WW International, Inc. (WW) Earnings Call Transcript & Summary

Okay. Okay. It's -- we're past the halfway mark. I still have a voice. This is good. So we've heard from a wide range of companies today, some of the story is steady as it goes, some of the turnaround story, some with a story of innovation and disruption. This next company is different than all of them yet it has elements of each. But that's core is what I would describe, to see if someone agrees or disagrees, but I would describe it as a story of reinvention. The company is reinventing its consumer interface. It's reinventing its service offerings, and is doing this on top of the foundation built on 60 years of heritage. I'm referring, of course, to Weight Watchers. And with me on stage to tell us where they're coming from and where they're going is the company's still relatively new CEO, Sima Sistani; and its new CFO, official CFO, as a like couple of weeks ago, Heather Stark. Ladies, thank you so much for joining me.

Thank you.

Thank you.

I was going to say something if you didn't. If you says, still says interim up there.

That's how new it is. It's just happened. Breaking the news right here. The interim is now [ rescrapped ]. Okay. So both of you are new faces to the story. But Sima, in particular, you have taken the helm? I don't know how long ago, when did you join?

Just over a year.

It's already been a year.

March 21, 2022.

That implies, you're having fun.

Yes.

Well, what a difference a year has made in terms of a lot of things and what's going on with the company and the trajectory of going down. But before we get down to that. Maybe just give us a bio, like introduce yourself to this group because I didn't do it, so I'm going to leave it to you. So you tell your own story.

Okay. That's like my at least favorite thing is talking about myself, and rather talk about the company.

Well, we'll be -- keep it a short.

So I spent my career at the intersection of tech and media. So what am I doing at Weight Watchers, I think that the trough in there is community building and digitizing social relationships. And the most important part of the story being that I was a member before joining to be the CEO in 2013, joined Weight Watchers program, lost almost 60 pounds after having my first baby and really felt like this was a program that works. And I had been around healthy habits my whole life. My mother is registered dietitian. She's had her PhD in food science, in fact, and yet I found myself struggling. And as somebody who comes from a product background, I thought, wow, this is a great program, and there's a lot of opportunity around it. And yes, so fast forward to now sitting in the home and taking everything I've learned from growth tech background and applying it to this heritage legacy brand.

Okay. And you stepped in at a time where, frankly, the trajectory of the business wasn't great, not a bit of a downward slide. Looks like a really hard job to take, particularly with the business going that way. What drew you in? What did you see that attracted you? And why was this the right opportunity for you to jump into?

Yes. So it has to go -- it goes back to being on the program and feeling like this is an amazing program, and it works. And the catalyst for my introduction to the company was actually during COVID, when I thought having followed the story and had been on the program, I'm actually listening to a podcast. It's Oprah's podcast, and she's talking about -- she's interviewing Tina Fey in that moment, and they're talking about social networks. And the fact that Tina is not on any other social networks, but the one place that she finds community is in the Weight Watchers app as a lifetime Weight Watcher. And it was like an aha moment for me because in that moment, I'm building house party, over 100 million users, trying to build empathy into online communication and a program that has worked for me that I love, it occurred to me is also a social network. And so I reached out and I said, you all must be figuring out how to handle this mix shift to digital during COVID. Can I be of help? I actually was interested in joining the Board. And I got to know the company and fast forward 2 years later, came in as CEO because to me, it was just like, I hate to use the term, but low-hanging fruit, the opportunity and the road map was so clear to me of what could happen if you took a digital-first approach to this business. And so yes, I definitely knew what I was getting into. I've been part of a turnaround before at Yahoo when Marissa Mayer came in. And so I've also seen a road map of what not to do, frankly. And I was very confident in my ability to transform.

Okay. So you saw an opportunity, not a problem with a very clear road map ahead. What does the road map look like? Share this road map with us, please?

