers year over year was 2020. So this will be a notable achievement and a testament to the work our teams are delivering and our product experience and acquisition channels.
As a reminder, Q1 is traditionally our annual peak and end of period subscribers.
The thing to a Q4 trough with an average decline of 14% over the past five years.
Our outlook of ending the year with $3 6 million subscribers represents a Q1 to Q4 decline of only 10% significantly improved from a decline of 22% in 2022.
Full year revenue is expected to be in the range of $910 million to $930 million, reflecting reducing year over year declines in subscription revenue as we move through the year.
Approximately 40% of our subscribers are currently in the long term commitment period, their membership, which ranges anywhere from one to 12 months, depending on the joining offer.
These offers reduced the average rate per paid week, but locking subscribers for a longer duration, resulting in higher LTV.
In Q1, approximately 80% of global sign ups chose a six months or longer plan up from about 70% a year ago, and most notably 41% of total sign ups are for nine months or longer plan up from only 12% a year ago.
We now expect consumer products another to contribute approximately $65 million in revenue during 2023, which is lower than our previous estimates and as we simplify our business and focus our consumer product offerings on our best selling skus.
Revenues from sequence are currently expected to contribute $45 million from Q2 to Q4 in aggregate.
Adjusted gross margin is expected to be in the range of 61% to 62% for the full year as we continued to reduce our fixed cost base.
Our workshop restructuring is expected to reduce our cost structure by approximately $40 million on an annualized basis with approximately $25 million in your savings excluding reinvestments in the organization.
We expect full year marketing spend to be flat with 2022.
Approximately $245 million.
G&A expense is also expected to be approximately $245 million for the year. This includes approximately $15 million in sequence G&A, plus 6 million and transaction costs, including the $3 million, we recorded in Q1.
Therefore, we expect adjusted operating income in the range of $80 million to $85 million for the full year 2023.
We estimate that the remaining charges related to the 2023 restructuring plan will be up to $10 million.
For the full year, excluding the impact of restructuring, we expect income tax expense to be approximately $15 million to $20 million largely driven by the full year impact of valuation allowance discussed earlier.
Given the seasonal nature of our principal business. Our Q1 income tax expense is expected to largely reverse in the remaining quarters of fiscal 2023, when we expect to earn pretax income.
So excluding the impact of the valuation allowance and restructuring we would expect an income tax benefit of up to $5 million for the full year.
Give them a small pretax loss reflected in the company's full year fiscal 2023 guidance any updates to the expected pretax loss for 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 $141 million of cash plus an undrawn revolver with our cash position plus our revolving credit facility, we have more than sufficient liquidity for working capital needs, including in your cash outlays related to our restructuring actions servicing our debt and approximately $40 million.
<unk> in cash for the purchase of sequence in Q2, and reflecting our assumption that cash from operations will be a modest use of cash for the year.
At quarter end, our net debt to adjusted EBITDA leverage ratio was six seven times up from six times at the end of 2022.
We expect our trailing 12 months leverage ratio to further increase in 2023 due to lower EBITDA levels through most of the year.
At this time full year interest expense is expected to be approximately 95 million notes that we have a 500 million hedge through Q1, 'twenty 'twenty four to protect against rising interest rates on our variable rate term loan of $945 million and our 500 million notes are fixed rate.
Therefore, only 31% of our total debt is floating and we are currently exploring options for forward starting swaps.
Capex, which was primarily due to capitalized software as well as depreciation and amortization are both expected to be in the $45 million range for the full year 2023.
In summary, we are stabilizing the business improving our execution and looking forward to upcoming key milestones on our product roadmap and our entry into clinical.
With our lower cost base and increased agility in our organization, we have greater flexibility in our operating model positioning us well to improve our profitability profile following a return to growth.
I'll now turn the call back to Soma.
Thanks, Heather we have significant opportunities for expanding our reach and returning weight watchers to growth to achieve that we are focused on a narrow list of priorities in order to best execute on the initiatives that will deliver the greatest impact.
Across the organization, we are focused on four key areas, one reinvigorating, our principal business and hitting our end of period subscriber targets for the year, which will be achieved through our more efficient acquisition funnel and increased member engagement for both digital and workshops members alike.
<unk>.
Compounding our headstart in the clinical space by continuing to drive efficient member acquisition to sequence, increasing brand awareness and expanding member retention.
