WW International Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
March 6, 2023

Key Takeaways

  • Sequence acquisition: WW entered a definitive agreement to acquire Sequence for $132 M to launch a prescription-based chronic weight management platform, expected to be accretive by Q4 2023.
  • 2022 financial results: Full-year revenue fell 14% to $1.4 B, adjusted gross margin slid 70 bps to 60.5%, and GAAP net loss per share was $3.58 after $396.7 M of impairments and restructuring.
  • Marketing efficiency: The company shifted spend from Q1 to 2H and prioritized performance marketing, driving a 10% improvement in LTV/CAC versus last year while maintaining flat full-year marketing budgets.
  • Member engagement gains: Activation rate rose over 5% year-over-year in Q1, NPS jumped 7 points for digital members and 10 points for workshops, and brand affinity improved by 4 points.
  • 2023 restructuring plan: WW will centralize global teams, cut consumer SKU count from 358 to under 50, shutter most fixed-lease studios in favor of ~100 locations and flexible spaces, incurring $39–46 M in charges to reduce fixed costs.
AI Generated. May Contain Errors.
Earnings Conference Call
WW International Q4 2022
00:00 / 00:00

There are 9 speakers on the call.

Operator

Afternoon, and welcome to the WW International 4th Quarter and Full Year 2022 Earnings Conference Call. All participants will be in listen only mode. Followed by 0. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.

Operator

I would now like to turn the conference over to Corie Kinger, Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you, everyone, for joining us today for WW International's 4th quarter and full year 2022 conference call. At about 4 or 5 p. M. Eastern Time today, we issued a press release recording our Q4 and full year 2022 results. The purpose of this call is to provide investors with some further details regarding the company's financial results as well as to provide a general update on the company's progress.

Speaker 1

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 in 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.

Speaker 1

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 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 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 Seema Sistani, CEO and Heather Stark, Interim Principal

Speaker 2

Before I get into our results, I want to highlight our plans to enter the clinical weight management space. Weight Watchers is the most trusted provider of proven and sustainable weight loss, grounded in the latest nutritional and behavioral science. We support members across the full weight loss spectrum. Obesity is a complex chronic condition that includes both biological and behavioral There is growing scientific evidence that for some prescription chronic weight management medications can address the biological components of obesity. To support and accelerate our entry into this space, We have entered into a definitive agreement to acquire weekend Health, doing business as Sequence, a subscription digital health platform offering clinical access to prescription chronic weight management medications.

Speaker 2

Sequence is a technology platform that integrates patient and clinician experience, providing eligible members with ongoing access to online clinical care and medication management. We will be pairing Weight Watchers Nutrition and Behavioral Science expertise and community with the Sequans platform to create a comprehensive solution. Importantly, this solution will not be for everyone. We are hard at work enhancing our member experience around coaching, accountability and community with a number on our product roadmap rolling out this year in order to make Weight Watchers even better. At the same time, We will expand our scope to also serve the cohort of people in need of a solution that incorporates prescription medication.

Speaker 2

I will discuss the details on this acquisition and our clinical strategy more shortly. But first, turning to our 2022 results and recent performance. We ended 2022 with 3,500,000 subscribers, approximately $100,000 higher than our forecast due to sign ups and cancellation trends outperforming our expectations, Improving our starting point and momentum heading into the new year. It has been nearly 1 year since I joined Weight Watchers and that year has been a time of significant transition, rationalization and bold moves throughout the organization to position the company for tomorrow. Over the past year, we took several decisive actions to streamline the business, centralize our global teams, establish data informed processes and culture, simplify our program and execute on Member experience and returning subscribers to a growth trajectory.

Speaker 2

Turning to our peak season performance. The execution of our marketing approach was very different from what you have seen from us previously, with improved global team operations driven By more accurate forecasting, data visibility and in housing our performance marketing, we were able to drive stronger results. We made the strategic decision to focus on efficient performance marketing, prioritizing high quality sign ups while spending less. This drove a greater ROI with LTV TAC for these sign ups being 10% more efficient than at the same time last year. So while sign ups are down year over year, this was an intentional decision we took to better maximize of our dollars throughout the year.

