Q3 2024 WW International Inc Earnings Call

The

Speaker Change: Today and welcome to the WWE International, third quarter, 2024, 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 Z-Row.

After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star then two.

Please note that the event is being recorded.

Speaker Change: I would now like to hand the call over to David Holderman, Director of Investor Relations. Please go ahead.

David Holderman: Thank you everyone for joining us today for WWE International's third quarter 2020 for a conference call. This morning we issued a press release reporting our third quarter 2024 results.

David Holderman: 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, both at corporate.ww.com.

David Holderman: Supplemental Investor Materials are also available on the company's corporate website under Events and Presentations.

David Holderman: Reconciliation of non-get measures discussed on this conference call today to the most directly comparable gas financial measures are also available as part of this press release.

David Holderman: Before we begin, let me remind everyone that this call will contain forward-looking statements.

David Holderman: 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.

David Holderman: These risk factors are explained in detail in the most recently filed annual report on Form 10K, as updated by the company's other filings with the Securities and Exchange Commission.

David Holderman: Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainty of such statements.

David Holderman: Also, we're 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.

David Holderman: Joining today's call, Artara Comant, Interim President and Chief Executive Officer, Heather Stark, Chief Financial Officer, and Donna Boyer, Chief Product Officer. I will now turn the call over at the Torah.

Artara Comant: Thanks, David. Thank you all for joining us this morning. For those of you who don't know me, I've been a member of the Weight Watch Award since mid-2023. The National Serving is Interim President and CEO, following Sima Sistani's departure last month.

David Holderman: I'm confident I speak for the entire board when I say how great we are to Sima from a leadership navigating the business through these times of significant change in our industry. While also laying a strong foundation for our future.

David Holderman: I'm extremely pleased to have you part of this management team as we take on the task of building on that foundation and creating the plans to revert this business back to sustainable growth.

David Holderman: While our results in the third quarter were brought down track with expectations that's clear, we have significant work ahead to change the trajectory of the business.

David Holderman: This isn't industry undergoing massive transition, and as a result, Wake Watchers has experienced meaningful disruption over recent years.

David Holderman: However, I'm optimistic about our ability to lay a path to future growth.

David Holderman: From the value of our full and expanding spectrum of solutions to the strengths of our brand and our important role in the evolving global healthcare landscape. We have the fundamentals of what we need to be successful.

David Holderman: We know that the future of weight management is one where clinical options are paired with behavioral solutions, not either all, and that weight watches is uniquely positioned to provide this to consumers at scale.

David Holderman: This is a defining time for our field and our company. We need to ruthlessly assess some six parts of our business not currently performing the levels required.

David Holderman: The team has committed to moving fast to make change, yet we know the scale of the task at hand will take time. However, let's remind ourselves that we watch a success when navigate of disruption and transformation many times in our 61 years, emerging each time with greatest trans-separatives purpose.

David Holderman: We are confident, confident in the importance and relevance of our mission to empower people to live healthier, longer lives, through our trusted leadership position and our many advantages it gives us the right to win.

David Holderman: As we look ahead to the future of this business I see many areas of unquestionable strength.

David Holderman: Firstly and perhaps most importantly, we have a portfolio advantage. While many newer entrance to our base, focus on just one part of our solutions that, we have built with intentional breath, not only that.

David Holderman: Our full spectrum weight management platform is uniquely positioned to meet members' needs wherever they are on their weight journey.

David Holderman: and the leadership of Chief Product Officer Donna Boyer, who's with us on the call today, who are actively focused on making it much easier for our members to more fluidly move in and out of and across the various components of our program.

David Holderman: We believe in building solutions for healthy life tailored to a member's individual needs, not isolated products for specific moments in time.

David Holderman: This is perhaps a biggest opportunity and the area in which we have the most immediate and sizable work to do.

David Holderman: Secondly, we have a scientific advantage. We've spent decades investing in research and development to bring our members programs that work.

David Holderman: with over 175 published papers of clinical research and more on-the-waist specific to our GLP1 program, we time the time again prove the efficacy of our solutions.