By leveraging our expertise and enhancing our capabilities to be the partner of choice for self insured employers and health systems payers and delivering end to end behavioral and clinical weight management solutions setting a new standard of care in this space.
And for building community experiences both in real life and in digital that will broaden our reach increase engagement and satisfaction for both behavioral and clinical pathways.
In summary, our teams hard work innovative thinking and strong execution is paying off and I'm confident that we are turning the corner and getting weight watchers back on a growth trajectory.
With a leaner more agile organization, we are improving our operating model to drive profitable growth.
Thanks for joining us today, and we are now happy to take your questions.
We will now begin the question and answer session.
I ask a question you May press Star then one on your Touchtone phone.
If youre 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 comes from Jason English from Goldman Sachs. Please go ahead.
Good afternoon folks thanks for slipping me in.
And congrats on finding some stability on the core subscriber base.
Good to see on sequence your guidance implies you expect to have about 100000 subs at yearend.
Well I guess.
Couple of questions last time, you gave us an update there were 4000 on it.
Where do we stand today, whether that be people who've already paid the 99 or just people who've come in and add to the program.
What gives you confidence that you can build to that the 100.
And what's the cadence of activation when should we start to see or expect to see you bring the marketing campaign and activate and start promoting this to try to get the Onramp Kelly.
Hi, Jason and thanks for your question. This is Heather a sequence, yes ramping up through the year. So as we said in the comments, we close the acquisition with 27000 active subscribers. We are measuring subscribers has a different pace than <unk>.
Weight watchers subscriber, where you are a sign ups and an active subscriber rate on day. One. So those 27000 are people who have come in and all aside for treatment and accepted treatment and moved into the $99 a month a monthly subscription plan.
So there's a bit of a lag there between when someone enters the sign up flow and actually becomes a subscriber.
Which is a little different as I said, so in terms of scaling.
We're confident that the 2023 expectations that we have will will land us in that range of growth and we recognize that there's a a good scalable space in this business and expect to hit the subscriber base that we're targeting.
And Jason Hey, it seem I just wanted to add to that regarding marketing activation.
So as you know sequence has built up their subscription base, primarily on word of mouth, and we're saying that theyre continuing to scale our through that channel and then.
On top of that we have the opportunity to tap into the weight watchers lapsed membership base to really cross promote.
For those obviously, where it's medically appropriate.
You know and that being said, we did push our marketing budget to the second half of the year and we're going to be driving that top of funnel across.
Our businesses as a whole there are one of the thesis here was that there would be tax efficiencies and we believe that will be true and so you know we're going to be looking at where we have the most leverage whether it's through clinical or our behavioral pathway.
Okay. One more question then I'll pass it on although I realize I cheated upfront with a three part question.
You had some interesting comments to make on insurance coverage I was wondering if you have any sense of numbers you can put around that like what percentage of.
This population or even better your current or lapsed users would be covered on this program just a carte Blanche with no caveat and then how does that percentage change when we renamed the caveat of it must be accompanied with some sort of behavioral modification program.
So insurance coverage isn't something that we previously really pulled our members regarding but we know they typically have and.
And above average household income so most do have health insurance through an employer I think that's a fair assumption.
And and and the the benefit of sequence here is that they put the insurance process on Tex rail such that it makes navigating the preauthorization process, so much easier, which helps with access obviously and.
On top of that I think we're just hum have enough and opportunity to be an indispensable partner to not only members who need help navigating the insurance process, but also employers who are looking to figure out how to provide these critical medications.
For their population and we're hearing from our and B to B population.
<unk> that they're interested in step therapy plans and so that's and engagement model that we're designing in navigating through.
And I think more to come on that.
Yes, it makes sense exciting stuff I'll pass it on.
Thank you.
The next question comes from Linda Bolton Weiser from D. A Davidson. Please go ahead.
Yes, hi.
So so based on your comments it sounds like you're going to start this cross promotional opportunity by tapping into your former members in the second half of the year is there any way to quantify how much of the marketing budget would be put towards that versus the weight watchers advertising because at this point they're not.
Integrated right. So it's still too tough to separate endeavors. So is there any way to quantify the spending you would put toward the sequence side.
But the the CAC efficiencies are what we're going to be keeping an eye on so.
The the opportunity here is going to really be driven by the product and where we have leverage so where we're seeing efficient LTV CAC, that's where we will spend and you know being.
