Raymond James Tech Conference. December 5, 2017

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Transcription:

Raymond James Tech Conference December 5, 2017

Forward-looking statements The following information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about the Company s plans, strategies and prospects as well as future volume and earnings trends and expectations. These forward-looking statements are based on management s current expectations and beliefs, as well as a number of assumptions concerning future events. These forward-looking statements are subject to risks, uncertainties, assumptions and other important factors. You are cautioned not to put undue reliance on such forward-looking statements because actual results may vary materially from those expressed or implied. The reports filed by the Company pursuant to United States securities laws contain discussions of these risks and uncertainties, which include, but are not limited to, competition from other weight management industry participants or the development of more effective or more favorably perceived weight management methods; the Company s ability to continue to develop new, innovative services and products and enhance its existing services and products or the failure of its services and products to continue to appeal to the market, or the Company s ability to successfully expand into new channels of distribution or respond to consumer trends; the ability to successfully implement new strategic initiatives; the effectiveness of the Company s advertising and marketing programs, including the strength of its social media presence; the impact on the Weight Watchers brand of actions taken by the Company s franchisees, licensees, suppliers and other partners; the impact of the Company s debt service obligations and restrictive debt covenants; uncertainties regarding the satisfactory operation of the Company s information technology or systems; the impact of security breaches or privacy concerns; the recognition of asset impairment charges; the loss of key personnel, strategic partners or consultants or failure to effectively manage and motivate the Company s workforce; the Company s chief executive officer transition; the inability to renew certain of the Company s licenses, or the inability to do so on terms that are favorable to the Company; the expiration or early termination by the Company of leases; risks and uncertainties associated with the Company s international operations, including regulatory, economic, political and social risks and foreign currency risks; uncertainties related to a downturn in general economic conditions or consumer confidence; the Company s ability to successfully make acquisitions or enter into joint ventures, including its ability to successfully integrate, operate or realize the anticipated benefits of such businesses; the seasonal nature of the Company s business; the impact of events that discourage or impede people from gathering with others or accessing resources; the Company s ability to enforce its intellectual property rights both domestically and internationally, as well as the impact of its involvement in any claims related to intellectual property rights; the outcomes of litigation or regulatory actions; the impact of existing and future laws and regulations; the Company s failure to maintain effective internal control over financial reporting; the possibility that the interests of Artal Group S.A., who effectively controls the Company, will conflict with other holders of the Company s common stock; and other risks and uncertainties, including those detailed from time to time in the Company s periodic reports filed with the Securities and Exchange Commission. The Company assumes no obligation to, and expressly disclaims any obligation to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 2

Overview of Weight Watchers Business highlights Competitive strengths Weight Watchers is the global leader in commercial weight management Over 50 years of experience in modifying behavior through inperson meetings, online communities, and mobile platforms One of the most clinically-studied weight management programs over the last 20 years, with numerous awards including the #1 Best-Weight-Loss Diet in 2017 (US News) Successful launch of the Beyond the Scale strategy in Q4 2015 has resulted in 6 consecutive quarters of revenue growth and 8 consecutive quarters of recruitment growth ~81% of revenue comes from member subscriptions End of period subscribers up 18.4% YoY in Q3 2017, driven by growth in all major geographic markets Global healthy living brand Scientifically proven program with expertise in behavior change across both physical and digital platforms Loyal and growing customer base Strategic partnership with Oprah Winfrey Highly profitable and capital efficient business model Focus on cost management ($250mm annualized gross cost reduction since year end 2012) Diversified geographic portfolio with ~32% of revenue outside of North America Experienced management team, Oprah partnership and Beyond the Scale strategy support sustainable growth Source: Company filings 3

Innovative product offering and high customer engagement Weight management plan Beyond the Scale strategy: foundation of Weight Watchers services and products Holistic and personalized approach to health and wellness SmartPoints: based on scientific research and customer insights Digitally manage daily aspects of weight management plan Online All members have access to online tools 4.5-star rated mobile suite offers exclusive access to weight-loss tools and other health-related content Group support system is the cornerstone of meeting s effectiveness Meetings Members share experiences as inspiration to achieve their goals Encourage learning through discussions and goal setting Products / Other Products include bars, snacks, cookbooks, food and restaurant guides, and Weight Watchers magazines Growing sales by curating existing and new product offerings Meetings and online platform create a large support base for subscribers Weight Watchers has a loyal following of approximately 1.35mm Meeting subscribers and more than 2.0mm Online subscribers Source: Company filings 4

360 degree experience to meet members where they are Meetings Online Content Social Media Connect 24/7 Chat 5

Connect: Our digital community Connect social platform embedded in the Weight Watchers app Exclusive community where members post progress, photos and motivational quotes 6

Dramatic and sustainable transformation of the business Modernized technology platform Consumer-facing functionality now largely operating on new platform: Reliable Platform for rapid innovation Enhanced the member experience Significantly enhanced online community Brought human support to digital realm, driving high levels of member engagement Disciplined expense management Achieved $250mm cost structure reduction from 2012 levels, across all expense lines Much improved global marketing execution Groundbreaking partnership with Oprah Winfrey in October 2015 Long-term collaboration with Oprah Winfrey as a WW member, Board member, advisor and shareholder Launched SmartPoints Food program in combination with Beyond the Scale strategy Holistic approach to a healthier, more fulfilling life that encompasses the evolving needs, mindsets and science around weight management Mindy Grossman joined as new President and CEO on July 5, 2017 7

