Q2 2024 WW International Inc Earnings Call
Welcome to the WW International's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to your host, Corey Kinger, VP, Investor Relations. You may begin.
Corey Kinger: 2020-24 earnings conference call. At this time, all participants are in a listen-only mode.
Operator: Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to your host, Corey Kinger, VP, Investor Relations. You may begin.
Corey Kinger: Later, we will conduct a question-and-answer session.
Corey Kinger: I'll now like to turn the call over to your host, Corey Kinger, VP Investor Relations. You may begin.
Corey Kinger: Thank you, everyone, for joining us today for WW International second quarter 2024 conference call. At about 7 a.m. Eastern Time today, we issued a press release reporting our second quarter 2024 results.
Corey Kinger: Thank you, everyone, for joining us today for WW International's second quarter 2024 conference call. At about 7 a.m. Eastern time today, we issued a press release reporting our second quarter 2024 results. Before we begin, let me remind everyone that this call will contain four looking states. 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.
Corey Kinger: Thank you everyone for joining us today for WW International's second quarter 2024 conference call. At about 7 a.m. Eastern time today, we issued a press release reporting our second quarter 2024 results.
Corey Kinger: The purpose of this call is to provide investors with some further details regarding the company's financial results, as well as to provide a general update on the company's progress. The press release is available on the company's corporate website located at corporate.ww.com. Supple-nuddle investor materials are also available on the company's corporate website in the investor section under presentations and events. Reconciliation of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures for also available as part of the press release.
Speaker Change: 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.
Speaker Change: The press release is available on the company's corporate website located at corporate.ww.com
Speaker Change: 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.
Corey Kinger: Before we begin, let me remind everyone that this call will contain four-looking statements. Investors should be aware that any four-looking statements are subject to various risks and certainties that could cause actual results to differ materially from those discussed here today. These fit 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 four-looking statements and the risks and certainties of such statements. All four-looking statements are made as of today and, except as required by law, the company undertakes no obligation to publicly update or revise any four-looking statements, whether as a result of new information, future events, or otherwise.
Speaker Change: Before we begin, let me remind everyone that this call will contain forward-looking statements.
Speaker Change: 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.
Speaker Change: These fit 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.
Speaker Change: 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.
Corey Kinger: Joining today's call are Seema Sistani, CEO, and Heather Stark, CFS. I'll now turn the call over to Seema.
Corey Kinger: Joining today's call are Sima Sistani, CEO, and Heather Stark, CSO. I'll now turn the call over to Sima.
Speaker Change: Joining today's call are Sima Sistani, CEO and Heather Stark, CFO . I'll now turn the call over to Sima.
Sima Sistani: Thanks, Corey.
Sima Sistani: Good morning, everyone. Thank you for joining us today. Weight Watchers has a right strategy to return the business to growth. In order to win in this dynamic GLP-1 environment, we are completely reimagining how we operate to catalyze our path as the leading digital weight health provider. We have taken decisive actions to navigate through this dynamic landscape. While top line is pressured in the short term, we continue to expect strong, adjusted operating income this year, which gives us ample runway for what will be a monumental transformation of not only our business, but also how culture at large treats and cares for people living with overweight and obesity.
Sima Sistani: Thanks, Corey. Good morning, everyone. Thank you for joining us today.
Sima Sistani: Weight Watchers has the right strategy to return the business to growth. In order to win in this dynamic GLP-1 environment, we are completely reimagining how we operate to catalyze our path as the leading digital weight health provider. Weight Watchers has the unique ability to provide a weight health solution that aligns with this major cultural shift. Alternatively, many of our members want to move from clinic access to a behavioral maintenance program once their medications have been titrated.
Speaker Change: Weight Watchers has the right strategy to return the business to growth. In order to win in this dynamic GLP-1 environment, we are completely reimagining how we operate to catalyze our path as the leading digital weight health provider.
Speaker Change: We have taken decisive actions to navigate through this dynamic landscape.
Speaker Change: While top line is pressured in the short term.
Sima Sistani: Weight Watchers has a unique ability to provide a weight-health solution that aligns with this major cultural shift. The specialized expertise we offer members and payers is critical to both managing costs and improving health outcomes. Our clinically proven program escalates or de-escalates in intensity based on a consumer's needs at every step along their journey. For instance, a member can start on our core behavioral program, then add on clinic services such as registered dietitian visits, or metabolic panels, and if appropriate, a doctor visit and medication access. Alternatively, many of our members want to move from clinic access to a behavioral maintenance program once their medications have been titrated.
Speaker Change: For instance, a member can start on our core behavioral program, then add on clinic services such as registered dietician visits or metabolic panels, and if appropriate, a doctor visit and medication access.
Sima Sistani: This is our one membership strategy, which is made possible by over 60 years of expertise in behavior change and the trusted community we have built over decades, paired with an innovative telehealth service and specialized clinicians who can prescribe a wide formulary. Our progress has been tempered near term by the complex and rapidly shifting external environment over the last few months. While we continue to experience GLC1 shortages, we have seen an increasing quantum of compounded and uncertain cases, even counterfeit medications, in the ecosystem. This causes both a more fragmented landscape for consumers to navigate, as well as increasing cost of media for the same audience.
Sima Sistani: Our progress has been tempered near term by the complex and rapidly shifting external environment over the last few months. This causes both a more fragmented landscape for consumers to navigate, as well as increasing costs of media for the same audience. With regard to media.
Speaker Change: While we continue to experience GLP-1 shortages, we have seen an increasing quantum of compounded and, in certain cases, even counterfeit medications enter the ecosystem.
Sima Sistani: With regard to media, we continue to take a performance approach to subscriber acquisition, managing to a prudent LCV CAQ ratio. The increasing CAQs resulted in a decision to pull back marketing dollars initially dedicated to clinic acquisition. In addition, we postponed the rollout of our refresh marketing campaign, which was initially planned for Q2 to integrate our latest findings and insights in this evolving environment. Last week, we soft-logged the FISU marketing campaign, celebrating individuality, sharing real-member stories, and showcasing our comprehensive support, including clinically proven behavior change and the medication for those who need it. Additionally, despite the fact that obesity is widely recognized as a chronic disease, we are disappointed to see health plans contracting coverage.
Heather Stark: We continue to take a performance approach to subscriber acquisition, managing to a prudent LTVCAC ratio. The increase in tax resulted in a decision to pull back marketing dollars initially dedicated to clinic acquisition. In addition, we postponed the rollout of our refreshed marketing campaign, which was initially planned for Q2, to integrate our latest findings and insights into this evolving environment. Last week, we soft-launched the FITSU marketing campaign, celebrating individuality, sharing real member stories, and showcasing our comprehensive support, including clinically proven behavior change and medication for those who need it. These trends raise health equity concerns and are a meaningful setback in the effort to de-stigmatize a vulnerable population, largely women and people of color, who are deserving of equitable care and access to life-saving medication.
Speaker Change: The increase in tax resulted in a decision to pull back marketing dollars initially dedicated to clinic acquisition.
Speaker Change: In addition, we postponed the rollout of our refreshed marketing campaign, which was initially planned for Q2, to integrate our latest findings and insights in this evolving environment.
