Ww International, Inc. Q3 FY2025 Earnings Call

Good morning, and welcome to WeightWatchers International's Third Quarter 2025 Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to David Helderman, Director of Investor Relations. Please go ahead.

Thank you for joining us today for the WeightWatchers Third Quarter Earnings Conference Call. Earlier this morning, we released a shareholder letter and press release with our third quarter 2025 results, which are available on the company's corporate website located at corporate.ww.com. The purpose of this call is to provide investors with some further details regarding the company's financial results as well as to provide a general update on the company's progress. Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are also available as part of the shareholder letter and press release. Before we begin, let me remind everyone that this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's latest annual report on Form 10-K, quarterly report on Form 10-Q, the earnings release, the shareholder letter and as updated by the company's other filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today, and except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Joining today's call are Tara Comonte, President and CEO; and Felicia DellaFortuna, CFO. Jon Volkmann, Chief Operations Officer, will also join for the Q&A.

Thanks, David. As we close the third quarter of 2025, WeightWatchers is laying the foundation for renewed growth and leadership in the rapidly evolving weight management sector. I encourage everyone to read our shareholder letter, which we distributed earlier this morning and is posted on our Investor Relations site. It details our key strategic priorities, competitive differentiators and what you can expect to see from us over the near and longer term as we build on work already underway to drive growth and long-term value. But first, let me start with some context. In recent years, we've witnessed one of the most profound shifts in the history of health and wellness. The emergence of GLP-1 medications for weight loss has revolutionized the conversations around obesity, bringing hope and in many cases, results to millions who have long struggled to manage their weight. To many, the story was simple. Miracle drugs had arrived and traditional approaches like WeightWatchers' proven high-touch science-based program could no longer compete in a changing world. However, we recognized early that this was not the end of an era, but the beginning of a new one. The future of weight management will be built on an integrated approach that pairs clinical care and medication access with structured nutrition, movement, and accountability. That's why we acquired Weekend Health, a telehealth business now rebranded to WeightWatchers Clinic, that allowed us to integrate medical expertise and prescription access into our program, broadening our proven science-backed model to include clinical care. We're now evolving and tailoring our behavioral offerings to provide the important support needed by members using these life-changing medications, helping them adhere to treatment, manage side effects and achieve lasting results over time. This evolution is not a rejection of our past, but an extension of our legacy as the world's leading evidence-based weight management partner. For 62 years, we've led with science. And as GLP-1s redefine what's possible, we're leading with the science again. I want to be clear on this. No company has a deeper commitment to the science of weight loss nor a longer history of helping people manage their weight than ours. Our industry-leading behavioral program serves as an essential foundation for the differentiated weight loss outcomes and significant nonscale results achieved through WeightWatchers Clinic. As you can see in our shareholder letter, the data proves the efficacy of this model. Studies found that WeightWatchers Clinic members who have prescribed anti-obesity medications, including GLP-1s, achieved an average weight loss of 19% to 23% over 3 years, significantly outperforming our competitors at 12 months. And what's more, 98% of WeightWatchers Clinic members prescribed a weight management medication reached more than 10% weight loss after 12 months and nearly half of them reaching 20% weight loss. Beyond the scale, GLP-1 users who also engaged with the WeightWatchers program experienced a 197% increase in self-esteem, a 78% increase in intimacy, a 62% better physical function, a 53% boost in quality of life, and a 34% reduction in symptoms of depression. The data is clear. In a GLP-1 world, behavioral programs and community support, in tandem with medical solutions, are force multipliers for effective, sustainable weight loss and superior health outcomes. What skeptics once saw as an existential threat to our company has instead become an extraordinary opportunity for us to deliver lasting results for our members and capture a greater share of the growing market we serve. 