Good day, and welcome to the WW International, Inc. Third Quarter 2023 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Corey Kinger of Investor Relations. Please go ahead.

Thank you, everyone for joining us today for WW International's Third Quarter 2023 conference call. At about 04:00 P.M. Eastern Time today, we issued a press release reporting our third quarter 2023 results. The purpose of this call is to provide investors with some further details regarding the company's financial results, as well as to provide a general update on the company's progress. 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 Investors 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 explained in detail in the company's filings with the Securities and Exchange Commission. Please refer to these filings for 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 Heather Stark, CFO. I will now turn the call over to Sima.

ThanksCorey.Goodafternooneveryoneandthankyouforjoiningustoday.I am thrilled and gratified to confirm that we have now successfully returned Weight Watchers to a subscriber growth trajectory. A significant achievement and a direct result of our work in reinvigorating our core business.Q3 ended period subscribers totaled $4 million, up 6% year-over-year. This Q2 to Q3 sequential change is the strongest in our reporting history.In addition, this is our first quarter of reporting year-over-year subscriber growth since Q4 2020. Before I dive into our results, I want to remind everyone of our 4 priority areas for 2023 which we have remained laser focused on as we turn around the business; 1.Reinvigorating our core business through an evergreen product innovation strategy and a modern marketing toolkit. 2.Compounding our head start in the Clinical space. Clinical is highly complementary to our core offering and we now have a portfolio of solutions to meet the broad and evolving needs of members. 3.Being a partner of choice for health providers, payers and employers by leveraging our expertise and relationships and a step program solution that delivers a cost effective behavioral and Clinical weight management solution, setting a new standard of care in the space. 4.Building community experiences, both in real life and digital that will broaden our reach and increase engagement and satisfaction for both behavioral and Clinical pathways. We are executing well on each of these initiatives and have hit several key milestones in recent months. Let's start with our core business. Our activation rate, ametricdefinedbyamember's food and weight tracking engagement and weight loss progress during theirfirst30daysontheprogram,continueto trend in the right direction with Q3 up approximately 7% year-over-year and a reminder activation rate matters, because activated member’s attrition rate is roughly half of a non activated member and they are more successful on Weight Watchers over the long term. Similarly, our…

Thanks, Sima. Turning to our third quarter results. Note that all year-over-year financial comparisons are on a constant currency basis. We ended Q3 with 4 million subscribers, including 45,000 Clinical subscribers.Our core Weight Watchers subscriber change from Q2 was the best third quarter sequential performance in our reporting history. The actions were taken to stabilize and growth the business are working. Revenue totaled $215 million down $38 million year-over-year.Breaking this down, subscription revenues, which included $10 million in Clinical revenue, declined $20 million, as we have a higher mix of subscribers within their initial pricing commitment periods and an increased mix of high margin digital subscribers.Importantly, consumer products and other revenue declined $18 million due to the strategic decision to wind down our low margin consumer products business. Adjusted gross margin of 66.2% for the quarter set a new record high and was up 490 basis points from the prior year driven by our actions to reduce our fixed cost base with our workshop real estate restructuring combined with the effect of mix shift to our higher margin digital business.Marketing expenses of $48 million were up 33% year-over-year, but slightly below our planned spend.I've highlighted in prior calls, we continue to focus on high-value member acquisitions and redeployed the majority of our first half marketing savings, primarily into Q3 which helped drive a second consecutive quarter of year-over-year sign up growth.Adjusted G&A of $57year over year was up 4% versus prior year due to the including of $5 million in Clinical G&A expenses including approximately $2 million in intangible amortization from purchase price accounting considerations, which more than offset the benefits of restructuring and expense controls in the quarter. Adjusted operating income $37 million.Restructuring charges totaled $6 million in the quarter as we continue to streamline our organizational structure. While…