Speaker Change: Additionally, despite the fact that obesity is widely recognized as a chronic disease,
Sima Sistani: For instance, Michigan's largest insurance company said it would discontinue coverage of obesity medications in its commercial plans. These trends raise health equity concerns and are a meaningful step back in the effort to destigmatize a vulnerable population, largely women and people of color who are deserving of equitable care and access to life-saving medications. While our growth trajectory has been affected by the evolving medication supply constraints, our comprehensive approach to weight loss is perfectly positioned for growth. Despite pulling back marketing dollars amid supply shortages, our end-of-period clinical subscribers increased 120% year-over-year, in part due to our existing membership base, with about 30% of May and June clinic signups converting from our behavioral program.
Sima Sistani: Our comprehensive approach to weight loss is perfectly positioned for growth, and despite pulling back marketing dollars amid supply shortages, evidence of our one membership strategy meeting our members' needs along their weight health journey. With obesity-specialized clinicians, our proven behavioral program, dedicated care team, insurance support, and Engage Community, we are the number one doctor-recommended way to lose and maintain weight. The combination of personalized medication management with our behavior change program is compelling, delivering Weight Watchers Clinic members 11% more weight loss compared to those taking medications alone.
Speaker Change: Despite pulling back marketing dollars amid supply shortages,
Speaker Change: Our end-of-period clinical subscribers increased 120% year-over-year, in part due to our existing membership base.
Speaker Change: With about 30% of May and June clinic sign-ups converting from our behavioral program. In addition, we are seeing 10% of last clinic subscribers move to our behavioral membership. Evidence of our One Membership Strategy meeting our members' needs along their weight health journeys.
Sima Sistani: In addition, we are seeing 10% of last clinic subscribers move to our behavioral membership. Evidence of our one membership strategy meeting our members' needs along their weight health journeys. With obesity specialized clinicians, our proven behavioral program, dedicated care team, insurance support, and engaged community, we are the number one doctor-recommended way to lose and maintain weight loss. On average, Weight Watchers clinic members achieve a 19.4% body weight loss at 12 months. The combination of personalized medication management with our behavior change program is compelling, delivering Weight Watchers clinic members 11% more weight loss compared to those taking medications alone.
Speaker Change: With obesity-specialized clinicians, our proven behavioral program, dedicated care team, insurance support, and engaged community, we are the number one doctor-recommended way to lose and maintain weight loss.
Speaker Change: The combination of personalized medication management with our behavior change program is compelling, delivering Weight Watchers Clinic members 11% more weight loss compared to those taking medications alone.
Sima Sistani: These impressive weight loss efficacy results demonstrate that we have a differentiated proven offering and increase our confidence that the initiatives in our expansion strategy will give us opportunities to catalyze our growth as we transform our business model, make our offerings accessible to more people, and deliver on our mission as the global leader in weight health.
Sima Sistani: These impressive weight loss efficacy results demonstrate that we have a differentiated, proven offering and increase our confidence that the initiatives in our expansion strategy will give us opportunities to catalyze our growth as we transform our business model, make our offerings accessible to more people, and deliver on our mission as the global leader in weight health. Given the exciting uptake, we have started a phased rollout in 10 more states.
Sima Sistani: We are making progress hitting early milestones across each of the three pillars of project expansion on the first pillar of expanding care. This summer, we began making insurance cover nutrition counseling with registered dietitians available to eligible members, starting with a pilot in New Jersey. In this pilot, 24% of new clinic members added on an RD visit. Given the exciting uptake, we have started a phase rollout in 10 more states. Also this week, we expanded our pilot to eligible behavioral members. Over time, we believe such incremental services will expand our poo while providing a value-added experience for members.
Heather Stark: Also this week, we expanded our pilot to eligible behavioral members. We also launched a programmatic GLP-1 medication supply tracker for all clinic members. This service has contributed to an increased retention now approaching six and a half months, which is up from last quarter as well as a twelve month high NPS. Other supply trackers in the market depend on crowdsourced medication availability, which is prone to error and puts the onus on the user to find and report medication.
Sima Sistani: We also launched a programmatic GLP-1 medication supply tracker to all clinic members. For over a year, Weight Watchers clinic has been actively assisting members in locating supply. But with this enhancement, we are able to point our members to the pharmacy near a stem with medication in stock immediately after a prescription is written. This service is contributed to an increased retention now approaching six and a half months, which is up from last quarter, as well as a 12-month high MPS. Other supply trackers in the market depend on crowdsource medication availability, which is prone to error and puts the owners on the user to find and report medications.
Sima Sistani: Our supply tracker provides up-to-date information on medication shortages directly from our proprietary pharmacy stock database.
Sima Sistani: You may have noticed that we recently refreshed the entire design of the Weight Watchers app to make it a more intuitive and unified user experience, providing members quick and easy access to all of our weight management tools. This revamp is driving improvements to login rates, lists in tracking, and longer sessions, all of which are positive for engagement, as demonstrated by a 16% surge in MPS last month.
Heather Stark: You may have noticed that we've recently refreshed the entire design of the Weight Watchers app to make it a more intuitive and unified user experience, providing members quick and easy access to all of our weight management tools.
Heather Stark: This revamp is driving improvements to login rates, Member Experience, and Sustainability. At LabCorp, which is one of our most recent B2B wins, the subscriber conversion rate is nearing 10% only six months in, proving that when our program becomes a covered benefit, we have the brand recognition and solutions for sizable enrollment. Scaling our B2B business will take time, but we continue to believe this channel will be a critical driver of growth and momentum in the years ahead, especially when the enrolled ARPU generated from each subscribe The ability to process insurance claims for Weight Watchers services will have a positive impact on signups and retention and is a natural extension of our existing ability to provide insurance support for Weight Watchers Clinic members.
Sima Sistani: For our second pillar, expanding access, we continue to make progress toward making Weight Watchers a covered benefit. Despite some providers pulling back coverage, our B2B team is in active discussions with a large number of potential and existing customers. While an increasing number of vendors are claiming to have the right solution, Weight Watchers offers what the vast majority of them cannot. A comprehensive program addressing cost, member experience, and sustainability. With over 33 years of enterprise experience, more than 500 enterprise clients, and clinically proven results, Weight Watchers is the science-backed leader in the Weight Health category. At LabCorp, which is one of our most recent B2B wins, the subscriber conversion rate is nearing 10% only six months in, proving that when our program becomes a covered benefit, we have the brand recognition and solutions for sizable enrollment.
Sima Sistani: Galing our B2B business will take time, but we continue to believe this channel will be a critical driver of growth and momentum in the years ahead, especially when enrolled RPU generated from each subscriber is substantial, while also delivering health outcomes to the employee and ROI to the employer.
Sima Sistani: And on our third pillar, expanding payment options. In addition to our B2B efforts, our goal is to also enable D2C members to use their insurance to reduce their cross burden and increase their access to incremental services, thereby driving greater RPU. As mentioned, we are now offering insurance-covered registered dietitian visits to eligible Weight Watchers members in the U.S. The ability to process insurance claims for weight-waters services will have a positive impact on sign-ups and retention and is a natural extension of our existing ability to provide insurance support for weight-waters clinic members. While these initiatives will expand our reach and enable us to serve a broader population, catalyzing our return to top-line growth, we are maximizing profitability and running a more efficient organization.
Heather Stark: While these initiatives will expand our reach and enable us to serve a broader population, catalyzing our return to top-line growth, we are maximizing profitability and running a more efficient organization. Today, we are executing a strategic streamlining of our operational structure, which will result in a significantly lower cost base and allow us to focus on a narrow list of high-impact product initiatives, increase our nimbleness and impact across the product roadmap, and Bolster Profitability and our cash position.