137 million Americans, over half of U.S. adults, are eligible for GLP-1 medications. 12% of adults in the U.S. are now taking a GLP-1 medication with demand continuing to rise. $173 billion in annual medical costs are associated with obesity in the United States and $1.7 trillion in chronic disease costs are linked to overweight and obesity. This isn't just one of the largest health and economic opportunities of our time. It's a chance to help tens of millions around the world live happier, healthier lives. And it's a moment that WeightWatchers is uniquely positioned to lead. This is particularly true after last quarter's emergence from our financial reorganization. This proactive process aimed at strengthening our balance sheet and freeing up capital to invest in growth also provided the opportunity for a philosophical and strategic rebirth, opening the door for renewed and accelerated innovation. Looking forward, we're focused on four key priorities to drive our growth. First, we will deliver an engaging unified end-to-end member experience. WeightWatchers has long been the most trusted weight loss platform. But as the world changes, our digital ecosystem and experience must evolve to match both the scale of our ambition and the expectations of today's consumer. Under the leadership of Helene Causse, our new Chief Technology Officer, joining us from FIS, Snap, and Amazon, we've begun modernizing the two most critical digital touch points for our members, our app and our website. The WeightWatchers app is being completely replatformed to remove legacy barriers between our clinical and behavioral offerings, ensuring that members can move seamlessly across the full spectrum of our programs while also discovering new tools and solutions that can help them on their journey. Over time, the app will become a personalized companion that leverages AI and behavioral insights to deliver individualized recommendations and curated programs. This will be fueled in part by the vast and constantly growing data set we've collected over more than six decades. By modernizing our systems, we can maximize the potential of this information to offer new personalized solutions that meet members where they are, whether that's on or off medication, managing menopause, diabetes, or postpartum, or in other life stages that deeply affect weight health. The WeightWatchers website is also being rebuilt on a mobile-first infrastructure designed to guide prospective members to the right starting point for their journey. It will be informative and easy to navigate, serving as both an educational resource and a more effective marketing and CRM engine. This new website will enhance our brand, improve conversion, and create a clearer, more connected path from interest to acquisition. Together, these upgrades form the foundation of a full digital transformation. It will create a faster, more intuitive, data-enriched, and integrated experience while also improving member outcomes and deepening engagement. The first iterations of our new app and website are expected for peak season early in the new year with ongoing releases throughout 2026. Last but certainly not least, we're reinvigorating the beating heart of WeightWatchers, our community experiences. Under the leadership of Julie Rice, our new Chief Experience Officer, who co-founded SoulCycle, we're revitalizing the community offerings that remain central to WeightWatchers. We're expanding our team of highly skilled coaches and introducing new virtual communities around shared interests such as GLP-1s, menopause, cooking, and more. We'll also be upgrading the actual meeting platform that we use for our workshops to provide a more personal immersive experience for our members. And in addition, in-person workshops will also be refreshed with renewed focus on connection, consistency, and brand experience to be strategically aligned with member demand and needs. Together and over time, all these initiatives will deliver a unified modern WeightWatchers experience that will remove friction between programs, connect digital and human support, produce better outcomes for members, and generate expanded opportunities for profitable growth for our business.

