Good day, and welcome to the Weight Watchers 4th Quarter and Full Year 2024 Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. And to withdraw your question, please press star and then 2. Please note that this event is being recorded. I would now like to turn the conference over to David Helderman, Director of Investor Relations. Please go ahead.

Thank you everyone for joining us today for WW International's fourth quarter and full year 2024 conference call. This afternoon we issued a press release reporting our fourth quarter and full year 2024 results. The purpose of this call is to provide investors with some further details regarding the company's financial results, as well as to provide a general update on the company's progress. The press release is available on the company's corporate website located at corporate.ww.com. Supplemental investor materials are also available on the company's corporate website under events and presentations. Reconciliations of non-GAT measures disclosed on this conference call to the most directly comparable GAT financial measures are also available as part of this press release. Before we begin, let me remind everyone that this call will contain forward-looking statements. Investors should be aware that any forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's latest annual report on Form 10 and other filings with the Securities and Exchange Commission. Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. All forward-looking statements are made as of today and accept as required by law. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Joining today's call are Tara Comant, President and Chief Executive Officer, Felicia Della Fortuna, Chief Financial Officer, and Donna Boyer, Chief Product Officer. I will now turn the call over to Tara.

Thank you, David. Thank you all for joining us today, and I'm pleased to officially welcome Felicia to her first Weight Watchers Earnings Call. Felicia joined as a CFO on the 1st of January and was thrilled to benefit from her extensive strategic and financial leadership experience as part of the Weight Watchers team. In addition, and as you may have seen in our earnings press release, I'm pleased to lead our call today as the President and CEO of Weight Watchers, transitioning from my interim role over the last five months. I'd like to thank the Board of Directors for their trust in my leadership of this iconic brand and incredible company at such a critical time. I look forward to continuing to drive our business forward, together with our very passionate and talented team. Ahead of Felicia taking me through the numbers, I'd like to share how we're thinking about the business. some recent trends, and where we're focused moving forward as we work to stabilize and lay the path back to long-term sustainable growth. Weight Watchers has experienced significant disruption in recent years. The lasting impact of COVID-19 led to widespread and, in many cases, permanent closures of our in-person workshops, and the rapid adoption of GLP-1 weight loss medication is fundamentally reshaping the weight management landscape. Over the same period, we wound down our consumer products business, scaled back licensing activities, and reduced focus on our international operations. Collectively, these changes have created a challenging period of transition for the business, which continues to be evidenced in our fourth quarter revenue, down 10% on the same period last year, with our behavioral business down 12%, partially offset, however, by a healthy 58% growth in our clinical business. Despite the challenges of recent times, the foundation upon which Weight Watchers was built 62 years ago, and the core reason we exist, has never been more relevant or important. As the trusted leader in weight management, Weight Watchers continues to combine science and community to help millions lead their healthiest lives. We're more than just a digital telehealth player. We exist in real life, fostering active, engaged communities supported by powerful digital tools. Our science-backed approach is well proven in its ability to help members build lifelong healthy habits, including for those members on or coming off weight loss medications. We believe our most successful members will be those who embrace our solutions holistically, integrating them into their daily lives as part of sustainable long-term journeys. In a world where more people than ever are considering medications, yet are also seeking livability in treatment and sustainability of results, this is where Weight Watchers excels. This strong foundation gives us a powerful platform for the future. However, we also recognize the realities of our current business landscape, the challenges of our existing capital structure, and the work ahead. We entered 2025 with a starting revenue headwind of approximately $45 million, driven by a lower 2024 ending subscriber base. At the same time, we committed to removing $100 million in run rate costs by the end of 2025, the vast majority of which has already been actioned. While these factors shape our starting point, 2025 is ultimately a year of significant reset, one where we focus on stabilization, recovery, and rebuilding to lay the groundwork for sustained future growth. We believe we have multiple growth levers over the mid to long term and hold a unique competitive position in this evolving market. That said, transformations take time, and they take investment, and our existing debt, which results in approximately $100 million of annual interest payments, is a significant ongoing burden for the company, not least in this period of necessary speed and innovation. Despite the limitations presented by our current leverage, our teams across the business are driving progress in several key priority areas, some of which we'll touch on today. One of those key areas of immediate focus, as mentioned on our last call, is improving the end-to-end member experience. Today, becoming and staying a Weight Watchers member is more complicated than it should be, with an unclear, disjointed journey from initial sign-up through the various components of our program once you are a member. Our product team has a clear plan to radically simplify and streamline this experience, eliminating