Realizing benefits of our transformation Revenue ($mm) EBITDAS ($mm) $1,480 $1,164 $1,165 $1,262 $366 $256 $259 $328 FCF 1 ($mm) 2014 2015 2016 2017 LTM EBITDAS margin Net debt 3 / EBITDAS 2014 2015 2016 2017 LTM 24.7% 22.0% 22.2% 26.0% $180 $171 5.6x 7.8x 7.4x 5.3x $85 $19 2014 2015 2016 2017 LTM FCF conversion 2 77.7% 33.9% 71.2% 81.5% Source: Company filings Note: See Appendix for GAAP reconciliations 1 Free cash flow calculated as CFO Capex (includes capitalized software expenditures) 2 Conversion calculated as free cash flow / CFO 3 Net debt is total debt less cash. Debt reflects par principal of loan; excludes deferred financing charges 2014 2015 2016 2017 LTM 8

Momentum accelerated into Q3 End of Period Subscribers +18% YoY to ~3.4 million Revenues +14% YoY (at constant currency) with higher retention Gross margin has increased 320 bps YoY (at constant currency) Operating Income +34% YoY (at constant currency) with growth in all major markets Raised full year EPS guidance for the 3 rd consecutive quarter Introduced a below 3.5x long-term leverage target on our earnings call 9

Profitable business model with low costs Business model highlights Recruitments Price Retention Subscription model with strong repeat behavior Much improved integrated marketing across all channels, including digital, social, CRM, and TV has contributed to recruitment growth Recruitment is also driven by word-of-mouth Online product enhancements and 4.5-star rated app help drive growth in recruitments Many customers join with 3-month commitment, followed by auto renewal at full-rate $19.95 / month 1 : Weight Watchers online subscription $44.95 / month 1 : Access to face-to-face meetings in addition to digital tools Average length of stay has improved to over 9 months Increased retention driven by increased member engagement through tools like Connect High incremental margins Very low cost to serve incremental subscribers Online segment is highly scalable with centralized infrastructure Marketing and G&A are each less than 16% of sales Disciplined expense management Reduced gross annualized expenses by $250mm from 2012 levels Marketing spend has become much more efficient Transformation plan produced agile and cost-effective technology infrastructure Multiple levers of future growth: New audiences, global expansion, partnerships Source: Company filings 1 U.S. pricing 10

Continued strength in both online and meeting subscribers Online subscribers (YoY % growth) 20.1% 25.8% 24.4% 9.9% 9.2% 2.9% 3.8% (4.3%) (12.7%) (13.5%) (16.7%) (18.1%) (21.7%) Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Meeting subscribers (YoY % growth) 7.6% 6.6% 10.4% 10.4% 10.7% 12.5% 10.6% (5.4%) (12.4%) (13.3%) (11.5%) (14.7%) (17.0%) Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 Q2 17 Q3 17 Source: Company filings 11

under a low cost structure Marketing expense ($mm) and % of revenue 354 Marketing down ~$150mm vs. peak Marketing expense % of revenue 19.2% 296 262 17.3% 17.1% 17.7% 201 16.7% 194 205 15.8% 2012 2013 2014 2015 2016 2017 Guidance G&A expense ($mm) as a % of revenue 229 248 Continued cost efficient G&A spend 234 G&A expense % of revenue 185 190 205 14.4% 15.8% 15.8% 16.3% 15.8% 12.5% 2012 2013 2014 2015 2016 2017 Guidance Source: Company filings Note: See Appendix for SG&A reconciliation Weight Watchers has exhibited disciplined expense management 12

Strong cash flow generation and low capex Free cash flow generation 1 ($mm) and free cash flow conversion 2 FCF FCF conversion Highly cash generative business model 259 357 320 284 92.1% 88.8% 95.0% 87.7% 180 77.7% 33.9% 71.2% 85 81.5% 171 19 Capital expenditures 3 ($mm) 2010 2011 2012 2013 2014 2015 2016 2017 LTM Non-recurring Normalized capex Normalized capex % of net sales 79 32 62 45 22 47 22 2.5% 2.5% 40 2.3% 1.5% Low required capital expenditures 52 36 34 39 3.5% 3.1% 2.9% 3.1% 2010 2011 2012 2013 2014 2015 2016 2017 LTM Source: Company financials Note: Normalized capex adjusted for non-recurring expenditures related to retail store refresh (2012) and corporate headquarters relocation (2013) 1 Free cash flow calculated as CFO Capex; 2 Conversion calculated as free cash flow / CFO, 3 Capex includes capitalized software expenditures. See Appendix for FCF reconciliation 13

