Hello and welcome to the WW International's Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] I would now like to hand the call to Corey Kinger, VP Investor Relations.

Thank you, everyone, for joining us today for WW International's fourth quarter and full year 2023 conference call. At about 4:00 P.M. Eastern Time today, we issued a press release reporting our fourth quarter and full year 2023 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. 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 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 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 will now turn the call over to Sima.

Thanks, Corey. Good afternoon, everyone and thank you for joining us today. Last year saw huge shifts in the weight management industry. Weight Watchers is moving quickly and strategically to lead the future of weight health. In addition to being digital first, we believe the weight loss space will be led by the acknowledgment that weight loss is a matter of health care. This is a paradigm shift because weight loss has been and unfortunately, often still is viewed as a vanity issue versus a health issue. The rise of second-generation GLP-1 medications for the treatment of obesity is changing the landscape. While GLP-1s are certainly not for everyone, without a doubt, they are changing the conversation to a broader embrace of medical weight loss. Weight Watchers has multiple pathways of science-backed solutions that improve weight health and importantly, the FDA states that GLP-1 medications for weight management should only be used in conjunction with the program for behavior modification. And as a reminder, Weight Watchers is the number one doctor recommended behavior change program for weight loss. Weight Watchers is creating the category of weight health and to do so requires us to go further in the transformation of our business and expansion of our offerings to deliver the support, services and treatments that many consumers need to understand and advance their weight loss journeys an accessible and affordable way. This is a multiyear effort but one that will strengthen our business both today and tomorrow. More on that but first, turning to our 2023 performance. 2023 was a pivotal year marked by a great deal of change as we began transforming our business for the future. At the same time, through a revamped approach to performance marketing and aided by improvements to our product experience, we returned Weight…

Thanks, Sima. Turning to our 2023 full year results. Note that all year-over-year financial comparisons are on a constant currency basis. We ended Q4 with 3.8 million subscribers, including 67,000 clinical subscribers. Our core Weight Watchers subscribers grew 5% year-over-year, marking the first year-end with subscriber growth since 2020, ending the year with 3.8 million subscribers represents the best seasonal float in our history and reflects our actions to reduce the seasonal nature of our subscriber base and improve the efficiency of customer acquisition. Revenue totaled $890 million which was in line with our guidance. Year-over-year, revenue decreased $151 million. Breaking this down, subscription revenues of $823 million which included $31 million in clinical revenue declined $97 million primarily driven by the headwind of the lower number of incoming subscribers at the beginning of 2023 versus 2022. Importantly, consumer products and other revenue declined $54 million, largely due to the strategic decision to wind down our low-margin consumer products business. Adjusted gross margin of 61.9% was an annual record high and up 135 basis points from the prior year, driven by our actions to reduce our fixed cost base with our workshop real estate restructuring. Of note, the fourth quarter included a onetime charge of $5 million within cost of sales for inventory reserves related to the wind down of our Consumer Products business. Marketing expenses of $238 million were down 2% year-over-year, reflecting more efficient spend as we were able to grow 2023 sign-ups versus the prior year with less marketing dollars. Adjusted G&A of $223 million was down 4% versus prior year despite the inclusion of clinical G&A expenses due to the benefits of restructuring and expense controls. Fourth quarter adjusted G&A was slightly better than our expectations due to lower-than-anticipated benefit related items. Adjusted operating income was…

Thanks, Heather. 2024 is not just a year of transformation but also expansion. There is a lot to be excited about as we execute on a multiyear journey towards expanding care, access and payment options, all of which will reinvent our business and how people think about not only weight health but also weight watchers. Destigmatizing the conversation around obesity and amplifying the right to care and health equity are critical to addressing bias in public policy for the treatment of weight-related disease. I'm thrilled to announce that in May, together with Oprah Winfrey, we will be hosting an event on Wade House. The event will feature industry experts coming together to unchange our relationship with weight. Oprah is an inspiring presence and passionate advocate both for our members and for society at large and elevating the conversation around weight health. While I and the rest of our directors, will certainly miss her in our Board meetings following the end of her current term, she remains a strong strategic voice and collaborator with Weight Watchers. In addition, she continues to be an incredible adviser and thought partner for me and I could not be more enthusiastic about our upcoming event and her vocal advocacy in addressing this critically important topic. Thanks for joining us. We are now happy to take your questions.

