Q1 2024 WW International Inc Earnings Call

Participants

Corey Kinger; VP - Investor Relations; WW International Inc

Sima Sistani; Chief Executive Officer, Director; WW International Inc

Heather Stark; Director; WW International Inc

Jack Wallace; Analyst; Guggenheim

Nathan Feather; Analyst; Morgan Stanley

Linda Bolton; Analyst; D.A. Davidson

Henry Carr; Analyst; UBS

Alex Fuhrman; Analyst; Craig-Hallum Capital

Stephanie Davis; Analyst; Barclays

Karru Martinson; Analyst; Jefferies

Presentation

Operator

Good day and welcome to the Weight Watchers International's first quarter 2024 earnings conference call. (Operator Instructions) Please note, this event is being recorded.
I would now like to turn the conference over to Corey Kinger, Investor Relations. Please go ahead.

Corey Kinger

Thank you, everyone, for joining us today for WW International's first quarter 2021 conference call. At about 4 PM Eastern Time today, we issued a press release reporting our first quarter 2024 results. The purpose of this call is to provide investors with some further details regarding the company's financial results as well as 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 in the Investors section under Presentations and Events. Reconciliations of non-GAAP measures disclosed on this conference call to the most directly comparable GAAP financial measures are also available as part of the press release.
Before we begin, let me run 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 filings with the Securities 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 Sima Sistani, CEO, and Heather Stark, CFO.
I will now turn the call over to Sima.

Sima Sistani

Thanks, Corey, and good afternoon, everyone, and thank you for joining us today. I'm proud to announce that Weight Watchers is off to a strong start. First, we delivered on our Q1 commitments with both top and bottom line results. Second, we are succeeding in our expansion into clinical services as reflected by clinical subscribers of 91,000 at the end of the fleet last quarter, ahead of our prior guidance of 85,000 subscribers.
Clinical business has undergone tremendous growth over the past year, now having nearly four times a subscriber since we announced the acquisition of sequence in March 2023, and we have grown this business in an environment of supply constraints for Varian demand, GLP-1 medications.
Third, the improvements made to our core programs are yielding a tangible improvement and engagement and retention, Fort Campbell, our activation rate and metric to FireEye members food, and we're tracking engagement and weight loss progress during their first 30 days on the program continues to trend positively, with Q1 approximately 6% year over year and hitting its highest level since 2020.
As a reminder, activation rate matters because activated members attrition rate is roughly half of a non activated member and they are more successful on Weight Watchers over the long term. We are seeing improved user retention, particularly among new cohorts, with the average subscriber now on the plan for slightly higher than 11 months. And fourth, our focus on cost discipline is paying off. We delivered another record adjusted gross margin quarter, an impressive 68%.
So in short, we are executing on our plan by focusing on returning the company to profitable growth while transforming our business model for the future and why we remain confident in the full year guidance. While recent sign-up performance has been soft, much of this is due to an intentional shift in spend for an upcoming marketing campaign. Introducing our weight health approach, the coaching, accountability and community founded Weight Watchers is key to our longevity and member satisfaction and success.
But at the same time, we must evolve for the future, building out an enabling new offerings and features to serve a broader population with more solutions. Future is in members having our foundational behavior change offering as a basis and the ability to add on and move between membership types depending on the level of supply or needed. And when it comes to support, we have a distinct advantage with our 4 million members Weight Watcher community.
As discussed in our last earnings call in February, we are focused on extended care, extending access and expanding payment options. Together, the initiatives and project expansion will give us critical opportunities to further catalyze our growth, make our offerings more accessible, two more people to transform our business model and deliver on our mission as the global leader in weight object expansion.
First, expanding care, we are focused on expanding and enhancing the care options that members can access based on their specific weight health needs are trusted. Behavioral Pro program is the foundation, and we have a number of digital product improvements rolling out in 2024 to enhance the experience to members, including new features to simplify through decisions, greater enough gamification and new communities basis.
Second, expanding access as we think about the future and growing recognition of the critical importance of weight health and our leadership, and we plan on taking Weight Watchers a covered benefit both for our core behavioral program and our clinic offering over time. This will take us from a DTC model to increasingly a B to B to C business. Recent business wins and substantially increased volume of new business conversations make us confident in our strategy.
Our brand, our science, our consumer-centric experience and full spectrum of Pope approach are all key differentiators that resonate with payers and employers alike. We are in active discussions with large national carriers, and we are also in talks with large existing customers. While this motion has a long lead time, the expansion it represents for access to Weight Watchers is huge. And we believe this channel to be a critical driver of growth and momentum in the years ahead.
And third, expanding payment options. Our goal is to allow our members to use their insurance whenever possible, taking the cost burden off the consumer. This provides greater opportunity for a larger pool of members to access incremental services and thereby drive greater RPU. Over the next few months, we will be making insurance cover and registered dietitians consultations available to eligible Weight Watchers members in the US.
We believe that capability to directly process insurance claims for Weight Watchers services will also have a positive impact of sign-ups and retention. And over time. In short, we are enthusiastic about project expansion and its potential to transform the Weight Watchers business model and make our offerings more accessible to more people. There's a lot to look forward to in 2024.
In addition to returning our business to adjusted operating income growth, I am confident our actions are making the company stronger and better positioned to capture the opportunities ahead. I will now turn the call over to Heather to discuss our financial results and 2024 outlook.