David Holderman: As for one example, we know our behavioral program is three and a half times more effective for our members than trying to lose weight only with standard nutritional guidance.

David Holderman: We also know that our weight-watchers clinic members taking weight loss medications, paired with our nutritional points program, lose 11% more than those using medications alone.

David Holderman: Adams is that 81% of weight-watchers-friendly members agree that compared to primary care, we provide better on-going care and support.

David Holderman: There are so many more proof points and they matter more and more in a world of increasing volumes of fourth claims and misinformation.

David Holderman: Thirdly, our community is a distinct advantage and a highly motivated one, which seems 16 million plus members of our history supported by thousands of our incredibly dedicated coaches, clinicians, care team and field staff.

David Holderman: We can remember her access to a dynamic online community draw-out which sees high levels of engagement as well as a person and virtual community through our workshops.

David Holderman: Roughly 20% of our members at any time run up for a gram with a friend, and those referred by a friend have both a 20% higher retention rate and lose approximately 45% more weight by week 12 compared to other members on the program.

Speaker Change: Talk about the benefit of community.

Speaker Change: In addition, with a fast community of prior members, a significant portion of whom return to weightwatches at various stages of their weight management journeys, and who represent a meaningful opportunity.

Speaker Change: This is particularly evidence and weightwatchers clinic for over 60% of sign-ups years to date have come from existing and private watches members.

David Holderman: Our entire business was formed on the basis of people coming together to help and support one another. And we continue to have a workshop business that while evolving for a digital world remains an important part of our competitive offering. Don't ever underestimate the power of an engaged community.

David Holderman: and finally our clear advantage with our iconic trusted round.

David Holderman: We have 60-plus years of expertise in legacy and time and time again, our consumer research has shown that we remain a brand that people trust with proven programs.

David Holderman: We started some initial work to refresh our branch under the leadership of our recent Airpointed Chief Browd Officer Philip Picardy. To bring renewed energy to how we engage with both existing members and potential future customers.

David Holderman: and I'm excited for the first glimpse of this work during the first quarter and our peak season. While the visual updates will include a fresh direction and move us forward, our messaging will reflect the values that have always set us apart. Community, joy and livability.

David Holderman: We watch as continues to roughly twice the brand consideration of our nearest competitor. So we have a strong starting point from which we're excited to build upon and grow.

David Holderman: As well as refreshing our brand will be doubling down on our end-to-end marketing strategy.

David Holderman: Two often are marketing fields confused and lacking a clear call to action or a reason to engage. As we've expanded our solutions to include clinical and adapted to a rapidly evolving market, we need to refocus on clearly communicating the full value and breadth of our comprehensive offerings.

David Holderman: A common female alphocus for the coming causes is the need to untangle complexity across different areas of our business, simplifying our approach to drive improved results.

David Holderman: Depping back, we're confident we have the assets needed to thrive in today's high growth weight management space. However, this urgent and significant work ahead to bring it all together into a cohesive solution.

David Holderman: to more effectively communicate the value and impact and to meaningfully improve the experience once you in the weight watch as a persistent. We're fully committed to realizing this potential and that forward to sharing our progress along the way.

David Holderman: Moving on to our portfolio of solutions, there's been a lot of focus on our clinical business since our acquisition of sequence.

David Holderman: This is an area of the market in significant demand, with some predicting that up to 13 million people in the US may be using GLP1s by 2030.

David Holderman: As expected, a known-and-grace psychosis surgeon, Samantha's all-sexual new competitors, increasing customer acquisition costs and sliding key channels with content and information.

David Holderman: The Wadpet Adoption has also at a pace to supply, resulting in drug shortages, and prompting the introduction of compounding solutions to meet demand.

David Holderman: To address continued drug shortages, expanding both accessibility and affordability of our clinical weight management solution. We recently added compounded semiglutite to our wide, formularies of brandets and other generic medications.

David Holderman: Lack of access and affordability are the primary reasons for the churn of a clinics subscriber.

David Holderman: The combination of a slowly improving supply trend, albeit still low, with a number of improvements in our member journey helped us improve clinic member retention to 7.5 months in the third quarter from 6.5 months in the second.