[Operator Instructions] Today's first question comes from Nathan Feather with Morgan Stanley.

Can you provide a bit more color on the incremental traction you're seeing in the clinic business since the mid-December launch and the key drivers of that? And then how are the subs that come into that channel behaving differently from those that came into your sequence?

Nathan, thanks for the question. Going to start from the top and I might need a clarification on the second part of your question. So we're really encouraged with the clinical performance that we saw strong first year and our -- with this new offering net adds in Q4. So we've nearly tripled the subscribers since we announced the acquisition. And there was a lot of visibility from that clinic launch, a lot of PR that we saw coming into December and that continued on through the rest of -- that has continued on through Q1. The -- just to be clear though, so the Weight Watchers clinic is now what Sequence what once was. So in terms of the acquisition, it is similar. The difference is that we now have a tab within the Weight Watchers app. And that tab is accessible to all active members. And as we mentioned, 20% of the members that we are acquiring to clinic are from conversion of current core members choosing to upgrade to the clinic. And I think that's really exciting to see that we can provide this personalized high-touch support to people who are realizing that behavior change alone is not going to be enough for them. And we've done all of this in just 8 months since we acquired Sequence. We combined behavioral and medical weight loss solutions into 1 integrated member experience and there's a lot more opportunity to make this even more holistic. And we plan to execute that as part of the project expansion that I mentioned. I'm not sure if that answers the second part of your question.

Yes, that's very helpful. And 1 more, if I may. I guess what is the retention you're seeing on the sense that are now rolling off the 10-month commitment plans from kind of late '22 and early '23? Are those showing the LTV dynamics you expected?

Thanks for the question, Nathan. So we are seeing improvement in retention. In aggregate, as we look at our behavioral members, it's now approaching 11 months from approaching 10 months in the prior year. So yes, the longer-term commitments are reading through into that improving retention.

Yes. And I just want to add to that, that we -- a lot of the major improvements that we made on the product side, as you know, rolled out later in the year. So we've had less time with that cohort but the green shoots are there and we're already seeing it in activation and NPS.

The next question will come from Jack Wallace with Guggenheim.

I thought you gave a lot of great information in the prepared remarks. I wanted to ask about the B2B business, particularly as you're in discussions with your current and prospective customers around plan design. And I guess it's a couple of parts here. One, what are your customers saying in terms of the breadth of services around their members being able to access weight health programs and then thinking more specifically about the clinical offering, how are those plan partners thinking about covering the GLP-1 category? And are they almost always requiring a gating factor which would be participation in any clinical or behavior change program? Or if not, how are those discussions evolving?

Yes. Thank you so much for the question. So Yes. The employers and payers were talking to, they're looking for partners, first of all, who can be trusted and recognized by consumers I obviously think that this is a core differentiator for us. And on the employer side, particularly, they're getting a lot of asks from their employee population that this is an important aspect -- benefit that they're looking for. We are seeing increased interest in our behavior change program. And additionally a real focus instead of sort of step care rather a focus on adherence to improving the outcomes by adopting the behavior change program alongside medication access. So that's what they're looking to really achieve is a higher ROI by combining a best-in-class behavior change program with high-touch clinical care. So they want to include the virtual clinic but also keep flexibility to allow their employers -- employees, if they want you to also use their own physicians but they really are very interested in the behavior change aspect of our program. Now the other thing that I would add is that employers and payers want to ensure eligibility for prescription treatment plan that is based on FDA criteria. And that is something that we are in full agreement with. And I guess, finally on this point is we're also, as you can imagine, seeing interest in value-based payment models. So yes, we are really encouraged by the conversations that we're having on this front and more to come.

Great. That's really helpful. And then just thinking outside of the B2B market but sticking with clinical, the patients that you're ultimately targeting onboarding and serving, if you were to stratify the market a bit folks that are looking to get convenient or cheap access to medication or a rapid weight loss versus those that are -- they may be looking for a more permanent solution that you can be aided by the GLP-1 category. Can you just help us get a better understanding for when you are reaching out and targeting new subscribers, how do they typically fall into those 2 buckets and maybe it's more of a scale. My hunch here is that there's a large enough cohort, a large enough segment of the market that there's plenty of serviceable demand that can be sustainable for the D2C clinical business.