Speaker 2

Historically, approximately 40% of annual sign ups occurred during Q1 and the cadence of our marketing spend reflected this approach. This year, we are intentionally shifting a portion of our annual marketing spend from Q1 into the fall as we look to focus our spend alongside the launch of digital plus community first product experiences. Therefore, we expect marketing expenses to increase year over year in the second half of the year, likely putting our full year spend to be roughly flat with 2022. In addition, we are encouraged by improvements we are seeing in our member engagement and satisfaction metrics, which indicate that our actions to improve our product experience and brand are having a positive impact. Three examples: First, activation rate, which had been on a downward trajectory, began to uptick in the second half of last year.

Speaker 2

It caught up with the previous year in November and, in 2023, has been up over 5% year over year. As a reminder, activation rate, a relatively new metric we've been tracking internally, is defined by a member's engagement and progress during the 1st month on the program and is directly tied to success. Our data shows that activated members churn at a rate that is roughly half of a nonactivated member. In addition, these members will be more successful on Weight Watchers over the longer term. 2nd, NPS, a measure of member satisfaction for our app experience, is up 7 points year over year in Q1 among digital members and up 10 points year over year among workshop members.

Speaker 2

And third, brand affinity is up 4 points this January versus 2022, with More surveyed members agreeing that Weight Watchers is the plan for them. At the same time, We are in the midst of an evolving landscape in how the medical community and many consumers view weight loss. The science is evolving. More people are now recognizing obesity as a chronic condition, understanding its causes, including behavior and biology, and therefore an increased openness to clinical interventions to help. Weight Watchers is at a pivotal point where we can build new capabilities that expand our market reinforced by our foundational strengths.

Speaker 2

In addition to our ongoing focus on digital and community enablement, our highest priority in 2023 is to deliver clinical interventions, Pairing the coaching, accountability and community that we know delivers effective weight loss with the option for new For everyone, we will absolutely continue to deliver the proven weight management program we are famous for. But for those who medically qualify, meaning they have a BMI of 27 or greater and have been diagnosed with 1 weight related ailment or have a BMI of 30 or greater And choose these medications, we will be creating a new offering specifically for their unique needs. In short, Weight Watchers will be the science backed trusted solution of choice for everyone. The last 18 months has been marked by rapid growing consumer interest in these chronic weight management medications. Research is low in 2022 due to their newness, limited availability, injectable formulation and often significant financial expense.

Speaker 2

Now that supply chain challenges are being resolved and more insurance plans are covering these medications, access is expected to increase. The FDA indicates that chronic weight management medication should only be prescribed as an adjunct to behavioral lifestyle changes. However, there has been a lack of holistic care to partner with these medications. They are not magic pills. Like anything, there are side effects And challenges to navigate and manage while taking these medications.

Speaker 2

A behavioral program paired with clinical intervention It is critical to help people on medications develop and maintain healthy habits. From prioritizing nutrient dense food, Managing against muscle loss to understanding that these medications may be a lifelong commitment, these are the areas where Weight Watchers Startup culture is often known for the mantra move fast and break things. When it comes to something as emotional as weight loss and as critical as health, That approach can be highly irresponsible. Weight Watchers does not participate in fads or quick fix trends that we do not view as healthy or sustainable, even when they are highly popular. But we view the use of certain prescription weight management medications Under the guidance of a medical professional very differently, if someone has a condition that one of these GLP-1s can medically treat, They deserve to fully understand what these medications are, how they work and how best to leverage them on an ongoing basis.

Speaker 2

These pharma enabled pathways are considered important scientific breakthroughs and when administered responsibly alongside lifestyle changes can provide people with effective and sustainable weight management as well as significant improvement in their obesity related medical conditions. As noted before, we entered into an agreement to acquire weekend Health or Sequence, a subscription telehealth provider offering access to prescription chronic weight management medications. I am excited for Weight Watchers to enter the clinical space. Consumers trust our brand because of our science and our community. We can bring that differentiation to this emerging space.

Speaker 2

It seems that every day there is a new headline about GLP-1s spanning major networks, newspapers, all over social media. It's everywhere And so is misinformation. It is our responsibility to lead the conversation from a point of science and to support those interested in exploring if clinical interventions are right for them. There is significant opportunity to improve consumer outcomes with better education, access, care management, community and integration of a complementary lifestyle program. In addition, as we integrate and build out this vertical, We will be learning and likely tailoring our nutrition program for this distinct member journey.