Sima Sistani: Today, we are executing a strategic streamlining of our operational structure, which will result in a significantly lower cost base and allow us to focus on a narrow list of high-impact product initiatives, increase our nimbleness and impact across the product roadmap, and bolster profitability in our cash position. Our organizational changes start with revancing our product organization under the leadership of our new Chief Product Officer, Donna Boyer. We are all aligning on cross-functional teams focused on outcomes that enhance collaboration, creativity, and velocity, and it's ultimately tied to financial outcomes. The simplified structure will allow for agile teamwork and reduced overhead.
Heather Stark: Our organizational changes start with revamping our product organization under the leadership of our new chief product officer, Donna Boyer. We are all aligning on cross-functional teams focused on outcomes that enhance collaboration, creativity, and velocity, and ultimately tied to financial outcomes. In a rapidly evolving environment, it's crucial that we operate faster and empower teams to adapt quickly. Thanks, Sima.
Sima Sistani: In a rapidly evolving environment, it's crucial that we operate faster and empower teams to adapt quickly. Weight-waters is positioned to lead. We are adopting fast tech-forward operating principles while benefiting from a 60-year track record of proven results with behavior modification. This provides the foundation of member support and trust, which feels long-term success.
Speaker Change: It's faster and empower teams to adapt quickly.
Speaker Change: Weight watchers is positioned to lead we are adopting fast check forward operating principles, while benefiting from a 60 year track record of proven results with behavior modification.
Speaker Change: This provides the foundation of member support and Trust, which fuels long term success I will now turn the call over to Heather to discuss our financial results and outlook.
Heather Stark: I will now turn the call over to Heather to discuss our financial results and outlook. Thanks, SEMA. SEMA highlighted that, despite current headwinds, we are confident that we have the strategy, positioning, and resources to return the business to growth.
Heather Stark: Thanks, Tina and FEMA highlighted despite current headwinds we are confident that we have the strategy positioning and resources to return the business to growth.
Heather Stark: In the immediate term, we are laser-focused on profitability and making the right decisions that will best enable the company for the longer term. Turning to our second quarter of 2024 results, note that all year-over-year financial comparisons are on a constant currency basis. We end at Q2 with 3.8 million subscribers, a decline of 6% year-over-year. Revenue total: 202 million. Subscription revenues of 200 million, decline 5% 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 signups for our Weight Watchers behavioral offerings, partially offset by a nearly 120% increase in clinical subscribers year-over-year, driving $20 million in clinical revenue, up 12 million year-over-year.
Heather Stark: In the immediate term, we are laser focused on profitability and making the right decisions that will best enabled the company for the longer term.
Heather Stark: Other revenues decline 13 million due to the discontinuation of our low-margin consumer products business. Adestic growth margin was a record high of 67.9% and up from 63.4% in the prior year, primarily driven by the discontinuation of the lower-margin consumer products business at the end of 2023. In addition, growth margin reflects our actions in reducing our fixed cost base. Marketing expenses of 54 million were up 5% year-over-year, reflecting higher online advertising, partially offset by lower spend on TV advertising and production agency fees. Adjusted DNA of 46 million was down 22% for prior year, primarily due to compensation and related costs.
Unknown Attendee: Adjusted growth margin was a record high of 67.9% and up from 63.4% in the prior year, primarily driven by the discontinuation of the lower margin consumer products business at the end of 2023. In addition, gross margin reflects our actions in reducing our fixed cost base.
Unknown Attendee: Adjusted DNA of 46 million was down 22% versus the prior year, primarily due to compensation and related costs. Adjusted operating income was $38 million, an increase of 13%, reflecting our efforts to improve margins and contain costs. Income tax was a benefit of $16 million, which, consistent with last quarter, reflected the impact of an unusually high negative annual effective tax rate driven by the evaluation allowance and a small pre-tax loss reflected in the company's full year fiscal 2024 guidance.
Heather Stark: Adjusted operating income was 38 million, an increase of 13%, reflecting our efforts to improve margins and contain costs. Restructuring charges totaled $2 million in the quarter related to prior year plans. Income tax was a benefit of 16 million, which, consistent with last quarter, reflected the impact of an unusually high negative annual effective tax rate, driven by evaluation allowance and a small pre-tax loss reflected in the company's full-year fiscal 2024 guidance.
Heather Stark: Gap EPS was 29 cents compared to 65 cents in the year-ago quarter. As same as discussed, we are streamlining our operational structure to optimize our product portfolio, focusing on high-impact initiatives to enhance efficiency, accountability, and speed. We are reducing our global headcount, primarily in corporate rules, including a 40% reduction in VP and above positions, and resulting in approximately 60 million in annualized cash savings, mainly benefiting DNA. We expect to take a restructuring charge of 12 to 15 million in the second half of the year. Cash outlays for restructuring, including the 2024 plan and remaining payments for prior year actions, are expected to be approximately 30 million in 2024 and 10 million in 2025.
Unknown Attendee: We are reducing our global headcount, primarily in corporate roles, including a 40% reduction in VP and above positions, and resulting in approximately $60 million in annualized cash savings, mainly benefiting GNA. We expect to take a restructuring charge of $12 to $15 million in the second half of the year. Cash outlays for restructuring, including the 2024 plan and remaining payments for prior year actions, are expected to be approximately $30 million in 2024 and $10 million in 2025.
Heather Stark: Importantly, this action reduces our employee-related cash expenses this year versus our prior expectations. These actions are part of a broader cost reduction and Nick initiative targeting $100 million in annualized savings, including $20 million of savings currently reflected in our 2024 guidance.
Heather Stark: Shifting to our outlook. For the full year 2024, we now expect year-end total subscribers of at least 3.1 million, which, given our subscription business model, will drive a revenue headwind into 2025. Total revenue of at least $770 million, adjusted operating income of at least $100 million, and adjusted EBITDAs of at least $150 million. Cost actions we announced today, as well as the actions we have taken thus far, demonstrate our ability to control what we can in this dynamic industry environment by tightly controlling costs and approving efficiencies. We are focused on maximizing profitability as we manage through a challenging sign-up environment.
Unknown Attendee: For the full year 2024, we now expect year-end total subscribers of at least 3.1 million, which given our subscription business model will drive a revenue headwind into 2025, with total revenue of at least $770 million. Adjusted Operating Income of at least $100 million and Adjusted EBITDA of at least $150. The cost actions we announced today, as well as the actions we have taken thus far, demonstrate our ability to control what we can in this dynamic industry environment.
Unknown Attendee: By tightly controlling costs and improving efficiencies, we are focused on maximizing profitability as we manage through a challenging sign-up environment. Turning to our capital structure, we ended Q2 with approximately $43 million of cash plus an undrawn revolver. Our cash needs in the first half of the year were much higher than our expectations for the second due to increased marketing, compensation timing, and the Sequence Acquisition Anniversary. With our cash position plus our revolving credit facility and bolstered by the cost actions we are taking today, we believe we have sufficient liquidity for our working capital needs, including cash outlays related to our restructuring actions and servicing our debt.
Heather Stark: For the full year, we expect income tax expense of up to $10 million, excluding the impact of valuation allowance, Q1 impairment, and other discrete tax items. We continue to expect an income tax benefit of up to $10 million. We continue to expect cash taxes to be between $20 million 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. 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 Q224.