ThanksHeather.I am proud of our team's achievements in 2023. We are strongly positioned to continue our momentum into 2024.While the environment remains dynamic, we will continue to be agile in our approach, take data informed actions across the organization and focus what is best for the long term health of our business as we enter our next chapter with a portfolio of solutions to serve the full spectrum of weight health. To reiterate our key achievements, we returned to year-over-year subscriber growth, even when excluding the benefit of Clinical, driven by the return to incentive growth in our core business.Clinical subscribers have increased nearly 90% since we announced the acquisition of Sequence earlier this year. We have increased NPS activation and engagement rates by advancing our digital first product roadmap, and we have delivered the highest gross margin in the company's by reducing our cost structure and managing the business prudently.We look forward to introducing a dedicated program for Weight Watchers members on GLP-1 medications, building momentum with Weight Watchers for business and serving more members through our portfolio of holistic solutions as members go through different phases of weight health. In short, we are focused on the actions that will return company to profitable, sustainable growth in the years ahead. Thanks for joining us. We are now happy to take your questions.

[Operator Instructions]. Our first question comes from Jason English from Goldman. Please go ahead.

Hey, good afternoon folks. So the revenue per subscriber compression that we're seeing, it seems to be more than what you expected, obviously, as they the negative revenue guidance revision, obviously more than we expected based on the revenue mix.Quick math, I think you were saying before you had average consumers who are coming in and staying with your program 10 months.On your average monthly revenue per sub now, it looks like we need to extend that out to around 12 months. To hold the LTV flat. Is that math sounded about right to you?Question 1 and question 2, what gives you confidence that you can actually keep them around for 12 months? I know it looks like you're locking in for generally 10 months right now with some of the promotions. What evidence do you have that they will actually extend out by an extra couple of month? A – Heather Stark: Jason, thanks for your questions. First, yeah, I would reiterate on the first part of that question on revenue compression.We may have missed your expectations, but we do remain within our guidance of $800 million to $910 million on total revenue, still within our range, albeit we gave the nod to the low end and this is reflecting those expectations on our product mix as well as the timing of sign ups that we expect through year end. I would just remind you that we've got mix between the subscription types.So it's hard to compare former rate per paid week to future pay rate per paid week as subscribers choose different plan types andremember that we've got 80% of subscribers as well choosing 6 months or greater commitments.So I think there's really a shift in the type of subscriber that we're seeing coming in. They're choosing our digital offerings over the workshop offering relative to prior year and they're choosing to commit to us longer term. The second part of your question on retention, we're still seeing retention in the 10months range, approaching 10 months and we're doing things through the product roadmap to increase engagement and activation through our subscriber base, but ultimately those actions, the more engaged someone is, their half is likely to churn.So you'd that to read through over time, but remember that the tail of the retention curve is one that takes time to turn and shift, but appreciate the question.

So you're locking them in for longer discount [Indiscernible]? But we are not really seeing any longer. Though you are still seeing around 10 month duration.It's just they're getting a discount for a longer period. They used to get 6 month discount and now they get the whole 10 months. So we're just seeing straight out revenue per subscription, it sounds like a rebase.This isn't like a temporary thing that's going to recover. It's like we're rebasing our revenue per sub [Indiscernible] isolating for the digital side because I appreciate if I do for total.There's a lot of mix noise within that. At least that's what it sounds like it looks like to me. If I'm wrong, but it's not really a rebased, pursued me otherwise, because I don't understand how it's not? A – Heather Stark: I appreciate that and I think the rebasing of the subscriber base is absolutely, consumers are choosing our digital subscription.The mix is shifting to digital versus workshop and I think the rest of it, yes, consumers are locking in. They're locking in longer on the commitment pricing, but we're pushing them into longer durations in their journey with us.In the prior response, though, you'd expect that to read through over a longer time, when you're trying to tie that through to retention.So the rebasing of the consumer base, so I would say, is more the mix between, digital versus workshop, but then also you get the rate per paid week stretching out over a longer duration with people choosing the longer term commitment plans with the increase in people choosing 6 months and longer. A –Sima Sistani: I'll just add here, Jason, Hey, it's Seema; that we're focused on the total commitment dollars that we are bringing in and your point on the retention is you got to remember that all the work that we're doing on our product roadmap that has been happening throughout this year and that's why we continue to report out on our activation rate and our engagement, which as you can see in Q2 and now in Q3, has gone up. So it would, it would follow that we would see that translating into better retention over time and the more the sign ups that we continue to bring in, that starts to stack and build. And so we're really confident that we're building towards the long term health of the business and improving engagement and retention. A – Heather Stark: I would add too, we have every reason to believe that the commitment pricing strategy is revenue and LTV accretive both in the quarter and going forward and then the market that we're in and with what consumers are choosing to engage on us with.We're still in our guidance range. So it's not just to double down on that is that we are within our guidance range and so this is playing out as we would have suspected.