David Holderman: In addition to shortages, insurance coverage remains a prohibitive factor for most.

David Holderman: Over the last six months, approximately 45% of Weight Watchers Clinic members eligible for and prescribed the GLP-1 by their clinician have been denied coverage by their insurance after three prior authorization requests.

David Holderman: In fact, over 50% of current Weight Watchers members have expressed consideration of a compounded GLP-1, largely due to these factors.

David Holderman: And that's why, after thorough research and careful evaluation, we partnered with a trusted FDA-registered 503B outsourcing facility that meets our high standards for quality in patient care.

David Holderman: We saw an immediate and positive impact on sign-ups in our clinical business following this launch, with the single highest day for clinic sign-ups in 2024.

David Holderman: Performance has continued to be positive to date, with sign-ups remaining elevated to prior months. Albeit, we do not expect compounding to have a material impact on our 2024 overall business results due to the relatively small number of new clinical subscribers in proportion to our overall business.

David Holderman: However, we're pleased to see the positive trends continue into the fourth quarter with our clinic subscribers today representing growth from the end of Q3

David Holderman: We're committed to ensuring our members have access to the solutions they need while maintaining full regulatory compliance.

David Holderman: We're optimistic that supply issues can be resolved allowing branded medications to reach even more people who need them and Weight Watchers is best positioned to meet that additional demand

David Holderman: Although competition continued to drive a significantly higher cost of acquisition compared to the same time last year, which caused us to be cautious with marketing spend in the third quarter,

David Holderman: and ongoing medication shortages have impacted this area of our business throughout the years.

David Holderman: We're confident in the meaningful growth opportunity the clinical offering represents for our business over the long term.

David Holderman: While we're expanding our clinical offering, our research shows that only about 10% of GLP-1 users intend to remain on these medications for the rest of their lives.

David Holderman: This is where the Comprehensive Weight Watchers Behavioral Program, specifically the program we tailored for those on GLP-1s, can serve both as an effective foundation while on medication, ensuring critical complementary nutritional elements, as well as a sustainable off-ramp for these members moving forward.

David Holderman: Moving to the rest of our platform, we must materially improve our digital member journey. We need to eliminate years of accumulated friction and more seamlessly integrate across the solution set. We make it too hard to be a Weight Watchers member today.

David Holderman: Our vision is to create a seamless experience that allows members to explore our full range of weight management solutions from behavioral programs to clinical support and community engagement and additional support as we add on services like registered dietitians.

David Holderman: Our priority is to integrate and modernize, so members can more easily benefit from the full suite of tools the Weight Watchers program has to offer, and the results it delivers.

David Holderman: All of this is specific to our direct-to-consumer business. Let me talk about B2B. The emergence of effective clinical solutions is having a profound impact on both employers and payers as demand for access to weight loss medication continues to explode.

David Holderman: We believe it is going to be increasingly hard for employers not to offer coverage for weight loss medication given their positive health benefits, particularly as more suppliers enter the markets over time and drive down cost.

David Holderman: This represents a clear and growing long-term opportunity for Weight Watchers with the breadth and effectiveness of our program, a unique differentiator.

David Holderman: Our B2B offering delivers a robust ROI for employers and insurers across all program options, with our clinic program achieving nearly a 4 to 1 payback.

David Holderman: We're strategically adapting our solutions to meet this evolving market, led by Scott Homkin, who recently joined us as Chief Commercial Officer.

David Holderman: Wrapping up, there's no shortage of opportunity for Weight Watchers, today and in the future, in the US and abroad.

David Holderman: To revert this business to growth, we need to double down on our strengths, and the foundation and breadth of our value proposition, which is more relevant today than ever before.

David Holderman: We need to obsess about our member experience and leverage our full toolkit, not only its component parts. We need to be bold and clear as we engage both with our existing members and potential future customers.

David Holderman: At a high level looking forward, we're focused on one, the simplification and integration of our digital experience, creating the ability to move easily in, out, and across all we have to offer, irrespective of where a member is on their journey.