Heather Stark: Due to lower subscriber and revenue levels than previously anticipated, we expect to have a modest use of cash from operations for the full year 2024. Capix, which is primarily capitalized software, is expected to be in the 20 to 25 million range. Depreciation and arbitration is expected to be around 40 million. Turning to our capital structure, we ended Q2 with approximately 43 million of cash plus an undrawn revolver. Our cash needs in the first half of the year were much higher than our expectations for the second due to increased marketing, compensation timing, and the sequinsack position anniversary payment.
Speaker Change: Turning to our capital structure, we ended Q2 with approximately $43 million of cash and Undrawn revolver, our cash needs in the first half of the year were much higher than our expectations for the second due to increased marketing compensation timing and the sequence acquisition anniversary payment.
Heather Stark: With our cash position, plus our revolving credit facility, and bolstered by the cost actions we are taking today, we believe we have sufficient liquidity for our working capital needs, including cash outlays related to our restructuring actions and servicing our debt. Q2N, our net debt to adjust the EBITDA leverage ratio, was 9.6 times. 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.
Heather Stark: With our cash position plus our revolving credit facility and bolstered by the cost actions. We are taking today. We believe we have sufficient liquidity for working capital needs, including cash outlays related to our restructuring actions and servicing our debt.
Unknown Attendee: At Q2 end, our net debt to adjusted EBITDA leverage ratio was 9.6 times. 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. I will now turn the call back to Sima.
Speaker Change: At Q2 end, our net debt to adjusted EBITDA leverage ratio was nine six times.
Sima Sistani: I will now turn the callback to SEMA. We are executing against our strategic pillars to expand care, expand access, and expand payment options for our members. These initiatives enable us to serve a broader population as the leading digital health provider of weight health, catalyzing our return to growth and positioning Weight Watchers for long-term success. Weight Watchers have an impressive competitive mode and high barriers to entry with our significant subscriber base, extensive database of former members, strong retention, solid NPS, positive customer perception, grand trust. and Clinically Proven Program.
Sima Sistani: Weight Watchers has an impressive competitive moat and high barriers to entry with our significant subscriber base, extensive database of former members, strong retention, solid NPS, and Clinically Proven Program. A significant opportunity lies before us, and we have the foundation, strategies, and structure to successfully navigate the current environment and emerge stronger. Thanks for joining us. We are now happy to take your questions.
Sima Sistani: A significant opportunity lies before us, and we have the foundation strategies and structure to successfully navigate the current environment and emerge stronger.
Corey Kinger: Thanks for joining us. We are not happy to take your questions.
Corey Kinger: At this time, we will conduct a question-and-answer session. If you would like to ask a question, please press star one on your phone now, and you will be placed into the queue in the order received.
Operator: At this time, we will conduct a question and answer session. If you would like to ask a question, please press star 1 on your phone now, and you will be placed in the queue in the order received. Please limit yourself to one question and one follow-up question. Once again, if you would like to ask a question, please press star 1 on your phone now. And our first question comes from Jack Wallace from Guggenheim Securities. Please go ahead, Jack.
Corey Kinger: Please limit yourself to one question and one follow-up question. Once again, if you would like to ask a question, please press star one on your phone now.
Jack Wallace: Can our first question come to Jack Wallace from Google and have securities? Please go ahead, Jack. Thanks for taking my questions.
Speaker Change: I Am Securities. Please go ahead Jack.
Jack Dawson Wallace: Hey, good morning. Thanks for taking my questions. Yeah, I want to ask about the clinical business and it sounds like there were some number of headwinds in the quarter. You know, mostly marketing, but can you talk a little bit about whether it's the perceived
Jack: Hey, good morning, Thanks for taking my questions.
Jack Wallace: I want to ask about the clinical business. It sounds like there are some number of headwinds in the quarter. There is something mostly marketing, but can you talk a little bit about the, whether it is the perceived impact from the compounded GLT1s? Have you noticed, or have you got any feedback on the triton there? Again, recognize the difficult marketing environment that delay in the marketing refresh. Just thinking about the competitive threat there. Thank you. Thanks, Jack.
Jack: I wanted to ask about the clinical business and it it sounds like there were some number of headwinds in the quarter.
Speaker Change: Yeah sounds, mostly marketing, but can you talk a little bit about the <unk>.
Speaker Change: Whether it's the perceived impact from the compounded GLC ones have you noticed or you got any feedback on attrition there.
Speaker Change: Again, <unk> recognized the difficult marketing environment than a delay in the in the marketing refresh just thinking about the the competitive threat there. Thank you.
Sima Sistani: Thanks, Jack. Yeah, you know, we saw a significant increase in our clinic CAC in the second quarter, really driven by the increased number of competitors in programmatic channels, such as search. And, you know, there's probably about 50 percent more competitors in 2024 than in 2023, many of them offering compounded medications. And, you know, I think we're also seeing just the cost of media going up due to this being an election year and one off the Olympics.
Speaker Change: Thanks, Jack Yeah, we saw a significant increase in our clinic Tak and the second quarter really driven by the increased number of competitors are.
Sima Sistani: Yes. We saw a significant increase in our clinic in the second quarter, really driven by the increased number of competitors in programmatic channels, such as search. There are probably about 50% more competitors in 2024 than 2023. Many of them are offering compounded medications.
Speaker Change: And programmatic channels such as search.
Sima Sistani: I think we are also seeing just the cost of media is going up due to this being an election year and one off the Olympics. I fully believe that this business is set up to grow. We are seeing increased retention in that business to six and a half months. We are at a 12-month high in NPS. Our general ability to move people between programs and realizing our one membership strategy, we are seeing that.
Sima Sistani: And I fully believe that, you know, this business is set up to grow; we are seeing increased retention in that business to six and a half months. We're at a 12 month high in NPS. And, you know, our
Jack Wallace: Ultimately, this is about managing to the long-term health of the business, and we decided to pull back marketing dollars, given the external turbulence. I just take a real performance marketing focus here on the path forward with clinic. I appreciate that makes sense, and then following up your response there about the one membership and being able to get members to toggle up and down based on their needs. It seems like that's an attractive proposition for employers.
Jack Wallace: You need some comments about the D2B pipeline.
Sima Sistani: You can give us a kind of updated thoughts on the materiality of expected contribution next year, and then just also give us a reminder for how we should be expecting once a benefits customer comes online, what the enrollment or utilization trends should look like over the course of the year. Thank you. Yes, thank you for that question. Certainly, the flip side of the popularity and efficacy of these medications is the cost. And we were the leaders in this market, and we can enable employers and insurance companies to provide coverage in cost-effective ways that really generate ROI and improve health outcomes.
Unknown Attendee: Unknown Attendee, Michael Lasser, Ray Yousefian, Sima Sistani, Nathaniel Feather, Ray Yousefian
Speaker Change: What the enrollment or utilization trends.
Jack: Should look like.
Speaker Change: Over the course of the year. Thank you.
Sima Sistani: Yes, thank you for that question. Certainly, the flip side of the popularity and efficacy of these medications is the cost. And I mean, we're the leaders in this market, and we can enable employers and insurance companies to provide coverage in cost-effective ways that really generate ROI and proven health outcomes. And the key to that is you can't generate that ROI without the population actually enrolling and then engaging. And that requires a strong brand and a proven program. Nobody comes close to us on that front.
Speaker Change: Yes. Thank you for that question certainly the flip side of the popularity and efficacy of these medications is the cost and I mean, we're the leaders in this market and we can enable employers and insurance companies to provide coverage and cost effective ways that.
Speaker Change: We generate a ROI in and proven health outcomes.
