WW International, Inc. (NASDAQ:WW) Q2 2024 Earnings Call Transcript

WW International, Inc. (NASDAQ:WW) Q2 2024 Earnings Call Transcript August 1, 2024

WW International, Inc. misses on earnings expectations. Reported EPS is $-0.13 EPS, expectations were $-0.00325.

Operator: Welcome to the WW International’s Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I’d now like to turn the call over to your host, Corey Kinger, VP Investor Relations. You may begin.

Corey Kinger: Thank you everyone for joining us today for WW International’s second quarter 2024 conference call. At about 7:00 a.m. Eastern Time today, we issued a press release reporting our second 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 the 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 certainties 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 a more detailed discussion of forward-looking statements and the risks and certainties 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’ll now turn the call over to Sima.

Sima Sistani: Thanks, Corey. Good morning, everyone. Thank you for joining us today. Weight Watchers has the right strategy to return the business to growth. In order to win in this dynamic GLP-1 environment, we are completely reimagining how we operate to catalyze our path as the leading digital weight health provider. We have taken decisive actions to navigate through this dynamic landscape. While top line is pressured in the short-term, we continue to expect strong adjusted operating income this year, which gives us ample runway for what we will – what will be a monumental transformation of not only our business, but also how culture at large treats and cares for people living with overweight and obesity. Weight Watchers has the unique ability to provide a weight health solution that aligns with this major cultural shift.

The specialized expertise, we offer members and payers, is critical to both managing costs and improving health outcomes. Our clinically proven program escalates or deescalates in intensity based on a consumer’s needs at every step along their journey. For instance, a member can start on our core behavioral program, then add on clinic services such as registered dietician visits or metabolic panel, and if appropriate, a doctor visit and medication access. Alternatively, many of our members want to move from clinic access to a behavioral maintenance program once their medications have been titrated. This is our one membership strategy, which is made possible by over 60 years of expertise in behavior change and the trusted community we have built over decades, paired with an innovative telehealth service and specialized clinicians who can prescribe a wide formulary.

Our progress has been tempered near-term by the complex and rapidly shifting external environment over the last few months. While we continue to experience GLP-1 shortages we have seen an increasing quantum of compounded and in certain cases even counterfeit medications enter the ecosystem. This causes both a more fragmented landscape for consumers to navigate as well as increasing cost of media for the same audience. With regard to media, we continue to take a performance approach to subscriber acquisition, managing to a prudent LTV:CAC ratio. The increase in tax resulted in a decision to pull back marketing dollars initially dedicated to Clinic acquisition. In addition, we postponed the rollout of our refresh marketing campaign, which was initially planned for Q2 to integrate our latest findings and insights in this evolving environment.

Last week, we soft launched the FitsU marketing campaign celebrating individuality sharing real member stories and showcasing our comprehensive support, including clinically proven behavior change and the medication for those who need it. Additionally, despite the fact that obesity is widely recognized as a chronic disease, we are disappointed to see health plans contracting coverage. For instance, Michigan’s largest insurance company said it would discontinue coverage of obesity medications and its commercial plans. These trends raise health equity concerns and are a meaningful setback in the effort to destigmatize a vulnerable population, largely women and people of color, who are deserving of equitable care and access to life saving medications.

While, our growth trajectory has been affected by the evolving medication supply constraints, our comprehensive approach to weight loss is perfectly positioned for growth, despite pulling back marketing dollars amid supply shortages, our end of period, clinical subscribers increased 120% year-over-year, in part due to our existing membership base, with about 30% of May and June clinic sign ups converting from our behavioral program. In addition, we are seeing 10% of lapsed clinic subscriber’s move to our behavioral membership, evidence of our one membership strategy, meeting our member’s needs along their weight health journeys. With obesity, specialized clinicians, our proven behavioral program, dedicated care team, insurance support and engaged community, we are the number one doctor recommended way to lose and maintain weight loss.

On average, Weight Watchers clinic members achieve a 19.4% body weight loss at 12 months. The combination of personalized medication management with our behavior change program is compelling, delivering Weight Watchers clinic members 11% more weight loss compared to those taking medications alone. These impressive weight loss efficacy results demonstrate that we have a differentiated, proven offering, and increase our confidence that the initiatives in our expansion strategy will give us opportunities to catalyze our growth as we transform our business model, make our offerings accessible to more people and deliver on our mission as the global leader in Weight Health. We are making progress, hitting early milestones across each of the three pillars of project expansion.

