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

Good day, and welcome to the Weight Watchers' Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to [ Ryan Wheeler, ] Director of Investor Relations. Please go ahead.

Thank you for joining us today for Weight Watchers' Third Quarter 2026 Earnings Conference Call. Earlier this morning, we released a shareholder letter and press release with our third quarter 2026 results, which are available on the company's corporate website located at corporate.ww.com. 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. Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are available as part of the shareholder letter and 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 latest annual report on Form 10-K, quarterly reports on Form 10-Q, the earnings press release, the shareholder letter and 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 Stephen Bye, President and Chief Executive Officer; Felicia DellaFortuna, Chief Financial Officer; and Jon Volkmann, Chief Operations Officer. Stephen, I'll turn the call over to you.

Thank you, [ Ryan. ] Good morning, everyone. Since this is my first earnings call as CEO, I want to share with you why I decided to join Weight Watchers team. It's very simple. I came here because I believe this company can win in a large and growing market. I spent most of my career in subscription and service businesses, and I know how important it is to earn and maintain members' trust, delivering value day after day and month after month. This is an incredible brand with a remarkable history. And few companies have had such a positive and meaningful impact on so many people's lives. Since joining Weight Watchers, I have made it my priority to spend time listening to our members, attending workshops, talking to our coaches, our registered dietitians, our clinicians and my colleagues. What stood out for me is that we have an incredible team that cares deeply about our members and what we do every day. The weight loss journey is very personal and the support people need changes significantly along the way. The weight loss industry is also evolving at an unprecedented pace. Today, access to GLP-1 medication is becoming increasingly commoditized and new options are coming. With expanding market access, these medications are becoming more affordable and widely available to more people, including seniors through the Medicare's GLP-1 Bridge program. As barrier to entry for GLP-1 prescriptions continues to decrease, a critical gap is emerging in the market, the acute need for ongoing guidance, including nutritional and behavioral support. We see the total addressable market growing, in part driven by the accessibility of GLP-1 medications. Whether on or off medication, people still need the support we provide. They still need to develop foundational habits that sustain healthy weight loss over a lifetime. That is why Weight Watchers has 3 unique offerings, Core, Core+ and Med+, designed to support members wherever they are in their journey. And the results prove the value of our holistic approach. Weight Watchers' Med+ members who have prescribed GLP-1 medication and also regularly engaged in our GLP-1 Success Program lost 29% more body weight on average at 12 months than those who did not engage with our structured behavioral support program. The benefits are long term, too. Med+ members who engage with our behavioral support are able to achieve more than 20% weight loss on average after 3 years. Our science-backed behavioral support and human connection truly sets us apart. Our integrated platform is built to support members wherever they are on their journey, regardless of where they obtain their medication. Whether a member accesses clinicians trained to support people with obesity through our Med+ offering or receive a prescription from their own health care provider or through an online pharmacy, our GLP-1 Success Program provides the essential behavioral and community support they need. As anyone who's been on a weight loss journey can tell you, losing weight is not a straight line. Our members' needs change over time. No matter where they are on their path, we provide the support they need through our platform, our digital tools and with both in-person and virtual workshops. We'll continue to bring together the best of science-backed behavioral support, clinical care and human connections to support our members. The third quarter's results are evidence of the unique approach we take at Weight Watchers. Our members are responding to our high-value offerings. We increased clinical revenue 48% year-over-year, the largest year-over-year increase of any quarter in 2026. We achieved a fourth straight quarter of sequential Core+ subscriber growth. And overall, we generated positive operating cash flow of $32 million. While we are laser-focused on the strategic evolution, we'll continue to be highly disciplined in our operations. The top-line progress in our high-value tiers, combined with careful expense management and disciplined marketing allocations generated $51.7 million of adjusted EBITDA in the third quarter, representing a strong 33.8% margin. And with that, I'll turn it over to Felicia to discuss the financial results for the third quarter.

