Ww International, Inc. Q4 FY2024 Earnings Call

Good day, and welcome to the WeightWatchers Fourth Quarter and Full Year 2024 Results Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. 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-GAAP measures disclosed on this conference call to the most directly comparable GAAP 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-K 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 except 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 Comonte, President and Chief Executive Officer; Felicia DellaFortuna, 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 WeightWatchers earnings call. Felicia joined us as CFO on the 1st of January, and we're thrilled to benefit from her extensive, strategic, and financial leadership experience as part of the WeightWatchers team. In addition, 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 you 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. WeightWatchers 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 WeightWatchers 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, WeightWatchers 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 medication. 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 medication, yet are also seeking livability in treatment and sustainability of results, this is where WeightWatchers 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 require investments, 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 WeightWatchers 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 WeightWatchers 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, but they continued to lose weight over that measurement period. There is true and proven power in the breadth of our full WeightWatchers 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 macronutrient tracking feature. Early feedback has been encouraging, with fast approaching 2 million meals tracked using the scanner, almost 1 million recipes already imported, and macros driving a 5% increase in tracked food 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 the 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, reengagement, 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 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 US members 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 of 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. WeightWatchers Clinic prescribed 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 stop checks per day to help members more easily find medication, sometimes within hours of obtaining a prescription. This level of support sets WeightWatchers 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 WeightWatchers. 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, as 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 tirzepatide were in stock just 6% and 5% at 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 Personify 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 strength, 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 WeightWatchers 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 influencer teams. Over the past 12 months and in prior years, we've taken out significant costs, 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 commend the team 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 EBITDA margin was 27.4%, both of which represent the highest level since the third quarter of 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 WeightWatchers 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-light, high gross margin, cash-generative subscription model that underpins our business is almost fully offset by the strain and cost of our balance sheet. This is why we engaged strategic advisers 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 journey. 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 meets members wherever they are on their journey, giving us a unique opportunity to drive lasting impact. These are exciting times for WeightWatchers, but challenging ones nonetheless. With that, I'll hand over to Felicia, to take us through the financials.

Thank you, Tara. I'm excited to join WeightWatchers at this pivotal time and 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 in 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 of Period Subscribers were 3.3 million, a decline of 12% 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 at 92,000, growing 18% from the third quarter and 38% on the prior year. These subscriber trends were reflected in our full year 2024 revenue of $786 million, above prior guidance of at least $770 million, but a decline of 12% versus the prior year. Within this, subscription revenue declined 6% 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 gross margin was 69.1% in the fourth quarter, with full year 2024 adjusted gross margin expanding over 650 basis points compared to the prior year. Adjusted EBITDA in the fourth quarter was $50 million, an increase of $17 million year-over-year. This resulted in an adjusted EBITDA 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 before debt servicing charges, reflective of recurring subscription revenues, high incremental margins, and low capital intensity. As you saw in our 8-K 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 and 2024 financial detail. Revenue totaled $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 were down 5% year-over-year in the quarter as we managed our LTV to CAC ratio. In the fourth quarter, CAC remained elevated due to continued high levels of competitive spending. 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 of $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 gross 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 impact of non-GAAP adjustments within our supplemental materials and in the financial details 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 midterm. 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 uncertainties surrounding compounded semaglutide. In marketing, Q1 will be our highest spend 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 we'll look to capitalize on product experience improvements later in the year to drive further efficiency. 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 3, 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 EBITDA 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, Felicia. 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 will take time and thoughtful execution, but we are clear-eyed about the work required and committed to making the necessary moves to position WeightWatchers for long-term success. With that, we’ll happily take your questions.

We will now begin the question-and-answer session. 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 there. Have the changes you’ve made to the product and marketing translated to improving gross adds or LTV:CAC? Just any way to get a sense of kind of the early green shoots, if any, there. And then can you provide some color to how the marketing environment evolved and what you understand that’s been under pressure, but certainly seems like a lot of competitive activity there? Thank you.