Speaker 2

Members on medications, particularly GLP-1s, We want to ensure we have the best programs and experiences for both. As science advances, Weight Watchers does too. This is a market in which we are well positioned to lead as it builds off our core program strengths and competitive moat. 6 in particular come to mind. 1, unmatched expertise in food science and behavior change, Having the number one doctor recommended program, a diabetes tailored plan, an expert advisory board and our own science team, we have the expertise and the credentials to meet consumer needs and continue to push the science forward as we have with our 140 published scientific peer reviewed studies and including over 35 randomized clinical trials over more than 4 decades.

Speaker 2

2, BrandTrust. With 60 years of experience and ranking as the U. S. News and World Report's Number 1 best diet for weight loss the last 13 years in a row, we have earned the trust of our members. 3, Community, with millions of members and a high level of member engagement, we have a network like no other.

Speaker 2

4, Omnichannel presence, with a digital first product mindset complemented by IRL premium experiences in our studios and studio ads. 5, while start ups look to stand up B2B relationships, Weight Watchers Health Solutions is already partnered with over 500 employers and payors, including clients such as the City of New York and the Cleveland Clinic. And 6, Scale. With LTV CAC efficiencies in marketing to ongoing partnerships, we are uniquely in a position to grow this market Profitably. In short, while the clinical market provides an innovative solution for those who can benefit from biologically based treatments, When combined with the lifestyle solution, it is an important opportunity to help more people and drive additional scale.

Speaker 2

But I want to stress that while the acquisition of Sequence is expected to have near term benefits following closing, it will take time to integrate and scale up this offering. That said, we strongly believe the multiyear growth opportunity is significant. We know weight loss isn't one size fits all And we remain committed to bringing scalable, science based solutions to all weight management pathways, whether medications are part of an individual's journey or not. Our current program will continue to remain the recommended pathway for 1,000,000. But for others who decide to use them and qualify, We will offer Weight Watchers expertise alongside prescription medications and full service care.

Speaker 2

As we approach Weight Watchers anniversary, I am energized by the permanence of our brand, but I don't take for granted that in order to maintain our leadership, we need to be fearless, introspective and embrace change. I will now turn the call over to Heather for a financial update and we will then come back to provide more color on the upcoming milestones on our product roadmap.

Speaker 3

Thanks, Seema. Before reviewing our results and outlook, I would like to cover the details of our planned acquisition of Sequence. Since its launch in late 2021, the company has quickly grown into a $25,000,000 annual revenue run rate business serving 24,000 members across the U. S. By effectively scaling its technology platform through word-of-mouth.

Speaker 3

WW will acquire the company in a transaction valued at $132,000,000 inclusive of a minimum of The transaction, which is subject to customary closing conditions and regulatory approvals, is expected to close during the Q2 of 2023. Upon closing, WW will pay the owners $65,000,000 in which will require $39,000,000 from us, net of Sequences' cash assets and $35,000,000 will be paid in approximately 8,000,000 newly issued shares of common stock of WW. Subsequent cash payments of $16,000,000 each will then be paid on both the 1st and second anniversaries of the closing. The acquisition is expected to be accretive to WW earnings per share by the Q4 of 2023. Now turning to our 2022 full year results.

Speaker 3

With both sign ups and cancels outperforming our forecast in the 4th quarter. In line with our guidance, full year revenue of 1 point $4,000,000,000 was down 14% or down 11% on a constant currency basis. Adjusted gross margin of 60.5 percent for the full year was down approximately 70 basis points from the prior year, primarily related to the mix of subscription revenue. 30 basis points of that decline was due to unfavorable foreign exchange. Marketing expenses of $245,000,000 were down 6% year over year, reflecting lower spend on TV advertising in our international markets, lower non working spend and a benefit from foreign exchange.