David Holderman: listening to our members and truly building to the power of one Weight Watchers.

David Holderman: Two, a revitalization of our brand, clarifying and unifying our currently disparate marketing messaging, particularly in a world of elevated cac and prolific competition in the clinical space.

David Holderman: 3. Continuing to leverage our deep science-backed heritage in this new world of GLP-1

David Holderman: with our nutritional expertise and community support as crucial differentiators that support maximum results.

David Holderman: Four, partnering with employers and health plans to help them provide access in an affordable and scalable manner to the tens of millions of employees and members seeking support.

David Holderman: 5. Innovating and adding to our platform, where we see value for both members and our business for the short and longer term.

David Holderman: Much of this work will take time and as we move forward the team is taking a disciplined approach to spending and resource allocation, recognizing that some initiatives will need to be sequenced as we build for 2025 and beyond.

David Holderman: We'll move forward thoughtfully but decisively, balancing near-term performance with investments in our future growth opportunities.

David Holderman: And with that, let me turn it over to Heather to walk us through the core chart and our outlook in more detail.

Heather Stark: Thanks Tara. As Tara emphasized, despite near-term sign-up challenges, we remain confident in our strong competitive advantage, unique market position, and talented team to ultimately drive this business back to growth.

David Holderman: We remain on track to deliver the full-year guidance that was communicated last quarter. We continue to act to improve our profitability and liquidity profile, and I'm encouraged to see our cost savings efforts bearing fruit as evidenced by our strong gross margin expansion, which sequentially increased

David Holderman: and is at 625 basis points year-to-date versus last year.

David Holderman: We're on track for our $100 million cost action announced last quarter with meaningful savings in both gross margin and G&A expected in Q4 and beyond.

David Holderman: And I'm pleased to see our average revenue per user stabilize through the first three-quarters of the year with stability being driven primarily by subscriber mix and in line with expectations.

David Holderman: Turning to our third quarter 2024 results, note that all year-over-year financial comparisons are on a constant currency basis.

David Holderman: Revenue totaled $193 million. Within this, subscription revenues were $191 million, down 6% year over year, with declines in our digital and workshops subscription revenue.

David Holderman: Subscription revenues benefited from $19.1 million of clinical subscription revenues.

David Holderman: Digital and workshops revenue was primarily driven by lower signups and incoming subscribers coupled with the continued mixed shift from workshops to digital and a higher portion of digital subscribers within their initial lower price commitment periods.

David Holderman: Clinical subscribers of 78,000 at the end of the third quarter represented growth of 71% compared to prior year, driving a $9 million increase in subscription revenue.

David Holderman: Sign-up trends across the business have been challenging in this environment and significantly impacted by competition-driven increases to consumer acquisition costs.

David Holderman: Other revenue of $2 million declined $10 million year-on-year due to the discontinuation of our low-margin consumer products business at the end of 2023.

David Holderman: Adjusted gross margin was yet another record high at 69.1%, up from 66.2% in the prior year and 67.9% last quarter.

David Holderman: Expansion year-over-year was driven primarily by actions to reduce the fixed cost base within our business and the discontinuation of our lower margin consumer products business.

David Holderman: Marketing expenses of $44 million were down 8% year-over-year and almost 20% sequentially as we continue to manage to a prudent LTV CAC ratio.

David Holderman: In the third quarter, we experienced a roughly 30% year-on-year increase in cost to acquire, which resulted in a decision to pull back marketing dollars to preserve spend for the fourth quarter, aligned with the timing of program news and creative execution, while keeping full-year spend flat prior.

David Holderman: Adjusted GNA of $53 million was down 7% versus prior year. Q3-24 GNA included a nine-month or three-quarter compensation accrual as compared to a three-month or one-quarter compensation accrual in the third quarter 2023.

David Holderman: This resulted in higher GNA of 7 million in this year's third quarter. Excluding the 7 million impact, adjusted GNA would have decreased by 20%, or 11 million versus the prior year period.

David Holderman: The year-over-year reduction in adjusted GNA reflects the impact of our previously announced cost savings initiatives, and we are on track to achieve the run rate $100 million cost savings by the end of 2025.