Yes. But your point is it's too early. We'll see that 10 month go to 12 plus. At which point, we'll see the positive payback. It's just it's too early to see it, wait for it, trust you.That'sis that a fair summation? A –Sima Sistani: That’s a fair explanation.

Cool. I've taken too much time already. I'll let somebody else have a shot.

Next question comes from Lauren Schenk from Morgan Stanley. Q –Nathan Feather: Hey, everyone. This is Nathan Feather on for Lauren. Congrats on the results. Can you touch a little bit more on the impact of limited GLP-1, what is the plan on Sequence within the quarter and then understanding, in fact how should we contextualize the top of funnel demand you're seeing in that Sequence and how that compares, from last quarter and when you acquired the asset? A –Sima Sistani: Thanks Nathan. Yeah, so the supply story here is still not a positive one. The shortages are continuing, and we're seeing that pressure, but again, we had anticipated that happening through the back half of this year and so really pleased that we've been able to continue to grow the business and we're up 23%, up 90% since the acquisition, and I think that that growth rate, we believe it exceeds the growth rate of the total number of GLP-1 prescriptions dispensed, then you can attributed that to our ability to manage people through the shortage supply environment, the tech platform helps with insurance approvals and then also the infrastructure is high support, helping people to actually find supply when available and continuing to then move them throughout the wide formulary when it's not available, And so we're pleased to see that we've been able to continue to keep that flywheel going while we have heard some promising news, this morning, obviously, from Lilly and Novo about what you expect moving forward.

The next question comes from Linda Bolton Weiser of D.A. Davidson.

Yes. Hi. So just on the Sequence numbers, I guess the subscriber number was quite a bit higher than we expected, but the revenue was actually lower.So is there something going on in terms of the realized subscription revenue per month, per subscriber or something like that. I'm just trying to figure out, like, what's going on there. A – Heather Stark: Hi, Linda.I believe our revenue number was right on consensus. So I'm not sure what you're seeing and I also just before we take the next question, wanted to reiterate, I misstated a number earlier to clarify our revenue guidance is $890 million to $910 million.Just wanted to make sure I clarified my statement.

Okay. Thanks. So just one follow-up though on that. So I get the impression that the Sequence subscriber numbers though are trending better than you would have expected.So if that's the case, how come the revenue for the year is still the same? A – Heather Stark: I don't think we guided to the third quarter sub. So we're on track to our expectations, and we haven't changed our guidance range for sequence subs

Okay. And then, can you give a little more detail on the integrated program for people on GLP-1 drugs? Did you say the timing of that is in time for diet season 2024?And can you just give a little more like, are you going to keep Sequence brand name or phase that out over time. Can you give us a little more color on the marketing strategy there? A –Sima Sistani: Hey, Linda. It's Sima. So, yeah, we are looking forward to launching our GLP-1 complimentary program, ahead of peak season and just as a reminder the GLP-1 program is going to be a tailored version of our program that is for people who are on a Clinical pathway, whether they get the medications through us or not and it's prioritizing the specific needs of somebody who is on a GLP-1 medication,for instance, nutrient density, building lean muscle mass etc. We have been hard at work onintegrating the two platforms such that we create one unified member journey and we will have more to share on that very soon.

Okay. Thank you very much.

The next question comes from Alex Fuhrman from Craig-Hallum Capital Group.

