WW International, Inc. (NASDAQ:WW), formerly known as Weight Watchers, is a leading provider of weight management and wellness services. The company has a long history, having been founded in 1963, and has evolved over the years to meet the changing needs of its customers.

Financials

In fiscal 2023, WW reported annual revenue of $889.6 million, down from $1.04 billion in the prior year. Net income for the year was a loss of $112.3 million, compared to a loss of $67.9 million in fiscal 2022. Operating cash flow was $6.7 million, while free cash flow was a negative $29.6 million. These declines were driven by a combination of factors, including lower subscription revenues, increased marketing expenses, and the impact of restructuring charges.

Looking at the quarterly performance, in Q2 2024, WW reported revenue of $202.1 million, down 10.9% year-over-year. Subscription revenues were $200.0 million, a 5.7% decline, while other revenues, which include licensing and publishing, fell 85.6% to $2.1 million. The company attributed the revenue declines to a higher mix of subscribers within initial lower-priced commitment periods, a shift from workshops to digital subscriptions, and lower sign-ups for the core WeightWatchers behavioral offerings.

Gross profit in Q2 2024 was $137.3 million, with a gross margin of 67.9%, up from 63.1% in the prior-year quarter. This improvement was driven by the discontinuation of the lower-margin consumer products business and cost-saving initiatives. Operating income was $35.9 million, up 36.5% year-over-year, while the company reported a net income of $23.3 million, or $0.29 per diluted share.

Guidance

For the full year 2024, WW is guiding for revenue between $830 million and $860 million, with adjusted operating income expected to be between $100 million and $110 million. The company expects adjusted gross margin to be approximately 66%, up from 62% in 2023, reflecting a mix shift and continued benefits from its cost-saving initiatives.

Recent Developments

One of the key drivers of WW's future growth is its expansion into the clinical weight management market. In Q1 2024, the company had 91,000 clinical subscribers, up from 37,000 at the end of 2023, following the acquisition of Sequence in 2023. WW is targeting 140,000 to 160,000 clinical subscribers by the end of 2024, more than doubling the 2023 year-end figure. Clinical subscription revenues are expected to contribute between $100 million and $110 million to the company's top line in 2024.

Another area of focus for WW is its B2B strategy, as the company looks to make its programs and services available as a covered benefit through partnerships with insurance providers and employers. Sima Sistani, WW's CEO, noted that the company is in active discussions with large national carriers and existing customers, and believes this channel represents a critical driver of growth and momentum in the years ahead.

Liquidity

WW's liquidity position remains solid, with $67 million in cash and an undrawn revolving credit facility at the end of Q1 2024. The company expects cash from operations to increase modestly in 2024, despite an expected $20 million in restructuring-related cash outflows. Interest expense is expected to be between $105 million and $110 million for the full year, with the year-over-year increase driven by the expiration of the company's $500 million interest rate hedge.

Risks and Challenges

One of the key risks facing WW is the competitive landscape, which has become increasingly crowded in recent years. The company faces competition from other weight management and wellness providers, as well as the development of more effective or favorably perceived weight management methods. Additionally, the company's ability to continue to retain and grow its subscriber base is critical to its success.

Another risk is the company's substantial debt load, with net debt of $1.39 billion as of the end of Q1 2024. While the company has no maturities until 2028 and 2029, and believes it has sufficient liquidity, its high leverage could limit its financial flexibility and make it more vulnerable to economic downturns.

Conclusion

WW faces a challenging operating environment, with declining subscription revenues and increased competition. However, the company is focused on expanding its clinical and B2B offerings, which it believes will be key drivers of future growth. The company's liquidity position remains solid, but its high debt levels and competitive landscape pose risks that investors should consider. Overall, WW's transformation efforts will be critical to its long-term success.