Speaker 3

Adjusted G and A of $231,000,000 was down $33,000,000 or 12% versus prior year, reflecting savings from our restructuring actions, overall expense discipline, as well as a benefit from foreign exchange. Adjusted operating income was $153,000,000 for full year 2022, in line with our guidance and down $63,000,000 versus prior year, primarily due to revenue pressure and foreign exchange headwind. Restructuring charges totaled $39,700,000 for full year, which includes $13,600,000 related to our 2023 restructuring plan. In 2022, we recorded non cash impairment charges totaling $396,700,000 The $57,600,000 franchise rights acquired and goodwill impairment charge in Q4 was largely driven by an increase in the company's weighted average cost of capital, reflecting market factors, including higher interest rates and the trading values of the company's equity and debt. GAAP net loss per share was $3.58 which incorporates the negative impact of $4.38 of items impacting comparability, including non cash intangible impairment, Net restructuring charges and net tax related items.

Speaker 3

Last month, we announced a restructuring for 2023, further streamlining and centralizing our organizational structure, rationalizing certain non strategic business lines and continuing the rebalancing of our real estate portfolio. 1st, with respect to centralizing our structure. While we completed a restructuring last year, as we went through our planning Thus for 2023, it became clear that we hadn't gone far enough. The leadership team resolved last year to better align resources and systems with our strategic priorities and centralize our global management of certain functions. The 2023 actions will take this further by centralizing teams and scope across countries, creating a truly global team, helping us manage resources more effectively and execute more efficiently and consistently.

Speaker 3

These changes will be reflected in our business segments. Starting in Q1 2023, our new reporting segments will be North America and In short, our Continental Europe, UK and the Australia, New Zealand and Brazil operations from our other segments will be consolidated into the new international segment. The North American segment will continue to include the U. S. And Canada and will now also include franchise revenues.

Speaker 3

2nd, in terms of non strategic business lines, we previously discussed our decisions a process which is expected to be completed in the first half of twenty twenty three. On additional review, we have decided to further rationalize the consumer business in North America, focusing only on our best selling products, which will significantly reduce the infrastructure and expenses required to operate this business. We anticipate having less than 50 active SKUs by the end of the year versus the 358 we had a year ago. While this will negatively impact 2023 revenues, it is expected to have a neutral impact on operating income. We expect Consumer Products and Other to contribute $70,000,000 to $75,000,000 in revenues during 2023.

Speaker 3

3rd, for our real estate and workshops, we are focused on reducing our fixed overhead and making our studio footprint more flexible. In the U. S, we will be rebalancing our workshop footprint, significantly reducing our fixed lease studio count. We will retain approximately 100 fixed locations, shifting workshop delivery to flexible third party or studio app locations, bringing that total to approximately 7.25. Overall, in person workshops will continue to be widely accessible through a mix of studios, studio ads and our extensive calendar of virtual workshops.

Speaker 3

We estimate that charges related The 2023 restructuring plan will range between $39,000,000 to $46,000,000 in the aggregate, consisting of approximately $15,000,000 to 18,000,000 in organizational restructuring charges, of which $13,600,000 has been recorded in the Q4 of 2022 at the time of management's resolution and approximately $24,000,000 to $28,000,000 in real estate restructuring, consisting of lease terminations and other related costs, the majority of which will be recorded in the 1st 6 months of fiscal 2023. The restructuring will reduce our fixed cost base and lead to adjusted gross margin sequential improvement as we move through the year. However, G and A savings are being largely offset by increased compensation expense, reflecting key investments in talent, critical hires as well as merit and cost of living increases. As discussed, total sign ups so far in 2023 remain down year over year, but the sign ups we are acquiring are worth more to us. We expect them to pay us more and stay for longer, meaning we are operating with a greatly improved LTV to CAC efficiency.

Speaker 3

This improved efficiency is largely being driven by our success with our long term commitment plan offers. These offers reduce The average rate per paid week, but lock in subscribers for longer duration. So far in Q1, approximately 80% of global sign ups choose a 6 month In addition, we have improved our price realization versus last year on those plans, a notable achievement. Looking to Q1, we expect to end Q1 2023 with subscribers approaching $4,000,000 Q1 revenue is expected to be approximately 2 $135,000,000 Adjusted gross margin is expected to be down roughly 500 basis points year over year In Q1, due to subscription mix, deleverage in the workshop business and an increase in the number of sign ups choosing longer tenured plans. Restructuring charges entirely in cost of revenues are expected to be approximately $20,000,000 in the quarter.