Sima Sistani: And the key to that is you can't generate that ROI without the population actually enrolling and then engaging. And that requires a strong brand, a proven program; nobody comes close to us on that front. And we are pleased with our sales momentum. We've seen large players obviously have longer sales cycles, but they're enthusiastic. We closed five deals last quarter. We already have four lined up for this quarter. Look forward to hopefully announcing some of those soon. And all these deals represent 10,000 plus lies in these larger player categories, but no deal on its own is going to be material to our bottom line in year. But we are really pleased with the activity that we are seeing now, even though there is this overall trend of contraction.
Jack: And the key to that is you can't generate that ROI without the population actually enrolling and then engaging and that requires a strong brand a proven program nobody comes close to us on that front and we are pleased with our sales momentum where we.
Sima Sistani: And we are pleased with our sales momentum. We've seen large players obviously have a longer sales cycle, but they're enthusiastic. We closed five deals last quarter, and we already have four lined up for this quarter. I look forward to hopefully announcing some of those soon. You know, all these deals represent ten thousand plus lives in these larger player categories, but no deal on its own is going to be material to our bottom line this year. But we are really pleased with the activity that we are seeing now; even though there is this overall trend of contraction, employers seem to be picking up where the insurance or insurers are contracting.
Sima Sistani: Employers seem to be picking up where the insurance or insurers are contracting. And I just add on to that to the sizing question. We are enthusiastic, obviously, about the B2B expansion and opportunity. And for a reference point this year we're expecting about 30 million dollars of revenue from the business, but I would just repeat what FEMA said: singular contracts aren't necessarily material for the total business, but it is encouraging to see traction in the sales motion. And as well on conversion, we're seeing in our most recently signed contracts that we shared in a prepared remarks.
Unknown Attendee: Can I just add to that? Regarding the sizing question, we are enthusiastic, obviously, about the B2B expansion and opportunity. And as a reference point, this year, we're expecting about $30 million in revenue from the business. But I would just repeat what Sima said; singular contracts aren't necessarily material for the total business, but it is encouraging to see traction in the sales motion and as well as the conversion we're seeing in our most recently signed contracts that we shared in the prepared remarks.
Jack Wallace: Appreciate it. Thanks again.
Michael Lasser: And our next question comes from Michael Lasser from UBS. Please go ahead, Michael. Good morning.
Operator: And our next question comes from Michael Lasser from UBS. Please go ahead, Michael.
Henry Michael Carr: Good morning. This is Henry Carr on behalf of Michael Lasser.
Henry Carr: This is Henry Carr on for Michael Lasser. Thanks a lot for taking our questions this morning. So I wanted to ask about the guided end of period subscribers of at least 3.1. Last year in 2023, Weight Watchers made a lot of progress on kind of stopping that subscriber decline from one queue to the end of the year. This new guidance kind of implies that we're right back to that historical pattern of a subscriber leakage. So I guess is the promotional strategy that's signing up that's helping aid and drive subscriber growth. Is that still being successful, or are you seeing a lot of subscribers and their subscription after that promotional period ends?
Henry Michael Carr: Thanks a lot for taking our questions this morning. So I wanted to ask about the guided end-of-period subscribers of at least 3.1. Last year in 2023, Weight Watchers made a lot of progress on kind of stopping that subscriber decline from one queue to the end of the year. This new guidance kind of implies that we're right back to that historical pattern of subscriber leakage. So I guess it's the promotional strategy that's signing up, that's helping aid and drive subscriber growth. Is that still being successful, or are you seeing a lot of subscribers cancel their subscription after that promotional period ends? Thanks.
Jack: Two guidance kind of implies that we're right back to that historical pattern.
Speaker Change: Our subscriber leakage. So I guess is the promotional strategy that signing up.
Speaker Change: Helping aid and drive subscriber growth is that still being successful or are you seeing a lot of subscribers and their subscription after the promotional period ends.
Sima Sistani: Thanks. Yeah, thanks for the question, Henry, and yeah, to the question of the long-term commitment plans and their efficacy. We're seeing these still working as expected. We're seeing continued lengthening average commitment, and, you know, for instance, our digital average commitment length has increased to 8.9 months. In Q2 24, up from 7.6 months this time last year. And we're going to continue to leverage LTCs to optimize for LTV pack and ultimately maximize our revenue and end of period subscribers. I'll say we're always open and continue to keep always continue to test to find the offer structure that both attract and retain the most customers over time.
Unknown Attendee: Yeah, thanks for the question, Henry. And yes, to the question of the long-term commitment plans and their efficacy, we're seeing these still working as expected. We're seeing a continued lengthening of the average commitment. And, you know, for instance, our digital average commitment length increased to 8.9 months in Q2-24, up from 7.6 months this time last year. And we're going to continue to leverage LTCs to optimize for LTV CAC and ultimately maximize our revenue and end-of-period subscribers. You know, I'll say we're always open and will always continue to test to find the offer structure that both attracts and retains the most customers over time. Yeah, and I'll just add to that.
Jack: Yeah. Thanks for the question Henry and yes to the question.
Jack: The long term commitment plans and.
Jack: And their efficacy.
Speaker Change: We're seeing these still working as expected.
Sima Sistani: Yeah, and I'll just ask that we are seeing that our retention is up a percent quarter of a quarter, and these basis point moves they compound, and activation is rate is up 5% year over year. It's really tempting to spend into growth. But we want to spend where it's most effective, when it is most effective. We're making decisions in real time in order to maximize, as Heather said, our LTV pack. Thank you so much, and just as a follow-up, I think on earlier in the call, you said about 10% of lapsed members for clinical, instead of just, you know, any of them are some sort of behavioral program. I just want to ask that a little bit further, and see what's happening here.
Sima Sistani: Henry, you cut out there for a minute.
Sima Sistani: Can you repeat the, I heard you were asking about, I think the one membership strategy, could you just repeat that again? Yeah, I think earlier on the call, you stated the a metric of 10% of subscribers are shifting from clinical to behavioral programs. Could you just explain that metric a little bit better or unpack for me? Is that clinical members, you know, shifting from that clinical subscription to a base behavioral change program? One, to understand that better, thanks. That's exactly what you said. Essentially, the one membership strategy is such that we want to be able to grow and or de-escalate an intensity based on what the consumer needs.
Speaker Change: Youre asking about I think the one membership strategy because you could you just repeat that again.
Unknown Attendee: Yeah, I think earlier in the call.
Speaker Change: Yeah, I think earlier in the call.
Speaker Change: You stated that.
Speaker Change: A metric of 10% of subscribers are shifting from clinical to behavioral programs.
Speaker Change: Could you just explain that metric a little bit better or on packets from Asia is that.
Speaker Change: Is that clinical members.
Speaker Change: Shifting from that clinical subscription to a base.
Speaker Change: Behavioral change program.
Speaker Change: Wanted to understand that better.
Unknown Attendee: That's exactly what you said. Essentially, the one membership strategy is such that we want to be able to grow and or deescalate an intensity based on what the consumer needs. So, we are seeing behavioral members decide that, you know, whether they've hit a plateau, that they are interested in meeting with a clinician and seeing if medication support is right for them. Right for them, and then there are those who once they've been on the plan, you know, we're seeing that sixty eight percent of consumers do want and intend to come off their medications like working with the medical professional.
