Good afternoon, and welcome to the WW International Third Quarter 2022 Conference Call. All participants will be in listen-only mode. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator instructions] Please note that this event is being recorded. I would now like to turn the conference over to Corey Kinger, Investor Relations. Please go ahead.

Thank you, everyone, for joining us today for WW International's third quarter 2022 conference call. At about 4:00 p.m. Eastern Time today, we issued a press release reporting our third quarter 2022 results. The purpose of this call is to provide investors with some further details regarding the company's financial results as well as to provide a general update on the company's progress. The press release is available on the company's corporate website located at corporate.ww.com. Supplemental investor materials are also available on the company's corporate website in the Investor section under Presentations and Events. Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are also available as part of the press release. Before we begin, let me remind everyone that this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are also explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements, and the risks and uncertainties of such statements. All forward-looking statements are made as of today and except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Joining today's call are Sima Sistani, CEO; and Amy O'Keefe, CFO. I will now turn the call over to Sima.

Thanks Corey. Good afternoon, everyone, and thank you for joining us today. We are encouraged by early indicators that our data-informed approach to product development focused our four pillars of community, accountability and coaching and yielding positive results. That being said, we are eyes wide open that our turnaround will take time. We have a substantial amount of work to do to update our product to deliver the most compelling solution, but the initiatives driven in the short time that I've been here already, are resulting in a sequential improvement in our year-over-year sign-ups trend. We have identified critical experience moments to increase member retention and are leaning in building momentum for us through the next year and beyond. Despite headwinds, I'm confident that we will continue to grow our position as the leader in our category. We have a program that works, members who love us, 60 years of efficacy in a space where new entrants come and go. We are turning that solid foundation into a best-in-class digital experience for the future. We have been consistent that 2022 would be a year of transition, shifting focus and resources back to what we do better than anyone else, waive off and away from initiatives that were not driving an impact and complicating the member experience. We have done that with urgency. We have improved trends and are focused on positioning the company for a return to growth. The need for efficacious and sustainable weight loss solutions, remain confident. Our agreement is to make Weight Watchers, a solution of choice. Relative to Q2, while still down on a year-over-year basis, we delivered an improvement in sign-up trajectory during the quarter, with sign-ups coming in modestly above our internal expectations, despite demand pressure in our category. We were pleased with the…

Thanks, Sima. Adjusted operating income was ahead of our expectations in the quarter despite revenue pressure, including FX headwinds. The actions that we have taken to address our cost base are delivering efficiencies. We -- for Q3 2022, we finished the quarter with 3.8 million subscribers, down 15% from the prior year. As we mentioned, our year-over-year sign-up trends improved sequentially in Q3. However, this was offset by a modest increase in cancellations. – average retention slipped to just under 10 months in the third quarter. Revenue of $250 million was down 15% and including approximately 420 basis points of FX headwinds, primarily due to lower subscription revenues. Adjusted gross margin of 61% was down approximately 130 basis points from prior year, primarily related to the mix of subscription revenue with 50 basis points of decline due to unfavorable FX. However, adjusted gross margin remains strong with workshop adjusted gross margin improving over 400 basis points from prior year on a constant currency basis, as a result of actions taken to optimize the studio footprint. Marketing spend in the quarter of $36 million was up just slightly year-over-year, with increased working marketing, offset by efficiencies in nonworking marketing and the benefit of FX. Adjusted G&A of $55 million was down $5 million or 9% versus prior year, reflecting savings from our restructuring actions, overall expense discipline, as well as a benefit from FX. Adjusted operating income was $62 million, down $26 million versus the year ago quarter, primarily due to revenue pressure and FX headwinds. During the quarter, we identified several factors, including business performance, market capitalization and interest rates that indicated a triggering event for impairment testing. In Q3 2022, we recorded noncash impairment charges of franchise rights acquired, totaling $313 million. The impairment charges were almost entirely driven…

