Q4 2024 WW International Inc Earnings Call
Speaker Change: Good day and welcome to the Weight Watchers fourth quarter and full year 2024 results conference call.
Speaker Change: 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 one on a touch-tone phone. And to withdraw your question, please press star and then two.
Please note that this event is being recorded.
Speaker Change: I would now like to turn the conference over to David Helderman, Director of Investor Relations. Please go ahead.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Supplemental investor materials are also available on the company's corporate website under events and presentations.
Speaker Change: Reconciliations of non-GATT measures disclosed on this conference call to the most directly comparable GATT financial measures are also available as part of this press release.
Speaker Change: Before we begin, let me remind everyone that this call will contain forward-looking statements.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Please refer to these filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements.
Speaker Change: 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.
Tara Comonte: Joining today's call are Tara Comonte, 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.
Tara Comonte: Thank you David and 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.
Tara Comonte: I look forward to continuing to drive our business forward together with our very passionate and talented team.
Tara Comonte: 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.
Weight Watchers has experienced significant disruption in recent years.
Tara Comonte: 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.
Tara Comonte: Over the same period, we wound down our consumer products business, scaled back licensing activities, and reduced focus on our international operations.
Tara Comonte: 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 behavioural business down 12%, partially offset, however, by a healthy 58% growth in our clinical business.
Tara Comonte: 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.
Tara Comonte: As the trusted leader in weight management, Weight Watchers continues to combine science and community to help millions lead their healthiest lives.
Tara Comonte: We're more than just a digital telehealth player. We exist in real life, fostering active, engaged communities supported by powerful digital tools.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: 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 Weight Watchers excels.
Tara Comonte: 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.
Tara Comonte: We enter 2025 with a starting revenue headwind of approximately $45 million, driven by a lower 2024 ending subscriber base.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: One of those key areas of immediate focus, as mentioned on our last call, is improving the end-to-end member experience.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: We acquired Weekend Health, also known as Sequence, in April 2023.
Tara Comonte: This was a critically important acquisition for us, allowing us to meet a high growth, high demand, exciting new area in weight loss.
Tara Comonte: This is important because we believe in the increasing power of a full continuum of care for all members, creating a seamless journey across our extensive spectrum of solutions.
Tara Comonte: Our behavioural and clinical offerings strengthen and complement each other when we bring them together.
Tara Comonte: Case in point, members on weight management medication combined with our behavioral program lose 11% more weight than those on medication alone.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: Currently, only a small percentage of our members fully utilize the breadth of solutions we offer, presenting a significant growth opportunity.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: 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 Brown survey metrics.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: More to come in our broader data strategy, but we see very real value over the long term in being much more proactive here.
Tara Comonte: As well as improvements to the existing product, we recently expanded the ability for a U.S. member to access one-on-one registered dietician 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.
Tara Comonte: Uptake has been positive, requiring us to scale our credentialed dietitians faster than expected to keep up with demand.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: This level of support sets Weight Watchers apart in an increasingly transactional market, ensuring our members receive seamless, real-time access to care.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: However, our supply monitoring efforts in the fourth quarter demonstrated continuing significant challenges in accessing supply of branded GLP-1 medications.
Tara Comonte: Of the nearly 750,000 pharmacy stock checks conducted in the fourth quarter, branded semaglutide and trazepatide were in stock just 6% and 5% of the time respectively. These availability levels have remained consistent in our checks throughout January and February.
Tara Comonte: Accordingly, we're carefully monitoring the impact of the FDA's decision and potential implications on our ability to provide confounded semiglutide in the future.
Tara Comonte: We have strong conviction in the long-term potential of the weight-loss medication market, fueled by continued innovation, increasing investment in supply expansions, and growing recognition from insurers of the downstream health benefits of obesity treatment.
Tara Comonte: Beyond direct-to-consumer growth, our capabilities also support our B2B expansion, a key focus for the coming years.
Tara Comonte: While this business has a longer lead time, employers and payers are under growing pressure to cover weight loss medications.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: 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.
Tara Comonte: A significant portion of our revenue is allocated to paid marketing, a strategy that has grown increasingly dominant alongside a reliance on heavy discounting.
Tara Comonte: 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.
Tara Comonte: 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.
Speaker Change: 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.
Speaker Change: Additionally, we're strengthening our capabilities by recently welcoming top-tier talent, including new leadership in both our social and our influencer teams.
Speaker Change: Over the past 12 months and in prior years we've taken out significant cost reducing adjusted GNA by over 25% when comparing 2024 to 2021.
Speaker Change: 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.
Speaker Change: For example, integrating multiple disparate functions and systems across the company, including engineering, product, marketing, member support, and operations.
Speaker Change: In parallel, we're actively increasing adoption of existing automation and AI-driven solutions across the organization.
Speaker Change: 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%.
Speaker Change: In addition, Adjusted Operating Income Margin was 20% and Adjusted EBITDAs Margin was 27.4%, both of which represent the highest level since the third quarter 2022.
Speaker Change: While we're ambitious and committed to our path towards recovery and long-term growth, we know that meaningful transformation takes time.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Many of the initiatives we've discussed, as well as others on the horizon, will require investment. We must balance these opportunities with the realities of our current financial obligations.
