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. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] 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, 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 and 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 Felesia 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…

Thank you, Tara. I'm excited to join, WeightWatchers 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 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…

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 Weight Watchers for long term success. With that, we’ll happily take your questions.

We will now begin the question-and-answer session. [Operator Instructions] 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 improving gross adds or LTVCAC? 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. Hey, Nathan. Thanks for the question. Yes, I mean, as it relates to peak, we shared obviously some color 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 performance. More of the same candidly as it relates to challenges and headwinds in the behavioral 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 both improving that experience and driving conversion and retention in that member experience. We -- Felicia maybe wants to jump on marketing. But yes, listen, before we do that in terms of green shoots, we shared some of them. We have some great product launches and some feature launches for peak, and 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 brands metrics that we talked about. So these are all leading indicators that it flows through to the P&L or sort of top line growth KPIs immediately. But we think there are signs that we’re heading in the right direction with a lot of this work. But you’re not run-in a competitive marketing environment. 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 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 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, 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 from – on socials and in connect, we are seeing green shoots and 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 4Q? 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 4Q and 1Q?

Sure. I'll take that one. Our focus has always been on ensuring safe member access to medication. And due to the shortages, enabling this access through compounding in 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 improve, the mix to branded we're expecting to see go back as well. As those shortages increase, a reminder -- or decrease, as a reminder, we unlike many of our competitors offer a broad formula of medications, including branded and generics. 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 [indiscernible]. So we feel very well positioned to scale as supply and insurance coverage improves back to branded.

The only thing I'd add to that is I think we -- and that's why we shared some of those stock check numbers. 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 demand and which is what has been reflected in things like our NPS where our members cannot -- 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, fantastic. At the end of the day, 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 shortage ending. But again, 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. 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 less 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 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 products that we already have as well as some of the other initiatives that we touched on as it relates to adjacencies like Rs, how we think about going back to going 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. that Weight Watchers was historically a nutritional and a community-based program. Today, it is a nutritional community-based digital supported program that also has clinical access. And we're really unique in that breadth of offering. 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 that 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 medications for the long term or can't stay on medication for the long term. How do…

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 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 step 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 are -- we did note earlier that we have 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 costs 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 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 happy to take that one. 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 our 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 with, again, understanding like we're still at more of our -- 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 liraglutide. We have been offering Zepbound vials since September, right? And we are continuing to watch the changes quickly. As with the Zepbound coming off shortages, we saw the time lines change with the FDA, and we're continuing to watch that carefully as well. So it is a new freshly evolving situation. We are well prepared to go back to branded medication and continue to ramp that, leveraging the platform that we built for this as those shortages continue to resolve and that grows. We are also prepared to look at other alternatives, including liraglutide and also continue to stay very in touch with the supply -- the actual supply and continuing to making sure that we have that 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 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 cost 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 in our next quarter call. Thank you all.

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