unnecessary friction and better integrating and showcasing the full breadth of our offerings. This foundational work is essential to ensuring a more seamless, engaging, and intuitive experience for all our members and continues to be a top priority. Part of this member journey initiative involves improved integration of our clinical business, both in terms of how it presents to new and existing members, as well as how we integrate our teams and functions internally. We acquired Weekend Health, also known as Sequence, in April 2023. This was a critically important acquisition for us, allowing us to meet a high growth, high demand, exciting new area in weight loss. However, we're only partway through the integration of this business, and completing it fully is a priority for this year. This is important because we believe in the increasing power of a full continuum of care for our members, creating a seamless journey across our extensive spectrum of solutions. Our behavioral and clinical offerings strengthen and complement each other when we bring them together. We know that when members engage across this broader Weight Watchers journey, they do better. Case in point, members on weight management medication, combined with our behavioral program, lose 11% more weight than those on medication alone. We also know that not everyone wants to stay on medication forever, nor do they always have the ability to pay due to the price point. But when they come off, they're often worried about putting weight back on. However, in a recent internal study, we also saw that when our members who transitioned from our clinic program but continued to engage in our behavioral program, not only did they keep the weight off, they continued to lose weight over that measurement period. There is true and proven power in the breadth of our full Weight Watchers offering, and we're focused this year on bringing that to the forefront of our full product experience for all members. Currently, only a small percentage of our members fully utilize the breadth of solutions we offer, presenting a significant growth opportunity. By better showcasing, educating, and simplifying access to our full continuum of care, we can drive deeper engagement over time, ultimately leading to both stronger member experiences and superior outcomes. Beyond the deeper product integration, we also continue to enhance and expand our offerings, with a focus on increasing engagement and lifetime value. In recent months, leading into peak season, we launched several new features designed to make weight management easier, more personalized, and more sustainable. These include an AI-powered food scanner that instantly calculates points from a photo, an online recipe importer that not only allows for easy tracking, but also supports members in discovering and utilizing recipes within the app, and a much-requested macro-nutrient tracking feature. Early feedback has been encouraging, with fast-approaching 2 million meals tracked using the scanner, almost a million recipes already imported, and macros driving a 5% increase in tracked foods since launch. As well as providing value for actively engaged members, we're pleased to see this work directly and positively impact the engagement of members who've not recently tracked, something that can be challenging to do. Collectively, these new features translated into our highest activation rate for the start of a year since 2020, together with encouraging positive traction across many of our January brand survey metrics. While new features like these don't immediately translate to new subscribers or revenue, improving engagement, re-engagement, and brand metrics are positive leading indicators for the future. These types of ongoing innovations are a commitment moving forward and an important and integral part of how we will continue to drive incremental value for our members, critical in a recurring revenue subscription business. We also have vast amounts of data at our disposal and are well-placed to much more aggressively lean into AI opportunities for continued personalization and other value creation opportunities in the future. More to come on our broader data strategy, but we see very real value over the long term in being much more proactive here. As well as improvements to the existing product, we recently expanded the ability for a U.S. member to access one-on-one registered dietitian services. This was previously available only to clinical members, but expanded to all members in December on both an insurance-covered and cash-pay basis. Uptake has been positive, requiring us to scale our credentialed dietitians faster than expected to keep up with demand. While this is, of course, a small part of our overall business today, we feel good about the opportunity for growth here moving forward, particularly as approximately half our current members have existing insurance coverage for this type of service. Our clinical business is an important part of how we expect to return to enterprise-level growth over the coming years, and we were pleased with fourth-quarter performance, as well as a strong start to Q1. Weight Watchers Clinic prescribes both branded and generic weight loss medications, supported by our AI-enabled proprietary platform for prior authorization filing and fulfillment. Through our state-of-the-art tech-enabled process, we conduct thousands of stock checks per day to help members more easily find medications, sometimes within hours of obtaining a prescription. This level of support sets Weight Watchers apart in an increasingly transactional market, ensuring our members receive seamless, real-time access to care. Above all, we've always cared about access at Weight Watchers. For years, we've provided access to science-backed nutritional and behavioral guidance, and our approach to our clinical care remains the same, whether that's access to these life-changing medications or access to care by obesity-trained clinicians. And it's clearly important to our members. Both clinical NPS and retention have improved significantly versus a year ago, with both metrics meaningfully impacted by members' access to medication. I'm sure everyone on this call saw the announcement last week that the FDA determined that one of the GLP-1 