Speaker 3

For marketing, we anticipate Q1 expense of Q1 G and A expense is expected to be approximately $55,000,000 down in the mid teens versus last year. Therefore, we expect performance trends to improve through the year as we benefit from our data informed approach to member acquisition, increased operating efficiency from our streamlined operations and as we deliver on an enhanced member experience following upcoming launches to our product roadmap. However, we will not be providing full year guidance today. We hope to resume our practice of providing annual guidance following the completion of our acquisition of Sequans and when we can provide a deeper line of sight on our Thank you, and good morning, everyone. Turning to our capital structure.

Speaker 3

We ended 2022 with approximately $178,000,000 of cash plus an undrawn revolver. With our cash position, plus our revolving credit facility, we have more than sufficient liquidity for our working At year end, our net debt to adjusted EBITDAS leverage ratio was 6 times, up from 5.2 times at the end of Q3. We expect our trailing 12 months leverage ratio to further increase during 2023. At this time, full year interest expense is expected to Approximately $95,000,000 Note that we have a $500,000,000 hedge to protect us against rising interest rates On our variable rate term loan of $945,000,000 and our $500,000,000 in notes are fixed rate, Therefore, 31% of our total debt is floating. CapEx, which is primarily due to capitalized software and depreciation and amortization are both expected to be in the $45,000,000 range for the full year 2023.

Speaker 3

In summary, we are focused on improving our execution and delivering upon our key milestones. Our efforts to streamline and centralize our reading through into an improved cost basis for our business And we are confident that 2023 is the year we implement the key capabilities for the future and turn the company back to a growth trajectory. I will now turn the call back to Seema.

Speaker 2

Thanks, Heather. We are encouraged by trends indicative of a positive trajectory To better enable these connections, member chat functionality is expected to be in beta in early Q2. We believe this will allow members to create relationships they are excited about members with each other, coaches with members, workshop groups, even people in your existing network if you wish to bring them along your journey. Chat will lay the foundation for a rich digital community based on an interest graph. We are also developing new streamlined spaces in our app, including and more and a space dedicated to progress and trends, allowing members to better see the connection between core behaviors like food, Activity and weight tracking as it relates to their weight management progress.

Speaker 2

Then behind the scenes, we are making foundational improvements to our search algorithm, food database and tracking flows to remove friction from the central accountability mechanism of our program. And to improve our coach experience, we plan to launch a new platform for our coaches that will help them better engage with members in real life as well as digitally. As I've highlighted before, our app is evolving from being a second screen tool to a truly digital first experience. From enhanced community features to device integrations, there are significant opportunities for us to match our premium workshop experience with a premium digital counterpart. In summary, we are focused on improving our sign up trends and for the second half of the year returning All of which we believe are the critical drivers for returning the company to a growth trajectory.

Speaker 2

Thanks for joining us today and we are now happy to take your questions.

Operator

We will now begin the question and answer session. Our first question is from Alex Fuhrman with Craig Hallum Capital Group. Please go ahead.

Speaker 4

Hey guys, thanks very much for taking my question. Some interesting announcements here, especially about the acquisition of Sequence here, I guess, if we could start with that, certainly seems like there's been a lot more moves from The pharmaceutical industry to get involved in weight management here, how do you envision deciding Who in your program you're really going to market this approach to? I think Seema, in your prepared remarks, you mentioned some BMI Criteria about who would even be eligible for the clinical approach, but I think the numbers you kind of sketched out are describing Something in the neighborhood of half of the adults in America and presumably more than half of your own membership. So can you just give us a sense of as you get Into the back half of the year and close this acquisition, how are you going to go after that opportunity and who in your membership base will be targeted for that?

Speaker 2

Hi, Alex. Thanks for your question. Yes, I mean, we're really excited about being able to provide our members with a Clinical intervention and as I noted, these medications, they are not for everyone And there's been a lot of hype in the media, let's say. And I think that's even more reason why we need to Lead the conversation from a point of responsibility. Chronic weight management medications provide a really Amazing opportunity to address the biological underpinnings of people who are dealing with a chronic condition around obesity.