On the first pillar of expanding care, this summer, we began making insurance covered nutrition counseling with registered dietitians available to eligible members, starting with a pilot in New Jersey. In this pilot, 24% of new clinic members added on NRD visit. Given the exciting uptake, we have started a phased rollout in 10 more states. Also this week, we expanded our pilot to eligible behavioral members. Over time, we believe such incremental services will expand ARPU while providing a value added experience for members. We also launched a programmatic GLP-1 medication supply tracker to all clinic members. For over a year, Weight Watchers, clinic has been actively assisting members in locating supply. But with this enhancement, we are able to point our members to the pharmacy nearest them with medication in stock immediately after a prescription is written.

This service has contributed to an increased retention now approaching six and a half months, which is up from last quarter, as well as a 12-month high NPS. Other supply trackers in the market depend on crowd sourced medication availability, which is prone to error and puts the onus on the user to find and report medications. Our supply tracker provides up to date information on medication shortages directly from our proprietary pharmacy stop database. You may have noticed that we recently refreshed the entire design of the Weight Watchers app to make it a more intuitive and unified user experience, providing members quick and easy access to all of our weight management tools. This revamp is driving improvements to login rates lists in tracking and longer sessions, all of which are positive for engagement, as demonstrated by a 16% surge in NPS last month.

For our second pillar, expanding access, we continue to make progress toward making Weight Watchers a covered benefit, despite some providers pulling back coverage, our B2B team is in active discussions with a large number of potential and existing customers. While an increasing number of vendors are claiming to have the right solution, Weight Watchers offers what the vast majority of them cannot, a comprehensive program addressing cost, member experience and sustainability. With over 33 years of enterprise experience, more than 500 enterprise clients and clinically proven results, Weight Watchers is the science fact leader in the Weight Health category. At Labcorp, which is one of our most recent B2B wins, the subscriber conversion rate is nearing 10% only 6 months in proving that, when our program becomes a covered benefit, we have the brand recognition and solutions for sizable enrollment.

Scaling our B2B business will take time, but we continue to believe this channel will be a critical driver of growth and momentum in the years ahead, especially when enrolled ARPU generated from each subscriber is substantial, while also delivering health outcomes to the employee and ROI to the employer. And on our third pillar, expanding payment options. In addition to our B2B efforts, our goal is to also enable D2C members to use their insurance to reduce their cost burden and increase their access to incremental services, thereby driving greater ARPU. As mentioned, we are now offering insurance covered registered dietician visits to eligible Weight Watchers members in the U.S. The ability to process insurance claims for Weight Watchers services will have a positive impact on signups and retention, and is a natural extension of our existing ability to provide insurance support for Weight Watchers Clinic members.

While these initiatives will expand our reach and enable us to serve a broader population, catalyzing our return to top line growth, we are maximizing profitability and running a more efficient organization. Today, we are executing a strategic streamlining of our operational structure, which will result in a significantly lower cost base and allow us to focus on a narrow list of high impact product initiatives, increase our nimbleness and impact across the product roadmap and bolster profitability and our cash position. Our organizational changes start with revamping our product organization under the leadership of our new Chief Product Officer, Donna Boyer, we are all aligning on cross functional teams focused on outcomes that enhance collaboration, creativity and velocity and ultimately tied to financial outcomes.

This simplified structure will allow for agile teamwork and reduced overhead in a rapidly evolving environment. It’s crucial that we operate faster and empower teams to adapt quickly. Weight Watchers is positioned to lead, we are adopting fast tech forward operating principles, while benefiting from a 60-year track record of proven results with behavior modification. This provides the foundation of member support and trust, which fuels long-term success. I will now turn the call over to Heather to discuss our financial results and outlook.