medications, semaglutide, is no longer in short supply. However, our supply monitoring efforts in the fourth quarter demonstrated continuing significant challenges in accessing supply of branded GLP-1 medications. Of the nearly 750,000 pharmacy stock checks conducted in the fourth quarter, branded semaglutide, and trisepatide were in stock just 6% and 5% of the time, respectively. These availability levels have remained consistent in our checks throughout January and February. As we've consistently communicated, we're committed to providing medication access to our members in a manner that's compliant with all applicable laws and regulations. Accordingly, we're carefully monitoring the impact of the FDA's decision and potential implications on our ability to provide compounded semaglutide in the future. We have strong conviction in the long-term potential of the weight loss medication market, fueled by continued innovation, increasing investment in supply expansion, and growing recognition from insurers of the downstream health benefits of obesity treatment. Beyond direct-to-consumer growth, our capabilities also support our B2B expansion, a key focus for the coming years. While this business has a longer lead time, employers and payers are under growing pressure to cover weight loss medications. In evaluating this, they increasingly seek comprehensive weight management solutions that combine medication support with lifestyle coaching and personalized care. We're seeing promising traction in this space. LabCorp, a new 2024 partner, now has utilization above 11% of eligible lives. and our first client through our new personifying partnership has already reached nearly 10% utilization within a couple of months. Additionally, in December, we expanded our relationship with CVS, allowing employer clients of CVS Caremark to integrate our behavioral and clinical programs, optimizing GLP-1 effectiveness through personalized nutrition and coaching while managing the cost of weight-related chronic conditions. I want to underscore that while top-line revenue growth remains a priority, we are equally focused on optimizing how we operate to drive long-term profitable growth. A significant portion of our revenue is allocated to paid marketing, a strategy that has grown increasingly dominant alongside a reliance on heavy discounting. While promotions have their place, our brand strengths, differentiated offerings, and proven outcomes should be the foundation of sustainable growth. Transitioning away from this model will take time and trade-offs, but we're confident in the effectiveness of our program, the trust in our brand, and the strength of our community to fuel organic growth over the long term. Alongside these efforts, we're also elevating and modernizing our marketing, shifting towards a bolder, more confident, and modern aesthetic, one that celebrates the unique and powerful strengths of Weight Watchers, as well as the real-life success stories of our incredible members. I'm particularly proud of the team's work during peak season, which showcased authentic member experiences through a simplified, unified message, highlighting our full spectrum of care model. Additionally, we're strengthening our capabilities by recently welcoming top-tier talent, including new leadership in both our social and our influencer teams. Over the past 12 months and in prior years, we've taken out significant cost, reducing adjusted G&A by over 25% when comparing 2024 to 2021. We remain on track to achieve our previously committed $100 million in run rate cost savings by the end of 2025, but our work doesn't stop there. In addition to our weekend health integration, we're conducting a comprehensive review of resourcing, operations, and spend across the business to unlock greater efficiency and effectiveness. For example, integrating multiple disparate functions and systems across the company, including engineering, product, marketing, member support, and operations. In parallel, we're actively increasing adoption of existing automation and AI-driven solutions across the organization. I give the team a huge amount of credit for the hard work to date on these cost savings, which is never easy. It is, however, evidenced in a near-record fourth quarter adjusted gross margin of 69.1%. In addition, adjusted operating income margin was 20% and adjusted EBITDAF margin was 27.4%, both of which represent the highest level since the third quarter 2022. While we're ambitious and committed to our path towards recovery and long-term growth, we know that meaningful transformation takes time. This journey will extend beyond 2025, and it's essential that we set clear and realistic near-term expectations. Our immediate priority is stabilization, but our focus remains firmly on positioning Weight Watchers for sustained long-term success. At the same time, we recognize that executing on our vision, both in the near term and for future growth, requires sufficient deployment of capital. Many of the initiatives we've discussed, as well as others on the horizon, will require investment, and we must balance these opportunities with the realities of our current financial obligations. The benefit of our capital-like, high-growth margin, cash-generative subscription model that underpins our business is almost fully offset by the strain and cost of our balance This is why we engage strategic advisors towards the end of 2024 to help us assess our capital structure strategy moving forward. We publicly announced a few weeks ago that we anticipate engaging in discussions with our lenders and bondholders to explore transactions to increase our financial flexibility, and we won't be taking questions today on this particular topic. As a leader in weight management, we have 62 years of proven results and a legacy of positively impacting millions on their weight loss journeys. Rooted in best-in-class science and innovation, we are a globally trusted brand with a passionate community of over 3 million members. Our broad spectrum of proven solutions meet members wherever they are on their journey, giving us a unique opportunity to drive lasting impact. These are exciting times for Weight Watchers, but challenging ones nonetheless. With that, I'll hand over to Felicia to take us through the financials.

