Weight Watchers International, Inc. (WTW)
UBS Global Healthcare Services Conference
February 7, 2012 09:00 ET
David Kirchhoff – President and Chief Executive Officer
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David Kirchhoff – President and Chief Executive Officer
Good morning. I see at least a couple of you chose through, thank you. For those of you who are having pastry, just remember, it’s never too late to walk away from baked goods. So, before we get going the usual disclaimers are in play, in terms of forward-looking statements and all that other good stuff. It’s an interesting time for us. This is our second UBS Health Care Conference, and just recently, we had our second JPMorgan Healthcare Conference, so may respects, it has been a coming out for us in the world of healthcare.
This is a business that has – we’re almost 50 years old. It’s traditionally been a direct-to-consumer business. It is a wonderful business that I’ve been proud to be a part of for the better part of 12 years. It is a tremendous brand in terms of high brand recognition, high member and customer satisfaction, amazing net recommendation scores, tremendous reach, 45,000 meetings a week and it is from a consumer proposition, it is a brand that is continuing to extend into new territories including younger women and that difficult 50% of the population known as men.
It is also – in addition to this traditional core meetings business, we also have a wonderful online business, a subscription-based model. It is a business that commands its own advantages in the marketplace. It is also a business that has had tremendous growth characteristics over the past 10 years. And it is a business that has proven itself to be highly globally scalable.
And if you look at the combination of this internet business in this meetings face-to-face business, the consumer side of Weight Watchers is an incredibly tremendous business with tremendous growth opportunities in front of it. And it’s also an incredibly attractive economic model with high gross margins, negative working capital, low capital expenditures as a percentage of revenue, high return on invested capital everything else, and tremendous cash flow characteristics.
More recently, we have been finding ourselves whether we wanted to be or not, we are becoming a healthcare company. And the reality is you’ll see me walk through in a little bit that this is a business that is addressing a problem that has become one of the biggest health issues facing our planet. It is a business as I’ll walk you through which is uniquely position to be the frontline solution in treating obesity, particularly before it becomes a disease state. And we think it is going to ultimately offer tremendous new growth opportunities for the business while also allowing us to have a need and bigger impact on our mission, which is to help people lose weight sustainably by adapting a healthier lifestyle and our strategy which is simply to be better at helping people and to find more people to help.
Okay. So, many of you may have seen some of these maps of the United States or for those who have not, this is showing the progression of obesity since 1990. I’ll point out the fact that 1990 there was no state in the union with greater than 20% obesity rates, and then in 2010, there was no state in the Union with less than 20% obesity rates. In fact the healthiest state in 2010 Colorado would have been the least healthy state in 1990. Sadly, this is no longer a United States phenomena but it’s a global phenomena with rising obesity rates in countries across the globe. If you would have told me when I first joined Weight Watcher 12 years ago that China would have an obesity issue, I would have thought that was crazy, but low and behold where you have rising affluence in increasing disposable income. You have proliferation of calorie-dense foods in the form of processed foods as well as proliferation of dining out options, changing the lifestyle and everything else. So, with prosperity comes obesity, with obesity comes chronic disease.
So, chronic disease today in the United States, of the $2.5 trillion we spend on healthcare, it’s about 75% driven by the treatment of chronic disease. And if you look at the drivers of chronic disease, those disease states that really attacks the health system, they are significantly driven by lifestyle choices earlier in life. In fact according to World Health Organization, chronic disease has influenced depending on conditions 50% to 80% by lifestyle. So, it leaves you with a simple reality. Then if you want to have a chance or a hope driving down healthcare costs, currently 18% of GDP. If you want to drive that down over time, there is no way to do it without going about the messy sometimes difficult business of getting people to change the way they live, getting people to adopt different behaviors. There is frankly, just no other way around it.
A case study of this and the most obvious example is type 2 diabetes. Now, if you look at that map that is up there on the right, you’ll notice that it looks very similar to sort of the heat map in terms of obesity, which is obviously not a surprise. If you are obese, the likelihood of your becoming type 2 diabetic is about 500% higher than if you are ata normal weight.