Heather Stark

Thanks, Sima. Turning to our first quarter 2024 results, note that all year-over-year financial comparisons on a constant currency basis, we ended Q1 with 4 million subscribers. This included 91,000 clinical subscribers, and we continue to be encouraged by growth in the business. Revenue totaled $207 million. Subscription revenues of $204 million declined 4% year over year, driven by a higher mix of subscribers within initial lower priced commitment periods, mix shift from workshops to digital subscriptions and lower sign-ups for Weight Watchers behavioral offerings versus the prior year first quarter, with the sign of trend, reflecting the lower level of spend dedicated to the core program versus Q1 2023.
This was partially offset by $19 million in clinical revenue. Adjusted gross margin of 67.9% was another record high and up from 57.1% in the prior year, primarily driven by our actions to reduce our fixed cost base and cyber mix shift. In addition, prior year quarter gross margin was negatively impacted by subscription and consumer product promotional bundles.
Marketing expenses of $90 million were up 2% year over year, reflecting higher online advertising spend, including for our new clinical offering that was not in the year-ago period, partially offset by lower spend of TV advertising and nonworking spend. Adjusted G&A at $56 million was up 7% versus prior year, primarily due to the inclusion of expenses for our clinical business. Adjusted operating loss was $6 million. Restructuring charges totaled $6 million in the quarter related to prior year plans.
We recorded non-cash impairment charges in the quarter for franchise rights acquired balances totaling approximately $258 million. These impairments were primarily driven by an increase in the company's weighted average cost of capital risk market factors. Income-tax expense $55 million, which reflected the impact of an unusually high negative annual effective tax rate driven by the valuation allowance and small pretax loss reflected in the company's full year fiscal 2020 forecast earnings.
GAAP EPS was a loss of $4.39, which incorporates the net negative impact of items impacting comparability, including the valuation allowance, non-cash impairment charges and net restructuring charges. Shifting to our outlook, we believe we are on the right track to start 2024. As Sima mentioned, we're seeing encouraging retention and LTV data and are enthusiastic about our product roadmap and marketing plans for the rest of the year.
At the same time, we're operating more efficiently. For a cost perspective, we continue to leverage longer-term commitment offerings in all to maximize total LTV and revenue were beginning to see retention expansion with recent product improvements, and we continue to anticipate stable subscription LTV year over year in 2024. While we still expect behavioral RPU measured as revenue per paid week to be down in the mid single single digits in 2024, we've seen green shoot with LTV starting to improve in Q2 versus the prior two quarters to expand behavioral subscriber ARPU over time.
It is essential to execute on the strategic initiatives seem I highlighted, including expanding care through the addition of new premium add-on services. We're maintaining our expectation to end the year with total with a larger subscribers in the range of $3.84 million. Within our total subscriber guidance, we expect behavioral subscribers to end the year at least flat with 2023 despite a steep nearly 20% decline in workshop subscribers.
Clinical subscribers are expected to end the year in the range of 140,000 to 160,000, so more than doubling from the end of 2023. We continue to expect full year total Weight Watchers revenue to be $830 million to $860 million. Within this, we continue to expect clinical revenue to be between $101 million and $10 million. This reflect the modest increase in subscriber revenue year over year.
Other revenue, which is primarily our high-margin licensing business, is expected to contribute up to $10 million in 2024. Adjusted gross margin is expected to be approximately 66% for the full year, up from adjusted gross margin of 62% in 2023, reflecting a mix shift and continued read-through fixed cost actions. We continue to expect full-year marketing spend to be roughly flat with 2023 and adjusted G&A expense to be between $210 million, $220 million for the year, which is slightly lower than 2023 due to our restructuring efforts and cost discipline and reflecting strategic investment to enter clinical offering and our B2B business.