David Holderman: We expect to realize approximately $20 million of cost savings in 2024 and the remainder in 2025, with cost savings in 2025 to be split across adjusted G&A and cost of revenue with slightly more of an impact to G&A.

David Holderman: Adjusted operating income in the third quarter was $36 million, reflecting an operating margin of 18.5%, a year-on-year increase of almost 150 basis points.

David Holderman: Adjusted EBITDA was $40 million, which was negatively impacted by approximately $6 million of other expenses recorded below operating income, primarily driven by the negative impact of foreign currency on intercompany transactions.

David Holderman: During Q3 2024, we recorded non-cash impairment charges of franchise rights acquired totaling $57 million. These impairments were primarily driven by an increase in the company's weighted average cost of capital reflecting market factors.

David Holderman: Adjusted EPS was $0.24 and included a $0.33 tax benefit from the valuation allowance mentioned in our press release.

David Holderman: You can find a detailed summary of the adjustments within our supplemental materials and in the financial detail section of our earnings press release posted on our site earlier this morning.

Speaker Change: Shifting to our outlook for the rest of the year, while the recent launch of compounded semaglutide was encouraging in terms of momentum, we are pleased to be expanding access to medication for our members. As Tara mentioned, we expect it to have minimal impact on our consolidated 2024 results.

Speaker Change: We are reiterating our previously provided guidance for end-of-period subscribers, revenue, adjusted operating income, and adjusted EBITDA.

Speaker Change: For the full year 2024, we expect.

Speaker Change: year-end total subscribers of at least 3.1 million which represents a decline from the end of 2023 and will create a material headwind to revenue in 2025.

Speaker Change: Total revenue of at least $770 million.

Speaker Change: adjusted operating income of at least $100 million and adjusted EBITDA of at least $150 million, which is consistent with previously provided guidance.

Speaker Change: But for clarity, NAW also excludes the non-cash intangible impairment charges and former CEO separation costs that occurred in Q3.

Speaker Change: Cash outlays for the 2024 restructuring plan and remaining payments for prior year actions are expected to be approximately $30 million in 2024, with approximately $5 million remaining in Q4.

Speaker Change: Full-year interest expense is expected to be between $105 and $110 million, a year-over-year increase of approximately 10 to 15 percent, largely driven by the expiration of our $500 million hedge at the start of Q2 2024.

Speaker Change: We expect modest benefit from the recent reduction in interest rates and remain within our prior guidance range.

Speaker Change: For the full year, we expect income tax expense of up to $10 million. Excluding the impact of the valuation allowance, impairments, and other discrete tax items, we continue to expect an income tax benefit of up to $10 million. We expect cash taxes net of refunds to be approximately $20 million for the year.

Speaker Change: As anticipated and communicated in prior quarters, we are pleased to see cash flow from operations improve and revert to positive in the third quarter.

Speaker Change: We continue to expect to have a modest use of cash from operations for the full year 2024.

Speaker Change: As a reminder, our business is a highly cash-generative business pre-debt servicing charges and is bolstered by our subscription billing model and the stickiness of our subscriber base.

Speaker Change: CapEx, which is primarily capitalized software, is expected to be approximately $20 million. Depreciation and amortization is expected to be around $40 million.

Speaker Change: Turning to our capital structure.

Speaker Change: We ended Q3 with approximately $57 million of cash, up from $43 million at the end of the second quarter, plus undrawn revolver access of $61 million.

Speaker Change: With our cash position plus our revolving credit facility and bolstered by the cost actions underway, we believe we have sufficient liquidity for our working capital needs, including cash outlays related to our headcount actions and servicing our debt.

Speaker Change: We have attractive debt terms with no maturities for our term loan or senior notes until 2028 and 2029. However, we acknowledge that our debt burden is significant.

Speaker Change: with our net debt to adjusted EBITDA slivered ratio at 10.4 times at the end of the third quarter.

Speaker Change: As such, we have recently appointed advisors to assist us in the evaluation of options related to our overall capital structure. We have nothing further to share on this at this time.

