Sima Al-Sistani, CEO of WW International, August 16, 2023.
Scott Milin | CNBC
Sima Sistani, CEO of WeightWatchers, sent an internal memo to employees in an attempt to reassure them that the company's financial position is strong and that its new clinical business related to the weight-loss drug threat GLP-1 is growing faster than expected.
The memo, which was shared with CNBC, comes after heavy selling WW shares This brought the popular weight loss company's market capitalization to less than $150 million amid concerns about the company's debt load and the growth prospects of its core weight loss business at a time of the emergence of new blockbuster drugs such as Novo NordiskOzempic and Wegovy, and Eli Lillyzipbound.
In the memo, Al-Sistani told employees that she wanted “to take a moment to talk about some of the breathless media coverage.”
While the news released on February 28, coinciding with its earnings, that Oprah Winfrey was planning to leave the company's board and donate all of her shares in the company to the endowment of a museum, resulted in a 20% decline on earnings day, the stock stabilized. Later that week. But since then WW shares have suffered a heavy sell-off, falling to a new 52-week low on Thursday. Over the past month, shares have fallen 58 percent. The stock is exposed to extreme volatility due to debt load and short interest, as well as general concern about the impact of new weight-loss drugs.
Concerns about the company's high debt load have made headlines in recent weeks, however, the problem is not new and much of the debt is not owed for years.
Al-Sistani wrote to employees: “These headlines are often just speculation.” “We have strong liquidity and are not in a cash crunch. We have very attractive, long-term debt agreements, with no maturities until 2028 and 2029.”
Guggenheim Partners analysts wrote in a note Thursday that they are “not concerned” about WW's ability to service its debt, which includes approximately $945 million owed on a non-amortizing term loan due in April 2028, and $500 million in securities due in April. 2029.
The company ended 2023 with about $109 million in cash, according to Guggenheim.
At its current market value, roughly $1.5 billion in debt is worth 10 times the publicly traded value of the company's stock.
There has been some confusion in the market over financial issues and bankruptcy risks contributing to pressure on the stock, with at least one Wall Street research report this week indicating that WeightWatchers has hired lawyers. But CNBC was able to confirm on Thursday that it was the company's lenders, not WW, that hired a law firm in preparation for talks about the debt load.
“Despite the high leverage, we believe WW will have no problem covering interest payments on the debt, and will ultimately be in a much better position to recapitalize the company within two to three years after the clinical business balances out. Furthermore, we believe there is Any concerns Guggenheim analysts wrote that “issues regarding a recapitalization or default this year are overstated.”
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, which has since been rebranded as WeightWatchers Clinic, as a way to counter the threat of GLP-1 drugs to its legacy business by being able to connect patients with doctors who can prescribe the drugs and combine the drugs with a combination of drugs. A broader weight loss program. The US Food and Drug Administration stipulates that the drugs be used in conjunction with a broader weight-loss diet and exercise methods.
Al-Sistani said in the memo to staff that since he submitted his report on February 28 and provided guidance for this year, his GLP-1-related clinical work has grown rapidly. “In fact, we are on track to beat our Q1 guidance for clinic subscribers,” she wrote.
While any faster growth for the clinical business is a plus, several analysts covering the stock told CNBC that the core weight loss management business would have to grow for investors to turn bullish on the stock, given the scale of the legacy business compared to the new clinical efforts.
“WW is in a difficult position,” said one analyst consulted after the internal memo was shared, but was unable to comment on its attribution due to concerns about fair disclosure of material information. “Sequence (the clinical business now called WeightWatchers Clinic) has to be the future. That's the playbook for GLP-1, but at this point it's still very small. If they're talking about the upside of this small business per se, that's not the point.” Meaning. “…the biggest problem is that the legacy business is still suffering and the company is overly leveraged.”
When WW reported its results on February 28, the company said it ended the fourth quarter with 3.8 million subscribers, including 67,000 for clinical subscriptions, but its full-year 2024 guidance was for total subscriber growth in the range of 3.8 million to 4.0 million, including between 140,000. and 160,000 WeightWatchers clinic participants.
“The transformation and complete transformation of a business is not for the faint of heart!” Al-Sistani wrote to employees. “As we continue to focus on delivering services to our members, the stock price will take care of itself,” she said. “I know the hoax stories and their expected, albeit temporary, impact on the market doesn't sound great. But take pride, because we're going to prove the naysayers wrong.”
Oprah Winfrey said in her statement in which she announced her intention to leave the board of directors of WW next May and donate all of her shares to the National Museum of African American History and Culture, and that she will continue to work with the company to remove the stigma of obesity and focus on weight loss as a treatment for a chronic condition (Oprah told People magazine that she I started using weight loss medications in December.) Winfrey is scheduled to appear next Monday on a national primetime weight loss special on ABC.
“We would not be surprised if the special contained positive commentary about combining GLP-1 pharmacotherapies with a clinically directed behavior modification program,” Guggenheim said in his note Thursday. She noted that WW was among the weight loss companies participating in the television event.
Al-Sistani was named to the inaugural CNBC Changemakers list, which was revealed in February.
— CNBC's Brandon Gomez contributed reporting.