Additionally, 2024 includes one additional quarter of clinical expenses compared to 2023. Therefore, we expect adjusted operating income to be between $101 million and $10 million and adjusted EBITDA to be between $155 million and $165 million for the full year, expect income tax expense to be up to $5 million, impacted by the valuation allowance and impairment mentioned earlier. Excluding the impact of the valuation comes benefit of up to $10 million.
We expect cash taxes to be between $20 million and $30 million for the year. As a reminder, given the small pretax loss reflected in the company's full year fiscal 2024 guidance, any updates to the expected pre-tax loss or income tax expense can result in significant impacts in quarterly income tax results.
Turning to our capital structure and cash flows, we ended Q1 with approximately $67 million of cash plus an undrawn revolver. As a reminder, our first half of the year and cash needs are much higher than the second due to increased marketing compensation, timing and sequence acquisition anniversary payments with cash than expected to build through the balance of the year.
With our cash position plus our revolving credit facility, we believe we have sufficient liquidity for our working capital needs, including in your cash outlays related to our restructuring actions and servicing our debt. Cash from operations in 2024 is expected to increase modestly year over year. As a reminder, 2023 included approximately $45 million of cash payments for restructuring, and we expect 2024 to include approximately $20 million of restructuring payments associated with the 2023 restructuring plan.
Full-year interest expense is expected to be between $105 million and $110 million, with the year-over-year increase, largely driven by the expiration of our $500 million hedge at the start of Q2 2024. Given current market conditions, we have decided not to add new hedges at this time. CapEx, which is primarily due to capitalized software, is still expected to be in the $20 million to $25 million ran ge. Depreciation and amortization is expected to be in the $40 million range at Q1.
Our net debt to adjusted EBITDA leverage ratio was 9.4 times with our 2024 outlook. We expect our trailing 12-month leverage ratio to further increase in the coming quarters due to lower EBITDA levels before showing year-over-year improvement at year end 2024. As a reminder, we have very attractive debt terms with no maturities until 2020 and 2029, and we are comfortable with our liquidity profile, which gives us ample time to deliver on our transformation strategy. We will continue to opportunistically evaluate options to reduce our leverage ratio on terms we believe are strategically beneficial.
In summary, we are operating more efficiently and are strategically positioned Weight Watchers for the future. We believe by scaling clinic and executing on our expansion initiatives. We will drive another year of operating income growth in 2025 with momentum in revenue returning to the business.
I'll now turn the call back to Sima.

Sima Sistani

Thanks, Heather. 2024 and 2025 are critical years and execution is of paramount importance. We've made significant progress with the integration of sequence and learned a lot during the winter season on key product and brand opportunities. We have been moving rapidly to incorporate those learnings into our product roadmap and marketing plans.
At the same time, we believe Weight Watchers is uniquely positioned to dominate and the B2B and payer space. We expect this area of the business will contribute more meaningfully from a financial perspective in 2025 and beyond. We have conviction that payers and employers are the unlock for weight health and the medium to long term, and we need to start winning share in this market today.
Before we wrap up, I would like to welcome Donna Boyer, our new Chief Product Officer, to Weight Watchers. Most recently, Donna was the Chief Product Officer at Teladoc Health, where she led the strategic shift from a single product to a multiproduct portfolio organization prior to Teladoc data hub. Product leadership positions that Stitch Fix and our BMDR. execution can only be as strong as a team executing, and I am confident that Dan, it is the right product leader to ensure a cohesive one membership value proposition across core IRL B2B and clinic.
Thanks for joining us. We are now happy to take your questions.