Thanks, Amy. With that context, we are looking ahead to 2023 and focus on the following; improving our sign-up trends over the course of the year and returning to a year-over-year growth trajectory in the second half of 2023, improving new member activation, which would translate into gains and retention, shipping key digital product milestones, including new in-app community features in the first half of 2023 and later in the year, our integrated product feature with Abbott, exercising strong cost discipline throughout the organization and executing on a narrow list of clear priorities, which we believe are the critical drivers for returning the company to a growth trajectory. I believe that we are better when Weight Watchers was a movement. People were proud to be members. They came to us for education, but more so for support. Whenever I meet members from the Gen United era, they love to tell me that they are a Weight Watcher. Their identity is wrapped in our branch. These women make up the bulk of lifetime members and show us that meaningful, long-lasting retention is possible when we get the experience right. As we move into our 60th year, we must evolve to deliver the experience of today. The consumer has changed. Culture has changed. Technology is changing, to maintain our position as the global leader in sustainable science-backed weight management, we have to better meet consumer needs across education and tools, human led support, health indicators and insights and clinical intervention. And our growth strategy must mimic those needs. Coaching and community is part of our DNA with 80% of our members now being digital-only are at must evolve from being effected screen tool to a truly digital-first experience. From enhanced community features to device integration, there are significant opportunities for us to match our premium and studio experience with a premium digital counterpart. And for members seeking in-person community, workshops will continue to set us apart. We are working to ensure we have the right workshops, open in the right places and staffed by the right coaches, to deliver with excellence, the program that we know will drive success for our members. Weight Watchers needs to be a culturally relevant brand that delivers against today. We must break through the noise with our reasons to believe, namely science, community, livability and sustainability. Thank you for joining us today. And we're now happy to take your questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Spencer Hanus with Wolfe Research. Please go ahead.

Good afternoon. Thanks for taking my question. Can you talk a little bit about what's driving the up-tick in cancellations? And how has that been trending exiting the quarter? And do you think any changes need to be made from a pricing standpoint to improve member retention?

Hi Spencer. So the up-tick in cancellations, as we mentioned, was we saw about 50 that it was driven mostly by the six-month plan. So we relate that back to personal points and people satisfaction with that program. And we don't anticipate having to take any different actions around pricing to address that. Rather, we've focused on addressing the program itself. And as noted, our within the last three months have rolled out and tested a new version, that is based on a cohort of members on personal points that we saw outperforming. So we're excited to be again rolling that out in the next few weeks and anticipate an associated lift in activation rate with that.

Okay. That's helpful. And then, as we look to the next diet season, how are you approaching this one differently than the team has in the past? And just any additional thoughts on how you're thinking about simplifying the program going forward, whether that's membership tiers or other ways to make the program easier to use.

Sure. Sorry, there's some feedback on the line, that's making it a little bit hard to hear, but I think you asked about our diet season. So -- this is a program simplification. And which is different than our more traditional innovation years. And I think it's exciting the way we're evolving to an evergreen innovation cycle. We're taking into account our existing member base and what's working for them. And we've heard loud and clear from coaches and from our members that they are asking for a more simplified program. And so not only have we improved the UX, we have also observed, as I mentioned, a specific cohort that has outperformed and have seen more success. And by that, we mean engagement and weight loss. And so, that is something that we can speak to meaningfully as we look to in the fall with all about consideration and really showing up from a brand standpoint, and the peak season is about turning that consideration into conversion. And so we're going to have meaningful value to speak to, to our target consumer. And that's what we're really focused on moving into the peak season.

Yeah. Great. Thank you so much.

The next question is from Jason English with Goldman Sachs. Please go ahead.

Yes. Hey, folks. Good evening. Thanks for slotting me in. A couple of questions. So first, I guess, stick on the topic of the approaching diet season and the recruitment cycle. Should we expect any new news on a marketing front like spokesperson, anything like that, or is the message really going to be about kind of back to basics, keep it simple in the simplify program we're talking about?

Yes. That's right. Look, I think that in the past, we've relied on new news to drive interest, and we're seeing, at the moment, that the new news is really about simplification. That's -- again, we're listening and we've heard our members, and that's what they're asking for. And not only that, but again, we've observed that those members on this version of the program are better activated and have better success. And so, I think, that's a powerful message to our existing member base who's been asking for this change, but also to new customer cohorts and our last members who are -- who need that reason to believe. And the reasoning there around the science, the livability community, it's all there. And so, we're really excited about showing up in that way. And matching sort of our learnings from the past and what works with our new in-house performance marketing muscle and being more nimble around how and when we deliver those messages. So that's what we're looking forward to in the peak season in addition to some exciting community feature improvements that will roll out throughout Q1.

