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

Okay. Great. Good afternoon, everyone, and thank you for joining us. My name is Nathan Feather, and I work on Lauren Schenk's small and mid-cap Internet team here at Morgan Stanley. I am very excited to be joined by Sima Sistani, Weight Watchers Chief Executive Officer; and Heather Stark, Weight Watchers Chief Financial Officer. Thank you both so much for joining us today. Now before we begin, a few quick housekeeping items. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative.

And with that out of the way, I think it may be helpful to start with an overview for investors that may be new to the story. Sima, how does the core Weight Watchers business work? And how have you been evolving that model since you joined?

Sure. Well, let me start with this since I joined because it's been 1.5 years, and my background is in growth tax, social, digitizing social relationships. And I think that's really important to bring up because Weight Watchers is the original social network. It's a community. And when you ask what is the core Weight Watchers business, at its heart, that's what it is. Nutrition science, yes, of course, behavior change. Yes, of course. But what makes us special, what makes us different is the peer-to-peer and peer to coach accountability keeping people accountable to healthy habits. I don't know if any of you guys are watching the Blue Zones documentary, Well, what do they say? It's not just how you move. It's not just what you eat. It's your social circles that help you define that. And so I think that's what we've done well from 60 years ago when we were founded by Jean Nidetch and that's what we continue to do. But the difference is, our membership base accelerated during COVID times to being 80% Digital only. And what was happening was that gold standard experience of people coming together in those peer-to-peer groups wasn't happening in the third space. And so we're bringing in all of the design principles around disclosure, repeat encounters, reciprocity, rituals, we're bringing that to the digital landscape. And so those are the, that's a big evolution that we've been making as a brand. The other part of it is an increase in our pathways. So it's not just about weight loss, it's about weight health. And there are several different solutions that can help you achieve weight health, whether that's functional, clinical behavior change. So we're going digital first, and we're expanding our pathways.

Okay. Awesome. And on one of those [ properties. ] I want to talk about the recent Sequence acquisition. Can you spend a minute talking through how that model works? And then more broadly, how are you thinking about the opportunity obesity medications provide across the entire business?

Sure. Let me take the latter first, which is, when you think about the space and what it means, we've been living in a world where there's so much stigma associated with living with overweight and obesity. And we are trying to reframe that conversation around weight health and reduce the shame and the stigma that is associated with it. It's really important to do that for people to advocate first themselves for them to seek help, in fact, next week, September 20, we -- tune in, we are having an important conversation that Oprah Winfrey is leading through Oprah Daily, basically to talk about the medications. And this is the first time that she will be doing that. And it's important because in addition to Weight Watchers being a brand that they trust, she is a trusted resource, and there's so much misinformation. There's so many bad actors, and it's an important opportunity to harness the conversation, speak to the chronic condition. And so that's an important part of why we are talking about clinical interventions in the first place? So that brings me back to the first part of your question, which is Sequence. What is that? Telehealth platform. It's our virtual clinic that's simply put. But you can really break it down into 5 core parts of the experience, which is Intake, we ID you, get the weight verification, understand your medical behavior change weight loss history, and we have rigorous constraints around making sure that it's an appropriate, you're appropriate candidate. And then there's a consultation, which is a visit with a clinician, and this is somebody who's been trained in obesity care and management. And that's really an important differentiator in what we're providing. There's insurance support, these medications, they require pre-authorization. There is a lot of titration that happens along the journey. They are expensive. [indiscernible] engine is incredibly important. We make it simple for the clinician and for the member. Then there's medical -- Med management because, again, the dosages need to be titrated. We want to understand the care. We want to make sure that we're managing symptoms. And finally, as a lifestyle component, that's where Weight Watchers comes in. Where we are ensuring that you have the right behavior change and lifestyle intervention that is happening alongside the medications because that's how you get the great outcomes. The medications, they help you with satiety, but then once you have stopped the hunger, the noise, the brain fog, what we're trying to do is use that moment to help people adhere to the lifestyle changes that actually help them live healthy habits for the rest of their lives. So that's the Sequence.

Great. And one of the more common questions we get is around Sequence's competitive advantages. So can you just spend a minute talking about why a patient would choose Sequence over either their primary care physician or another telephone provider?

Yes. So going back to, let's start with Telehealth provider, what I was saying before, the 5 different parts of this process. Insurance support is incredibly important. These medications are expensive, but it's a taxing process for both the clinician and the member, and when we're, it's not like a statin or an ED medication where you just get the prescription and you walk away, you have to continue to titrate the dosage. And so that's happening throughout the process. So that is a differentiator this, basically putting the insurance process on tech rails. The part that I mentioned about training our clinicians in obesity care, most, and this goes to the difference between going to your provider, most GPs don't have any training in nutritional science. I say that with love. My brother is a doctor, he had one nutrition class, his entire tenure in medical school. Most doctors only have about 11 hours of training. It's really important because consumers what they care about most is not just losing weight, but managing their symptoms. And in order to do that well, need to be trained in the right type of care. And so we're doing both of those things. alongside, obviously, our behavior change program, which is the #1 doctor recommended program and endorsed also by U.S. World and news report as the Best Diet and Behavior Change Program for the last 13 years.

Okay. Awesome. And looking a little more recently over the past few months, supply constraints across GLP-1s have been a material impact to the space. So how has this impacted Sequence? And then more broadly, how are you thinking about marketing spend on the brand as a result?