Thanks, Tara. We are pleased with the results for the quarter with continued strong adjusted EBITDA margins of nearly 25%, reflecting our focus on cost discipline and timing of spend while investing in future growth initiatives. Acquisition challenges continue to persist in our behavioral business, although slightly improved from last quarter's bankruptcy period and in part supported by brand marketing associated with the launch of our new Menopause program. We ended Q3 with 2.9 million end-of-period behavioral subscribers, a decline of 20% year-over-year as this sector remains challenged. Conversely, we were pleased with the clinic performance in the quarter with clinical end-of-period subscribers of 124,000, an increase of 60% compared to the same quarter last year. As a reminder, we added compounded semaglutide to our prescription formulary in October last year, and we will start to face more challenging comps over the next couple of quarters. Revenue was $172 million, which declined 11% year-over-year. Clinical revenue grew 35% year-over-year and behavioral revenue declined 16% year-over-year. Foreign exchange provided a $2 million benefit to the quarter and fiscal Q3 2025 included one extra day compared to fiscal Q3 2024. In the clinic business, we were encouraged by our retention of a greater-than-expected number of members who had been previously prescribed compounded semaglutide, transitioning approximately 20% of those members to branded or oral medications. We expect Q3 2025 to represent the low point in clinical subscribers with this transition largely behind us. Monthly subscription revenues per average subscriber, or ARPU, was $18.52 in the quarter, increasing 9% compared to the prior year quarter, reflecting the continued shift in mix towards higher-value clinical subscribers. However, ARPU declined sequentially in part due to an increase in clinic 12-month commitment plans together with certain promotional activity. Adjusted gross margin was 75.1%. We continue to closely manage costs while evolving toward a more variable expense structure with nearly 70% of our cost of revenue variable in Q3. Beginning last quarter, we refined our reporting methodology to align direct revenue-related expenses, primarily technology costs within cost of revenue. This adjustment modestly increased gross margin with an offsetting increase in SG&A, providing a clearer view of the scalability of our model. We expect gross margin to decline modestly in the fourth quarter relative to the third quarter, reflecting the seasonal increase of staffing ahead of January peak season. Marketing expense was 28% of revenue, more consistent with levels prior to last quarter's financial reorganization period. We expect marketing investment to increase as a percentage of revenue in Q4 with the start of peak season, along with the initial rollout of new brand and product initiatives Tara mentioned. Additionally, following emergence, we updated our accounting policy to expense advertising costs as they are incurred, a change from previous policy, which recorded advertising expense as deferred costs until airing commenced. As a result, certain costs related to peak may be included in the fourth quarter versus the first quarter of next year. However, we still expect Q1 to represent our highest seasonal marketing spend of the year due to new year demand and continued seasonality of the business. As a reminder, given the timing of our subscription model, there is a lag between marketing investment and related revenue recognition over the duration of a subscription. Adjusted product development expense, which primarily includes personnel-related costs for engineering, design and data teams, was 4% of revenue, reflecting an increase in capitalized products and technology initiatives as part of our product roadmap. Adjusted SG&A was 18% of revenue, reflecting continued cost discipline and the flow-through of executed cost reduction initiatives. Adjusted EBITDA was $43 million and adjusted EBITDA margin was 24.9%. We expect adjusted EBITDA to decline in Q4 compared to Q3, reflecting the increase in marketing mentioned earlier while still maintaining a strong margin profile. Shifting to cash and the balance sheet. We ended Q3 with $170 million of cash and cash equivalents, up from $152 million at the end of Q2. The increase reflects strong Q3 EBITDA, partially offset by the first interest payment on our new term loan and a lease termination payment associated with the exit of our prior corporate headquarters in New York, which is expected to result in modest run rate SG&A savings moving forward. Cash flow from operations was a use of $3 million, reflecting the release of escrow funds reserved for professional fees associated with our financial reorganization. Capital expenditures in Q3 totaled $3 million as we increase investment in product, technology, innovation, and other growth initiatives, we expect 2026 capital expenditures to begin to return towards historical levels. Cash taxes are expected to be approximately $15 million to $20 million for 2025, lower than historical years, reflecting the higher transaction-related deductions associated with the financial reorganization and the benefits of the One Big Beautiful Bill Act. WeightWatchers remains a high-margin, highly cash-generative business before debt service, reflecting recurring subscription revenue and low capital intensity. Shifting to our new debt profile, a term loan of $465 million represents a reduction of over 70% following our financial reorganization. The interest rate on the term loan is SOFR plus 680 basis points. It has a maturity of June 24, 2030. As part of the term loan agreement, there are annual prepayments to be made for excess cash above $100 million based on the last 10 calendar days of the first quarter. Now shifting to our outlook. 2025 has been a pivotal year for WeightWatchers. We reset our balance sheet, transformed our leadership team, and defined clear strategic priorities that align with our long-term vision for growth. These actions now enable us to focus squarely on execution, allocating resources towards the initiatives that will drive a return to sustained profitable growth. Behavioral pressures persist, though slightly improved from the second quarter, and the compounded medication landscape remains complex with competitors continuing to offer compounded products at significantly lower prices than FDA-approved medications. Due to the recurring nature of our subscription model, however, these near-term factors will influence our starting point headed into 2026. At the same time, execution of our strategic plans throughout the year will target a strengthening of member acquisition and engagement and position us for sustained growth over time. We remain focused on maintaining strong adjusted EBITDA margins, while our variable cost structure and cash-generative business model provide the financial foundation and flexibility to continue to invest in key growth initiatives. We are narrowing full year fiscal 2025 guidance to the higher end of previously provided ranges and expect revenue of $695 million to $700 million and adjusted EBITDA of $145 million to $150 million.

