Good day, and welcome to the WW International Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to hand the call over to David Helderman, Director of Investor Relations. Please go ahead.

Thank you everyone for joining us today for WW International's third quarter 2024 conference call. This morning, we issued a press release reporting our third quarter 2024 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 at corporate.ww.com. Supplemental investor materials are also available on the Company's corporate website under Events and Presentations. Reconciliations of non-GAAP measures discussed on this conference call today to the most directly comparable GAAP financial measures are also available as part of this 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 most recently filed annual report on Form 10-K, as updated by the company's other 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 Tara Comonte, Interim President and Chief Executive Officer; Heather Stark, Chief Financial Officer; and Donna Boyer, Chief Product Officer. I will now turn the call over to Tara.

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 WeightWatchers Board since mid-2023, and I'm now serving as Interim President and CEO following Sima Sistani’s departure last month. I'm confident I speak for the entire board when I say how grateful we are to Sima for her leadership navigating the business through these times of significant change in our industry, while also laying a strong foundation for our future. I'm extremely pleased to now be part of this management team as we take on the task of building on that foundation and creating the plan to revert this business back to sustainable growth. While our results in the third quarter were broadly on track with expectations, it's clear we have significant work ahead to change the trajectory of the business. This is an industry undergoing massive transition and as a result Weight Watchers has experienced meaningful disruption over recent years. However, I am optimistic about our ability to lay a path to future growth. From the value of our full and expanding spectrum of solutions to the strength of our brands and our important role in the evolving global healthcare landscape, we have the fundamentals of what we need to be successful. We know that the future of weight management is one where clinical options are paired with behavioral solutions, not either or, and that WeightWatchers is uniquely positioned to provide this to consumers at scale. This is a defining time for our field and our company. We need to ruthlessly assess and fix parts of our business not currently performing to the levels required. The team is committed to moving fast to make change, yet we know the scale of the task at hand…

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. 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 and is up 625 basis points year-to-date versus last year. 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. 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. Turning to our third quarter 2024 results, note that all year over year financial comparisons are on a constant currency basis. We ended Q3 with 3.7 million subscribers, decline of 9% year-over-year reflecting year to date recruitment declines as consumer acquisition costs increased substantially compared to last year. 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. Subscription revenues benefited from $19.1 million of clinical subscription revenues. Digital and workshops revenue was primarily driven by lower sign ups and incoming subscribers coupled with the continued mix shift from workshops to digital and a higher portion of digital subscribers within their initial lower price commitment periods. 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. Sign-up trends across the business have…

Thanks, Heather. For over six decades, WeightWatchers has helped tens of millions of people transform their lives through our proven approach to weight management. As we navigate an evolving health landscape, it's crucial that we return to those core strengths that have defined WeightWatchers from the beginning: innovation, continuous learning, a commitment to science backed solutions, the importance of community and livable solutions for a healthy life. As Interim CEO, I'm fully focused on leading the company through this next phase and driving meaningful progress in these strategic initiatives over at least the next six months. I'm honored to work with our team on behalf of our current and future members in this incredible company. With that, we'll be happy to take questions.

[Operator Instructions] And our first question will come from Nathan Feather of Morgan Stanley.

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

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 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 too. Thanks for the question. Immediately after our compounding launch, we saw a positive impact on both our sign ups and our CAC. Our launch day was our highest, as Tara mentioned, our single highest launch in 2024, and we are continuing to see sign ups that are exceeding our end of Q3 trends. As to the success, there's multiple factors there. One is really the offering of compounded semaglutide in itself of 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, a combination of always looking at our pricing strategy and the availability of flexibility of 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 this launch. So primarily the availability of the drug, 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 CAC.

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.

Okay. Great. That's all helpful. And then, sorry. You walked through a lot of initiatives in the pipeline at various different time lines. I guess, in your term, what are the maybe two or three primary priorities that you're looking to get in place ahead of peak season to hopefully drive some reacceleration in the core clinical?

Was that [Indiscernible], I missed the beginning of the question. Is that specific to our clinical business or a more general question?

More general, just kind of the key priority to have a peak.

Yeah, absolutely. Well, listen, I think we spoke too 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 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 WeightWatchers solutions. 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 peak, we're really going to be doubling down on those core strengths, the values of the WeightWatchers platform that have always been in place. This is livable. This is not a fad. This is these are solutions for life. But we're also going to be very focused on awareness and engagement as we really hammer home that messaging. I mentioned the brand refresh. We're not seeing any major rebranding, but I think the brand refresh is going to be fantastic. I'm looking forward to seeing it in the first quarter, a little more modern, a little more WeightWatchers, 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.