Thank you, Tari. I'm excited to join Weight Watchers at this pivotal time and to contribute to the ongoing transformation of this iconic brand. In my short time here, it's clear that significant work is already underway to drive the business forward, and I look forward to leveraging my experience to enhance operational efficiency, financial discipline, and long-term stability. A key part of this will be ensuring we have the right financial foundation to support our strategic priorities, balancing investment and growth with the necessary work on our balance sheet. Now, turning to the quarter. Q4 results were largely as expected with full year 2024 results around or ahead of previously shared guidance. End this period subscribers were 3.3 million, a decline of 12 percent year-over-year but above prior guidance of at least 3.1 million. While recent trends continued in our digital and workshop businesses, we were encouraged to see clinical subscribers return to sequential growth ending the year in 92 000 growing 18 from the third quarter and 38 on the prior year the subscriber transfer reflected in our full year 2024 revenue of 786 million above prior guidance of at least 770 million but a decline of 12 percent versus the prior year within this subscription revenue declined six percent year over year due to the ongoing headwinds in the behavioral business, partially offset by growth in clinical revenue, which totaled $78 million. As clinical subscribers deliver a significantly higher LTV and rate per paid week compared to digital and workshop subscribers, our overall rate per paid week increased sequentially in the fourth quarter due to a higher mix of clinical subscribers. We continue to focus on maintaining high levels of profitability despite revenue headwinds. Adjusted growth margin was 69.1% in the fourth quarter, with full year 2024 adjusted growth margin expanding over 650 basis points compared to the prior year. Adjusted EBITDAs in the fourth quarter was 50 million, an increase of 17 million year over year. This resulted in an adjusted EBITDAs margin of 27.4% in the quarter. We ended 2024 with $53 million of cash and cash equivalents on the balance sheet. For the full year, cash from operations was a use of $17 million, inclusive of $33 million in one-time restructuring payments and $97 million of interest payments. Cash flow from operations, excluding these items, would have been positive $113 million. Additionally, $16 million of cash was paid on the first anniversary of the sequence acquisition. The profile of this business is one that is highly cash generative, pre-debt servicing charges, reflective of recurring subscription revenue, high incremental margins, and low capital intensity. And as you saw in our 8K earlier this month, we drew the full amount under our $175 million revolving credit facility in order to provide maximum financial flexibility ahead of engaging with lenders and bondholders in the coming months. With our cash position plus our revolving credit facility and bolstered by recent and ongoing cost actions, we believe we have sufficient liquidity for our working capital needs. However, our current leverage and associated annual interest payments place a significant challenge around our ability to invest to the level we otherwise would in future growth initiatives. Now, turning to our fourth quarter 2024 financial detail. Revenue totals $184 million, down 10% year-over-year, reflecting continued headwinds in our digital and workshop businesses and the closure of our consumer products business at the end of 2023, partially offset by nearly 60% growth in clinical revenue. Subscription revenue overall was down 7% in the quarter. Adjusted gross margin remained near record highs at 69.1% up from 61.4% in the prior year, driven primarily by cost actions taken and the closure of our lower gross margin consumer products business. Marketing expenses of $48 million was down 5% year over year in the quarter as we managed our LTV to CAC ratios. In the fourth quarter, CACs remained elevated due to continued high levels of competitive spend. In G&A, we have maintained high levels of cost discipline, with adjusted G&A of $42 million down 22%, or $12 million versus the prior year, reflecting our previously announced cost savings initiatives. As a result, we saw material leverage in G&A, bringing G&A as a percentage of revenue from 26 to 23%, now in line with 2022 levels. As mentioned previously, we remain on track to achieve a full run rate, $100 million cost savings by the end of 2025, split roughly evenly across G&A and cost of revenue in 2025. Adjusted operating income was $37 million, reflecting an operating income margin of 20%, a year-over-year increase of over 950 basis points, primarily due to the adjusted growth margin expansion and lower adjusted G&A as a percentage of revenue. Adjusted EBITDA was $50 million, and adjusted EPS was $0.32 and included a $0.28 tax benefit from the valuation allowance mentioned in our press release. You can find a reconciliation between adjusted operating income and adjusted EBITDA, as well as the P&L impacts of non-GAAP adjustments within our supplemental materials and in the financial detail section of our earnings press release posted on our investor site.