Yes, Nathan. Thank you for your question. We provided some insights during our prepared remarks regarding peak season. We were pleased with the trends we observed as we transitioned from the fourth quarter into the peak, particularly in performance. We continue to face challenges and headwinds in the behavioral business, and I believe these will persist as we implement the strategic initiatives aimed at enhancing the member experience and improving conversion and retention. Felicia might want to elaborate on marketing. However, in terms of positive developments, we noted several exciting product and feature launches for the peak season that have been eagerly awaited by our members, such as macros. The engagement levels we witnessed, both from actively engaged members and previously less active members returning to utilize these features, were very promising. Additionally, the brand metrics we discussed also indicate positive trends. While these are leading indicators that may not immediately reflect in our P&L or top-line growth KPIs, we believe they signal that we are moving in the right direction. That said, we are not operating in a competitive marketing environment. Felicia, would you like to comment on that?

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 in behavioral, but the 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 the 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 CAC, cost to acquire customers, continue to increase. And as it relates to overall marketing, we are taking a very comprehensive look at our marketing throughout 2025, and there will be more to come on that topic. But Donna, I don't know if 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 a 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 on socials and in connect, we are seeing green shoots and are encouraged.

Great. That's really helpful. And then just one follow-up for me. I guess it's encouraging to see clinic get back to net add growth. How important was the addition of generic GLP-1 to the clinic outperformance in Q4? And then just any way to give us a sense of how to think about the mix of branded versus generic gross adds as you've kind of gone through Q4 and Q1?

Sure. Our primary goal has always been to provide safe access to medication for our members. Due to the shortages, we saw an increase in our key metrics—subscriptions, NPS, and retention—in Q4 as we enabled access through compounding. We're encouraged by this growth and rebound as we were able to address the shortages. As these shortages improve, we expect to see an increase in the availability of branded medications as well. It is important to note that we provide a wide range of medications, both branded and generic, which sets us apart from many competitors. We welcome the return of available supply, which is beneficial for our members as it allows them to benefit from their insurance coverage. Additionally, as Tara mentioned earlier, we have an AI-powered platform that streamlines the process of filing prior authorizations, positioning us well to scale as the supply and insurance coverage for branded medications improve.

I would like to emphasize that we are excited about the return of supply, which has been our main challenge in meeting member demand. This issue has been evident in our Net Promoter Score, where members are struggling to access medications. We were pleased to launch compounding to help address this gap. If branded supply continues to improve, that would be great. As mentioned, we have a broad formulary, and our priority is to ensure access, safety, and extensive support through our nutritional program and community as part of our holistic care model. However, the data so far regarding the end of shortages is not particularly promising, but we remain hopeful for positive changes.

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. Thank you.

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

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

Michael, we prioritize the essential aspects of our business. When we reflect on Weight Watchers and our history over the past 62 years, we consider the value we provide to our members and subscribers now and into the future. This insight guides our approach to regaining growth through innovation in new product features, potential product extensions, and enhancements to our existing offerings, along with other initiatives we previously discussed, such as adjacencies and marketing strategies. We are confident that we have one of the most trusted brands in weight management, known for its sustainable approach. Our long-standing history provides evidence that Weight Watchers is effective. Originally a nutritional and community-focused program, we have evolved into a digital-supported initiative with clinical access. This comprehensive offering sets us apart. To address your question, we're aware of the work required to communicate the true value of Weight Watchers to both current and prospective consumers. As an increasing number of individuals seek medication for weight management, they also desire a sustainable approach to that support. Many do not want or cannot stay on medication long-term, so we need to understand how we can assist them in transitioning away from it. We have a robust platform that we are refocusing on with respect to our products and initiatives. We've shared some innovations today, but there are many more in the pipeline. Although we briefly discussed our extensive data resources today, we recognize there is much untapped potential in leveraging our proprietary data to enhance our products and deliver greater benefits to our members. In summary, we have a wealth of resources to stabilize and set our business on a growth path. We need to utilize and improve these resources and make strategic investments. We are optimistic about our long-term prospects based on the tools we have. Nonetheless, we understand this is a process that requires effort. Notably, we have seen encouraging signs, such as the highest activation rate since 2020, significant improvements in our clinic business, increased retention, and favorable brand survey metrics. We are methodical in measuring our progress and are confident we possess the necessary elements for success, even in a resource-constrained environment. However, we must be prudent with our capital. The substantial interest payments present challenges in making proactive significant investments compared to competitors with stronger financial positions. Despite these challenges, we remain focused, optimistic, and committed to building on what we have achieved over the last 62 years for future growth. I have great confidence in our team's ability to reach our goals.

