WW International (aka Weight Watchers) debt fell yesterday leading into today’s Q2 2024 earnings report and again this morning, after the weight management company posted the weaker-than-expected results, cut FY 2024 guidance and announced an operational restructuring plan.
The weight management company’s revenue shrank 10.9% year over year to $202.1mn for Q2 2024, below the FactSet consensus of $208.5mn. Net income for the period, meanwhile, plunged 54% to $23.3mn, versus $50.8m YoY.
While Sequence subscribers jumped 119.8% YoY in the second quarter, overall subscribers declined 6.1% YoY with subscription revenues slipping 5.4% to $200mn.
On the heels of the report, WW’s $500mn 4.5% secured notes due 2029 fell around three points, trading at 27 today, down from 30.2 yesterday. The bonds dropped 10 points yesterday from 40 on July 31, according to trade data.
Common shares were 16% lower today, trading at $0.90, for a $75.3mn market cap, down 89.5% YTD.
Its original $945mn (S+CSA+350) term loan due April 2028 is quoted 37.1-39.3, versus 44.7-46.9 at the start of June and 70.3-72.3 at the beginning of the year, according to Markit.
Legal counsel Gibson Dunn organized a lender group earlier this year in anticipation that capital structure talks may be on the horizon. In turn, LME-savvy advisors such as PJT have been pressing management to retain outside help and negotiate with creditors on a series of transactions aimed at boosting liquidity and alleviating cash flow pressures, as LFI reported.
The company’s various headwinds include a lull in demand for core business offerings. Meanwhile, WW faces increased saturation across the weight-loss drug market that threatens to cap the upside of Sequence, the recently acquired upstart telehealth firm central to turnaround plans. Ongoing shortages and persistent high demand also threaten to limit growth of GLP-1 products, LFI sister publication BMI noted in a report.
Sequence competitor Hims & Hers Health announced on May 20 that by teaming up with generic drug makers, it will start selling compounded, non-FDA approved versions of popular GLP-1 products priced at an 80%+ discount to uninsured pricing , including Wegovy and Zepbound. “With WW firmly declaring it has no intention to offer compounded versions of GLP-1s, it faces risk in the near to intermediate term of market share erosion for its Clinical business,” wrote CreditSights Senior Analyst, Special Situations, Jory Eisenberg in a report titled WW: Compounding or Keeping it Pure?.
Amid higher competition, WW lowered its FY 2024 revenue outlook to $770mn from a prior range of $830mn-$860mn. The company also announced a cost-cutting plan aimed at reducing its headcount to save $100mn.
“We are refining our operational framework against our product roadmap, concentrating on high impact initiatives to enhance efficiency, accountability and speed. These actions are part of a comprehensive cost reduction plan, targeting $100mn in annualized savings, including $20mn of savings currently reflected in our 2024 guidance,” said CFO Heather Stark in a company press release.
CreditSights analysts noted that the WW “remains vulnerable to a near-to-medium term liquidity crunch which could ultimately be addressed by taking certain liability management approaches, to the detriment of existing credit investors.”
As of June 29, liquidity stood at roughly $104mn, consisting of $42.7mn of cash and $61.2mn of covenant-capped availability on a $175mn undrawn revolver due 2026. That compares to $91.4mn in cash and $61.2mn in borrowing capacity under its revolver a year prior.