Heather Stark: Thanks Sima. As Sima highlighted, despite current headwinds, we are confident that we have the strategy, positioning and resources to return the business to growth. In immediate term, we are laser focused on profitability and making the right decisions that will best enable the company for the longer term. Turning to our second quarter 2024 results. Note that all year-over-year, financial comparisons are on a constant currency basis. We ended Q2 with 3.8 million subscribers, a decline of 6% year-over-year. Revenue totaled $202 million. Subscription revenues of $200 million declined 5% year-over-year, driven by a higher mix of subscribers within initial lower priced commitment periods, mixed shift from workshops to digital subscriptions and lower signups for our Weight Watchers behavioral offerings, partially offset by a nearly 120% increase in clinical subscribers year-over-year, driving $20 million in clinical revenue up $12 million year-over-year.

Other revenue declined $13 million due to the discontinuation of our low margin consumer products business. Adjusted gross margin was a record high of 67.9% and up from 63.4% in the prior year, primarily driven by the discontinuation of the lower margin consumer products business at the end of 2023. In addition, gross margin reflects our actions in reducing our fixed cost base. Marketing expenses of $54 million were up 5% year-over-year, reflecting higher online advertising partially offset by lower spend on TV, advertising and production agency fees. Adjusted G&A of $46 million was down 22% versus prior year, primarily due to compensation and related costs. Adjusted operating income was $38 million, an increase of 13% reflecting our efforts to improve margins and contain costs.

Restructuring charges, totaled $2 million in the quarter related to prior year plans. Income tax was a benefit of $16 million, which, consistent with last quarter, reflected the impact of an unusually high negative annual effective tax rate driven by a valuation allowance and a small pre-tax loss reflected in the company’s full year fiscal 2024 guidance. GAAP EPS was $0.29 compared to $0.65 in the year ago quarter. As Sima discussed, we are streamlining our operational structure to optimize our product portfolio, focusing on high impact initiatives to enhance efficiency, accountability and speed. We are reducing our global headcount, primarily in corporate roles, including a 40% reduction in VP and above positions, and resulting in approximately $60 million in annualized cash savings, mainly benefiting G&A.

We expect to take a restructuring charge of $12 million to $15 million in the second half of the year. Cash outlays for restructuring, including the 2024 plan and remaining payments for prior year actions are expected to be approximately $30 million in 2024 and $10 million in 2025. Importantly, this action reduces our employee related cash expenses this year versus our prior expectations. These actions are part of a broader cost reduction initiative targeting $100 million in annualized savings, including $20 million of savings currently reflected in our 2024 guidance. Shifting to our outlook for the full year 2024, we now expect year-end total subscribers of at least 3.1 million, which, given our subscription business model, will drive a revenue headwind into 2025.

Total revenue of at least $770 million, adjusted operating income of at least $100 million, and adjusted EBITDA of at least $150 million. The cost actions we announced today, as well as the actions we have taken thus far demonstrate our ability to control what we can in this dynamic industry environment by tightly controlling costs and approving efficiencies we are focused on maximizing profitability as we manage through a challenging sign up environment. For the full year, we expect income tax expense of up to $10 million, excluding the impact of the valuation allowance, Q1 impairment and other discrete tax items, we continue to expect an income tax benefit of up to $10 million. We continue to expect cash taxes to be between $20 million and $30 million for the year.

As a reminder, given the small pre-tax loss reflected in the company’s full year fiscal 2024 guidance, any updates to the expected pre-tax loss or income tax expense can result in significant impacts in quarterly income tax results. Full year interest expense is expected to be between $105 million and $110 million, with the year-over-year increase largely driven by the expiration of our $500 million hedge at the start of Q2 ‘24. Due to lower subscriber and revenue levels than previously anticipated, we expect to have a modest use of cash from operations for the full year 2024. CapEx, which is primarily capitalized software, is expected to be in the $20 million to $25 million range. Depreciation and amortization is expected to be around $40 million.

Turning to our capital structure, we ended Q2 with approximately $43 million of cash plus an undrawn revolver. Our cash needs in the first half of the year were much higher than our expectations for the second due to increased marketing compensation timing and the sequence acquisition anniversary payment. With our cash position plus our revolving credit facility and bolstered by the cost actions we are taking today, we believe we have sufficient liquidity for our working capital needs, including cash outlays related to our restructuring actions and servicing our debt. At Q2 end our net debt to adjust to EBITDAs leverage ratio was 9.6x. As a reminder, we have very attractive debt terms with no maturities until 2028 and 2029 and we are comfortable with our liquidity profile, which gives us ample time to deliver on our transformation strategy.