In 2025, we are working to gradually stabilize the business and ensure we build the foundation for a future return to growth.

While we are not providing full year 2025 guidance at this time, we are providing some color on the quarter to date and highlighting a couple of other notable points for 2025. Revenue starts with a significant headwind from 2024 ending subscriber levels, but we continue to maintain high levels of disciplined cost management. While we are encouraged by engagement following recent product enhancements, acquisition challenges remain within our behavioral business quarter to date, and we do not expect to see material changes in those trends over the short to midterms. Meanwhile, clinical subscriber growth continued to be strong in January and February, albeit we may experience some volatility over the next few quarters due to uncertainty surrounding compounded semaglutide. In marketing, Q1 will be our highest spent quarter of the year with elevated CACs continuing quarter to date, a trend that is expected given seasonality and heightened competition. We are committed to disciplined LTV to CAC efficiency and will look to capitalize on product experience improvements later in the year to drive further efficiency. As we assess our marketing strategy for the remainder of 2025, we are evaluating overall spend levels and may scale back less profitable spends in the short to midterm, reallocating resources to areas with higher, longer-term strategic impact. Our 2025 fiscal year includes a 53rd week, something we last saw in fiscal 2020. Our fiscal 2025 year-end therefore will bridge the last week of December 2025 and ends on January 3rd, 2026. Given the importance of this 53rd week in our early peak period, it will likely include higher levels of marketing investment ahead of revenue. As such, the inclusion of this additional week in our 2025 fiscal year is expected to have a modest negative impact on EBITDAs and operating income. Before I turn the call back to Tara, I want to emphasize our commitment to delivering results and protecting our cash position as we navigate a challenging and rapidly evolving industry. While we have made significant progress in reducing our cost structure, we remain highly focused on disciplined profitability management. At the same time, we recognize the constraints of operating with limited resources and a highly leveraged balance sheet with nearly $100 million in annual interest expense impacting cash flow. This makes it even more critical that we take the right strategic steps to balance short-term stability with our longer-term path back to enterprise-level growth, turning it back to Tara.

Thanks, Alicia. As we've discussed today, we are operating in a challenging environment, one that requires both discipline and adaptability as we work towards stabilization, recovery, and ultimately a return to growth. We recognize the road ahead and take time and thoughtful execution, but we are clear-eyed about the work required and committed to making the necessary moves to position Weight Watchers for long-term success. With that, we'll happily take your question.

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. In the interest of time, please limit yourself to one question and one follow-up. We will now pause momentarily to assemble our roster. And your first question today will come from Nathan Feather with Morgan Stanley. Please go ahead. Hey, everyone.

Thanks for taking the question. I want to dig a little bit more into peak season and the trends you saw through there. Have the changes you've made to the product and marketing translated to, you know, either improving their sads or I'll see the cat, just any way to get sense of kind of the early green shoots, if any, there, and then do you write some color to how the marketing environment evolved? And once you understand that, you know, that's been, you know, under pressure, but certainly seems like a lot of competitive activity. Thank you.