Sima Sistani: So we are seeing behavioral members decide that, you know, whether they've hit a plateau, that they are interested in meeting with a clinician and seeing if medication support is right for them. And then there are those who, once they've been on the plan, you know, we're seeing that 68% of consumers do want and intend to come off medications like and working with the medical professional. They, they we partner with them to help them find the best way to maintain their weight loss. And so part of that is helping them move to the behavioral program, which maintains their lifestyle intervention.
Unknown Attendee: They, they, we partner with them to help them find the best way to maintain their weight loss. And so part of that is helping them move to a behavioral program, which maintains their lifestyle intervention. And I think this is, this is the best.
Sima Sistani: And I think this is this is the path forward. Weight health is complicated. Every journey is unique, and we need to be able to move up and down with a person's unique needs, whether that is somebody who is living with diabetes and needs to wear a CGM so that they can track their A1C, or whether that is somebody who is on a lifestyle intervention on a four behavioral program, but decides that they want to register dietitians visit to better understand their nutrition and nutrient density. Or obviously, if it's somebody who needs to see a doctor, and we help them with the medication as well as the insurance support, it is appropriate.
Speaker Change: A doctor and we help them with the medication.
Speaker Change: Hum as well as the insurance support if appropriate.
Sima Sistani: So and they're going to move, they're going to move up and down that spectrum. And we are unique in our ability to provide a care model that provides that kind of service. Okay great, thanks so much.
Speaker Change: So and they're gonna move, they're going to move up and down that spectrum and we are unique in our ability to provide a care model that provides that kind of service.
Speaker Change: Okay, great. Thanks, so much.
Nathan Feather: Thank you. And our next question comes from Nathan Feather from Morgan Stanley. Please go ahead. Nathan. Hey everyone, thanks for taking the question.
Speaker Change: Thank you.
Operator: And our next question comes from Nathan Feather from Morgan Stanley. Please go ahead, Nathan.
Speaker Change: And our next question comes from Nathan Feather from Morgan Stanley. Please go ahead Nathan.
Nathaniel Jay Feather: Hey everyone, thanks for taking the question. Just a quick one. How do you return the clinic business to sequential growth, you know, in the back half of the year in 25 if the market remains highly competitive and rates stay elevated? Thank you.
Nathan Feather: Hey, everyone. Thanks for taking the question just a quick one how do you return the clinic business to sequential growth in the back half of the or in 25, if the market remains highly competitive and at rates that are elevated thank you.
Sima Sistani: Just a quick one, how do you return the clinic business to sequential growth, you know, in the back half of the year, in 25, if the market remains highly competitive and accurate today, elevated? Thank you. So, thanks for the question, Nathan, and we are working on that, and we're working on that within the context of our Weight Watchers as one platform strategy. And, you know, we're in an environment where, you know, CAC has been challenging, competition is challenging. We're seeing the GLP1 impact on our space is pretty dramatic. And we've, you know, we've put forward a prudent plan, and we are expecting to continue to work through that.
Sima Sistani: We're not pulling back on spend. We will be aiming to continue to lean in where it is appropriate and efficient from a marketing perspective. And I would call out, we're also doing things that we see expand NPS and attentive behaviors, and ultimately our poo by adding things like registered dietitian visits.
Sima Sistani: The early indicators of the pilot we put out are promising, and, you know, we look forward to sharing more in the next quarter as we continue to grow this. Yeah, and I just want to add that our strategy here is to tell a story in a compelling way, which is going to break through this noise, where, you know, it, as we said, it's a complicated landscape, but that's also impacting consumers who are looking for solutions, who are looking for trusted solutions. We hope our latest campaign fits you is going to drive more CAC efficiency, and it's going to do a better job of telling the story of our entire suite of products.
Sima Sistani: Yeah, and I just want to add that our strategy here is to tell a story in a compelling way, which is going to break through this noise where, you know, as we said, it's a complicated landscape, but that's also impacting consumers who are looking for solutions, who are looking for trusted solutions. We hope our latest campaign, Fits You, is going to drive more CAC efficiency, and it's going to do a better job of telling the story of our entire suite of products.
Sima Sistani: We took a really conservative approach to modeling our CAC outlook, given the cost of media. But both from new entrants, but also from the one-off driving cost-ups of such as the election. But that's all reflected in our guidance. We are really excited to see this campaign and our one membership strategy come to life.
Sima Sistani: We took a really conservative approach to modeling our CAC outlook given the cost of media, both from new entrants but also from the one-off driving costs up, such as the election. But that's all reflected in our guidance. We are really excited to see this campaign and our one membership strategy come to life.
Nathan Feather: Okay, great. That's helpful. And then any way to frame how much of the 100 million annualized cost savings is variable versus fixed. And how should we think about those in terms of, you know, expense line buckets of savings? Thank you.
Nathaniel Jay Feather: Okay, great. That's helpful. And then any way to frame how much of the $100 million annualized cost savings is variable versus fixed? And how should we think about those in terms of, you know, expense line buckets of savings?
Unknown Attendee: Thank you. Thanks, Nathan.
Nathan Feather: Thanks, Nathan. So, as we shared in the prepared remarks, we are expecting this cost action to deliver about a hundred million dollars of total savings. Twenty million dollars of that should read through into 2024, and an incremental 80 million into 2025.
Unknown Attendee: Thanks, Nathan. As we shared in the prepared remarks, we are expecting this cost action to deliver about $100 million in total savings. $20 million of that should read through into 2024 and an incremental $80 million into 2025. We haven't been guided to the specific P&L items, but I would say it's largely fixed and largely impacting DNA. You should expect that. And it's, you know, impactfully improving our ability to sustain our way into the future.
Speaker Change: Poor and an incremental $80 million into 2025, we haven't guided to the specific P&L items, I would say its largely fixed and largely impacting them.
Nathan Feather: We haven't guided to the specific P&L items. I would say it's largely fixed and largely impacting a GNA.
Speaker Change: G&A, you should expect that and yeah, it's it's impactful <unk> improving our ability to sustain.
Alex Fuhrman: You should. And our next question comes from Alex Fuhrman from Craig Hallem. Please go ahead, Alex. Hey guys, thanks for taking my question. It seems like consumers are really demanding more affordable access to medically supported weight loss, and just wondering, seem of what your plan is in the future to kind of offer that to customers. I know in the past you've talked about Weight Watchers being certainly against compounded medications. I don't know if there's any scenario, maybe in the future.
Speaker Change: Sustained our way into the future.
Operator: And our next question comes from Alex Fuhrman on behalf of Craig Hallam. Please go ahead, Alex.
Nathan Feather: And our next question comes from Alex Fuhrman from Craig Hallum. Please go ahead Alex.
Alex Joseph Fuhrman: Hey guys, thanks for taking my question. You know, it seems like consumers are really demanding more affordable access to medically supported weight loss. And just, you know, wondering, Sima, what your plan is in the future to kind of offer that to customers? I know in the past you've talked about Weight Watchers being certainly against compounded medications. I don't know if there's any scenario, maybe in the future, if there's more efficacy data that would cause you to rethink that or, you know, maybe opportunities to offer generic versions of older GLP-1. Because it sounds like insurance coverage is getting worse, not better. We'd love to just hear, you know, what your strategy is to tap into that demand for more affordable medical weight loss.
Alex Fuhrman: Hey, guys. Thanks for taking my question.
Alex Fuhrman: Like consumers are really demanding more affordable access to medically supported weight loss and just wondering what your plan is in the future to kind of offer that to customers I know in the past you've talked.
