Sima Sistani, CEO of WW International, August 16, 2023
Scott Mill | CNBC
WeightWatchers CEO Sima Sistani sent an internal memo to employees trying to assure them that the company’s financial position is solid and its recent clinical business related to the threat of GLP-1 weight-loss drugs is growing faster than expected.
Noteshared with CNBC, follows intense selling that has seen the iconic weight-loss company’s stock value plummet to below $150 million amid concerns about the company’s debt and growth prospects for its core weight-loss business amid recent blockbuster drugs like Ozempic and Wegovy and Zepbound.
In the memo, Sistani told employees she wanted to “take a moment to address some of the breathtaking media reports.”
Although the February 28 news, coinciding with the company’s earnings, that Oprah Winfrey planned to leave the company’s board and donate all of her shares in the company to a museum fund led to a greater than 20% drop on earnings day, the company’s stock stabilized by the end of the week. However, WW shares have since seen a sharp sell-off, falling to a recent 52-week low on Thursday. The company’s stock has fallen 58 percent over the past month. Due to debt and short interest, in addition to general concern about the impact of recent weight reduction drugs, stocks are experiencing increased volatility.
Concerns about the company’s significant debt have made headlines in recent weeks, but the issue will not be recent and most debts haven’t been due for years.
“These headlines are often just speculation,” Sistani wrote to employees. “We have high liquidity and no shortage of cash. We have very attractive long-term debt arrangements maturing in 2028 and 2029.”
Guggenheim Partners analysts wrote in a note Thursday that they’re “not concerned” about WW’s ability to service its debt, which incorporates about $945 million outstanding on an unamortized term loan maturing in April 2028 and $500 million in notes due in April 2028. maturity in April 2029
According to Guggenheim, the company ended 2023 with roughly $109 million in money.
At its current market capitalization, the debt of almost $1.5 billion is roughly 10 times the equity value of the publicly traded company.
“Despite the high leverage, we imagine that WW may have no problem paying interest on its debt and can ultimately be in a significantly better position to recapitalize the company inside 2-3 years after achieving Clinical business scale. Moreover, we now have no concerns that reports of recapitalization or insolvency this yr are exaggerated,” Guggenheim analysts wrote.
Guggenheim maintains a buy rating on the stock and a $12 price target. WW shares closed at $1.87 on Thursday.
Last year, WW acquired Sequence, since renamed WeightWatchers Clinic, to address the threat that GLP-1 drugs pose to the company’s existing business by being able to connect patients with doctors who can prescribe the drugs and combine them with the broader weight loss program. The FDA recommends these drugs be used in conjunction with a broader weight-loss diet and exercise.
Sistani said in a memo to staff that its GLP-1 clinical activities have expanded rapidly since submitting the report on Feb. 28 and providing guidance for the year. “In fact, we are on track to exceed our first-quarter Clinic subscriber guidance,” she wrote.
While faster growth of the clinical business is an advantage, several equity analysts told CNBC that the core weight loss management business needs to grow for investors to gain value in the stock given the size of the legacy business compared to the new clinical effort.
“WW is in a difficult situation,” said one analyst who was consulted after the internal memo was released but who could not comment on the attribution due to concerns about the fair disclosure of material information. “Sequence [the clinicals business now named WeightWatchers Clinic] needs to be the future. It’s a GLP-1 manual, however it’s still very small at this point. If they discuss the benefits of this small company as such, it doesn’t matter. The greater problem is that the legacy business continues to suffer and the company is overutilized.”
When WW announced results on February 28, the company said it ended the fourth quarter with 3.8 million subscribers, 67,000 of which were clinical subscriptions, but guidelines for the entire yr 2024 amounted to total subscriber growth in the range of 3.8 million to 4.0 million, including 140,000 to 160,000 WeightWatchers Clinic subscribers.
“Turning around and completely transforming your company is not for the faint of heart!” Sistani wrote to employees. “As we focus on delivering services to our members, the stock price will take care of itself,” she said. “I know stories about clickbait, and their predictable, if temporary, impact on the market doesn’t seem to be great. But be proud, because we will prove the doubters wrong.”
Oprah Winfrey said in her statement announcing her intention to leave WW’s board next May and donate all of her shares to the National Museum of African American History and Culture that she will continue to work with the company to destigmatize obesity and focus on weight loss as a treatment. chronic disease (Oprah said People she started taking weight loss medications in December). Next Monday, Winfrey is scheduled to appear on a nationally syndicated weight-loss program airing in prime time on ABC.
In its Thursday note, Guggenheim said that “we’d not be surprised if the special included positive commentary about combining GLP-1 drug therapies with a clinically guided behavior modification program.” She noted that WW was among the weight loss companies involved in the televised event.
Sistani was named to CNBC’s inaugural Changemakers list, unveiled in February.