Speaker 2

And In terms of the market, look, at the end of the day, the decision is between the clinician and the patient. This is a subscription based weight management platform. And I think the really interesting aspect about it, Outside of it being a very seamless UX experience for both the patient and the clinician is that it is Truly a tech platform, meaning, they have taken The complex parts around insurance authorization and they put it on Tech Rail. And so that allows us to scale in a way That is unlike other companies in the space and really increased access to those who medically qualify.

Speaker 4

Okay. That's really interesting. Thank you for that explanation. And then just to make sure we're all on the same page. Think you mentioned in the prepared remarks, being in a position to return to growth in the second half of the year.

Speaker 4

Can we interpret that to mean year over year revenue growth in the 3rd or 4th quarter? And is that with your business as it stands today? Or is that the expectation of after you acquire Sequence that will help get you to that growth?

Speaker 2

So that was ahead of the announcement around the acquisition of Sequans. I mean, we've always stated that last year was all about stabilizing And this year was the year that we expected to see top line, meaning sign ups, grow in the second half of the year. Now with this Acquisition, we have some work to do to understand the impact, But that's something that we expect to update in the future after closing. So that is not And giving us all the indications that we can expect to see side up growth in the second half of the year.

Speaker 4

Okay, that's very helpful. Thank you very much.

Operator

Alex. The next question is from Brian Nagel with Oppenheimer. Please go ahead.

Speaker 5

Hi, good afternoon.

Speaker 2

Hi, Brian.

Speaker 5

So my first question good morning good afternoon. So my first question, just with respect To the shift in marketing. So I know this is difficult to answer, but if you look at so you shifted marketing with Now more of a focus later in the year and that had an impact upon subscriber growth here Early in 'twenty three. So I guess the question I have there is, I mean, do you have any idea like how much that shift has held back subscriber growth here early in the year? And then second to that is Look, like you mentioned in your prepared comments, I mean historically Weight Watchers has experienced most of its growth, most of its sign ups in early part of the year.

Speaker 5

You're working to Kind of normalize that through the year, but is the marketing message the same or would you be going after a different type of subscriber as you push marketing later in the year?

Speaker 2

Yes. Thanks for your question, Brian. So as we noted, I mean, we were really focused On bringing LTV CAC efficiencies and we were able to improve in January 11% higher than January of 2022. And so we had it we made a very intentional decision to push that spend to the second half of the year to align to not only 24% year over year in January. I think we outperformed our internal expectations and We expect to use the spend in the second half at more efficient ratios and just improve both the total sign ups for the year.

Speaker 2

From a marketing standpoint, I mean, our reasons to believe, I think, Are really breaking through with more culturally and more modern, both performance marketing and brand Messaging, you might have noticed we moved more to, let's call it, eatertainment type of approach versus an influencer versus Celebrities, that led to 4 point increase in brand affinity. So we are seeing a Lot of indications that we are on the right path to Modernizing our brand and increasing the appeal, but our target Her remains the same. This is Heather. I would

Speaker 3

just add to that. We are modeling marketing for the full year to be flat year over year. So with the shift in spend, we are expecting overall efficiency of spend improvement and an alignment To the spend to our product roadmap and as well with the acquisition of Sequence closing in the Q2. And I just do want to add to around the product The new features we expect to come. I keep saying, a big point of

Speaker 2

Improving our product is the product needs to do the marketing for us. Weight loss is a very word-of-mouth Experience. And so we expect people to come for the weight loss. We want them to stay for the connection, the community And the success ultimately drives NPS. And as we noted, the NPS on digital was 7 points higher, on workshops it Townpoint's higher.

Speaker 2

So those are all indicators that we are headed in the right direction to increase the organic acquisition funnels as well as paid.

Speaker 5

That's very helpful. And if I can just ask one unrelated follow-up. So with respect to the acquisition, I mean, I've followed you for a while now. If I'm thinking about this correctly, it's the first time that Weight Watchers has made an acquisition like this. Obviously, unique time in the health space with what's going on.

Speaker 5

But should we think about this as a one off or is Weight Watchers now Actively seeking more acquisition opportunities to build out the product offering.