Good morning, and thank you, Stephen. Our third quarter results demonstrate continued progress in our higher-value offerings. Core+ and Med+ now generate roughly half of our revenue. Core+ subscribers grew sequentially for the fourth consecutive quarter, a milestone we have not achieved for 20 years, one we had to blow the dust off old filing cabinets to confirm. This higher-value behavioral tier showed 16% growth in subscribers year-over-year. In addition, clinical subscription revenue has grown more than 30% year-over-year in every quarter this year, including 48% in the third quarter. Alongside this progress, we delivered $51.7 million of adjusted EBITDA, $15.1 million of positive net income and $32.3 million of operating cash flow. I'm proud of this team's ongoing work and the continued progress made since our financial reorganization in June 2025. Now turning to subscribers. We ended the quarter with approximately 2.3 million total subscribers. Behavioral subscribers were approximately 2.1 million, down 26% year-over-year, with the decline concentrated in our Core tier. Within behavioral, our Core+ tier continues to gain share, ending the quarter with 546,000 subscribers and now representing nearly 1/4 of our total subscribers, up from 16% a year ago. Importantly, the number of Core+ members enrolled in our GLP-1 success program has more than doubled since January, reinforcing the growing relevance of our structured behavioral approach as weight loss medications become more widely used. Clinical ended the quarter with 174,000 subscribers, up 40% year-over-year and down from 197,000 at the end of June. As we expected in August, the sequential decline largely reflects the 1-year mark of our transition off compounded semaglutide, with the 12-month plans introduced during that transition coming up for renewal in Q3 2026. Alongside that, the recalibration of our marketing spend across the portfolio also contributed. The deliberate recalibration of marketing spend across our portfolio has also supported two growing offerings, Core+ and Med+ with differentiated ways to serve members using GLP-1 medications. Monthly subscription revenue per average subscriber, or ARPU, increased 14% year-over-year to $21, reflecting the continued shift in our subscriber mix toward higher-value offerings. Within behavioral, Core+ generates approximately twice the ARPU of Core and clinical ARPU was $68, roughly 5x the value of Core. Turning to revenue. Third quarter revenue was $152.9 million, down 11% from $172.1 million a year ago. Behavioral subscription revenue declined 22% to $113.9 million, primarily reflecting the smaller Core subscriber base, partially offset by the growing contribution from Core+. Clinical subscription revenue increased 48% to $38 million and represented approximately 25% of total revenue compared with 15% a year ago. We continue to make progress on gross margin. Adjusted gross margin improved to 74.6%, our highest level of 2026. Importantly, this performance comes even as clinical, which has a higher cost of service, grew as a share of total revenue. Continued workflow automation and more efficient delivery of our services have contributed to our strong margin profile. Marketing expense was $33.1 million or 21.6% of revenue, compared with $48.4 million or 28.1% of revenue a year ago. Our investment to date in 2026 reflects deliberate timing and allocation across the portfolio. During Q1, our peak season marketing investment was more heavily concentrated in our Med+ offering to support the Wegovy pill launch as well as included increased brand awareness to educate consumers of our Med+ offering. Q2 and Q3 included a more balanced allocation across our portfolio as we manage offerings with different maturities and margin profiles. Product development expense was $5.2 million or 3.4% of revenue compared with 4.4% a year ago. And adjusted selling, general and administrative expense was approximately $25 million or 16.4% of revenue, down from 17.8%, reflecting continued cost discipline. We generated positive net income of $15.1 million, our first 2 consecutive quarters of positive net income since emergence. Adjusted EBITDA increased 21% to $51.7 million, and adjusted EBITDA margin improved to 33.8% compared with 24.9% in Q3 2025. This performance reflects the operating improvements we have made and the deliberate timing and allocation of marketing investments. Net income also benefited from lower depreciation and amortization and lower interest expense following our second quarter debt reduction. Now turning to liquidity. We ended September with $126.4 million of cash and cash equivalents, up approximately $25 million from the end of June. We generated $32.3 million of operating cash flow during the quarter after $11.4 million in interest payments on our term loan and invested approximately $7 million in capitalized software and website development. Following our financial reorganization in June 2025, we have reduced total debt by more than 70% from approximately $1.6 billion to $423.6 million. This stronger financial position supports continued strategic investment in the business while maintaining financial flexibility. Turning to our full year outlook. We are narrowing our 2026 guidance ranges. We now expect revenue of $625 million to $630 million compared with our previous range of $620 million to $635 million; an adjusted EBITDA of $110 million to $115 million, compared with our previous range of $105 million to $115 million. We expect clinical subscription revenues to represent approximately 25% of full year revenue compared with approximately 16% in 2025. Our outlook continues to incorporate moderate sequential clinical subscriber declines in Q4 at a lower level relative to Q3 as Q4 does not include a comparable group of 12-month plans coming up for renewal. Looking beyond the fourth quarter, we see a meaningful opportunity to grow awareness of our Med+ offering. Our concentrated clinical investment in Q1 2026 raised awareness, but those gains did not carry through the year as we had anticipated. We are building a more diversified marketing approach that provides us additional ways to reach prospective members. We continue to expect year-over-year growth in Core+ subscribers. We now expect full year adjusted gross margin to be approximately 74% compared to the prior expectation of above 72%, representing a modest decline relative to 2025, driven by the change in revenue mix, partially offset by increased workflow automation and more efficient delivery of services. We continue to expect 2026 marketing expenses as a percentage of revenue to increase modestly compared to 2025. We expect to increase spend modestly in Q4 compared to Q3 as we prepare for peak season, but keep second half investment below first half levels while continuing to allocate our spend across the portfolio of product offerings. With that cadence, we expect second half adjusted EBITDA in 2026 to be higher than the second half of 2025. We also continue to expect positive operating cash flow for full year 2026, including projected interest costs of approximately $45 million to $50 million. Our third quarter results continue to demonstrate the earnings power of a more disciplined operating model and our members' growing interest in higher-value offerings. As Core+ and Med+ offerings become a larger share of our business, we see a company being built with a much stronger and more robust financial foundation. With that, handing back to Stephen for some closing comments.