Thanks for that. And on cancellations, do you have any good intel on where the canceled consumers are going, whether it be like these new pharma solutions like Wegovy or maybe to a competitor like Noom or just out into the DIY world and getting off of the pay program. And if you do have that intel, can you share what you've learned from it?

That's an interesting question. I think that, when we look at our market and we think about it more broadly, the demand, overall, for in the wellness space is still there. You've got 70% of adult Americans who are struggling with overweight and obesity. And they're looking for opportunities to -- for support. And so, ultimately, when we think about our competitive landscape, more than anything, it's -- the competition is doing it yourself. And that really intensified over COVID, where everybody was learning how to be more industrious. I mean, gosh, my husband was fixing our washer. My brother was teaching himself how to play the guitar, and people turn to social media and to different resources to have -- find the support to try to lose weight. And so, when we see people canceling or moving off our plan, it's because we're not giving them the value -- and that's what we're focused on, and we're confident that we're doing the work in the product, in the program to ensure that we are giving outsized value for what they pay for. So that's really, I think, what's happening there is, we saw with the NPS on personal points, people were not happy with that program. And so, when the opportunity came, they rolled off of it. And I think that we have been able to diagnose that. We're addressing it. We're going to go back and speak to those members who did choose to leave our program and let them know that we've addressed the problem. And I think that there is a real big opportunity there. Again, when we're thinking about innovation in the more evergreen styles for us to continue to think about how to make the program we have better versus trying to always deliver…

Got it. Makes sense. Thank you.

[Operator Instructions] The next question is from Alex Fuhrman with Craig-Hallum Capital Group. Please go ahead.

Hi, thanks very much for taking my question. I'd like to talk a little bit more about the increase in cancellations that you're seeing. I'm curious if some of the regions you operate in that are experiencing, particularly high inflation, like Europe and the UK are seeing an outsized chunk of cancellations? And then if I could just get a little bit more color on the comment you made about people kind of rolling off the six-month membership after they signed up for personal points. Can you give us a sense of how many of your members in the brand today signed up during personal points? And how would that compare to what percentage of your membership in November in a new program year would typically be in that new program? Is it about the same? Just curious what share of your membership has that personal point membership?

Well, certainly, thank you for your question. Anybody who's signing up for Weight Watchers would have been signing up for personal point. And about 50% of our sign-ups during last peak season signed up for a six-month plan, which canceled as a higher rate than the prior year as we mentioned. So we believe this to be this uptick would be a Q3 event. And I'm really confident in our ability to address it. As I noted before, we are now -- we have a new measurement in activation rate. This is a key metric for us. It's the way that we look at new member engagement in the first 30 days. And based on specific actions that where we're making through data science, we've been able to model that as a leading indicator of success. And so when you looked at -- when we were looking at activation in January 2022 compared to 2021 levels, we had already seen at that point, a 5% drop in activation and the trend was moving in the wrong direction. Now I'll remind you that I joined about seven months ago, and I've been incredibly impressed that in a short amount of time, we have been able to turn that line around and make it smile. So that 5% drop in activation that I mentioned, we've already narrowed that gap back to 2021 levels, and that is happening through our shipping velocity around new features and the work that we're doing, and we haven't even rolled out our new simplified program yet. So again, I think that, that uptick in cancellations was a Q3 event, and we're looking to meaningfully improve it because as we improve activation, we also reduce churn.

Okay. That's really helpful. And then the other part of the question -- sorry, it was a long question is, are you seeing that drop off evenly throughout the globe, or have you seen a particularly big hit in Europe and the UK.

It was even around the globe.

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

Thank you. End of Q&A:

This concludes our question-and-answer session. I would like to turn the conference back over to Sima Satani for any closing remarks.

So with nearly 60 years of weight loss efficacy and a community of millions -- we have a strong foundation on which to build a digital experience for the future. We have work to do to deliver the connected community that I know is our future, but I'm confident that we have the essentials in place to deliver a strong member experience. This is going to put us on a path for improved performance and return our company to sustainable growth. We are looking forward to our peak winter season and connecting with you again in the future. Thank you so much.

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