Speaker Change: 2024 reflects a focus on profitability as we navigate a challenging sign-up environment in a rapidly changing industry and we remain on track with our prior expectations.

Speaker Change: I have confidence we are taking the right steps that will best enable the company to revert to growth while managing liquidity and setting us up for longer term success. I'll now turn the call back to Tara.

Tara: Thanks Heather. For over six decades Weight Watchers has helped tens of millions of people transform their lives through our proven approach to weight management.

Speaker Change: As we navigate an evolving health landscape, it's crucial that we return to those core strengths that have defined Weight Watchers from the beginning.

Speaker Change: Innovation, continuous learning, a commitment to science-backed solutions, the importance of community, and livable solutions for a healthy life.

Speaker Change: I'm honored to work with our team on behalf of our current and future members in this incredible company.

Speaker Change: With that, we'll be happy to take questions.

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad.

Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question, please press star then 2.

Speaker Change: And our first question will come from Nathan Feather of Morgan Stanley. Please go ahead.

Nathan Feather: Hey, everyone. Thanks for the question. It would be helpful to get your thoughts on what has worked early in the compounding launch across, you know, conversion, retention, and the ability to market and taking that together. Are you seeing meaningful uplift in LTV to CAC there?

Speaker Change: Hey Nathan, yeah listen, as we mentioned on the call, we were extremely pleased with the launch of Compounding, which was really only a few weeks ago at this point, and I really give the team here a huge amount of credit for the extensive,

Speaker Change: work and diligence that went into that launch over many many months. And actually Donna, your team led that work so perhaps you want to comment on some of those positive trends. We also gave some of those statistics in the call but do you want to add some further color? Sure, I'm happy to.

Speaker Change: Thanks for the question. Immediately after our compounding launch, we saw a positive impact on both our signups and our TAC. Our launch day was our highest, as Tara mentioned, our single highest launch.

Speaker Change: in 2024 and we are continuing to see signups that are exceeding our end of Q3 trends. As to the success, there's multiple factors there. One is really the

Speaker Change: of compounded semaglutide in itself, resolving shortages. That has been a challenge for conversion overall. So having the availability of supply has contributed to that. In addition to that though,

Speaker Change: a combination of always looking at our pricing strategy.

Speaker Change: how members are able to access that in combination with, as Tara mentioned, some of the friction on our website and our conversion funnels have been resolved with with this launch. So say primarily the availability of the drug

Speaker Change: Being able to provide members access has been a factor in and of itself, coupled with some of the member experience changes that we've seen affecting both conversion and with that, in turn, tax.

Speaker Change: I would just add to that, thanks Donna, just an overall reminder that we don't expect this to have a material impact to the overall business due to the proportion of clinic versus behavioral subscribers at this time.

Speaker Change: Okay, great. That's all helpful. And then, Tariq, you walked through a lot of initiatives in the pipeline at various different timelines. I guess in your term, what are the, you know, maybe two or three primary priorities that you're looking to get in place ahead of peak season to hopefully drive some reacceleration and, you know, the core clinical?

Speaker Change: I missed the beginning of the question. Is that specific to our clinical business or a more general question?

Speaker Change: More general, just kind of the key priorities ahead of peak.

Speaker Change: Yeah, absolutely. Well, listen, I think, um, uh,

Speaker Change: We spoke to many of them on the phone in the prepared remarks. I think what you're hearing is a focus on awareness of the breadth and strength of our offering. And while that may seem

Speaker Change: somewhat obvious. I think we haven't done as good a job as we could have done reminding the market of all that is part of the full spectrum of whitewater solutions.

Speaker Change: we actually have a very low awareness for example around the fact that we even have a clinical solution. And so when we think about PEEC we're really going to be doubling down on those core strengths.

Speaker Change: the values of the Weight Watchers platform that have always been in place. This is livable, this is not a fad.

Speaker Change: These are solutions for life.

Speaker Change: but we're also going to be very focused on awareness.

Speaker Change: and engagement as we really hammer home that that messaging. I mentioned a brand refresh, we're not doing any major rebranding, but you know I think the brand refresh is going to be fantastic. I'm looking forward to seeing it in the first quarter. You know, a little more modern, a little more Weight Watchers.