Thanks, Felicia, for the update. Let me close by saying we have an incredibly strong team and a foundation to build upon. But we have more to do. I will be very clear. I believe this business is not living up to its potential. My focus is on serving every one of our members across Core, Core+ and Med+. We'll strengthen their experience, improve our products and applications and demonstrate the unique value of Weight Watchers and the support that differentiates us in this market while also delivering a return on investment for our shareholders. I came here to return this business to sustainable profitable growth, which we are well positioned to achieve in 2027. Now handing back to the operator for Q&A.

[Operator Instructions] The first question today comes from Alex Fuhrman with Lucid Capital Markets.

I wanted to ask about the -- what appears to now be a pretty sustained turnaround in Core+, now getting back to 4 quarters of growth. That's now a pretty meaningful share of your membership. Can you give us a little bit more color on what's driving that and how sustainable it is? Is this basically you're doing a better job converting your stickier behavioral members to the higher-priced offering? Or is this more about new members coming into the funnel, getting them to that $20 a month offering instead of the $10 one? And then sorry to keep tacking them on here, but all on this topic of Core+, I think, Felicia, you mentioned there was pretty significant growth within Core+ of people using the GLP-1 companion offering, is it fair to say that a good chunk of this growth in Core+ is people that are taking GLP-1s somewhere other than the Weight Watchers platform?

Yes. So Alex, again, thank you for the question. Let me start and then the specifics, I'll hand it back to Felicia. But look, I think at the -- underneath all of this is we have an incredible brand. And our proposition and our point of differentiation is around support. And I think that's demonstrated through Core+, but also through Med+ as well. And I really think we have the platform that supports our members wherever they are in their journey, whether it's on the behavioral side, whether it's clinical care, nutrition, it's the support that we offer through our virtual and in-person workshops that I think really sets us apart both on Core+ but also on Med+. And so on the specific trends underneath that, I'll hand it over to Felicia, and she can comment more about that.

And we do appreciate the question, Alex. We are very excited about the consecutive quarter-over-quarter growth that we are showing in Core+. And I would say it's all of the above. And so the adoption of GLP-1 Success Program has more than doubled since the start of the year, and so that has been an important driver. As we've previously discussed, we are adopting new ways to engage with our community. And so 40% more Core+ members participate in our virtual experiences as well. And so that has been an important part. And we are very excited about the overall subscriber growth this quarter showing approximately 16% and having that accelerate as we've moved through this year. I would also add that the member migration has continued to also be a positive with Core+ with approximately 20% of the members or percentage of sign-ups coming from Core members as well.

Okay. That's really helpful. And then I get asked about gross margin as well. Intuitively, I would think that there's going to be some gross margin pressure over time as the clinical offering continues to grow as a share of your total revenues. Obviously, with today's news, you're taking the gross margin target up a little bit for the year. Is that due to the growth in Core+? Is it likely that, that could be an offset in terms of gross margin to the growth in clinical? Just trying to understand how we should think about that over the next few years.