Speaker 2

So this look, This represents a paradigm shift in our industry and one that we felt that was important to address With a full stack solution, we did build versus buy analysis here and ultimately realized that As the weight loss spectrum advances to include clinical pathways as The leader in weight loss management solutions, that was something that we needed to provide alongside of our behavior change program and Gives us the unique ability to provide a holistic solution and nobody else out there can do what we can do. When you get a script for these medications, It is medically advised to do it alongside a lifestyle behavior change program. And as you know, we are the number one doctor recommended Behavior change program. And so the two things combined are what help people have consumers have Better outcomes. And so I think that this is going to be a first of its kind solution And it is an and offering on top of what we already do with our core and premium programs.

Speaker 5

Thank you very much. Appreciate it.

Speaker 2

Thank you, Brian.

Operator

The next question is Linda Bolton Weiser with D. A. Davidson. Please go ahead.

Speaker 6

Yes. Thank you very much. Excuse me. So I'm just wondering, on the drug side of things here, there have been weight loss drugs available over the years Points in time, new drugs coming in. What is it that's really different now that makes you really want to merge This aspect with your existing business, like what is it that's different?

Speaker 6

Is it the insurance aspect? Or can you give a little more color on that?

Speaker 2

Happy to, Linda. Thank you. Yes, I mean, we strongly believe that these latest advancements in prescription Chronic weight management medications represent an innovation in our space today. And we are at this pivotal point where we can build New capabilities to expand our market and all obviously reinforced by our foundational strength. And the thing is with these, particularly GLP-1s, due to their newness, limited availability, The significant financial expense, they haven't been adopted more broadly yet.

Speaker 2

And yes, We expect to help people gain access through this pre authorization insurance engine, and we see this as a real For the future to be a holistic care partner and help our members navigate the side effects and the challenges That come up with taking these medications. And I might add here actually, Linda, it was interesting to note, just in general on the space, If you look at the 2010s and the interest in weight loss and the interest in Weight Watchers, they used to track each other. Over the last decade, we've seen The that interest in Weight Watchers diverging from the interest in weight loss. Well, over the last 18 months, there's been a real rise in popularity and interest in these medications. And for all the reasons That the drug companies have detailed limited side effects and success.

Speaker 2

But Ultimately, now that the supply chain challenges are being resolved and more insurance plans are covering these medications, Access is expected to increase and that will be an opportunity for us to expand And continue to be the science backed leader and provider of choice across all pathways, Whether clinical or lifestyle or functional for that matter.

Speaker 6

Thanks. And can I just ask, You've mentioned several KPIs that are kind of going in the right direction, but I guess we're just almost interested in new member sign ups? Is there any little bit more color you could give like is it improving, in other words, less down year over year, month by month as you go along Or is year to date Q1 much better than Q4? Can you is there anything you can give to give us confidence that's going in the right direction?

Speaker 2

Yes. I mean, the trend is improving. And I just want to keep pointing people To the fact that we intentionally chose to drop our media spend. And as we noted on the last call, we saw that the trend improve over Q3 Q2 and Q3 as well as into Q4 are now So, we are feeling good about that and expect to update more in the next I would add to that as well. We do expect to spend into Q3 at

Speaker 3

a more LTV to cap ratio and we do expect to see a return to improved trends in the second half.

Operator

The next question is from Michael Lasser with UBS. Please go ahead.

Speaker 7

Good evening. Thanks a lot for taking my question. On the strategic rationale behind the acquisition, to what degree do you think Your difficulty in signing up new members is because of the pharmacological solutions that is making weight loss Different today than it's been in the past. And so this is an effect that trying to hedge An existential risk that Weight Watchers might be facing over time. And as part of that, how do you manage the Cultural challenge of integrating these two businesses because for so long Weight Watchers' message and culture has all been about The behavioral modification rather than a fix like uphill to take.

Speaker 7

Thank you.

Speaker 2

Thank you, Michael. So, no, I mean, I don't believe that AOMs have had a meaningful impact on our business thus far. It's The number of people actually people using such medications, particularly GLP-1s was relatively low in 2022. Again, limited availability, injectable formulation, significant financial expense. This is about an opportunity we see for the future.