Sima Sistani: If there's more efficacy data that would cause you to rethink that, or maybe opportunities to offer generic versions of older GLP1, because it sounds like insurance coverage is getting worse, not better, would love to just hear what your strategy is to tap into that demand for more affordable medical weight loss. Thanks for your question, Alex. Members come to us because they trust us, and we're only going to consider medication options that are safe, effective, high quality. So FDA-approved medications are our preferred path. That being said, with shortages expected to persist for some time and coverage being in limbo, we are investigating alternative paths to best serve our members, which is about improving their access to health equity.
Sima Sistani: Thanks for your question, Alex. Look, members come to us because they trust us. And we're only going to consider medication options that are safe, effective, and high quality. So FDA-approved medications are our preferred path. That being said, with shortages expected to persist for some time and coverage being in limbo, we are investigating alternative paths to best serve our members, which is about improving their access to care and health equity. It's about helping to bring safe solutions to a broader population.
Sima Sistani: It's about helping to bring safe solutions to a broader population.
Sima Sistani: Okay, that's really helpful. Thank you, FEMA.
Alex Joseph Fuhrman: Okay, that's that's really helpful. Thank you.
Stephanie Davis: Thank you. And our next question comes from Stephanie Davis from Barclays. Please go ahead, Stephanie. Hey folks, thank you for taking my question. I have, I guess, two on the B2B channel. So first, when we look at your B2B channel, is that all direct sales, or have you established broader partnerships and benefits broker channel? And how are you thinking about that? Got a count manager role in direct sales given the 40% reductions in your BPN above roles? Thank you, Stephanie. Yeah, I mean, it's both. We announced some of our broker relationships like Personify Health and CVS.
Speaker Change: And above all.
Nathan Feather: Okay.
Unknown Attendee: Thank you, Stephanie. Yeah, I mean, it's both.
Speaker Change: Thank you Stephanie Yeah, I mean, it's both we announced some of our broker relationships like personify health and Cvs, but but we also have a direct sales motion and I think we're really well positioned and well equipped our thanks to our leading brand in <unk>.
Sima Sistani: But we also have a direct sales motion, and I think we're really well positioned and well equipped. Thanks to our leading brand in 60 years of science-backed evidence, a full suite of integrated services. You know, 3.9 times ROI to employers, which was validated by a third-party actuarial firm. We, you know, we're really well positioned here, and the number of RFPs just in, I would say, in this last quarter, or at least in the first half of the year, submitted was the same amount of RFPs we did for the entire full year previously. So the foundation of our 33 years and over 500 existing clients just makes it such that we can have a leaner, smarter sales motion.
Unknown Attendee: We announced some of our broker relationships like Personify Health and CVS. But we also have a direct sales force. And I think we're really well positioned and well equipped, thanks to our leading brand and 60 years of science-backed evidence, a full suite of integrated services. You know, 3.9 times ROI to employers, which was validated by a third party actuarial firm. We, you know, we're really well positioned here. And the number of RFPs just in, I would say, this last quarter or at least in the first half of the year that we submitted was the same number of RFPs we did for the entire full year.
Nathan Feather: Years of science backed evidence a full suite of integrated services.
Nathan Feather: You know three nine times ROI to employers, which was validated by third party actuarial firm we.
Nathan Feather: So where we're really well positioned here and the number of Rfps are just in a I would say in this last quarter or at least in the first half of the year submitted was the same amount of Rfps, we did for the entire full year.
Unknown Attendee: Previously, so the foundation of our 33 years and over 500 existing clients just makes it such that we can have a leaner, smarter sales force. And we do continue to expect to invest in this area. In fact, we will be adding some sales leadership talent here as well.
Sima Sistani: And we do continue to expect to invest in this area. In fact, we will be adding some sales leadership talent here as well.
Stephanie Davis: I would love to hear about the talent, but I also have a question just in the go-to-market motions, and that's becoming a bigger part of the strategy. I am hearing given vendor fatigue for the digital health solutions that some large employers are putting in more stringent, financial, and compliance reviews. I get that early on, you've just announced the turnaround, but how are you thinking about the impact of the restructuring as you're kind of going to market with these employers, given some of the more stringent requirements? Well, I, the stringent requirements around, can you be more specific, Stephanie? Are you talking about like features, or are you talking about just the market contraction in general?
Unknown Attendee: I would love to hear about the talent, but I also have a question just about the go-to-market motion since that's becoming a bigger part of your strategy. I hear that given vendor fatigue for the digital health solutions, some large employers are putting in more stringent financial and compliance reviews. I understand that early on, you've just announced the turnaround. But how are you thinking about the impact of the restructuring as you're kind of going to market with these employers given some of the more stringent requirements?
Unknown Attendee: Well, I the stringent requirements around, can you be more specific? Stephanie? Are you talking about features, or are you? Or are you talking about just the market contraction in general?
Unknown Attendee: So, for example, at a large employer like Barclays or J.P. Morgan, you're going to have a pretty thorough financial review and compliance review, and oftentimes, they'll look at things like leverage or, you know, sustainability of the vendor. Okay.
Sima Sistani: So, for example, a large employer, like a Barclays or a JP Morgan, you're going to have a pretty thorough financial review and compliance review. And oftentimes they'll look at things like leverage or sustainability of the vendor. Oh, okay, got it. Yes, so far. I mean, we haven't seen that come up with anything. The fact that we are a public company with a track record has really benefited us. A lot of the other vendors we see in this marketplace are have much less sophistication and infrastructure than we do.
Unknown Attendee: Okay, got it. Yes, so far. I mean, we haven't seen that come up. If anything, the fact that we're a public company With a track record is has has really benefited us a lot of the other vendors we see in this marketplace are Have have much less sophistication and infrastructure than than we do and I Also think just with regards to the market in general Because I did want to talk about that for a minute that We're seeing some overall contraction and RFPs switching over from full access, full spectrum care, but they're moving to court.
Sima Sistani: And I also think just with regards to the market in general, because I did want to talk about that for a minute, that we have we're seeing some overall contraction and RFPs switching over from full access, full spectrum care, but they're moving to court. There's still an appetite more than ever now for wait house solutions, and it has become apparent that even if the payers aren't willing to cover full spectrum care, the GLP ones that they will be, they will and are interested and have more appetite to providing our core program as a covered benefit.
Speaker Change: And Oh.
Nathan Feather: I also think we're just with regards to the the market in general cause I did want to talk about that for a minute that.
Nathan Feather: That we were seeing some overall couldn't contraction in rfps switching over from full access full spectrum cared, but they're moving to court there still an appetite.
Unknown Attendee: There's still an appetite, more than ever now, for weight health solutions. And it has become apparent that even if the payers aren't willing to cover the full spectrum of care, the GLP-1s, that they will and are interested in and have more appetite for providing our core program as a covered benefit. I mean, ultimately.
Nathan Feather: More than ever now for weight health solutions and it has become apparent.
Nathan Feather: A parent that even if the payers aren't willing to cover a full spectrum cure the G. L. P ones that they will be they will and are interested and have more appetite to providing our core program as a covered benefit I mean ultimately.
Sima Sistani: But I mean, ultimately, GLP ones, this is going to be inevitable. Just this morning, new evidence from Lilly trial showing trying to set the time to reduce the risk of heart failure outcomes by 38%. We're going in this direction. It's a slow burn, but the medications are providing tangible health benefit, treating obesity, multiple comorbidities, and we are best set up with the right infrastructure across account management, support, compliance to help these businesses. Thank you.
Unknown Attendee: GLP-1, account management support compliance to help these
Nathan Feather: G L P ones.