Question and Answer Session

Operator

(Operator Instructions) Jack Wallace, Guggenheim .

Jack Wallace

Thanks for taking my questions and congrats on the really nice start to the year. Wanted to ask you a little bit about what you see in terms of market conditions. We entered the second quarter, particularly with advertising inventory, Verizon and wealth, as well as competitive behavior on between licenses. No expenses recorded in wasn't in the first half. Martin would appear to be some really aggressive competitive behavior.

Sima Sistani

Thank you. Jack. Thank you. Yes, I asked and we have seen the cost of media going up. And in general, as you know, I think that's why we have a great performance marketing function that now accounts for those types of movements. And we have had I've seen some softness in the base business in April, but we're not overly concerned about that. That was an intentional shifted money out of April and into May so that we can align to more of our marketing milestones, which in general, obviously improve the funnel and um, make the dollars spent more efficient.
So we're really confident in our full-year outlook. And I'm excited also, of course, about our clinical subscription business and how it scaling.

Jack Wallace

Thanks. That's helpful. And then move to the last point, you mentioned in your prepared remarks that will be an increased focus on promoting the preclinical business. Who's got the special with Oprah later this month? Are there any other points of emphasis you'd like to disclose today in terms of your marketing strategy around our clinical and maybe the percentage of the budget being dedicated towards clinical strategy? Thank you.

Sima Sistani

Right. So the overall marketing strategy is a one membership strategy. And I think that that's what we can uniquely do is buy marketing. And speaking to the benefit of weight health and weight watchers, a brand that has been around for 60 years, it is the number one doctor recommended program, most clinically tested program that we are able to make a more efficient acquisition.
Also, as we had noted on previously, we are seeing conversion from within our core business to clinic. So it behooves us to take more aggressive approach in terms of our acquisition strategy towards the core business. And we're saying that this is providing a lot of efficiency overall in how we go to market, not to mention our lapse database that we're able to continue to utilize as a when when we see opportunities between our performance strategy and our nonpaid strategy.

Nathan Feather

That's helpful. Thank you. I'll hop back in queue.

Operator

Nathan Feather, Morgan Stanley.

Nathan Feather

Taking the question of so the end-of-the-year behavior of the guide does imply some acceleration through the year, or is it primarily the marketing campaign that launched saying that your confidence in that a little more detail on that? Mark and campaigns are claiming that the marketing cost of disposal. Thank you.
Yes. I mean, there's not a lot that we are ready to share at this point. Obviously we've announced our event next next week with Oprah. But in general, it's about coming to the market as one membership. And we learned a lot from the winter season that between all of the different ways we can that we were confusing the market with a lot of different solutions.
And so moving forward, it's all about a one membership come to Weight Watchers. Our program can increase in. It's about personalization and support based on the job. So a lot of care that's needed and were there for people throughout our various life stages.
Great. That's helpful. And then on the EBIT, the clinical So guide for one to maintain the full year guide across, we think about the key puts and takes of that could lead to come in at the high end or B. three for the year? Yes. So as we mentioned, if you follow that and even at the bottom end of the subscriber guidance, we're really confident in our revenue and adjusted OI.

Sima Sistani

So we had made some intentional shift based on what we are seeing in the market as well as to maximize within that will help marketing campaign strategy. So yes, we do expect to see some acceleration moving throughout the year.

Operator

Linda Bolton-Weiser, D.A. Davidson.

Linda Bolton

Since July was slow. You referred to this intentional strategy of shifting marketing spend, which you talked about on the live call, given that was the new member growth weaker than even what you would have expected, or is it kind of been lowering given that you had a plan that strategy to shift marketing? So how is it relative to your expectations?