So I'll talk about the supply constraints. And obviously, yes, they are impacting us in the space in general. There are supply constraints going on in the space. And, what I would share is all the good work we're doing to ready for when supply returns or starts to grow back to a normal or consistent growth rate. So, during this time, we are leaned into working on our integration, so integrating Weight Watchers and Sequence into a common platform, integrating the experience into our app. Getting ready our GLP-1 Companion Program to launch ahead of our peak season. And by that, I mean, members can come into Weight Watchers and sign up for our core program, and it is a healthy habit building behavior change app based program. You can identify on the way into that program as I'm diabetic. And we're going to give you a tailored diabetic program, et cetera. We work to tailor to your needs. And we will be tailoring and launching a program tailored to the needs of people on a GLP-1 program and launching that ahead of our peak season, and that will be complementary to a Sequence subscriber, but also available to our general membership because there will be people who come through that would like the GLP-1 behavior change support, but maybe they have access elsewhere or maybe they don't have an insurance need or some of the needs that are built into what we're providing the team has spoke to, within Sequence. So we're leaned into integration. We're also leaned into testing and learning during this timeframe. We've not really unleashed marketing yet. Sima can speak to the marketing efforts, but we're readying and testing and thinking about what to do from a marketing perspective when the time comes that we're comfortable that supply is returning.

And I think what the shortages are showing up are our differentiators and how we are able to support numbers because not only do we prescribe GLP-1 but we have a wide formulary. So we're able to move people to generics or other forms of medication or to our core behavior change program as we work with them during this time. And the ability for that tech stack that I mentioned, that's automation, AI powered to be able to inform which pharmacy is more likely to have a medication in stock, that's given us a real advantage. And that's why even within the scope of the supply constraints and since the acquisition, we, on our last call, reported a 40% step-up in subscribers. And I think that, that was really meaningful given the constraints we were operating in, and even so, we are holding back intentionally. We did not buy this business for 2023. It's important for us to maintain the high NPS and the trust, and so we want to ensure that people who are coming into our platform that we can ensure the continuity of care.

We're also leaning into on the like readiness of our own scaling. So with the integration and efforts that we're undertaking, we want to make sure that we're taking the time to scale up our clinicians. We have a rigorous 12-week training program that we put new clinicians through back to Sima's point. And we have, we actually have a waitlist of clinicians waiting to be onboarded and work for us. We have a high NPS with clinicians. They want to work for us. They like our platform. We're working on continuing to scale that clinician capacity base so that we don't have a human capital constraint as supply issues.

Okay. Great. And looking out over the medium term once hopefully, we get past some the supply issues. How are you thinking about the growth path for Sequence? And then given all the work you're doing now to tackle some of the potential stealing issues, what are you going to see as those potential difficulties again, once supply starts to come back online?

So very bullish, obviously, on a long-term growth potential, medium-term growth potential. I think, again, the supply shortages has only given us an opportunity to make sure our readiness is there. And, the other piece of this, though, with regards to constraints beyond this moment because, obviously, the manufacturers are working on this. We're going to get this figured out. But what's really going to unlock this category is our payers, is policy. These medications are incredibly expensive. And so we are motivated to work with DC in a bipartisan fashion such that we can help move Medicare Part D and talk about the [indiscernible] act that was reintroduced and talk about the fact that these are life saving medications, and you're seeing that now with the SELECT trial, showing that there's a 20% less likelihood of a cardiovascular event. The leading cause of the heart disease. We're saying one out of every 5 people we're going to save a life. That's amazing. And so we have to be focused on the health equity here, ensuring that all populations, not just those with who are, who have private insurance are able to access these medications. The other constraint is obviously the injectable format, and we know that people are working that -- manufacturers are working on pills. They are moving through the process, too. So I think from a macro standpoint, there are a couple of different things that can really shake up this category.

Okay. Awesome. And before we move back to core, Heather, you mentioned that you're launching a new lifestyle program for patients on GLP-1s regardless of whether they get them for Sequence or not. So I guess, just can you expand a little bit on the rationale behind that program? And then how should investors think about the launch timeline, especially considering dieting season kind of next January?

Sure. So launch timeframe, quite simply put ahead of our next peak season, so ahead of January. And then in terms of the program itself, it is there and designed to help people on GLP-1 focus on the things that matter when you're on GLP-1. There's a very real need to focus on good choices and healthy habits so your learning behavior change over time. But very specifically, while you're on the medication, the medications are designed to help you, you're going to lose body mass. We'd like you to lose fat mass versus muscle mass. So let's focus on lean, good proteins, let's focus on muscle density building exercise and, let's focus on hydration to help you offset any of the symptoms you may feel well on these medications. So that's the real design intent behind that. And really looking and feeling like Weight Watchers even, I think, is important so that as members want to move around within the services that we provide, it is a Weight Watchers platform that they're seeing in that healthy habit building behavior change platform.

And why allow anybody to get it? I think that was an important part of the question right there, which was, yes, whether or not you get. We're not in the prescription business. We're in the subscription business. So whether or not you get those medications through us or not, we want to help people. And so our program is going to help people manage their symptoms, no matter where they get it from. And I think that, that's a really important differentiator in our product also globally where the insurance support, there's more insurance support. The medications are more affordable. And so we might see some different dynamics in terms of Telehealth versus people going to their doctors. And so I think offering the program widely is important to us.

Okay. Great. Switching back over to the core, 2Q subscribers grew sequentially over 1Q. The first time that's happened. Can you break down the key drivers of the better than traditional seasonality? And whether those are sustainable?