Thanks, Felicia. The world of weight management has transformed and WeightWatchers with it. We stand on the precipice of a massive opportunity to build significant value for our business while helping millions of people around the world to live healthier, happier lives, reasserting ourselves as the leading destination for successful weight loss and lasting results. I'll now turn it over to the operator to open it up for Q&A.

And the first question will be from Alex Fuhrman from Lucid Capital Markets.

Congratulations on what looks like a really strong quarter here. Very interesting that you're going to be removing all of the barriers between the two programs in the app. I think that makes sense as kind of the natural evolution of the program. I'm curious, when do you think that redesigned app is going to be available to members?

Thanks for the question, Alex. There's a lot more detail available in our shareholder letter, which I recommend checking out for additional context on this topic and others. We are aiming to launch the first version of the new app by early next year, just in time for peak season. The team is working hard on it. This will be the initial release, with several subsequent updates planned throughout the year. The new app experience goes beyond simply integrating features and removing barriers; it will have a modern design, be much more intuitive than our current app, and highlight tools and programs that are currently difficult to find. This includes offerings like our Registered Dietitian service and the GLP-1 Companion Program, which is not easily accessible in our existing setup. The enhanced experience will allow us to better present the range of services we provide and tailor solutions for our members based on their individual journeys. We're excited about the significant efforts the team is putting in to launch the first version by peak, and we believe this will represent a new chapter for WeightWatchers and our members globally.

That's exciting. It'd be great to see when that comes out shortly. So, can you talk about some of the partnerships that you've been doing lately? You mentioned the partnerships you have with Novo, and it seems like you've been striking a number of these kind of deals that you announced recently. You have a partnership with Amazon for drug delivery. Can you talk a little bit more about some of these partnerships? Is that what's driving your growth? And in the case of Amazon, can you tell us a little bit more about what your members are getting as a result of this partnership?

Yes, of course. Listen, I think strategic partnerships are a great lever for us across many different angles as we move forward. And certainly, that can include partners with pharmaceutical players like Lilly and Novo that we have, or it can include some on the back end like Amazon. And way beyond that, I think there are strategic partnership opportunities for the business that can extend our services that can help us expand internationally. And so while I would not say strategic partnerships are where our growth is going to come from, I do think they are a part of our growth strategy. But I'll flip to Jon to talk more specifically maybe about Amazon.

Yes. Thanks, Tara. Jon Volkmann here. So obviously, we're very excited about our partnerships with NovoCare and LillyDirect and very pleased to announce our new collaboration with Amazon Pharmacy. Overall, the theme of all of these is that it's really just another step in making medication access faster, simpler, and more affordable for our members. And specifically to the Amazon partnership, by integrating directly with their infrastructure, our members now get access to real-time medication availability from their specific fulfillment center. They also get automatic coupon savings applied at checkout with no code needed. And then obviously, the Amazon network for free 2-day shipping for Prime members. So again, all of these partnerships are with the theme of just reducing friction in the healthcare process and for these specifically allowing patients to focus less on pharmacy logistics and more on their health.

That's really interesting. And then if I could just kind of squeeze in one more here. WeightWatchers for Menopause, you just launched it. I imagine it's too early to talk about how that's going. But who are you initially targeting for this offering? Is this something that you think is a big opportunity within your current membership? Or is this an opportunity to reengage with former members that you haven't seen in a few years?