Sima Sistani

So Linda, thanks for the question. Looking at the comments we made, we did see lower growth in new subscribers in April, and this is related to the marketing shift that we're referencing. So we shifted our marketing spend to line up better with the activities that we're executing on spec, basically starting with the event next week and then further into the and the feed marketing campaign that CMOs referencing so that in line with what you would have expected given the marketing plan.
So it is and I'm not it's a different timing than what we expected when we spoke last in February, and we shifted that based on the timing of our May event execution.

Linda Bolton

Okay. And then in terms of the RPU being down mid-single digit for the year or so. So we saw green shoots of improvement, I guess, in the cycle quarter or so. So these are green shoots here 50 or so. Are you saying there's a point at which during the year the RPU will actually in flat to be flat to up year over year? Or will it be Dell through each point in the year?

Sima Sistani

So yes. So to the RPU that we've referenced, that's the total subscriber base. So if I speak just to a digital subscriber, as an example, it's easier to talk about one at a time. I think this is about the mix of commitment versus recur, Bill and membership. We do see at green shoots as we the reference to the stabilizing. And in fact, in the core business, Q1 '24's RPU was stable to Q4 '23, and that's even with proportionately more subscribers and long term commitment. So we had about 56% of members and long term trend.
And exiting Q4 was 59% in long-term commitment exiting Q1. So we expect to see RPU expanding over time and specific to comments made on the call. We do expect it to further expand as we execute on the plans to add clinical services for all members in the US.

Linda Bolton

Okay. Foam. And just on the clinical side is, are you doing promotions to gather clinical subscribers and are those promotions in line with what you originally planned? Are you having to do more promotion to get those subscribers?

Sima Sistani

So I think it similarities, but to the marketing and execution being focused on one membership. But when you talk about promotions, we look at it long term commitment of plans for our subscribers. And we have started doing long-term commitment plans for our clinical subscribers. And I would say they're in line with how we operate at promotional activity across all of our membership.

Linda Bolton

Okay. And then can you talk about under what conditions you would lose access to your revolver like your EBITDA were to drop to a certain level? Or just what would trigger not having access to that revolver note that there's no further trigger to living and to on the revolver.

Sima Sistani

So we had on us the $61 million of the revolver.

Operator

Michael Lasser, UBS.

Henry Carr

Could you bring this is Henry Carver owed from request mix? What particular question to Weight Watchers recently? So a letter to its members and former members noting that is understood frustration with the closure of many of these physical meeting locations, Howdens, we Waters cleared to address this, and this was the segments. So metric is under so much pressure.

Sima Sistani

Thanks, Henry, for the question. So the workshop business has been under pressure for several years now as we have transitioned to a more flexible model and had to close out some of the the businesses and new applications. And yes, that's impacted members, as you can imagine. And so we are still really committed to our allies.
I believe that being a community in person is still the best way to be together. And some of the things that we outlined in that letter ways that we were committed to come to the workshop business. For instance, opening up specific coach grouping care at location is a further driver than their original location used to be creating new affinity-based groups through virtual workshop meetings and giving them the opportunity to add, let us know if they have a location that they would like to suggest for us to open a new app space. And so that's still something we're extremely committed to doing some and excited about some of the sentiment that we're seeing from those members receiving those indications.

Henry Carr

Thank you. And so as a follow up, I just wanted to ask just the competitive landscape continues to get more and more tons. The figure large warehouse retailer just recently for those of you do with the marketplace to offer GOP was memberships and access to memberships. But just how do you boost intensifying competitive landscape play into your promotional strategy beyond the host Weight Watchers going to have? How has the ability to attract new members going to change when we move off of list price fuel strategy?

Sima Sistani

Right. So we're at the -- I would say that our focus right now is -- it's not about acquisition, and it's really about retention with the clinic business and review. You've probably seen us take a more cautious posture are still on that part of our business, given the supply can strengths, which we're certainly still saying. And so we haven't really dedicated a significant portion of some of them of marketing motion to that effort because of the supply constraints. And it's important to us.
People are coming to us for a subscription. And that subscription is only as powerful as their ability to get a comprehensive care plan, which includes an insurance support for those medications. And so if the medications are not there, that reflect poorly on us, and that means we're going to grow this business thoughtfully and overtime.
And so honestly, I'm not that worried about the competitive landscape rather than making sure that we are doing our best with regard to the member experience. And I'm really happy to see some of the supply coming back on market and our ability to help members get insured. We're still saying before about a 40% to 45% rate on the the pre-op, which is up, we believe better than what's out there for the insured population. I would say too much.