Debt refinancing New structure extends debt maturities to 2024-2025, providing increased flexibility 2018 interest expense expected to increase to ~$140M; opportunities to prepay and reprice with business momentum and cash generation $1.9B term loan Due April 2020 LIBOR +325 bps Prior structure $1.54B term loan Due November 2024 LIBOR +475 bps New structure $300M bond 8.625% November 2025 maturity $50M revolver LIBOR +250 bps April 2018 maturity No borrowing as of Q3 2017 $150M revolver LIBOR +275 bps November 2022 maturity $25M drawn down at closing Commitment to delevering Introduced long-term leverage target below 3.5x net debt to EBITDAS 14

Exciting news for winter season Launched new program in all major markets The program is an evolution of our highly successful and effective SmartPoints Food plan The livable plan gives members more freedom and flexibility New program has been under development for more than a year, and has tested better than any other plan in the company s history Clinical trial results best we have ever seen for a WW program Receiving high marks for livability Oprah is a strong advocate of the new program and will play a central role in the upcoming U.S. marketing campaign 15

Evolution of SmartPoints Vegetables Fruits Skinless chicken breast Skinless turkey breast Non-fat yogurt Eggs Beans, peas, lentils, tofu and corn All fish, e.g., cod, mackerel, trout and salmon All seafood, e.g. shrimp, lobster, mussels, oysters 16

Our strategic priorities Deliver personalized interactions and experiences throughout a member s journey Use AI and data to personalize our approach Personalization Continue to evolve into a global healthy living brand Beyond the Scale Strategy focusing on nutrition, activity and positive mindset Brand Brand Global Global Opportunity to expand into new international markets Leverage Connect Offer new ways to experience Weight Watchers Community Human impact Behavior science Continue to leverage our authority on food science Use our expertise in behavioral science to guide people through weight loss and wellness journey A technology experience company driven by human engagement A 360 program with seamless online and offline experiences 17

Appendix

GAAP reconciliations Net revenue Fiscal year ($mm) 2012 2013 2014 2015 2016 2017 Meeting fees 934.9 851.6 744.6 587.8 605.3 505.0 Online subscription revenues 490.1 509.1 437.4 349.6 343.8 312.7 In-meeting product sales 253.2 212.0 169.1 127.3 125.5 176.7 Licensing, franchise royalties and other 161.1 151.4 128.9 99.8 90.3 -- Net revenue $1,839.4 $1,724.1 $1,479.9 $1,164.4 $1,164.9 $994.4 Gross profit Fiscal year ($mm) 2012 2013 2014 2015 2016 2017 Gross profit 1,093.8 1,001.1 802.6 574.1 585.5 530.2 Adjustments: Restructuring charges -- -- 4.6 1.5 -- -- UK self-employment ruling accrual reversal (14.5) -- -- -- -- -- Adjusted gross profit $1,079.3 $1,001.1 $807.2 $575.6 $585.5 $530.2 Selling, general and administrative expenses Source: Company filings Note: Totals may not sum due to rounding 1 Includes licensing, franchise royalties and other Fiscal year ($mm) 2012 2013 2014 2015 2016 2017 SG&A 229.3 247.7 241.0 205.0 190.3 153.7 Adjustments: Restructuring charges -- -- (7.2) (6.9) -- -- Winfrey transaction expenses -- -- -- (13.6) -- -- Adjusted SG&A $229.3 $247.7 $233.8 $184.5 $190.3 $153.7 YTD Q3 YTD Q3 YTD Q3 1 19

GAAP reconciliations (continued) EBITDAS Free cash flow Fiscal year ($mm) 2012 2013 2014 2015 2016 2017 Net income 257.4 202.7 117.8 32.9 67.7 100.5 Interest 90.5 103.1 123.0 121.8 115.2 82.2 Taxes 159.5 129.6 65.9 22.8 16.6 36.5 EBIT $507.5 $435.5 $306.7 $177.6 $199.5 $219.2 Depreciation and amortization 36.6 47.9 49.2 53.2 52.6 38.3 Stock-based compensation 8.8 4.3 10.5 24.8 6.5 9.4 Adjustments: UK self-employment ruling accrual reversal (14.5) -- -- -- -- -- EBITDAS $538.5 $487.6 $366.5 $255.5 $258.7 $266.9 Source: Company filings Note: Totals may not sum due to rounding Fiscal year ($mm) 2012 2013 2014 2015 2016 2017 Cash provided by operating activities $336.7 $323.5 $231.6 $54.8 $119.0 $184.8 Capital expenditures (48.8) (40.7) (9.1) (4.0) (5.6) (10.8) Capitalized software expenditures (29.9) (21.3) (42.6) (32.3) (28.8) (20.2) Adjustments: Corporate headquarters relocation -- 22.0 -- -- -- -- Retail store refresh 32.0 -- -- -- -- -- UK self-employment ruling accrual reversal 30.0 -- -- -- -- -- Adjusted free cash flow $320.0 $283.6 $179.9 $18.6 $84.7 $153.8 Discretionary items Dividends (52.0) (29.6) (0.1) (0.0) (0.0) -- Cash paid for acquisitions (30.4) (83.8) (16.7) (3.1) (2.9) -- Adjusted free cash flow after discretionary cash items $237.6 $170.2 $163.2 $15.4 $81.8 $153.8 YTD Q3 YTD Q3 20