I believe it's both new members and existing ones. We are very excited about the launch of the Menopause program, which consists of two components: one with a clinical offering and one without, with the clinical version available only in the U.S. and provided by women’s health trained clinicians. We view this as a significant opportunity in women's health that also closely aligns with weight management. There is a global demand, and the stigma surrounding it is quickly diminishing. This program tightly fits with our current customer base and has been highly requested by our members for quite some time. It feels like an excellent match for our company and offers a potential model for our future programming by utilizing our core pillars, the latest being medication access and clinical expertise, complemented by community support, coaching, nutritional advice, and activities specifically designed for women in their perimenopausal and menopausal phases. We will also be incorporating new technology as we move forward. Similar to how we discussed the app, the initial version of the app infrastructure aimed at menopause is already underway, even if it isn't fully aligned with the new technology framework yet. Importantly, we have minimized obstacles that may have existed in our other programs within the Menopause offering. While it's still early to comment definitively, we are genuinely excited and believe it will be a key growth driver in the future. It was also fantastic to re-enter the market boldly, especially with our launch featuring Queen Latifah, which offered a much-needed positive moment for the brand following the challenging bankruptcy period. We are looking forward to the future of this program.

I wanted to ask a question on retention, which was better than expected. Can we just drill down on that and some of the returns that you're seeing in some of the programs? Given the headlines around the compounded GLP-1s, I think myself and everyone else thought that clinical subscribers would be down a little more. So that was impressive to see. So I wanted to get some more information on that.

Yes, sure. The transition from compounded medications is largely complete, and we're pleased to announce that those results have exceeded our expectations. So we successfully converted approximately 20% of our compounding members directly into our ongoing clinical program. And within that cohort, we saw members transition to really three main treatment areas: so insurance covered GLP-1s. And for these members, we were able to successfully help them obtain coverage. And as previously stated, our ability to do so here really remains a key competitive advantage for us. We also saw members transition to cash pay GLP-1s, many of whom are using our direct integrations with NovoCare and LillyDirect, and then finally, to our oral medication kits.

We also strategically moved member subscribers towards 12-month LTCs in a very strong effort to retain clients for longer to keep with a more beneficial LTV for us long term. And so while we did see an ARPU decline in Q3, we were very optimistic and positive about that ARPU decline because it did mean better retention for our clinic subscribers. And then on behavioral, we do see that our overall retention is still trending at around 11 months and an area of opportunity for us as well.

Yes, I was just going to add to the retention point as it being an area of opportunity, another perfect example of why a different member experience on the digital platforms, particularly the app is so needed because, again, some of these silos in the existing journey prohibit us from executing against some valuable tools to drive increased share of wallet but upsell into different programs, particularly the clinic program, but also to drive retention through stickier, more personalized programming for our members. So all tools sort of pointing to the same set of objectives.

Great. And then one more, if I could. And I know it's early in terms of kind of the reorganization and the rebrand, but there's been some new influencer campaigns at the company. Just wanted to know early returns on broadening the subscriber base. Have you seen any changes in the demographics of the company?

I'm pleased to hear you're noticing our new influencer campaigns, which will certainly make our marketing team happy. At this moment, I don't have anything specific to add. Hopefully, you gathered enough from the prepared remarks, and there's additional detail in the shareholder letter. We are focused on reasserting and repositioning our brand in the weight management market. We have some outdated perceptions to overcome, especially following the significant bankruptcy headlines that posed challenges earlier this year. The influencer strategy represents a shift in our engagement approach and the channels we will utilize to implement this strategy effectively. Over the years, the company has relied heavily on discounting and performance marketing at the bottom of the funnel. We firmly believe that as a well-established global brand for over sixty years, we should be implementing a full-funnel strategy, leveraging our brand strength to rebuild our organic growth through various channels. We will focus on social media, sharing genuine member stories, showcasing our clinicians and coaches, as well as utilizing relevant influencers to reach new target audiences.

And our next question will be from Nathan Feather from Morgan Stanley.

So compounding has certainly driven a lot of volatility in the clinic subscriber growth over the past year. I guess if we strip that out, how should we think about the underlying growth here? And given that, what's kind of the right run rate of clinic growth now that we're past the churn off here?

Unfortunately, you can't really remove it. The current landscape is quite complex and evolving rapidly. The business has been prescribing compounded medications from October of last year until the end of May. As Jon noted, we have a robust insurance prior authorization approval system in place. Additionally, we have non-GLP-1 oral medications and are collaborating with Novo to launch the new oral Wegovy early next year. There are many moving parts in the clinic business. We maintain strong confidence in the effectiveness of our integrated holistic, medically-centered care model over the long term. We believe it leads to better outcomes, enhances the member experience, and ensures more sustainable results, setting us apart from traditional telehealth. Aside from the compounding fluctuations we've seen this year, this remains a crucial growth engine for us, which we expect will see increasing demand and adoption from members, especially as pricing decreases and these medications become more accessible.