Well, the road map is really about taking on community accountability coaching and leveraging that in a mobile-first experience. So essentially, Weight Watchers has worked because of the fact that of the peer-to-peer accountability. Yes, you have a behavior change program. Yes, you have nutritional science. But what keeps people accountable to the program are other people who are in that experience with you. When 80% of the membership moved to digital, they were suddenly not experiencing that anymore. And that was the opportunity was how do we connect those people bring the same reciprocity, repeat encounters, disclosure, all of the design principles that have to do with creating a third space and let's bring it to the Weight Watchers program such that we can keep people accountable to building healthy habits, and that's how they will have success. And if they have success, there's word of mouth. There's high NPS. It drives the top of the funnel, and everything else sort of follows from there. In addition to that, we're considering the new modalities. Where is the science going? We've always been an evidence-based program. The evidence is moving past us. We are talking about brain hunger. Now we have a concept of gut hunger and how do those things connect. And so one of the first things I did also when I joined was to start to look at these new modalities, and it was clear that clinical was going to be a pathway and something that we needed to consider, so it was basically a mix of, let's take the gold standard experience that people were experiencing in real life. Let's make it into a digital-first experience. And then let's expand our pathways beyond such that we have a portfolio of offering to people wherever they are in the spectrum of weight health.

Okay. Weight health, a new term for you. So I haven't heard this from the company until I think last quarter. Maybe you said it before, but it really came out in space last quarter. What does this mean?

So the best way for me to describe weight health is to link it to mental health because that's something that we all, I think, now recognize and talk about. Just to say that prior to COVID, I think we were more likely to refer to mental health as either by its condition, depression, anxiety, mental illness. And it wasn't until an epidemic when most of the population had some impact to their mental health. And with that, came investment and innovation in the space. I think that the same thing is now happening around weight management. It was 10 years ago, the NIH, the CDC, the AMA, they -- who they all recognized that living with obesity was a chronic condition, a relapsing chronic condition. But yet we are here in 2023, still talking about it as a vanity problem versus what it truly is, which is a matter of health. And what I don't want is to wait or to become an epidemic to take any kind of action. And that's what we're on track towards. In 2030, over half of the U.S. population will be living with obesity. As opposed to waiting for that moment, we believe it's important to recognize right now the chronic condition and the opportunity around weight health because our system, our health care system is based on the disease model and weight health is about preventative care. And I think that's what Weight Watchers can do best. And for 60 years, we have approached that from a behavior change, a nutritional science perspective. But now we're adding clinical pathway given the chronic weight management medications.

Okay. There's a lot of places we can go with this conversation right now. I don't want to get too far too quick because it's easy to get excited about where you can be, but I don't want to lose sight of the reality that you're in a tough spot today. The base business, subscribers have been going lower. Your mix of business, like the price point on these subs has gone lower. We're putting real revenue pressure and putting real pressure on the bottom line for a company that has a lot of leverage. So let's ground ourselves in the near term and then step back out and start getting a little more excited about the future. And this is my opportunity to bring you Heather into the fold. With these top line pressure points, it's require the company to get very disciplined on the cost side to create more flexibility and really protect the bottom line and protect liquidity. Can you talk about the initiatives that you've undertaken? First, your role as interim CFO that arguably earns you the title of official and permanent CFO.

I'd like to think, there are a few things that are in the spot, but one of them definitely was thinking about cost structure and thinking about it differently because we have had restructurings in the past where we've taken a slice of the cost structure. But this time, it was really purposely done to think about how do we centralize, how do we bring decision-making together? How do we bring our thought together much more efficiently? So step 1 was centralizing our management structure. So prior to this past year, we had each market around the world running like its own little Weight Watchers. Now we have, one, centralized, not globalized, because it's centralized, structure for management decision making. We can do that much more efficiently to with fewer people around the world. Two, we looked at sort of nonstrategic business lines, things that weren't laddering up to our mission, and we've made hard choices to cut these and step away from them so that we could put our energy, put all of our resources against the things that are going to matter for our regrowth into the future and to get behind new things like clinical that are so important. And third, we looked at our workshop business. And coming out of COVID and you talk about declining subscriber bases, it's shifting subscriber bases to people showing up differently and do they show up in a workshop, do they show up for us digitally, now clinically. We need to be where they need us to be. And we did a significant Q1 effort, a, to get back in line; but b, to rebalance how we show up. So we got out of a lot of fixed cost lease locations and think you've got one 23rd Street location that can service people in a certain vicinity, huge cost overhang to that versus let's go have 10 that are spread out with the studio app locations where we show up for a single workshop and another person's environment or another company's environment, but we can do that much more efficiently and it's opening the community together versus having the sign over the door. So tons of efficiency coming out of all of that.