Yeah, hey, Nathan. Thanks for the question. Yeah, I mean, as it relates to peak, we shared, obviously, some colour in the prepared remarks. We were encouraged with some of our trends coming out of quarter four and into peak as it relates to the clinic performance. You know, more of the same, candidly, as it relates to challenges and headwinds in the behavioural business. And I think we're going to continue to see those for a while as we work through some of the strategic initiatives that we shared as it relates to, you know, both approving that experience and driving conversion and retention in that member experience. We, Felicia, maybe you want to jump on marketing. But yeah, listen, before we do that, in terms of green shoes, we shared some of them. We had some great product launches and some feature launches for Peak, some much requested after extended periods of time from our members, not least macros. And the engagement that we saw there, both in terms of actively engaged members and some less engaged members coming back to engage in those features was really encouraging. Same with some of the brand metrics that we talked about. So these are all leading indicators. They don't flow through to the P&L or sort of top-line growth KPIs immediately. But we think, you know, they're signs that we're heading in the right direction. with a lot of this work, but you're not wrong in the competitive marketing environment, but Felicia, do you want to jump on that one?

Sure, and just to provide a bit more color to what Tara said, last year we did see a step up of about 5% from Q4 2023 to Q1 2024, which is typical in a business like ours. We, as she mentioned, did see the recruitment challenges on behavioral, but clinic was great growth, and we did sequentially see it grow from Q3 to Q4. by 18%. We did see that acceleration into the peak season. So overall, we do expect to be slightly lower in terms of a seasonal step up year over year as it relates to peak, but we are encouraged by some of the product improvements that Donna has made during peak. And before I pass to Donna, just quickly on your question, as it relates to marketing, we have seen a lessening of declines on our LTV, which is also an encouraging trend as we work towards product improvements and the return to growth. We have continued to see cap costs increase, and as it relates to overall marketing, we are taking a very comprehensive look at our marketing throughout the 2025 year, and there will be more to come on that topic. But Donna, do you want to go through some of the product improvements from Peak?

Sure. Tara covered it well. The only thing I think I would add to that is directly attributable to the features that we launched. We are seeing our highest activation rate since 2020, and that is the key engagement metric that is an early indicator of retention. Again, it's too early to pull that through into a direct financial impact, but between the usage we're seeing in the product and the reception from socials and in Connect, we are seeing green shoots and encouraged.

Great. That's really helpful. And then just one followed for me. I guess encouraging to see clinics get back to net ad growth. How important was the addition of generic GLP-1s to the clinic outperformance in 4Q? And just any way to give us a sense of how to think about the mix of branded versus generic growth ads as you've kind of gone through 4Q and NPQ?

Sure, I'll take that one. You know, our focus has always been on ensuring safe member access to medication, and due to the shortages, enabling this access through compending and Q4 saw an increase across all of our key metrics, subscriptions, NPS, and retention. So, we're really encouraged by seeing that growth and that rebound as we were able to alleviate the shortages. And we're seeing that as those shortages improved, the mix to branded, well, we're expecting to see go back as well. You know, as those shortages increase, a reminder, or a decrease, as a reminder, we, unlike many of our competitors, offer a broad formula of medications, including branded and generic. So, we welcome the return to available supply. It's good for our members to be able to have that coverage through their insurance. We have, as Tara noted earlier, we have an AI-powered proprietary platform to expedite filing of prior auth and supply routing. So we feel very well positioned to scale as supply and insurance coverage improves back to branded.

The second thing I'd add to that is I think we, and that's why we shared some of those stop check numbers. You know, we are thrilled as supply comes back. It is our number one issue or has been as it relates to being able to meet member demands and which has been reflected in things like our NPS where our members simply can't get access to medication. And so we were pleased to be able to launch compounding to help fill that gap to the extent that branded supply is coming back. At the end of the day, you know, as Donna said, we have a broad formulary and whether it's branded, compounded, generic, our focus is on providing access. Providing access, safety, through a trusted platform with extensive wraparound support in the form of our nutritional program, our community, all the other aspects of the Weight Watchers holistic care model. And so the data to date is not particularly encouraging as it relates to the short agending, but again, And we're encouraged if we start seeing that change.

And as a reminder, as it relates to us providing access to medication, we do record our revenue net of the cost of medication. And so if you do look at Q4 with compounding launched in October, it did have a fairly material impact on our end of period subscribers. However, it did not have a material impact on our Q4 revenue. And so, the large majority of that growth was through growth of our clinic business outside of compounding.

Very helpful.

And your next question today will come from Michael Lasser with UBS. Please go ahead.