Thank you for that. My follow-up question is, and you alluded to this in the prepared remarks, but end of 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 WeightWatchers needs in order to generate at least $100 million of free cash flow or cash flow to satisfy the interest obligation?

Yes, I can address that. In response to Tara's earlier comment, while we are facing challenges with volume and total subscriber count, particularly concerning our behavioral business, we expect the recruitment difficulties to persist into 2025 for that segment. However, it's encouraging that our average revenue per user increased sequentially in Q4, reaching a record high of $4, especially as clinics constitute a larger share of our total revenue. We should also consider the mix of higher revenue and higher lifetime value despite the decrease in subscriber count. For the clinical segment, we previously noted an increase in subscriber growth in Q1 compared to Q4, and we anticipate this trend to continue, although we are still assessing the compounding effects on the clinical business. Regarding your question about cash, we finished the year with $53 million and recorded positive operating cash of $113 million last year, excluding restructuring costs of $33 million and interest of $97 million. The company achieved record adjusted EBITDA margins and operating margins in Q4, largely due to cost-cutting measures. We will benefit from these actions throughout 2025.

Thank you very much and good luck.

And your next question today will come from Alex Fuhrman with Craig-Hallum 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 WeightWatchers 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 offering, 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'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 glad to respond to that. One important aspect I want to emphasize is access. When we introduced compounding in the fourth quarter, the main reason was the lack of branded options. Restoring that access, especially since our supply was so limited, really drove our acceleration in Q4. As shortages begin to resolve, we're well positioned to return to branded medications, which we believe will play a significant role in our portfolio, just as they did when we first entered the market. Overall, maintaining safe access is our top priority, and the situation is rapidly changing. From the data, as Tara noted, we're currently at about 5% to 6% of our overall supply stock, and we will continue monitoring that closely. We are actively exploring our options, including expanding our formulary and considering liraglutide. We've been offering Zepbound vials since September and are watching for quick changes in that area. With Zepbound coming off shortages, we noticed the timelines with the FDA shift, and we’re monitoring that closely as well. This is a newly evolving situation, and we are prepared to return to branded medications and ramp up our efforts as the shortages resolve. We're also looking at other alternatives, such as liraglutide, while ensuring that we remain in close contact with the actual supply to guarantee availability for our members. This situation is developing quickly, and we are continuously assessing our options. Given the range of our formulary, we do not anticipate a return to the slowdown we experienced when there was a complete lack of supply. Instead, we expect growth similar to when we initially focused on branded options and supply was available.

Okay. Yeah, that's helpful. I guess, I'd be curious how many takers you've had on the lower-priced vials of the medication and what you're seeing with insurance coverage, I would imagine for a lot of your long-time WeightWatchers members, it's equally about affordability as it is about access. Are you seeing any green shoots in terms of people gravitating to that somewhat lower-cost Zepbound vial, 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 that'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. On your question about vials, I think vials and seeing the announcements on lower costs there as well, as a cash pay option, the availability of compounding when supply was on shortage was a lower-priced 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 liraglutide to provide a lower-cost option for people who are cash pay.

Okay. That’s very helpful. Thanks very much, guys.

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

Yes. Just to make one clarification point. I said record. However, for ARPU, we are 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 on our next quarter call. Thank you all.

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