Being able to go to market with a portfolio of options I think is what really differentiates us and sets us apart. So we are not.
Specify any specific part of our budget, but.
But what I, what I feel confident about is that we have around 160 million still earmarked for the rest of the year to drive our top of funnel and no. Other companies in the space, We're gonna be near US in terms of the ability to go out and and really speak to a D to C platform.
Such as ours.
Right and then.
Can you give us some rough estimation as to how long it may take to integrate the two platforms and come up with your integrated marketing methods and kind of work that through is that like a year from now or is there any rough timeframe for that.
Yeah, we're we're not really ready to talk too much about that at this point Linda I mean, we I want to be more thoughtful and given we just closed a couple of weeks ago, we need time to co create with our with our new colleagues on how we do this well and how we do this quickly but as I noted so what are the core objectives.
Here for are the focus of our company is taking.
Taking advantage of this head start that we have in the clinical space. So.
You can.
I imagine that it is absolutely a priority and top of mind for us.
And the nice thing is I will add there is that we just.
Complement very well in terms of the things that we.
We.
Are doing really well and the things that sequence are doing really well there is oh, a really good match up there that I think you know we look forward to talking and sharing more about in the next in the.
Next few calls.
Yes that sounds great and just my final question I know that historically there was some partnership that weight watchers did with offering the drug contrary, but I think that's what it's called I don't know the context of that and I don't know why it was never to successful or do you have any history on that and why that.
It wasn't any big deal would that drug offerings.
Linda I'm gonna be honest I don't have too much context, there to share with you on that front, but oh, what I can what I can notice I think that is it are we we can all agree that these new next generation medications are unlike anything that have come before it and the the landscape has really shifted.
Ed.
Yes. Thank you I really appreciate it.
Our next question comes from Michael Lasser from UBS. Please go ahead.
Hi, This is Henry Carver on behalf of my glasses thankful opportune or question Tonight.
It's been one sequence hope with some driver find an affordable T. L. P. One solution, what's stopping them from taking that to their primary care provider in other words why you stick around what our solution is found.
Thanks, Henry so the process with a weight these chronic weight loss weight loss medications.
Is that it takes a high support chair team around it you need to.
Titrate your dosages, along your weight loss journey, and that's really different than for instance, getting an E D medication and script that you can get and walk away from a so so there is a a level of support that if needed that is different than other types of medications.
Also the Preauthorization process youre going to continue to need that throughout the journey as these dosages are change and titrate.
What's fascinating is that we actually saw the highest retention during that time.
When Mondro was coupon the most people were clearly finding value in the program not just in insurance.
Thank you that's really helpful and just as a follow up.
When when and if these drugs come off the FDA shortly could probably list and they're more accessible does that erode the value proposition of the sequences.
Correction.
Other words with these drugs become cheaper and more accessible in two or three years as generic versions come to market. How would you look to protect.
Subscriber base.
So it's an interesting point that you brought up and I don't want to get too into the weeds here of I'm I'm not a scientist, but I can tell you that because these are biologic not the same sort of.
Discounting when it comes to generics, but that being said because we are in the business the subscription business not the prescription business and what we're offering is a care team model and that's what we've heard are and where the N. P. S is so high such that sequence has been able to.
Build its business by word of mouth that they're going to.
Theyre going to a telehealth platform in order to be able to not only acquire these medications when medically appropriate, but then to be able to alongside of that.
Get the fitness nutrition coaching alongside the medication to be able to have the same type of simple UX that you might even find in for instance, a consumer messaging apps and then obviously and this is where the thesis for US acquiring this business just makes so much sense is you were.
To build ongoing healthy habits above and beyond being able to take the medications.
And Ah I think it's worth noting too that there are new drugs in development. Like this is the start of what we're starting to see around these medications where.
There's already talk about these same medications coming in pill form right now theyre all injectables. So it's still a very nascent market and there's a lot of evolution to come.
Super helpful. Thank you so much.
Our next question comes from Laurence <unk> from Morgan Stanley . Please go ahead.
Hey, it's Nathan feather on for Laura.
It's exciting to see the step up in net adds despite the lower marketing year over year I guess can you dig in a bit more of what you believe is we're getting on the marketing side and how you can leverage that learning through the year and then a second one can you talk to any early trends in sequence since the acquisition I mean, it certainly seemed to get a lot of media attention I'm not sure if the transit beside us. Thank you.