Good evening. Thank you so much for taking my question. Tom, how do you work to avoid this downward virtuous cycle where Weight Watchers has fewer subscribers, thus less resources to drive subscriber growth, and it becomes a virtuous cycle down, especially at a time where there are so many distractions and alternatives for those who are looking to lose weight? Thank you very much.

Hey, Michael. We focus on substance. And when we look at Weight Watchers and everything that we have built over 62 years, why we were created 62 years ago and why we exist today, we look at the value that that can offer our members and subscribers today and in the future, and how we use those fundamentals to get back to growth, along with innovation in new product features, potentially product extensions, and improving the existing product that we already have, as well as some of the other initiatives that we touched on that relates to adjacencies like our views, how we think about going back to our marketing strategy, and so on and so forth. And so fundamentally, we believe we have the world's leading trusted brand as it relates to weight management, as it relates to livable weight management. And we shared a couple of these claims on the call. We have 62 years worth of claims that shows that Weight Watchers works. Now, Weight Watchers was historically a nutritional and community-based program. Today is a nutritional, community-based, digital-supported program that also has clinical access. And we're really unique in that breadth of offerings. To answer your question, listen, we're very counted about it. I'm very counted about it. We have a lot of work to do to remind the world, both our existing consumers and our existing subscribers and future consumers, future subscribers, the extent of that value proposition the Weight Watchers really brings to bear as more and more people seek medication they're also seeking livability of that treatment support around that treatment guidance around that treatment many people don't want to stay on medication for the long term or can't stay on medication for the long term how do they ramp up how do we support them with that we have this incredible platform and refocusing on that as we talk about all these different product initiatives, as well as innovating around it. And we've shared a couple today, but there are many more. Not least we've touched high levels today on data. We didn't go into any sort of detail, but we have this vast data platform and data set, proprietary data set. But candidly, we haven't done a ton with as it relates to product innovation, product improvement. and how we really leverage that in delivering greater benefit to our members. So all of that to say, we believe we've got a huge suite of assets at our disposal as we stabilize and then we set this business for growth. We have to use them. We have to improve some of them. We have to invest in some of them. We believe we can also expand around them. So we're really bullish about the Veebans that we have for the mid to long term, But this is a journey. We have work to do to get there. But even sharing things like our activation rate, which was, as we mentioned, our highest entering activation rate for 2020, NPS going up dramatically in our clinic business, retention extending, brand survey metrics going up, green sheets were encouraging, were highly analytical in terms of how we're measuring our progress. and we believe we have a lot of what we need even in a world of restrained resources but it does mean that we need to be very smart with the capital that we have and it's certainly the hundred million dollars of interest it's certainly a challenge of our business as it relates to proactively making significant investment ahead of the curve that potentially others with a different balance sheet you may be able to do. So it's challenging, but we are focused, we are bullish, and we are doubling down on everything we've been through for the last 62 years and everything that we need for the next 62 and have a high degree of confidence in our ability to get there and the team's ability to get there.

Thank you for that. My follow-up question is, And you alluded to this in the prepared remarks, but in the period, subscribers were down 12% as of the fourth quarter. There was nearly 40% growth in clinical subscribers. Should we extrapolate those rates of change over the course of this year as we're calibrating our models? And is there a base level of traditional subscribers that Weight Watchers needs in order to generate at least $100 million of free cash flow or cash flow to satisfy the interest obligation?

Yeah, I can take that. I think just to Tara's earlier point, like while we are challenged on volume and overall subscriber count specifically as it relates to our behavioral business, and we do anticipate that the recruitment challenges will continue in 2025 on our behavioral business, It is a very exciting stat for us that our ARPU did increase for Q4 sequentially, and it did hit a record high of $4, especially as clinic becomes a larger percentage of total. So I do want us to take into account the mix as well of higher revenue, higher LTV, even though there is lower subscriber count. And I do think for clinical, we did note earlier that we had seen an acceleration of our subscriber count in clinical in Q1 relative to Q4. And I think that is something we do anticipate to continue, albeit we are still trying to understand the impact of compounding on the clinical business. But we are feeling good. As it relates to your cash question, we did end the year at $53 million, and we did have positive operating cash of $113 million last year when you exclude the restructuring cost of $33 million and the interest of $97 million. So, the company did put up record-adjusted EBITDA margins in Q4 as well as operating margins, and I think that is largely due to the cost actions. So, we will have the benefit of four quarters in 2025 as a result of those cost actions as well.