Speaker 2

Again, a lack of holistic care to partner with these medications And we have because of our lifestyle programs that you mentioned, because of our behavior change program, our nutritional science, We have an ability to service these members alongside our program, helping them prioritize nutrient dense foods, Managing against muscle loss, understanding that these medications may be, in some cases, a lifelong commitment. And these are areas where Weight Watchers can Provide guidance, support, and ensure that members' weight loss journeys are done in a healthy, sustainable way. And I actually think that this is Right alongside of our messaging, we've always been the science backed solution. And as we noted, this is where Science has advanced. And I think that when again, when the science advances, so should we.

Speaker 2

In the same way that we started To update our food algorithm, to take into consideration saturated versus unsaturated fats or Fiber Rich Foods, this is the evolution, the understanding In a lot of ways that those who are struggling with obesity, in some cases, Those obesogens are biological factors. They are genetic factors and will power alone isn't going to get you there. So it's a real opportunity to lead the discussion, to help people manage the dietary issues And honestly, I think members they have those who for those To medically qualify, they have a right to know what their options are, how it works and if they choose To take a clinical intervention to ensure that it's administered responsibly and managed Their over the course of their membership.

Speaker 7

My follow-up question is on the leverage situation. Do you have any covenants or other conditions that need to be met over the next few quarters in order not To trip any contractual obligations that you have with your debt?

Speaker 3

So we came into 2023 with $178,000,000 on our balance sheet to our revolver and even with this acquisition, we have ample liquidity to meet our operating needs and to service our debt And the

Speaker 2

debt itself

Speaker 3

is very favorable and with very limited covenants

Operator

The next question is from Jason English with Goldman Sachs. Please go ahead.

Speaker 8

Yes. Hey folks, thanks for slotting me in. Couple of questions. First, the Q1 revenue guidance of $235,000,000 what is the Q1 end of period subscriber count that, that revenue figure is based on?

Speaker 3

We expect 4,000,000 end of period subscribers at the end of Q1.

Speaker 8

Thank you. And sorry if you gave that number earlier. The restructuring, you ran through a number of restructuring initiatives on the call. Can you give me I apologize, I lost track of a lot of it. I'm sure there's more I can get back out of the transcript.

Speaker 8

But what is the total cash outlay for restructuring? And I'll see you walk through a few specifics on the deal. What's the cash outlay for the acquisition this year as well?

Speaker 3

So I'll speak first to the Acquisition question, Jason. The total cash outlay in the current year is $39,000,000 in cash.

Speaker 8

Okay. And then the restructuring cash outlays for this year?

Speaker 3

It's approximately $36,000,000 in the current year.

Speaker 8

Thank you. And I loved all the stats you dropped on Brand health engagement, etcetera. But frankly, I would be very disappointed if you weren't seeing material improvement for Survivor by Us alone. Presumably, it's the more loyal, more engaged, more Satisfied customers who are not leaving your franchise. So have you been able to go through and tease out that noise from the survivor bias?

Speaker 8

And if So what is it telling you?

Speaker 2

So actually activation rate, Jason, is a measure of a new member in the first 30 days. So, I don't think that there is survivor bias in that and we've noted that it's up 5% year over year.

Speaker 8

Yes, but you gave 3 at least 3 other metrics that were related to surveys of existing members.

Speaker 2

That's true. And we split Those cohorts by tenure and it's all very similar. So yes, that is a very reasonable thing to Think about and consider and certainly we look at that. But no, the NPS being up and the brand affinity being up is true Across all of our cohorts, in fact, in some cases in the newer members, we're seeing them to be actually higher because they are coming into our new simplified program and having a really great experience where for some existing program and having a really great experience where for some existing members, sometimes these changes can be hard.

Speaker 8

For sure. Awesome. Thank you. I'll pass it on.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Seema Sistani for any closing remarks.

Speaker 2

We are Excited about the future of Weight Watchers and our ability to positively impact so many millions of people to achieve their weight loss goals in a healthy, sustainable and scientifically recommended way. Our move into the clinical space will allow us to help even more people with a program no one else can deliver. At the same time, we are going to make very significant improvements across coaching, community and accountability to take our Already excellent offerings to an even higher level. We are already seeing improvements in engagement from these efforts, but even bigger improvements are coming. 2023 will be a year of dramatic improvement in our ability to help members achieve their goals.

Speaker 2

Thank you for joining us We'll look forward to keeping you updated on initiatives we have underway. Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now

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