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

Hey, guys. Thanks for taking my question. Wanted to ask about retention on the clinical side of the business. I think you mentioned that you've seen retention improve from 6.5 months to 7.5 months. 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 or having reached their weight loss goals? Or is it more about cost and access? And how has that been evolving over the course of the year?

Yeah. Hey, Alex. I mean, I think, we maybe said it in the script, but it's absolutely, cost and access. They are the biggest contributing factors to why a clinical subscriber churns. So as we've launched compounding, but also as Donna alluded to some additional product improvements just in the member experience, those are really -- it's super encouraging to see those have such a tangible and immediate impact on our retention.

Okay. That's really helpful to hear. And then is it your kind of hope or expectation going forward that longer term you could get clinical retention up above and beyond what you see or up to the levels that you see in the clinical program? Or is it more about, I guess, kind of keeping people on the traditional program as well when they transition off the clinical program as a means of keeping them engaged with the brand?

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. 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 WeightWatchers ecosystem at a point where you're looking for medication solutions. 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, yes, we're very optimistic and ambitious about what this business can look like over the long term.

The next question comes from Karru Martinson of Jefferies.

Good morning. When we kind of do this rebranding the building to a one WeightWatchers, 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?

Hi, Karru. We definitely looked at investment needed as we were designing the $100 million cost action. There is investment required as we build into next year, and we are, 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, $100 million cost savings reading through by the end of 2025.

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.

Yeah. We know we've shared our comfort with our cash and liquidity position, and we've designed our cash management and cost management exercise. With that in mind, I would, 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 working through the $100 million cost savings to preserve liquidity through the turnaround.

And hey, Karru, the only thing I would add to that is, look, I speaking personally, I'm four weeks into this role. Donna, I think you're, what, six months? So this is your first both of our first 2025 planning season at WeightWatchers. And I really do give the team a lot of credit for the tough decisions they took as it relates to these cost actions. We absolutely will also be investing in the business throughout 2025 to get this business back to growth. We see huge opportunity in terms of really leveraging the assets we already have. 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.

Okay. And just lastly, in terms of those consumer acquisition costs, I mean, have you seen any change in the overall competitive market as I think it was [Indiscernible] bound and others came off of the shortage list? Is that having any impact on the competitive response out there?

Yeah. So expectations at the start of fourth quarter, we're definitely 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 space. It's evolving, and we are managing through that and managing through that, presently working to compete more effectively, where the LTV:CAC makes better sense and going from there. But the move to offering compounding as well, our ability to speak to one WeightWatchers is reading through. And as I said, there's still pressure, but as I said at the start of fourth quarter is some early release.

Thank you very much. I'm sorry. Yes.

No, I was just going to add to that as a general comment, not a sort of specific one. But as a general comment, we have the ability to ease our marketing efficiency and effectiveness as we become more cohesive in how we both build our product when you land somewhere in the WeightWatchers ecosystem and as we communicate our product. So I just want to make that point. It doesn't change the scale and the impact of the competitive 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 CAC.

The next question comes from Michael Lasser of UBS.

Good morning. This is Henry Carr on for Michael Lasser. Thanks so much for taking our question. 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 WeightWatchers positioned well to be part of that solution?

Yeah. Hey, Henry. Look, we're 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. But we believe that ultimately, employers and insurers are going to really struggle and find it very hard not to cover these medications in light of their board health benefits. So we do think that there are real tailwinds in this space. It's obviously a longer lead time. But we're super bullish on this over future years and particularly our position in this marketplace with the breadth of that offering. I think employers are looking for a much more extensive suite of solutions than a single point solution and certainly that's where WeightWatchers really, really plays. So we feel good about this over the long term.

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

Yes, for sure. Thanks so much. And I just wanted to ask a little bit more about the acquisition costs. I believe they were up 30% year-over-year. 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, in 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.

Sure. We're seeing this as largely competition in the space driving cost to acquire up. There's obviously media inflation going on in the space as well across channels. I don't see this defined as one channel. I think the U.S. election potentially impacted it as well, and that drew into the start of the fourth quarter as well. 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 tax are still elevated going into the fourth quarter.

This concludes our question-and-answer session. I would like to turn the call over to Tara Comonte for any closing remarks.

Yes. Thanks, everyone. And 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.

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