Speaker Change: 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.
Speaker Change: This is why we engaged strategic advisors towards the end of 2024 to help us assess our capital structure strategy moving forward.
Speaker Change: 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.
Speaker Change: Rooted in best-in-class science and innovation, we are a globally trusted brand with a passionate community of over 3 million members.
Speaker Change: Thank you, Tara. I'm excited to join Weight Watchers at this pivotal time and to contribute to the ongoing transformation of this iconic brand.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Q4 results were largely as expected with full year 2024 results around or ahead of previously shared guidance.
Speaker Change: 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.
Speaker Change: 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% versus the prior year.
Speaker Change: Within this, subscription revenues 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: The profile of this business is one that is highly cash generative.
Speaker Change: Pre-debt servicing charges, reflective of recurring subscription revenue, high incremental margins, and low capital intensity.
Speaker Change: And as you saw in our VK 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Adjusted growth 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: As a result, we saw material leverage in G&A, bringing G&A as a percentage of revenue from 26 to 23 percent, now in line with 2022 levels.
Speaker Change: 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.
Speaker Change: Adjusted operating income of $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.
Speaker Change: You can find a reconciliation between Adjusted Operating Income and Adjusted EBITDAs, 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 Investors site.
Speaker Change: 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.
Speaker Change: Revenue starts with a significant headwind from 2024 ending subscriber level, but we continue to maintain high levels of disciplined cost management.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 tightened competition. We are committed to disciplined LTV2CAC efficiency, and will look to capitalize on product experience improvements later in the year to drive further efficiency.
Speaker Change: As we assess our marketing strategy for the remainder of 2025, we are evaluating overall spend levels and may scale back less profitable spend in the short to mid-term, reallocating resources to areas with higher, longer-term strategic impact.
Speaker Change: 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 end on January 3rd, 2026.
Speaker Change: Given the importance of this 53rd week in our early peak period, it will likely include higher levels of marketing investment ahead of revenue.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: While we have made significant progress in reducing our cost structure, we remain highly focused on disciplined profitability management.
Speaker Change: 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.
Tara Comonte: to balance short-term stability with our longer-term path back to enterprise-level growth, turning it back to Tara.
Thanks Felicia.
Tara Comonte: 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.
Tara Comonte: 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 Weight Watchers for long-term success.
With that, we'll happily take your questions.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone.
Tara Comonte: If you are using a speakerphone, please pick up your handset before pressing the keys.
Tara Comonte: If at any time your question has been addressed, and you would like to withdraw your question, please press star and then 2. In the interest of time, please limit yourself to one question and one follow-up. We will now pause momentarily to assemble our roster.
Speaker Change: And your first question today will come from Nathan Feather with Morgan Stanley. Please go ahead.
Speaker Change: 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 first ads or LQ to CAC?
Speaker Change: Any way to get a sense of kind of the early green shoots, if any, there, and then here are some colors, 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.
Speaker Change: Yeah, hey Nathan. Thanks for the question. Yeah, I mean, as it relates to Peak, we shared
Some colour in the prepared remarks.
Speaker Change: Heather Stark, Sima Sistani, Tara Comonte, Unknown Executive, Heather Stark, Sima Stark,
Speaker Change: Strategic Initiatives that we shared as it relates to, you know, both approving that experience and driving conversion and retention in that member experience.
Speaker Change: We shared some of them. We had some great product launches and some feature launches for Peak.
Unknown Executive, Tara Comonte, Unknown Executive, Heather Stark
Speaker Change: 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 here over here as it relates to peak, but we are encouraged by some of the product improvements.
Speaker Change: that Donna has made during PEEC. And before I pass to Donna, just quickly on your question as it relates to marketing. We have...
Donna: We have seen a lessening of declines on our LTV, which is also an encouraging trend as we work
Donna: 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.
Tara Comonte: But Tara, do you want to go through some of the product improvements from Peak?
Speaker Change: 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 direct financial impact. But
Speaker Change: between the usage we're seeing in the product and the reception from socials and in Connect, we are seeing green shoots and encouraged.
Speaker Change: Great, that's really helpful. And then just one follow up for me, I guess, encouraging to see clinic get back to net ad growth.
Speaker Change: How important was the addition of generic GLT1s 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 gross ads as you've kind of gone through 4Q and NPT?
Speaker Change: Sure, I'll take that one. You know, our focus has always been on ensuring safe
Speaker Change: 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 MIPS 2 branded, well, we're expecting to see go back as well. You know, as those shortages...
Speaker Change: increase a reminder or decrease as a reminder we unlike many of our competitors offer a broad formula of medications including branded and generic
Speaker Change: 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.
Speaker Change: There's one thing I doubt about is I think we and that's why we shared some of those
Speaker Change: Stop Check Numbers. You know, we are thrilled as the flow comes back. It is our...
Speaker Change: Number one issue, or has been, as it relates to being able to meet member demands
Speaker Change: 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.