Yes. And to that end, obviously, we're monitoring the situation closely, as I'm sure you all are with the recent headlines that appear to be putting a lot of downward pressure on medication prices. And I think it’s important to call out that we view that downward pressure really as a net positive and a significant tailwind for our business. As access expands, we believe that the market is going to increasingly value quality of care, and that plays directly to our strengths. Our model has always been built on really high-touch and holistic clinical support. So our members have access 24/7 to their care teams. And as you saw in our shareholder letter, our customer satisfaction and our patient outcomes are really best-in-class. So like looking more long-term and looking ahead as this market matures, we're really confident that the key stakeholders in this industry from regulators to pharma partners will increasingly value providers to ensure patient safety, manage outcomes and drive long-term adherence. And when we think about where we are long term, that's the business that we're in.

Last thing I would mention is that we also stated that we do anticipate Q3 2025 being the trough on end-of-period subscribers for clinic.

Great. That's very helpful. And then heading into peak season shortly, there was a little bit of commentary in the letter, but interested to hear a touch more about your plans across both product and marketing as you work to improve the resonance, especially within the core behavioral business.

Yes, I'm happy to take that, and please feel free to add anything I might miss. It's clear that there is extensive work happening across the company right now, including a complete digital overhaul, a significant brand refresh, a relaunch of our virtual community offerings, and an emphasis on programs and solutions that have been underutilized until now. We are also focusing on increasing awareness of the fact that WeightWatchers operates in the medication space, offering access to medication and clinical expertise as part of a more comprehensive solution, along with the benefits that our behavioral solutions provide. This marks an important reentry for us, and we are aiming for an increase in subscribers in the first quarter compared to the fourth quarter as a result of these efforts. It's too early to predict the outcomes, but we are very excited about all the significant changes taking place. Our priority is to deliver outstanding results for our members. People come to us to achieve their weight loss goals in a healthy and sustainable way, and it is crucial that we present ourselves effectively, supported by impressive data. The next couple of months will be critical as we lead up to this point and continue beyond it. The key difference this time is that this peak signifies the start of many new initiatives we are discussing. It’s the beginning of our brand's resurgence, the launch of the new app, and the new website. We expect to learn a lot, but we have many exciting plans for post-peak as we implement various growth initiatives across our ecosystem. I hope that provides the clarity you were looking for.

I would also mention that we expect, as Tara noted, an increase from Q4 to Q1, but we still face acquisition challenges in behavioral, which, while improved compared to the bankruptcy headlines of Q2, is creating a tailwind for our subscriber model in 2026 and thus a headwind in 2026. Therefore, many of our strategic priorities focus on offsetting that headwind related to opening access.

Yes. And I think just lastly, to jump in here from a clinical standpoint, a really interesting factor with peak this year is that it happens to coincide with one of the most anticipated things that we've seen in quite a while in the space, and that's the launch of an oral GLP-1, which as Novo Nordisk has stated, is expected to come to market in very early 2026 and then expected with a fast follow-up from Lilly. And we really view that as a significant market catalyst that's going to open up a new top funnel for a large portion of people who are interested in GLP-1s, but resistant to injectables. So in addition to everything that we have planned with our normal peak activities, this also just presents a very interesting and exciting dynamic that we view as an opportunity for our clinical business as well.

And ladies and gentlemen, this concludes today's question-and-answer session. I'd like to turn the conference back over to Tara Comonte for any closing remarks.

Thank you, everyone. Really just appreciate you joining the call. Appreciate your interest in the business and support of the business. This is an exciting time for WeightWatchers. We are running hard to fully leverage all the growth opportunities ahead of us. So look forward to following up in one-on-ones. And if there's something that you wanted to cover that we didn't get to, please just get in touch directly. Thank you.

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