And I would add to that. So the first risk that we did within the first month that I got there. And the reason for that was not because we were looking at the cost basis of the organization, though that is certainly a silver lining coming out of our restructuring, but was because I took a whiteboard and said, the company, it looks more like a retail company, and we are no longer an analog company. We are a digital company. And I modeled it after a growth tech companies that I'm used to operating in. And so we took that whiteboard and we addressed the organizational debt that was in the organization. You can look at the app and take the various tabs and connect it to one of the executive team members of the company. It wasn't being built in a way that was about solving member problem. It was being built around each organizations KPIs versus 1 team, 1 dream, here's our North Star, and that's member success.

Okay. Okay. So we got a way out the app. We rebuild the app. We rebuild the interface. How far along on this journey are you?

We have made meaningful progress in this direction, and that's why we keep pointing folks to activation rate, which was a new KPI we got get behind measuring member success in the first 30 days because that is the canary in the coal mine that's what's telling us that we are on the right track without having to wait out the course of the tenure of member retention. As we can see in the first 30 days, whether or not our new feature developments are working. So we started out last year by what I call stop the bleeding, frankly, about simplification, and driving members towards the actions and the engagement in the app that was going to help them be successful. And what, I was so excited, which was ahead of my own expectation is that we are already seeing activation rate that trend line smile. And that's really incredibly hard to do. And not only have we turned the corner around activation rate, but we're now 4% to 8% higher than year-over-year, and the line was going in the opposite direction. And so that what we're looking at when we're saying is what we're doing, working? Is, especially in our industry, it's very word of mouth-driven, have success, I'm more likely to tell people about the program, and that's what drive -- helps us with efficient top of funnel. And so activation is basically telling us, a member is more likely to be successful, half is likely to turn, and therefore, going to help drive more efficient marketing.

Much higher NPS scores.

Yes.

Create a virtuous cycle. Where it goes...

How it works. The product needs to market itself.

This is one data point that's giving you confidence that the business is finding support in the floor. Are there any other data points that you can point to, to bolster confidence of those in the room that hey, the core is being stabilized.

Sure. In addition to activation rate, we're also looking at the engagement rate, which was the -- across the entire population, not just the early cohort, the year-over-year trends are also improved for that population. And most importantly, if you look at Q1 -- and I feel like I can't say this enough, but people are looking at the year-over-year and saying, oh, well, it's lower. Yes, but our net adds are higher and we spend almost 20% less. So we're -- that's happening because we're making the right changes, and we are marketing more efficiently.

You still spend a tremendous amount of marketing. It's a couple of hundred million dollars there. It's a big budget. You talk about opportunities to increase the efficiency. Is there an opportunity to actually lower the spend? Or is there an opportunity to keep the spend and improve the efficacy of it.

Right now, I would say that given the paradigm shift that's happening in our space, it's important for us to keep the spend and move it towards the most efficient times of the year, whether that's lining up to LTV CAC or to new launches, I think that there is opportunity down the road for us to rethink that budget overall. But for now, I think it's important for us to spend where the LTV CAC makes sense and the ROI will be high.

Okay. Okay. We always see efficacy, and marketing is generally a lot better when there's substantive news to deliver. It's always a lot cash here. So let's transition to your substantive news. And this is the branch out into clinical services, which you've enabled or you've accelerated had enabled with the recent acquisition. Tell us, 17 minutes left, I want to make sure that we get to the good stuff. What was it about Sequence that attract you to look, tell us about the insurance rails as you talk about it, because that's the enabler, right? You got access to a third-party clinician network. You could have done this on your own, and done it quickly. But I believe it's the insurance stuff that was really proprietary and agree to it. So tell us what is the advantage of that brains.

Definitely. So I will say the new news, and then I know that Sequence and telehealth is the shiny thing that everybody is excited about, but I will point out our core business, two, is that what we have coming in the second half of the year, I think, is also quite exciting.