Speaker Change: to the extent that Branders Supply is coming back. Fantastic. At the end of the day, you know, as Donna said, we have a broad formulary and
Speaker Change: extensive wraparound support in the form of our nutritional program, our community, all the other aspects of the Weight Watchers Holistic Care model and yeah and so
Speaker Change: The data to date is not particularly encouraging as it relates to the shortage ending, but again we're encouraged if we start seeing that change.
Speaker Change: 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 end-of-period subscribers.
Speaker Change: 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.
Welcome everyone.
Speaker Change: And your next question today will come from Michael Lasser with UBS. Please go ahead.
Speaker Change: Good evening, thank you so much for taking my question, how do you...
work to avoid this downward, virtuous cycle where
Speaker Change: Weight Watchers has fewer subscribers thus less resources to drive subscriber growth.
Speaker Change: 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.
Speaker Change: potentially product extensions, and improving the existing product that we already have, as well as some of the other initiatives that we touched on as it relates to adjacencies, like bodies, how we think about going back to our marketing strategy, and so on and so forth.
Speaker Change: 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
Speaker Change: remind the world both our existing consumers and our existing subscribers
and Future Consumers Future Subscribers.
Speaker Change: 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
Speaker Change: We're focusing on that as we talk about all these different products.
Speaker Change: initiatives as well as innovating around it and we've shared a couple today but there are there are many more not least we've talked to touch high level today on data we didn't go into any sort of detail but we have this vast
Data Platform and Dataset, Proprietary Dataset.
Speaker Change: Heather Stark, Sima Sistani, Tara Comonte, Unknown Executive, Heather Stark, Unknown Executive,
Speaker Change: at our disposal as we stabilize and then reset this business for growth. We have to use them.
Speaker Change: So we're really bullish about the levers that we have for the mid to long term, but it's, this is a, you know, 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.
Speaker Change: entering activation rates at 2020, NPS going up dramatically in our clinic business, retention extending, brand survey metrics going up.
Speaker Change: But it does mean that we need to be very smart with the capital that we have.
Speaker Change: and it's certainly the $100 million 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 may be able to do. So it's challenging, but we are focused, we are bullish.
Speaker Change: 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.
Speaker Change: 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
Speaker Change: 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
Speaker Change: Generate at least a hundred million dollars of free cash flow or cash flow to satisfy the interest obligation.
Tara Comonte: I can take that. I think just to Tara's earlier point, while we are challenged on volume and overall subscriber count, specifically as it relates to our behavioral business, and we do anticipate that
Tara Comonte: The recruitment challenges will continue in 2025 on our behavioral assistance.
Tara Comonte: It is a very exciting stat for us that our ARPU,
Tara Comonte: 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 subscribers count
Tara Comonte: And I do think for clinical, we did note earlier that we had seen an acceleration of our subscriber count in clinical.
Tara Comonte: 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 COVID-19.
Thank you.
compounding on the clinical business.
But we are.
Tara Comonte: We are feeling good. As it relates to your cash question, you know, we did end the year at $53 million, and we did have positive operating cash of $113 million.
Tara Comonte: 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.
Thank you very much and good luck.
Speaker Change: And your next question today will come from Alex Furman with Craig Hallam Capital Group. Please go ahead.
Speaker Change: Weight Watchers was 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 bled subscribers.
Speaker Change: 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?
Speaker Change: 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?
Speaker Change: I'm happy to take that one. I've been thinking one thing I want to stress is, again, the access.
Speaker Change: 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.
Speaker Change: 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 up.
Speaker Change: Key part of our overall portfolio as it was when we entered the space.
Speaker Change: Again, overall, safe access remains our top priority and it's a quickly evolving situation.
Tara Comonte: like what we've seen from the data as Tara mentioned is still at 5% to 6% of our overall supply stock and so we're going to continue to watch that. We are actively evaluating our options, again expanding our formulary. We are considering where we've tied. We have been offering zephyr vials since September.
Okay, and we are continuing to
Watch the changes.
continue to resolve and that grows. We are also prepared
Tara Comonte: to look at other alternatives, including the riboside again, and also continue to stay very in touch with the supply.
Tara Comonte: the actual supply and continuing to making sure that we have the availability for our members as it evolves.
Tara Comonte: 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.
Speaker Change: Okay, yeah, that's helpful. I guess I'd be curious, you know, how many takers you've had on the lower priced...
Speaker Change: vials of the medication and what you're seeing with insurance coverage. I would imagine for a lot of your long-time Weight Watchers members, it's
Speaker Change: Zep-Bound Vial or having more success getting their insurance to cover the full price brand of drugs.
Speaker Change: Yeah, so when branded drugs are available and covered by insurers, that's the lowest cost alternative for our members. It's partially why we put so much focus on enabling
On your question about files, you know, I think files...
Speaker Change: 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 on lower.
Speaker Change: 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 blue type to provide a lower cost option for people who are cash paid.
Okay, that's very helpful. Thank you very much, guys.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Tara Comonte, CEO, for any closing remarks.
Speaker Change: Yes, 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 even as it's the highest since Q3 2022.
Speaker Change: 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 in our next quarter call. Thank you all.
Speaker Change: and many more. Thank you for watching. I'm your host, Sima Sistani. And I'll see you next time.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.