Speaker Change: a little more human, a lot more community, a lot more joy and just sort of getting back to the roots of who we are but certainly with a focus on the breadth of all we bring to offer.

Speaker Change: Thanks for watching!

Speaker Change: Great, very helpful. Thank you.

Speaker Change: Welcome.

Speaker Change: The next question comes from Alex Furman of Craig Hallam Capital Group. Please go ahead.

Alex Furman: Hey guys, thanks for taking my question. I wanted to ask about retention on the clinical side of the business. I think you mentioned that you've seen retention improve.

Alex Furman: Now, at the peak of your Afghan medical experience is six and a half months to seven and a half months. On, can you give us a little bit of color on why your clinical members are typically churning out? Is it a matter of side effects for having reached their weight-loss goals or is it more about costs and access, and how has that been evolving over the course of the year?

Alex Furman: Thank you for watching!

Speaker Change: Yeah, hey Alex, I think we maybe said it in the script, but it's absolutely cost and access.

Speaker Change: They are the biggest contributing factors to why a clinical subscriber churns.

Speaker Change: So as we've launched compounding, but also as Donna alluded to some additional product improvements just in the member experience and those are really It's super encouraging to see those have such a tangible and immediate impact on our retention

Speaker Change: okay that's that's really helpful to hear and then is it your kind of you know

Speaker Change: hope or expectation going forward that longer term you could get clinical retention, you know, up above and beyond what you see or up to the levels that you see in the clinical program? Or, you know, is it more about, I guess, kind of keeping people on the, you know, the traditional program as well when they transition off the clinical program as a means of keeping them engaged with the brand?

Speaker Change: Go to Beadaholique.com for all of your beading supply needs!

Speaker Change: Absolutely, the latter. So look, we gave you a stat that about 10% of our GLP-1 members do not intend to remain on those meds for life.

Speaker Change: And again, when we talk about building to one Weight Watchers, we are talking about being able to meet members wherever they are on their weight journey. That may be entering the Weight Watchers ecosystem at a point where you're looking for medication solutions.

Speaker Change: But the pairing of those with our nutritional program, both while you're on medication and as you ramp off medication for the longer term, we believe is a really, really critical part of this solution here for our members and ultimately successful long-term outcomes. So, look, we're not giving any targets today on things like retention, but suffice to say that, yeah, we're very optimistic and ambitious about what this business can look like over the long term.

Speaker Change: Okay, that's really helpful. Thank you very much.

Speaker Change: The next question comes.

Speaker Change: This is from Karu Martinson of Jefferies.

Speaker Change: Please go ahead.

Karu Martinson: Good morning. When we kind of do this rebranding the building to a one-way watchers, I mean how much of the 80 million in cost-cut savings that you're looking at for 2025 will need to be kind of reinvested in the business and how much will come to the bottom line?

Speaker Change: Hey crew, you know we definitely looked at investment needed as we were designing the hundred million dollar cost action.

Speaker Change: There, you know, there is investment required as we build into next year. And, you know, we are

Speaker Change: not guiding to 2025 at this time, but we are absolutely laser focused on profitability and managing our liquidity through the turnaround. And we expect to see that full run rate, a hundred million dollar cost savings reading through by the end of 2025.

Speaker Change: And when we look at that liquidity, we feel comfortable that we can carry that liquidity, let's say, at least to the revolver maturity.

Speaker Change: We know we've shared our comfort with our cash and liquidity position and we've

Speaker Change: We've designed our cash management and cost management exercise with that in mind. I would, you know, as we look through the year, remind you that our first half of the year is heavier cash use than the back half of the year, but also remind you that we're a cash generative business and

Speaker Change: working through the $100 million cost savings to preserve liquidity through the turnaround.

Speaker Change: The only thing I would add to that is that I, speaking personally, I'm four weeks into this role. Donna, I think you're what, six months, so this is your first

Speaker Change: you know both of our first 2025 planning season at Weight Watchers um and um you know I really do give the team a lot of credit for the tough decisions they took as it relates to those cost actions but we absolutely will also be investing in the business um throughout 2025 to get this business back to growth. We see huge opportunity um in terms of really leveraging the assets we already have.