We will continue to opportunistically evaluate options to reduce our leverage ratio on terms we believe are strategically beneficial. I will now turn the call back to Sima.

Sima Sistani: We are executing against our strategic pillars to expand care, expand access and expand payment options for our members. These initiatives enable us to serve a broader population as the leading digital health provider of weight health, catalyzing our return to growth and positioning Weight Watchers for long-term success. Weight Watchers had an impressive competitive moat and high barriers to entry. With our significant subscriber base, extensive database of former members, strong retention, solid NPS, positive customer perception, brand trust and clinically proven program, a significant opportunity lies before us, and we have the foundation, strategies and structure to successfully navigate the current environment and emerge stronger. Thanks for joining us. We are now happy to take your questions.

Q&A Session

Operator: [Operator Instructions] And our first question comes from Jack Wallace from Guggenheim Securities. Please go ahead, Jack.

Jack Wallace: Hi, good morning. Thanks for taking my questions. I want to ask about the clinical business, and it’s, it sounds like there are some number of headwinds in the quarter. Sounds like mostly marketing. But can you talk a little bit about the whether it’s the perceived impact from the compounded GLP-1s. Have you noticed or you’ve got any feedback on attrition there? Again, recognize the difficult marketing environment, the delay in the marketing refresh, just thinking about the competitive threat there. Thank you.

Sima Sistani: Thanks, Jack. Yes, we saw a significant increase in our clinic CAC in the second quarter, really driven by the increased number of competitors in programmatic channels such as search and there’s probably about 50% more competitors in 2024 than 2023 many of them offering compounded medications. And, I think we’re also seeing just the cost of media is going up due to this being an election year, and went off of the Olympics. And I fully believe that that, this business is set up to grow. We are seeing increased retention in that business to 6.5 months. We’re at a 12-month high in NPS. And our general ability to move people between programs and realizing our one membership strategy, we’re seeing that so, ultimately, this is about managing to the long-term health of the business. And we decided to pull back marketing dollars given external turbulence, and just take a real performance marketing focus here, on the path forward with clinic.

Jack Wallace: Appreciate that makes sense, and then following up your response there about the one membership and being able to get members to toggle up and down based on their needs. It seems like that’s an attractive proposition for employers. You made some comments about the B2B pipeline. You prepared remarks. Can you give us a kind of updated thoughts on the materiality of expected contribution next year, and then just also give us a reminder for how we should be expecting once a benefits customer comes online, what the enrollment or utilization trends should look like over the course of the year? Thank you.

Sima Sistani: Yes. Thank you for that question. Certainly, the flip side of the popularity and efficacy of these medications is the cost. And I mean, we’re the leaders in this market, and we can enable employers and insurance companies to provide coverage in cost, effective ways that really generate ROI and proven health outcomes. And the key to that is you can’t generate that ROI without the population actually enrolling and then engaging, and that requires a strong brand, a proven program, nobody comes close to us on that front, and we are pleased with our sales momentum we’ve seen large players obviously have longer sales cycle, but they’re enthusiastic. We closed five deals last quarter. We already have four lined up for this quarter.

Look forward to hopefully announcing some of those soon. All these deals represent 10,000 plus lives in these larger player categories, but no deal on its own is going to be material to our bottom line in year, but we are really pleased with the activity that we are seeing now, even though there is this overall trend of contraction, employers seem to be picking up where the insurance or insurers are contracting.

Heather Stark: And I just add on to that to the sizing question, we are enthusiastic obviously, about the BB expansion and opportunity and for reference point, this year we’re expecting about $30 million of revenue from the business. But I would just repeat what Sima said. Singular contracts aren’t necessarily material for the total business, but it is encouraging to see traction in the sales motion and as well on conversion we’re seeing in our most recently signed contracts that we shared in the prepared remarks.

Jack Wallace: Got it. Appreciate it. Thanks again.

Operator: And our next question comes from Michael Lasser from UBS. Please go ahead, Michael.