Hey guys thanks for taking my question. I was wondering if you could just kind of bridge the gap a little bit between, it sounds like the commentary on subscribers and gross adds on the traditional side of the business is all positive, it is two quarters in a row though that the revenue target for the core business has been lowered.So just trying to square that. I don't know if maybe Jason's question about the longer term lower priced commitment plans fully explains that, but just wondering if there's an overarching explanation for why it seems like revenue and subscribers have kind of moved in opposite directions over the last few quarters? A – Heather Stark: Thanks for your question, Alex and yeah, we're really pleased with the sign ups and subs positivity that we're seeing and I think really what we're seeing is that mix shift you know, we have people choosing those longer term commitments and choosing them at a greater rate. They're choosing longer commitments and we're seeing that read through into our revenue. So, we are still maintaining our guidance and looking forward to continuing our subscriber and sign up growth.

Okay that’s really helpful and then just on the on the Clinical side of the business.I don't know if you have a good handle on what this number would be or maybe just anecdotally based on what you're seeing with kind of people coming into sequence and then quickly churning out, but do you have a sense of how many of your patients who are getting prescriptions from GLP-1are able to get any meaningful insurance coverage of those and had that changed at all, since April when you first made the acquisition? A –Sima Sistani: Hey, Alex. It's Sima. I think that's our key differentiator with the platform is that right now on top of supply constraints, insurance makes it hard for many to access the medication and we see about a 30% to 35% approval of prior authorizations through our Clinical business, which is better than the average, the range of estimated insurance coverage on these meds is somewhere between 20% to 25% and that is a result of the insurance engine that we have here where it makes it better able to actually increase the likelihood of coverage because so many mistakes are made in this process just due to errors that are clerical errors that can result in denials and just better system support in addition to the wide formulary.So we can file several PAs at the same time on multiple medications to help increase again the likelihood of coverage and then once we do help them with the preauthorization, we go into the part of the flow, which is around that med management and there's a whole infrastructure there to support people with finding supply and it gets smart about which pharmacy actually has the supply and is able to benefit our population to have a better experience, frankly, while they're on the platform, but that's also why we have been very hesitant to market the service right now.We want to ensure that we retain the high NPS and the ability to get people the benefit that they're seeking when they come for the Clinical option and so we're looking forward to the hopeful eventual approval of tirzepatidefor obesity and then the ability to start marketing more aggressively.

Okay that’s really helpful. Thank you very much.

The next question comes from Michael Lasser from UBS.

Hi. This is Henry Carr on. Good evening for Michael Lasser. I just wanted to start off with the Sequence question. So you have 27,000 subs in Aprilat the time of acquisition and you've increased it about to 8000 to 10,000 per quarter.How should we think about this rate of about 8000 to 10,000 subscribers per quarter going forward? So basically once supply conditions improve, how do you expect this rate increasing? Can you speak a little bit more about that?

Henry, thanks for your question. At this time, we're not guiding into 2024. So I would say we've been conservative in our approach to the balance of the year, understanding the environment that we're in with the supply constraints.So we've taken that thinking through the balance of this year.

Okay. Thank you. And I just want to ask about student loan payments and how much of your subscriber base is potentially exposed to that? A –Sima Sistani: Yeah, I don't that's not something that we have really observed, especially since, the majority of our population is between ages of 35 and 45 and so it's not something that is, we have noticed to be relevant to our business.

Great, thanks so much.

There are no more questions in the queue.This concludes our question and answer session. I would like to turn the conference back over to Sima Sistani for any closing remarks. A –Sima Sistani: I just want to reiterate that I'm really encouraged by our performance and the momentum in our business and we are returning the company to the first year-over-year member sign up growth and now subscriber growth and accomplishing this again on less marketing spend year-to-date was no small achievements, but one that demonstrates making the right decisions to return Weight Watchers to profitable growth and prioritizing the long term health the business.We really look forward to speaking with many of you at upcoming conferences and events, including the Jefferies London Healthcare Conference on November 16th and at the Bank of America Leveraged Finance Conference later this month.Thanks again for joining us.

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