The D2C portion of our business remains critically important. And I think that, that is something that we are clearly showing our ability to scale and we're really encouraged by the progress we're making on that front and mostly from our current membership basis, as we mentioned in the prepared statements, 70% of the clinical members have been at 1 point, a Weight Watchers member. And I want to take a step back because from a let's call it, reasons to believe or value and what we provide, it's not the prescription. It's the care. We are dealing with people who've been going to primary caregivers about their weight for years have been told the same thing, eat less, move more. And our clinicians participate in a 12-week specialized onboarding period which includes rigorous training, close oversight by our clinical leadership team comprehensive performance reviews to ensure that they have competency in obesity care and nutritional knowledge and empathy to guide members on this journey and that's an important differentiator is that we are coming with full spectrum medical weight loss. And that is something that is going to require a high-touch experience to have the best outcomes. And we have the -- we're looking at our customer satisfaction, our NPS and that's driving a lot of the acquisition is people just having a great experience with our program. And so that's how we are going to market right now is speaking to the fact that what we're offering is great care and a membership that is going to help them with their weight health.

The next question comes from Michael Lasser with UBS.

Two-part question. How are you thinking about as you lap some of the aggressive discounting and promotions that have been taken as a way to extend the life of the subscribers. How are you thinking about subscriber growth as you lap that? Do you expect that you might have to further push promotional actions in order to drive subscriber growth? And then my second question is, what is the longer-term vision? Is it to get some of these subscribers that you're gaining now from some of the more aggressive actions to eventually convert them to Weight Watchers clinical members and that's going to be the means from which the organization can get growth?

Thanks, Michael. So yes, we are making pricing and promotional decisions to make sure that we're managing total LTV acquired and really leaning in on that. So we are expecting in our assumptions this year to maintain similar LTC promotional activity year-over-year and have sort of consistency in that pricing year-over-year. So we expect to be showing stability and potentially growth in our subscriber base as we've guided to from that activity and don't expect to be moving towards deeper discounting. Sorry, the conversation about the conversion into clinical as we look to gain and expand the subscriber base importantly from the prepared remarks that Sima shared, the growing core consumer base provides recruitment into the clinical base as well. As we shared 20% were coming from current core subscribers moving into the clinical part of the business. So we see growth coming from in there.

Okay. And my follow-up question is, given the intentional decision to moderate clinical subscribers in light of some of the supply constraints related to the GLP-1 drugs. How do you see that playing out from a competitive standpoint? Is it your expectation that some of these competitors are going to potentially go away and that will put Weight Watchers in better position to attract clinical subscribers when supply improves because the competitive landscape is only growing more intense by the day. In fact, obviously, some of the some of the pharmaceutical companies are going direct to consumer to offer these medicines themselves now.

Yes. So we -- I mean, we feel very optimistic about 2024 and the supply improvements that we expect to see. And that has already been noted by some of the pharmaceutical companies. And we've been able to really lean in on our wide formulary and with our focus on weight health to continue to grow the business even in a supply-constrained environment. And so look, I think that it's based on the new scripts dispensed and our subscriber growth that we are taking share in this market and we're doing that with absolutely no use of compounding. And I have every reason to believe that our growth will be aligned to the supply opening up as well. And just in general, access, insurability is going to be really important and that is something that is really holding people back from being able to get the care that they deserve. And we are leaning in on our wide formulary in the meantime to help people with medical weight loss, who really need that service for their chronic relapsing condition.

And Michael, I just wanted to add a Michael, I wanted to add back on your first question on the long-term commitment pricing. Just to put a point on it that we're -- the things we're doing, we believe, are stabilizing the LTV of subscribers with these longer-term plans and setting up for the clinic expansion, as I said. But I just wanted to share that we do believe that LTV has stabilized and will be slightly higher even in later 2024 to and is expected to drive the total subscription revenue growth that we've shared starting later in the year.

The next question comes from Alex Fuhrman with Craig-Hallum.

I was wondering if you could give us an update on what you're seeing in terms of your incoming members on the clinical side for insurance coverage. I think in the past, you talked about a little bit fewer maybe than half of your customers or would be customers rather getting insurance coverage for the name brand, GLP-1. How has that trended over the past few months?