Henry Carr: Good morning. This is Henry Carr on for Michael Laser. Thanks a lot for taking our questions this morning. So I want to ask about the guided and the period subscribers of at least 3.1, last year in 2023, Weight Watchers made a lot of progress on kind of stopping that subscriber decline from 1Q to the end of the year. This new guidance kind of implies that we’re right back to that historical pattern of subscriber leakage. So I guess is the promotional strategy that’s signing up, that’s helping aid and drive subscriber growth. Is that still being successful? Or are you seeing a lot of subscribers and your subscription after that promotional period ends? Thanks.

Sima Sistani: Yes. Thanks for the question, Henry. And yes, to the question of the long-term commitment plans and their efficacy. We’re seeing these still working as expected and we’re seeing continued lengthening average commitment and, for instance, our digital average commitment length has increased to 8.9 months in Q2 ‘24, up from 7.6 months this time last year. And we’re going to continue to leverage LTCs to optimize for LTV, CAC and ultimately maximize our revenue and end of period subscribers. I’ll say we’re always open and – always continue to test to find the offer structure that both attract and retains the most customers over time.

Heather Stark: Yes. And I’ll just add to that, we are seeing that our retention is up a percent quarter-over-quarter. And these basis point moves, they compound and activation rate is up 5% year-over-year. It’s really tempting to spend into growth, but we want to spend where it’s most effective when it is most effective, we’re making decisions in real time in order to maximize, as Heather said our LTV, CAC.

Henry Carr: Great. Thanks so much. And just as a follow-up, I think earlier in the call you said about 10% of lapsed members for clinical instead of just ending their subscription [Technical Difficulty] behavioural program, I just want to understand what’s [Technical Difficulty] happening here?

Sima Sistani: Henry, you cut out there for a minute. Can you repeat the – I heard you were asking about. I think the one membership strategy. Because, could you just repeat that again?

Henry Carr: Yes, I think earlier on the call, you stated the metric of 10% of subscribers are shifting from clinical to behavioral programs. Could you just explain that metric a little bit better or unpackage for me? Is that clinical members shifting from that clinical subscription to a base behavioral change program, one to understand that better? Thanks.

Sima Sistani: That’s exactly it. What you said. Essentially, the one membership strategy is such that we want to be able to grow and or deescalate and intensity based on what the consumer needs. So we are seeing behavioral members decide that whether they’ve hit a plateau that they are interested in meeting with a clinician and seeing if medication support is right for them. And then there are those who, once they’ve been on the plan, we’re seeing that 68% of consumers do want and intend to come off medications like and working with the medical professional, they we partner with them to help them find the best way to maintain their weight loss. And so part of that is helping them move to the behavioral program which maintains their lifestyle intervention.

And I think this is the path forward weight health is complicated. Every journey is unique and we need to be able to move up and down with a person’s unique needs, whether that is somebody who is living with diabetes and needs to wear CGM so that they can track their A1c or whether that is somebody who is on a lifestyle intervention on our core behavioural program, but decides that they want to register dieticians visit to better understand their nutrition and nutrient density. Or obviously if it’s somebody who needs to see a doctor and we help them with the medication as well as the insurance support, if appropriate. So and they’re going to move up and down that spectrum and we are unique in our ability to provide a care model that provides that kind of service.

Henry Carr: Okay, great. Thanks so much.

Sima Sistani: Thank you.

Operator: And our next question comes from Nathan Feather from Morgan Stanley. Please go ahead, Nathan.

Nathan Feather: Hey everyone, thanks for taking the question. Just a quick one. How do you return the clinic business to sequential growth in the back half of the year in ‘25, if the market remains highly competitive and at rates stay elevated? Thank you.

Sima Sistani: So thanks for the question, Nathan. And we are working on that and we’re working on that within the context of our Weight Watchers as one platform strategy. And, we’re in an environment where CAC has been challenging, competition is challenging. We’re seeing the GLP-1 impact on our space is pretty dramatic. And we’ve put forward a prudent plan and we are expecting to continue to work through that. We’re not pulling back on spend. We will be aiming to continue to lean in where it is appropriate and efficient from a marketing perspective, and I would call it, we’re also doing things that we see expand NPS and retentive behaviours and ultimately ARPU by adding things like registered dietician visits. The early indicators of the pilot we’ve put out are promising and we look forward to sharing more in the next quarter as we continue to grow this.