We're excited about all of the work that Jon Volkmann and his team have done in allowing for the execution of costs to be more efficient without [ forgoing/foregoing ] on any of the services that we provide to our members. And so as we mentioned, we do anticipate that being approximately 74%. Last year was also at approximately 74%. So holding it fairly flat year-over-year has been a very exciting part of our trajectory. And that has been with our 2 offerings, Core+ and Med+ significantly increasing as a percentage of total. And so with Med+ going from approximately 15% of our revenue in 2025 to us now expecting it to be at approximately 25% of our revenue in 2026. I think that's an important factor in the fact that we have been able to maintain on the margins. And then also as it relates to the expansion of our Core+ offering, that went from approximately 18% of our subscriber count to almost 25% of our subscriber count this quarter as well.

Yes. And Alex, I'll just add to Felicia's comment. As we look forward, it's really about operating discipline and as we look at how we scale the business. And as I said in my opening remarks, it's really about profitable growth. That's what we're focused on. And so we are looking at how we grow this business profitably as well as scaling it up, but maintaining the operating discipline that the team has in place today and looking at where we can take technology and apply that even more as we scale the business as we go forward. So...

The next question comes from Nathan Feather with Morgan Stanley.

First on the clinic side, you did see a decent amount of sequential declines there. I can't decompose how much of that was the lapping of the 1-year compounded plans versus kind of underlying change. And then just given the results you've seen this year, should we now expect clinic will have a more similar seasonality to the behavioral business with the 1Q peak and then some slow attrition as you go through the remainder of the year?

I would say just to answer the second part of your question first. I mean it's hard to tell whether the seasonality of clinic at this point is going to look similar to the behavioral business because we did have the Wegovy pill launch in Q1 of '26. With that being said, as we think about the decline from Q2 to Q3, I would say a couple of factors contributed as we anticipated. The most material of the factors is that Q3 2026 is a higher churn quarter as we are lapping the introduction of the 12-month long-term commitment plans that we introduced in Q3 of 2025 as we had rolled off our compounded semaglutide offering at that point. We had also noted that this -- and Q3 is anticipated and will be our lowest marketing spend for the year. However, we do anticipate still to show a modest increase year-over-year in marketing as a percentage of total revenue. The other thing that I would note is that we did recalibrate across the portfolio, and we plan to continue to calibrate our marketing across the portfolio because we do have multiple touch points with GLP-1s. And so whether a member is getting their meds with or without us, we do want to make sure that we are taking advantage of the larger TAM of the GLP-1 market across both our Med+ and our Core+ offering.

Yes. And as we look ahead, we're going to be continuing to focus on refining our initial clinical intake and using the patient's medical history, their personal goals and insurance profile to better match them with the right clinical pathway from day 1. And we've stated in the past that we support members not only with cash pay, but also through the insurance process, and that's a competitive advantage for us. But it is one that comes with some complexity, and we're going to be working to provide members with better cost transparency for medication earlier in the process. And even looking beyond medication, we're going to be looking at ways to improve front-end guidance to help members choose the commitment duration that best fits their specific clinical time line and goals. And then through all of that, looking to connect touch points across clinicians, registered dietitians and behavioral tools to really help support members seamlessly at every stage from titration to long-term maintenance.

Yes. And Nathan, thanks for the question. Good to meet you as well. I think as Jon said, it's really about looking at the pain points in every customer journey. So whether you're a Core customer, Core+ or Med+ customer, it's really about addressing those friction points, and that's what we're looking at and how do we enhance the member experience throughout the journey. And so we're looking at how do we lower churn, how do we maintain longer lifetime value for our customers, and that's a focus of the business going forward as well. So -- but I also want to emphasize a point that both Felicia and Jon touched on, which is Med+ is one way that we support customers with GLP-1 support. But we also have GLP-1 support on Core+. And so access to GLP-1 medications becomes more commoditized and prescription -- access to prescriptions is not really a barrier. We're really focused on how do we support customers irrespective of which journey they're on and where they get the medication from. So I really look at the support as the underlying differentiator that supports customers on Med+ as well as on the Core+ business as well.

Okay. Great. That is very helpful. And then, Stephen, as you've come in and been able to kind of take a look at under the hood of the business, where do you see the biggest opportunities to -- whether it's drive growth, improve costs? And kind of how should we think about your early priorities, especially as we head into peak season in the next few months?