Nathan Feather: This is gonna be inevitable just this morning, new evidence from Lilly trial, showing trends appetite to reduce the risk of heart failure outcomes by 38%.
Karru Martinson: And our next question comes from Karu Martinson from Jeffries. Please go ahead, Karu. Good morning. I'm trying to understand the year-end subcount here. I'm trying to square what you're saying. You don't want to spend into growth that it's tempting, but at the same time, saying you're not pulling back on spend or it's efficient. So trying to understand what's driving the reduction. Is it just that we have a different view on clinical? Is it that we feel there will be pressure in our core? What's driving that revision?
Operator: And our next question comes from Carru Martinson from Jeffries. Please go ahead, Carru.
Karru Martinson: Good morning. I'm just trying to understand the year-end sub count here. Trying to square what you're saying, you know, you don't want to spend on growth that it's tempting, but at the same time, saying you're not pulling back on spend where it's sufficient. So trying to understand what's driving the reduction? Is it just that we have a different view of clinical trials? Is it that we, you know, feel there will be pressure at our core? You know, what's driving that reduction?
Karru Martinson: Thanks for the question, Karru. So, look, we experienced a dramatic rise of competition, largely driven by compounding in our space. It's a rapidly evolving space, and we are positioned to win in it. The moment drove an increase in cost to acquire, with the crowding in the space, and look as we looked forward and wanted to project guidance for the balance of the year. We factor that these new realities might worsen through the back half of the year. We've built that into our forward assumptions, and we've been prudent in planning for them. So, you know, there is an assumption that this continues and, you know, that CACs continue to rise, GLP1 competition continues and, you know, importantly, we have a cost action that's been designed to preserve our adjusted operating income as we build for the future.
Unknown Attendee: Thanks for the question, Karru. So, look, we experienced a dramatic rise in competition, largely driven by compounding in our space. It's a rapidly evolving space, and we are positioned to win in it. [inaudible] The moment drove an increase in cost to acquire due to the crowding in the space.
Unknown Attendee: And look, as we looked forward and wanted to project guidance for the balance of the year, we factored that these new realities might worsen through the back half of the year. We've built that into our forward assumptions, and we've been prudent in planning for them. So, you know, there is an assumption that this continues and, you know, that taxes continue to rise. GLP one competition continues.
Unknown Attendee: And, you know, importantly, we have a cost action that's been designed to preserve our adjusted operating income as we build for the future. And, you know, I do recognize that we are short of our prior guidance. I want to ensure that we have provided you with an outlook that we're confident is achievable. We're operating in a dynamic and difficult to predict environment, and we are controlling what we can. We're focused on achieving our profitability targets and our costs, although as appropriate to do so.
Sima Sistani: And, you know, I do recognize that we are short of our prior guidance. I want to ensure that we have provided you with an outlook that we're confident is achievable. We're operating in a dynamic and difficult to predict environment, and we are controlling what we can. We're focused on achieving our profitability target and our costs as appropriate to do so. I just want to add that when we talk about prudent LTVCAC, this is really an outcome of this dynamic market and us optimizing for unit economics that are still attractive. So definitely less attractive than we have thought at the beginning of the year.
Unknown Attendee: I just want to add that when we talk about Prudent LTVCAC, this is really the outcome of this dynamic market and us.
Sima Sistani: But with our new campaign, we are, you know, looking forward to seeing better CAC efficiency as well as continue to pull into this one membership strategy, which we noted is, you know, our ability to move a core member who we can, you know, acquire at an attractive LTVCAC and that 30% rate that we are seeing them move over to clinic.
Karru Martinson: And so that's a winning strategy for the long-term health of the business. All right, just with the compounding front, you mentioned the shorters are expected to continue. Kind of what's the timetable there, and then as you investigate alternatives for yourself, you know, what's the timetable that could potentially bear as well?
Karru Martinson: All right, just on the compounding front, you mentioned the shortages are expected to continue. Kind of what's the timetable there, and then as you investigate alternatives for yourself, what's the timetable that could potentially be there as well?
Sima Sistani: Yeah, I appreciate the question, but I really have anything further to share at this time on that topic.
Unknown Attendee: Yeah, I appreciate the question, Karru, but I don't really have anything further to share at this time on that topic.
Unknown Attendee: All right, and then lastly, you mentioned capital structure. Given where it is today, you know, how are you guys approaching that?
Sima Sistani: All right, and then just lastly, you mentioned capital structure. Given where it is today, you know, how are you guys approaching that? So we are committed to improving our leverage as we execute this turnaround and, you know, we're focused on growing EBITAS. I will remind you, we have very attractive long-term data agreements with no maturities until 2028 and 2029. And we continue to be comfortable operating with our current cash on hand, and we do have access of 61.25 million of revolver for additional cushion. And, you know, we'll continue to opportunistically evaluate options to reduce our leverage ratio on terms we believe are strategically beneficial.
Unknown Attendee: So we are committed to improving our leverage as we execute this turnaround, and, you know, we're focused on growing EBITDA. I will remind you, we have very attractive long-term debt agreements with no maturities until 2028 and 2029, and we continue to be comfortable operating with our current cash on hand, and we do have access to 61.25 million of revolver for additional cushion. And, you know, we'll continue to opportunistically evaluate options to reduce our leverage ratio on terms we believe are strategically beneficial.
Speaker Change: EBITDA I will remind you we have very attractive long term debt agreements with no maturities until 2028 and 2029.
Speaker Change: And we continue to be comfortable operating with our current cash on hand, and we do have access of 61 point to $5 million of revolver for.
Speaker Change: For additional cushion and and you know, we'll we'll continue to opportunistically evaluate options to reduce our leverage ratio on terms, we believe are strategically beneficial.
Karru Martinson: Thank you very much; I appreciate it.
Sima Sistani: Thank you very much.
Speaker Change: Thank you very much appreciate it.
Sima Sistani: Appreciate it.
Corey Kinger: And this time there are no further questions.
Operator: And at this time, there are no further questions. I would like to turn the call back over to Sima Sistani for closing remarks.
FEMA study: At this time there are no further questions I would like to turn the call back over to FEMA study for closing remarks.
Sima Sistani: I would like to turn the call back over to Sima Sistani for closing remarks. Thank you all for the question. Weight Watchers has a bold transformation strategy to expand access, expand care, and expand payment options. Our operational changes will motivate and strengthen our execution against project expansion.
Sima Sistani: Thank you all for the questions. Weight Watchers has a bold transformation strategy to expand access, expand care, and expand payment options. Our operational changes will motivate and strengthen our execution against project expansion.
FEMA study: Thank you all for the questions weight Watchers has a bold transformation strategy to expand access and care and expand payment options or operational changes will motivate and strengthen our execution against project expansion at.
Sima Sistani: It's difficult to part with many talented colleagues. These are employees who have made important contributions to Weight Watchers helping to make us a great company. I thank each and every one of them for their service and wish them all the best in their future.
Speaker Change: It's difficult to part with many talented colleagues. These our employees who have made important contributions to weight watchers helped.
Speaker Change: Helping to make us a great company.
Speaker Change: I, thank each and every one of them for their service and wish them all the best in their future.
Sima Sistani: Thank you for joining us today. I look forward to updating you on our progress.
Corey Kinger: This concludes today's conference call. Thank you for attending. You may now disconnect.
Operator: This concludes today's conference call. Thank you for attending. The host has ended this call. Goodbye.