Heather Stark: Yes. And I just want to add that our strategy here is to tell a story in a compelling way, which is going to break through this noise, where that, as we’ve said, it’s a complicated landscape, but that’s also impacting consumers who are looking for solutions, who are looking for trusted solutions. We hope our latest campaign fits you is going to drive more CAC efficiency and it’s going to do a better job of telling the story of our entire suite of products. We took a really conservative approach to modeling our CAC outlook, given the cost of media, but both from new entrants but also from the one off driving cost up such as the election. But that’s all reflected in our guidance. We are really excited to see this campaign and our one membership strategy come to life.

Nathan Feather: Okay, great. That’s helpful. And then any way to frame how much of the $100 million annualized cost savings is variable versus fixed and how should we think about those in terms of expense line buckets of savings. Thank you.

Heather Stark: Thanks, Nathan. So as we shared in the prepared remarks, we are expecting this cost action to deliver about $100 million of total savings, $20 million of batch should read through into 2024 and an incremental $80 million into 2025. We haven’t guided to the specific P&L items. I would say it’s largely fixed and largely impacting G&A. You should expect that. And yes, it’s impact fully improving our ability to sustain our way into the future.

Operator: And our next question comes from Alex Fuhrman from Craig-Hallum. Please go ahead, Alex.

Alex Fuhrman: Hey guys. Thanks for taking my question. It seems like consumers are really demanding more affordable access to medically supported weight loss and just wondering, Sima, what your plan is in the future to kind of offer that to customers. I know in the past you have talked about Weight Watchers being certainly against compounded medications. I don’t know if there is any scenario maybe in the future if there is more efficacy data that would cause you to rethink that or maybe opportunities to offer generic versions of older GLP-1, because it sounds like insurance coverage is getting worse, not better. Would love to just hear, what your strategy is to tap into that demand for more affordable medical weight loss.

Sima Sistani: Thanks for your question, Alex. Look, the members come to us because they trust us and we are only going to consider medication options that are safe, effective, high quality. So, FDA approved medications are our preferred path. That being said, with shortages expected to persist for some time and coverage being in limbo, we are investigating alternative paths to best serve our members, which is about improving their access health equity. It’s about helping to bring safe solutions to a broader population.

Alex Fuhrman: Okay. That’s really helpful. Thank you, Sima.

Sima Sistani: Thank you.

Operator: And our next question comes from Stephanie Davis from Barclays. Please go ahead, Stephanie.

Stephanie Davis: Hey folks. Thank you for taking my questions. I have, I guess two on the B2B channel. So, first, when we look at your B2B channel, is that all direct sales or have you established broader partnerships and broker channel? And how are you thinking about that account manager role in direct sales given the 40% reductions in your VPN above rolls?

Sima Sistani: Thank you, Stephanie. Yes, I mean it’s both. We announced some of our broker relationships like Personify, Health and CVS, but we also have a direct sales motion. And I think we are really well positioned and well equipped. Thanks to our leading brand and 60 years of science backed evidence a full suite of integrated services, 3.9x ROI to employers, which was validated by third-party actuarial firm. We are really well positioned here and the number of RFPs just in – I would say in this last quarter, or at least in the first half of the year submitted was the same amount of RFPs we did for the entire full year previously. So, the foundation of our 33 years and over 500 existing clients just makes it such that we can have a leaner, smarter sales motion. And we do continue to expect to invest in this area. In fact, we will be adding some sales leadership talent here as well.

Stephanie Davis: I would love to hear about the talent, but I also have a question just in the go to market motions and that’s becoming a bigger part of your strategy. I am hearing given vendor fatigue for these digital health solutions. So, some large employers are putting in more stringent financial and compliance reviews. I get that early on you just announced the turnaround, but how are you thinking about the impact of the restructuring as you are kind of going to market with these employers given some of the more stringent requirements?

Sima Sistani: Well, the strategic requirements around, can you be more specific, Stephanie, are you talking about like features or are you talking about just the market contraction in general?

Stephanie Davis: So, for example, at a large employer like a Barclays or JPMorgan, you are going to have a pretty thorough financial review and compliance review. And oftentimes they will look at things like leverage or sustainability of the vendor.