Thank you very much. And your next question today will come from Alex Furman with Craig Hallam Capital Group. Please go ahead.

Hey, guys. Thanks very much for taking my question here. Can we talk through a little bit more the possible outcomes this year based on whether you're able to continue selling semaglutide or not on a compounded basis? It seems to me like Weight Watchers is a little late to the game having a compounded offering. And as a result, the business really struggled last year, plateaued pretty early on in the year and kind of bled subscribers up until the point where you've launched the compounded And that seems to have really turned things around in Q4 and so far in Q1. Can you talk about the different strategies that you might have, whether, you know, you're able to continue offering compounded semaglutide or if you're not? Is there really any strategy in place to keep the clinical business from resuming those sequential declines if you're forced to go back to a branded-only business?

I'm happy to take that one. And I think one thing I want to stress is, again, the access. So when we launched compounding in Q4, the key motivator for that was the lack of branded availability for that. And getting that access back where people were so supply constrained really was what drove that acceleration through Q4. So, we are so well positioned to, as shortages resolve, to go back to branded medication that we continue to believe that both shortages will resolve, and as new medications continue to go to market at lower prices, that branded medication will be a key part of our overall portfolio as it was when we entered the space. Again, overall, safe access remains our top priority and it's a quickly evolving situation um with uh again understanding like we're still at more of our like what we've seen from the data as Tara mentioned is still at five to six percent of our overall supply stock and so we're going to tend to watch that we are actively evaluating our options uh again expanding our formulary we are considering whereas we tied we have been offering death-bound vials since September, right, and we are continuing to watch the changes quickly. As with the death-bound coming off shortages, you know, we saw the timeline change with the FDA, and we're continuing to watch that carefully as well. So, it is a new, freshly evolving situation. We're well prepared to go back to brand new medication and continue to around that, leveraging the platform that we built for this as those shortages continue to evolve and that grows. We are also prepared to look at other alternatives, including the release side again, and also continue to stay very in touch with the supply, the actual supply and continue to making sure that we have the availability for our members as it evolves. So it's rapidly evolving. We are continuing to evaluate our options, but given the breadth of our formulary, we do not expect to see the return to the slowdown that we saw when there just was no supply available. Rather, we expect to see the growth that we had when we were focused on branded initially and supply was available.

Okay. Yeah, that's helpful. I guess I'd be curious, you know, how many takers you've had on the lower-priced vials of, of the medication, um, and, and what you're seeing with insurance coverage, I would imagine for a lot of your, for a lot of your, you know, longtime Weight Watchers members, it's, it's, you know, equally about affordability as it is about, about access. Um, you know, are, are, are you seeing any, um, you know, green shoots in terms of, you know, people, people, um, you know, kind of gravitating to that, that somewhat lower cost, that bound vial or, or having more success getting their insurance to cover the full-price branded drugs?

Yeah, so when branded drugs are available and covered by insurance, that's the lowest-cost alternative for our members. And so it's partially why we put so much focus on enabling prior authorizations to go through quickly, supply stocks go through quickly, so we can get medication into people's hands as quickly as possible when insurance covers it. But on your question about vials, you know, I think vials and, you know, seeing the announcements on lower cost there as well, as a cash pay option, the availability of compounding when supply was on shortage was a lower price option there with medication going off shortages, We welcome vials. And, again, it's the lowest cost offering around branded medication continues to be the most cost-effective. As supply increases, we think we know that those who have access and prior authorization, that alleviates that. And we expect that insurance coverage will continue to expand as prices go down. As a compounded option, we are actively evaluating compounded lower glutide to provide a lower cost option for people who are cash-paying.

That's very helpful. Thank you very much, guys.

This concludes our question and answer session. I would like to turn the conference back over to Tara Kamant, CEO, for any closing remarks.

Did you have something to say, Alicia? Just to make one clarification point, I said record. However, for ARPU, we're still very excited about it as it's the highest since Q1 2023. and adjusted EBITDA is the highest since Q3 2022. Okay.

Thanks for that clarification. Well, thank you everyone for joining the call today. If we have no further questions, we will thank you for your time and look forward to following up with some of you directly and our next call to call. Thank you all.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.