Operator

Alex Fuhrman, Craig-Hallum Capital Group.

Alex Fuhrman

Hey, guys. Thanks very much for taking my question. Sima, you talked a little bit on the conference call about making Weight Watchers a covered benefit. I think some of your predecessors had talked about trying to strike insurance and B2B partnerships over the years that you never really turned into anything to substantial. Can you just kind of tell us what makes things different this time and when we might expect to see some progress on that front?

Sima Sistani

Good question, Alex. I think the main thing that is different is our understanding of waste and White House has considerably changed the recognition and then around it being of a disease. And we're saying that these medications are life-saving. And I believe in the same way, that we saw a change over time with cardio vascular health.
And then with mental health, you are going to see the same thing happen with health and so on. Yes, we have new changes here within Weight Watchers, but this is a complete paradigm shift in our in this space and in this category. And so that's the main thing that has changed. Outside of that. I think we're spending a lot of time with payers and their employees are asking for this, and it's going to start with private sector.
In my mind, it's going to move to some public policy, but at the future of our business is as a covered benefit. And it's just that matter of time that that starts rolling out and you're already making progress in terms of the conversations and our ability to do this is really more of an operational lift, honestly, and we started that with the registered dietitians consultations, which we mentioned on the call begins.
I will start rolling that in the next that out in the next few months. Obviously, we do insurance support right now within the clinic business. And then claims billing will start to come over time. And and we're very encouraged by the conversations that we're having with insurance companies.

Alex Fuhrman

Okay. That's really helpful. Thanks very much.

Operator

Stephanie Davis, Barclays. Please go ahead.

Stephanie Davis

Hey, guys, thanks for taking my call. Stone Seamap, I applaud the B2B shift. I do think it makes a lot of sense, but I do want to acknowledge that digital health companies may deposits and do you see the beauty. There's a lot of investment costs around back and rebuild and sales force structure that's necessary to accept insurance and sells employers and payers. And that also means a lot of headcount costs.
So with that in mind, can you just walk us through how we should think about the forward investments and to make some of these shifts we've talked about and given the scrutiny being put on vendor held by the payers, employers as they look to go and sign up new folks, I know you guys have a great brand, but how are you talking through your leverage as we have these conversations?

Sima Sistani

Thanks for the question. The good news I'm here to report. We've been in this business for like two decades and so on and infrastructure is there. And yes, the sales motion is a bit different. Now as we move from perks to a covered benefit. But a lot of that infrastructure is already here and have been simmering. And it's really exciting that we get to put that data that business to work now.
And in terms of the build out there. Third, as I mentioned, you'd be surprised. Most of it, I would say is already in our G&A. So this is really just about engaging and the strategic conversations. And what we're finding is a lot of excitement for a trusted brand to drive the right level of enrollment and engagement that makes CROI forces and and and the payers there, they're looking for cost mitigation.
They're looking for lasting outcome. They want ROI for metabolic conditions, and we have a unified solution. They just want to add onto that, Stephanie, fit Iridium to Siemens comment on G&A. We have guided to expecting G&A of 210 to 220,000,023 in 2023. And that includes the net new clinical business, obviously, but also on the investment in B2B. And so when CMS says it's included in there, including there, but is done with holding our G&A and below flat year over year.

Stephanie Davis

And with the investments that we're making, just a quick follow-up on that, I get that you've sold in Q4. I seem to be to be moved by extending insurance requires a lot like back-end programming and app. So that all factored in DNA. Is that like a buildout that you've already done and hired that kind of headcount on how should we think about that?
And then you touched on this my actual follow-up about accessibility headwinds, but it was brought up by some of the drug distributors that something that could be a headwind for the year. So how are you managing access to on the treatment? And are you have new within this year to compound alternatives that there's demand?