So thanks, Alex. This is -- so I believe what you're asking about is our insurance engine. And so yes, look, what we -- we're trying to help where we can for those who do -- who are insured. And we see 45% of our members that have prior auths submitted are getting 1 approved. And this is about 5 to 10 percentage points higher than what we mentioned in our third quarter call. And the drivers of that are really that step bound coming to market is helping obesity indications get approved. The increase in TEXENDA approval rates. And then third is really our platform. It continues to get smarter and we're able to increase the amount of PAs we can file for members.

Okay. That's really helpful. And then it sounds like you had a tremendous response to the 10 months -- $10 a month commitment plans that you were offering throughout most of last year. Can you give us a little bit of an expectation of what you're expecting in terms of churn those members start to see their rates go up from $10 to $23 a month which I imagine is going to be happening in 1 at a time kind of starting in the spring. Curious if you've seen any big contingent of members already kind of hitting that rate increase? And just what your expectation is in terms of churn through the rest of the year?

Thanks, Alex. Yes. So we've had that plan running since earlier in 2023. So we've now got some experience under our belt with people coming off that plan. And as I shared in 1 of the earlier questions, we're starting to see revenue -- sorry, retention expansion coming from this and it's now approaching 11 months. We're also seeing, obviously, with such a significant shift in members and commitment that our average committed months are expanding as well. So I think in Q3, we shared average committed months were about 7.6 months and now it's increasing to 8.6 months. So that expansion is happening. I don't -- we plan out churn, obviously but we now have enough under our belt with this and experience in this that I think we've got the rest of the year mapped out well with using this promotional offer.

Terrific. That's great to hear.

Today's last question comes from Stephanie Davis with Barclays.

I wanted to talk a little bit about the B2B opportunity. There is a lot of employer concern about prescription costs, with GLP-1s and especially from self-insured employers. So how are you positioning your solution is not to exacerbate theme of these fears while still taking advantage of the need for weight loss solutions within that cohort.

Thank you. So yes, I mean, we had a third-party actuarial firm model that shows that for employers that cover the GLP-1 medications and implement our full program that it would result in 3.9x ROI. And I think it's really important to have those lighthouse clients that we can partner with and really show these outcomes as proof points. And so the employees, they are asking for weight health. And this is a matter of bias to not, in my opinion, to not provide that level of care. And you're seeing what's happening in North Carolina now with the state plans decision. It's -- this is something that the employers and the payers are going to have to wrestle with. And the way to manage those outcomes is to ensure that the medications are taken in conjunction with lifestyle intervention. That is what is going to drive the long-term ROI. And as you can imagine, we have a lot of these employers and payers really coming and looking for a partner who is trusted and recognized, who's going to help them navigate this landscape and be able -- they want to provide this benefit. And to be able to do it in a way that is cost efficient. And I think that we're the best partner to help them with that.

And maybe, I guess, dovetailing on that last comment, it is a pretty competitive environment with folks like Amada and Verda and calibrate. So how are you differentiating yourself when you look at these head to hand? And are there any win rates or any early color you can tell us about the success you've had on the call?

Well, the main thing that we hear, as I mentioned in the prepared remarks is around the science, the brand equity and the engagement. On the science, we have a large -- the largest data set and it's giving us the ability to then report back with regard to the phenotypes to their employee population and to really just put them into the right pathway for the best success for that employee. Then on the brand equity side, is really, again, trust, compliance, these are going to be of paramount importance with regard to clinical protocols and that is something that they have come to expect from Weight Watchers with a 60-plus year track record. And then engagement; we have a great product that works and that there is a ton of brand recognition for and that their employees want to use and provides this level of community care and high-touch support. And so ensuring that if they have to do it in conjunction and say, you must use this behavior change alongside medication access that it is a behavior change program that is joyful and that is easy to use and that is something that we have proven to do. And so the combination of these 3 factors, I think, are really a differentiator for us, not to mention our ability to scale.

This concludes our question-and-answer session. I would now like to turn the call back over to CEO, Sima Sistani for any closing remarks.

To reiterate, we are on track to deliver year-over-year growth in subscribers, subscription revenue, gross margin and operating income. 2024 will be a critical build year as we work to further catalyze our growth and mission as the global leader in weight health. We are confident in our plan. We feel good that the guidance we are putting forward, including our investments in growth and that we are executing on the right initiatives for the long-term health of our business. We look forward to speaking with many of you at upcoming conferences and events, including at the Morgan Stanley TMT Conference in San Francisco next week and the BMO Obesity Summit in New York City later this month. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.