March 7, 2023
Weight Watchers has entered into a definitive agreement to acquire Weekend Health, Inc., d/b/a Sequence, a subscription telehealth platform offering access to healthcare providers specializing in chronic weight management via the use of medications. Sequence seamlessly integrates the patient and clinician experience for ongoing, clinical care and medication management while providing high-touch support in navigating the insurance approval process. When a user enrolls in a weight loss program with Sequence, they will have access to an insurance coordinator, a personalized nutrition plan, and a Fitness Coach to design an appropriate fitness plan.
The company currently has members paying approximately $99 per month for a subscription that includes an initial video or chat consultation with a physician and the monthly program that manages the care.
This is a major paradigm shift for WW, which has stayed away from a medical program approach for decades. Management believes that more insurers are covering the fairly new GLP-1 obesity drugs (Wegovy, Ozempic, i.e. semaglutide), and supply chain issues are easing. The cost of this clinical plan is to be determined, and the deal is expected to close in the 2nd quarter. WW rightly notes that behavior the use of obesity meds is most effective when combined with a modification program, so it wants to take the lead as a commercial weight loss service that can partner with MDs in this space.
Since its launch in late 2021, Sequence has quickly grown into an approximately $25 million annual revenue run-rate business serving approximately 24,000 members across the U.S. as of February 2023.
Q4 & Full Year 2022 Results
4th Quarter 2022
WW ended the 4th quarter with revenues of $224 million and 3.5 million subscribers.
Full Year 2022
WW had 2022 revenues of $1.04 billion, down 14.2% from $1.21 billion in 2021. Gross profit was down 14.3%. Digital subscribers at year-end 2022 stood at 2.8 million, versus 3.4 million the prior year. Total Paid Weeks in fiscal 2022 were down 11.4% versus the prior year, driven by declines in the Digital business in all geographic markets. Operating Lossin fiscal 2022 was $283.0 million, compared to operating income of $196.3 million in the prior year.
According to CEO Sima Sistani: “Our member engagement and satisfaction metrics are up, demonstrating that our initiatives to improve the experience and brand are having a positive impact. We expect performance trends to improve throughout the year as we benefit from our data-informed approach to member acquisition, increased efficiency from streamlined operations, and new product features to enhance the member experience.”
Heather Stark, the Company’s Interim Principal Financial Officer said that: “While member signups are down year-over-year so far in 2023, that is a result of intentionally shifting a portion of our annual marketing spend from winter into the fall as we look to focus our spend alongside our digital product launches in the second half of the year, and ultimately return the Company to growth.”
In the March 6, conference call, management reported that WW spent $245 million on marketing in 2022 (and marketing spend in 2023 will be flat), and that it expects to spend $90 million in Q1 2023. The company is further paring down its real estate footprint, to only 100 fixed locations and 725 total sites, including more of the informal meeting sites (churches, synagogues, community center, schools, etc.). WW expects to have 4 million subscribers by the end of Q1, and expects business to improve as the year progresses. The company is consolidating its regional reporting, with no data to be reported separately for the UK, continental Europe and Australia (now part of International).
Q1 2023 Guidance
Revenues are expected to be approximately $235.0 million. The company is not providing full year 2023 guidance given its anticipated acquisition of Sequence.
See the Complete Press Release & Financial Tables here:
https://finance.yahoo.com/news/ww-international-inc-announces-fourth-210600749.html
Marketdata Commentary
All in all, a rough 2022 for WW, which saw revenues and subscribers fall significantly. We wonder how much of the decline was due to Noom’s success. The entry of WW into the medical weight loss space is major shift. It has never participated in the medical side of the market before. As such, there will be a learning curve over the next six months or so. Obesity drugs can be tricky and there may be side effects to come after long-term use. Plus, they are expensive. Will WW prospects stay with a medical plan that requires injections for longer than six months? Also, there’s plenty of competition on the medical/clinical side –at least 10 medical franchises exist, as well as MDs, bariatricians, hospitals, RDs, etc. It’s difficult to see how acquiring Sequence will help WW get past its struggles given that Sequence’s revenues account for just over 2% of WW’s 2022 revenue. The differentiation WW may have had in prior decades has been lost without the community aspect of the legacy workshops model, which has now been pared down further to just 100 retail studios. The question is whether WW is jumping on the bandwagon of a hot product (semaglutide) to juice its growth, or if this is a long-term change and investment in the future. If you can’t beat them, join them?
Not all of WW’s current 3.5 million subscribers will qualify or be interested in the telehealth prescription medications option, but the potential to convert even a fraction of that customer base highlights the upside potential. For example, assuming just 2.5% of the current 3.5 million WW subscribers convert to telehealth members, that baseline of 87,500 incremental customers on the Sequence platform paying $99 a month would translate into upward of $100 million top-line annual revenue for WW going forward.
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