Sima Sistani: Okay. Got it. Yes, so far, I mean we haven’t seen that come-up. If anything, the fact that we are a public company with a track record, has really benefited us a lot of the other vendors we see in this marketplace are – have much less sophistication and infrastructure than we do. And I also think just with regards to the market in general, because I did want to talk about that for a minute that we are seeing some overall contraction and RFPs switching over from full access full spectrum care, but they are moving to core. There is still an appetite more than ever now for weight health solutions and it has become apparent that even if the payers aren’t willing to cover the full spectrum care, the GLP-1s, that they will be – they will and are interested and have more appetite to providing our core program as a covered benefit.

I mean ultimately, GLP-1s, this is going to be inevitable. Just this morning, new evidence from Lilly trial showing transvestite reduced the risk of heart failure outcomes by 38%. We are going in this direction. It’s a slow burn, but the medications are providing tangible health benefit, treating obesity, multiple comorbidities and we are best set up with the right infrastructure across account management, support, compliance to help these businesses.

Stephanie Davis: Helpful. Thank you.

Sima Sistani: Thank you.

Operator: And our next question comes from Karru Martinson from Jefferies. Please go ahead, Karru.

Karru Martinson: Good morning. Just trying to understand the year end sub-count here, turn to square, you are saying, you don’t want to spend into growth that it’s tempting, but at the same time saying you are not pulling back on spend or it’s sufficient. So, trying to understand what’s driving the reduction is it just that we have a different view on clinical? Is it that we feel there will be pressure in our core, what’s driving that revision?

Sima Sistani: Thanks for the question, Karru. So, look, we experienced a dramatic rise of competition, largely driven by compounding in our space. It’s a rapidly evolving space and we are positioned to win in it. The moment drove an increase in cost to acquire with the crowding in the space. And look, as we looked forward and wanted to project guidance for the balance of the year, we factored that these new realities might worsen through the back half of the year. We have built that into our forward assumptions and we have been prudent in planning for them. And so there is an assumption that this continues and that CACs continue to rise GLP-1 competition continues. And importantly, we have a cost action that’s been designed to preserve our adjusted operating income as we build for the future.

And I do recognize that we are short of our prior guidance. Want to ensure that we have provided you with an outlook that we are confident is achievable. We are operating in a dynamic and difficult to predict environment and we are controlling what we can. We are focused on achieving our profitability targets and our costs as appropriate to do so.

Heather Stark: I just want to add that when we talk about prudent LTV:CAC this is really an outcome of this dynamic market and us optimizing for unit economics that are still attractive. So definitely less attractive than we have thought at the beginning of the year, but with our new campaign, we are looking forward to seeing better CAC efficiency as well as continue to pull into this One Membership strategy, which we noted is our ability to move a core member who we can acquire at an attractive LTV:CAC and that 30% rate that we are seeing them move over to clinic. And so that’s a winning strategy for the long term health of the business.

Karru Martinson: Alright. And just with the compounding front, you mentioned the shortages are expected to continue kind of what’s the timetable there? And then as you investigate alternatives for yourself, what’s the timetable that could potentially there as well?

Sima Sistani: Yes. I appreciate the question, Karru, but I don’t really have anything further to share at this time on that topic.

Karru Martinson: Alright. And then just lastly, you mentioned capital structure given where it is today, how are you guys approaching that?

Heather Stark: So we are committed to improving our leverage as we execute this turnaround. And we are focused on growing EBITDA. I will remind you we have very attractive long-term debt agreements with no maturities until 2028 and 2029. And we continue to be comfortable operating with our current cash on hand and we do have access of $61.25 million of revolver for additional cushion. And we’ll continue to opportunistically evaluate options to reduce our leverage ratio on terms we believe are strategically beneficial.

Karru Martinson: Thank you very much. Appreciate it.

Operator: And at this time, there are no further questions. I would like to turn the call back over to Sima Sistani for closing remarks.

Sima Sistani: Thank you all for the questions. Weight Watchers has a bold transformation strategy to expand access, expand care and expand payment options. Our operational changes will motivate and strengthen our execution against project expansion. It’s difficult to part with many talented colleagues. These are our employees who have made important contributions to Weight Watchers, helping to make us a great company. I thank each and every one of them for their service and wish them all the best in their future. Thank you for joining us today. I look forward to updating you on our progress.

Operator: This concludes today’s conference call. Thank you for attending. You may now disconnect.