Speaker Change: So as Heather said, we're not guiding to 2025 today, and we'll be going through our strategic planning and those budget allocations over the next couple of months and updating you in Q1 next year.

Speaker Change: Okay, and just lastly, in terms of those consumer acquisition costs, I mean have you seen any change?

Speaker Change: In the overall competitive market as, you know, I think it was ZepBound and others came off of the shortage list, is that having any impact on the competitive response out there?

Speaker Change: Yeah, so, you know, expectations at the start of the fourth quarter, we're definitely seeing some seeing some early relief from the significant increases we referenced having seen last quarter. But look, CACs are still elevated. There's competition and noise in this

Speaker Change: space. It's evolving and we are managing through that and

Speaker Change: managing through that presently, you know, working to compete more effectively.

Speaker Change: where the LTVTAC makes better sense and going from there.

Speaker Change: but the you know the move to offering compounding as well, our ability to speak to one weight watchers is reading through and as I said there's there's still pressure but as I said the start of the fourth quarter some early release.

Speaker Change: Thank you very much. Oh, sorry. Yeah, I was just going to add to that as a general comment, not a sort of specific one, but as a general comment.

Speaker Change: market around us, but I do think there are things that Donna, in particular, and her team and Phil and his team and the marketing crew that we can do to make life a little easier for ourselves in that competitive environment as it relates to elevated cap.

Speaker Change: Thank you very much, appreciate it.

Speaker Change: Welcome.

Speaker Change: The next question comes from Michael Lasser of UBS. Please go ahead.

Speaker Change: Good morning, this is Henry Carlin from Michael Lasser. Thanks so much for taking our questions. I wanted to start just by asking, what gives you confidence that employers will need to offer more weight loss solutions to employees in the future? And why is Weight Watchers positioned well to be part of that solution?

Speaker Change: Yeah. Hey, Henry.

Speaker Change: Look, we were pretty early here in the overall innings in terms of how obesity meds fit within this marketplace and obviously insurance coverage remains pretty low right now, particularly given the high cost.

Speaker Change: the next single point solution and certainly that's where Weight Watchers really really plays. So we feel good about this over the long term.

Speaker Change: I just add to that too, we've seen a positive fourth quarter selling season. We do expect that to read through into 2025 with

Speaker Change: newly contracted and expanded channel partnerships and direct-to-employer relationships. But as a reminder, we're building off a small base and we do expect the pace of growth in B2B, while we're bullish on the opportunity, we do expect it to be gradual.

Speaker Change: Thank you.

Speaker Change: Thanks so much, and I just wanted to ask a little bit more about the acquisition talks.

Speaker Change: I believe they were up 30% year over year.

Speaker Change: With marketing spend being shifted into 3Q, not exactly panning out, was a lot of that due to just increased expenses related to the election, you know, and digital channels, and should this abate moving forward and into 2025? Any clarity about how that's trended and what could come would be super helpful. Thank you.

Speaker Change: Sure, you know, we're seeing this as largely competition in the space driving cost to acquire up.

Speaker Change: There's obviously media inflation going on in the space as well.

Speaker Change: across channels. I don't see this defined as one channel.

Speaker Change: I think the U.S. election potentially impacted it as well, and that threw into the start of the fourth quarter as well.

Speaker Change: but as I mentioned before, our expectations for the fourth quarter, as we referenced, we do see some early relief there, but I would say the caps are still elevated going into the fourth quarter.

Speaker Change: Great, thank you so much.

Speaker Change: Welcome.

Speaker Change: This concludes our question and answer session. I would like to turn the call over to Tara Comlin for any closing remarks.

Tara Comlin: Yes, thanks everyone. We really appreciate you joining us this morning, particularly on as busy a morning as it is here in the U.S. And look forward to following up with you over the course of the quarter and in our call next quarter. So, thanks everyone.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.

Speaker Change: Folk Music

Speaker Change: [music]