What do you have come in the second half of the year?

Around our what to eat tab, that's really helping to solve member needs there where I go to Trader Joe's, and I need to know, I want to put together a 5-point meal. How do I do that? I'm in line out of Wendy's or a Chipotle because I'm on the go, and I need to know I've only got 6 points left in my budget, what can I order? It's being able to solve the member needs and meet them where they're at. Progress and trends, being able to -- it's not so much about personalization, it's about precision. We take all of the inputs from wearables from what I'm tracking and give you informed insight based on that. And the reason that's so important going back to clinical is that there is an opportunity to marry the 2 around behavior change and ensuring that people develop these healthy habits long term and also what clinical pathway really ultimately help somebody do, which is adhere to healthy habits. I think that's a misconception around the medications is that you just take them and lose weight. Well, if you want to have the best outcomes for long term and make sure you're managing your lean muscle mass and you're getting the right nutrient density, you also need to pair that with behavior change. All of the clinical trials around these medications are done alongside lifestyle therapy as well. So yes, when we came in and we -- I mentioned that one of the first things I did in the first month that I was took this role was to take a look at all the new modalities that were out there and it was about, I think, almost a year to date when I joined that the medications have been approved for obesity. And I was really shocked that nobody in the company was thinking about what we could do in the space. And so we immediately set up an incubator around it. I recall a couple of months later sitting down with our scientific advisory board, and we have medical doctors who are prescribing the medications, and they were talking about this -- these drugs like they were game changers, and that's what they are. And we were also hearing over and over again that the needs around people who are on these medications are really great and that somewhere, it's a white space that a company like ours could help address. So that's when we decided to move from building it on our own to buying, and we look at over 30 different companies in the space and Sequence stood out, not only because they have built from a tech-first perspective, a process that makes the insurance, the access to the medication is easier through putting the insurance process on tech rails, but also because we have values alignment around the way that they were operating their clinician network, the protocols, prescribing a wide formulary. We felt like they were doing things responsibly. And it was a great pairing and mission alignment that we have between the 2 companies. And so that really made the decision quite easy for us to engage. I'll also say that I've been -- my own company was acquired by Epic Games prior to joining Weight Watchers, and I've been a part of another acquisition, Tumblr, Yahoo, which I thought didn't go as well. And so I had a road map to how an acquisition could go well and how it could not. And it was clear from meeting the founders of Sequence, so understanding their superpowers and our superpowers that this was an acquisition that could go well. So all of those things together sort of were the impetus behind acquisition of Sequence, and we are really excited that we could enter the space and especially when there's a lot of misinformation and bad actors and you have companies who are moving fast and breaking things, and this is not the space to do that. This is -- it's really important that these medications be responsibly prescribed and that there will be an overall care team model alongside of it, and that's what Sequence does really well. They've got a care team in your pocket for the member. They've got an amazing clinician experience. And then ultimately, they make the medications more accessible because they figured out an automation process around insurance.

Okay. And the superpowers that you bring to the table, my perception is you bring a brand and everything that canvas and a Rolodex of current elapsed Weight Watchers consumers who you know have demonstrated desire to maintain better weight health and are willing to pay for it. Is that fair? Or are there other superpowers?

I would add to -- I think those are -- both of those. Yes, I would also add to it our B2B channel we have Weight Watchers Health Solutions, over 500 employers, including the City of New York. And our ability to figure out that first dollar of health care, I mean, 50% of it is happening through employers insurance. And so we're figuring out the right sort of step therapy model with these -- with our current employers, and I expect us to be expanding on that program. I would also add omnichannel to the list of reasons why it makes sense. So I do think that this is going to be, and we've also heard it from the pharmaceutical companies as well, quite a D2C market. But what I -- I do think that -- at telehealth, obviously, given where we are in the landscape, telehealth is where it goes, but there are still people who are going to want to walk through a door. We have a footprint that we can utilize in helping to do that. And then ultimately, the brand part, I'd connect that back to LTV CAC efficiencies because this is a lot of the companies who are in the space, the unit economics don't end up making a lot of sense. And we have so much going there.