And so in terms of marketing if I, if I heard your question correctly.
In terms of what's working well in Q1, we spent $20 million less than in the prior year, so 18% less.
And year over year, our Q1, LTV CAC improved by about 14%. So we can clearly see this read through in our performance trends and as C met and I both referenced in the call. We see this step up in our active base from Q4 into our first quarter and if you go from Q4 2022 into Q1.
Thousand twenty-three ending subscribers, we saw a step up 13% and our end of period subs versus 9% in the prior year and we did that on $20 million less of marketing spend.
So it's you know it's reading through in terms of working.
Yeah.
And your second question.
Yes.
I mean youre going to have to repeat your second question Nathan.
Yeah.
Can you just talk to any early trends with sequent since the acquisition you know it certainly seemed to get.
A lot of attention in the media, but just wondering if that translated to kind of initial sign ups and of interest.
Definitely so we're not speaking specifically to sign ups or to sequence in isolation at this point, but.
But we did see a a huge step up in interest in and sequence right at the point of announcing the acquisition and an actual step change in their subscriber volume.
From the point of bad announcements, so, yes, definitely a increased interest and increased.
Subscriber into.
Interest in and activation.
Great. Thank you.
On the marketing point, though real quick is that and and I think it's worth noting is that it's really less about the creative that we're deploying and it's more about the ways in which we are buying in Bollywood media going back to building a data informed culture.
And that we were able to then couple that with key brand moments.
Which is which are driving immediate response are really putting us back into the consideration set for for so many so and and I would also add that the initial.
Attention on the acquisition and.
Weight watchers.
Recognizing the chronic condition around.
Living with overweight and obesity has been positively viewed by the market. So not only is it impacting a sequence sign up but also <unk>.
Our core business as well so that's nice to see.
And also important why we continue to.
Help really drive the conversation around weight.
Wait health.
The sequence is sequence is still a very nascent brand.
It did provide this boost brand awareness, but the association to weight watchers.
You know our brand was 60 years of Heritage Trust is helping to drive trust for the clinical pathway as well.
Our last question comes from Alex Fuhrman from Craig Hallum. Please go ahead.
Hey, guys. Thanks, very much for taking my question and congratulations on closing the sequence acquisition I wanted to ask about advertising and customer acquisition in the telehealth.
So I think weight watchers of course has a great reputation in the category you have a lot of competitors in the telehealth space there that our advertising a G. L. P. One very aggressively in a way that I imagine a weight watchers never really wood can you talk a little bit about how you were able to kind of.
Get through to customers is that is it mostly about marketing to people in your kind of own ecosystem in terms of members.
Warmer members and I'm curious, what you're seeing I know, it's early days, but in terms of customer acquisition cost on the sequence side of the business.
Thanks, Alex So this is where in 60 years of brand equity comes to play well.
When we're talking about our LTV CAC and the efficiencies that we can drive by.
Locking in on a brand that people know and trust AR and.
And recognize and so yeah, you're right, but we think we could do this more efficiently.
And I think that there are also synergies and our ability to retarget across our database as well as the former members.
And that ultimately the same thing that I said before about our core business applies to the telehealth business, which is that the product needs to market itself.
And this product has incredibly high NPS, both for consumers and the clinician because remember both the supply and demand side here are important for our best in class experience and what what we are seeing is that people are calling other people that sequence is a great.
Product.
It makes the insurance process easy that it's like a care team in your pocket and.
On top of that when we combine with the behavior change program that that.
We anticipate bringing to market, we're going to have a real differentiated offering and I'm you know I'm very bullish on what that means for our ability to drive the top of the funnels.
Yeah.
Okay. Thank you that's very helpful. I appreciate that.
Thanks.
This concludes our question and answer session I would like to turn the conference back over to seamless sistani for any closing remarks.
Yeah.
Thanks Al I am so confident that we are approaching an inflection point in our business. We will return the company to a growth trajectory in 2023 as I said earlier, our key initiatives and decisive actions are shaping the future of our product experience operating model, our financial trajectory and the lives we positively.
<unk>. Thank you for joining us today I'm looking forward to speaking with many of you at upcoming conferences, including Bofa Health care Conference and the Goldman Sachs Consumer Staples conference and keeping you updated on the initiatives. We have underway may the fourth be with you.
<unk>.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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