Sima Sistani

Okay. I'll follow up on quality and I know very well on track. I have a job. Well, let's talk about how to handle leverage on the on the the the follow up, I think waste so where you're talking about more as the claims billing and yes, that is obviously there is a an open right process to go through that. We'll have to tell that you hope exactly. And so yes, we are we are doing that work to contract with insurance carriers to allow for billing for services.
Currently, we're pursuing both in-house strategies as well as as well as partnerships. And we expect to be rolling this out in phases, the first of which was on the large deals that we mentioned, but we'll be getting into labs as well as a clinician clinicians and doing it all the requisite contracting and provisioning that that is required. So absolutely, that's a lift and shift and it's happening.
And then the other part of your question was around system and people investments. And yes, those are included in our RG&A, some of it is in our in our gross margin, depending that type of system it is. But these are factored in.

Operator

Karru Martinson, Jefferies.

Karru Martinson

Good afternoon, Bob. I think we would love to go color references with in terms of the medication supply, what are you seeing there? Is that a headwind for you guys in terms of growing clinical this year?

Sima Sistani

I mean, yes, we're in a cautious posture. As I mentioned, we are seeing that with the entries that found that there has been some more opportunity there. And we can only report out what we're seeing between what de novo and literally ours. Ours are sharing now by what we are doing is within the clinic business. We have a programmatic way of reporting out of which pharmacies have the supply.
And so when a member is unable to get our supply from a certain location, we can then basically point them to the nearest location with supply. And this has been a really great feature that has helped our retention, its proprietary data, and we have been using that to help our members in the meantime. But yes, we have been putting the same public information that you all do. But alongside this proprietary information that we're getting through the pharmacies, we feel good about our ability to sort of worked through the supply constraint environment.

Karru Martinson

Okay. And then when we look at liquidity first quarter, if you could remind me again, about $20 million of cash went out for the restructure evaluated occurred accrued last year. And then what are the remaining cash payments for the restructuring that you need to make? Yes. And we think the $20 million that we referenced associated with cash going out for restructuring is the full-year 2024 estimate. And Q1 was approximately 13 in cash about 20.
And in terms of cash use and our first quarter, obviously a high a cash use first quarter with marketing and eight certain compensation items like bonus. And then entering the second quarter, we also had the sequence acquisition and and and then obviously our interest coverage as well for those sequences acquisition was made on April comfort relief.

Sima Sistani

That's right. Karru. So we do expect cash to build through the second half of the year. And as we shared, we expect a modest increase in cash from operations year over year.

Karru Martinson

Thank you very much. Appreciate it.

Operator

Jack Wallace, Guggenheim.

Jack Wallace

Let me back in the queue. I just wanted to ask about the performance. I hope partnership you announced earlier this month and how that mix accelerated your B2B strategy.

Sima Sistani

Thank you. Sir, John, welcome back, Jack. We are really excited about this channel. We have a few large prospects that are asking to work with us, but have risk question that we come through either their carrier or Virgin, Paul. So landing these deals are really critical. Hold on and to our overall strategy with some of those larger employers, employers and yet personify health works with thousands of large jumbo employers. And there are the preferred wellness platform for Cigna employers.
So we're hoping to start turning that on to customers by midyear through the end of the year. And should we think about this is the start of as opposed to a one off of a partnership strategy on the B2B front, this is that an off the ongoing work that we're doing on on the on the B2B front, certainly not a one-off. There's a lot of a lot of volume happening in terms of our B2B conversations right now.

Jack Wallace

Great. Thank you .

Operator

Nathan Feather, Morgan Stanley.

Nathan Feather

I just wanted to look at some of the product group results and interest saying that the improvements we have scheduled for '24 that you put out in the deck, maybe to help think about the potential impact may be interesting to go back and do a bit of a retrospective on the major product that the '23, I think, primarily peer-to-peer and what you could have on that and how those have impacted the product experience in the business of the things that are driving of activation rate of the quarter?

Sima Sistani

Great. We'll see. You may be I'm sure notice that we talked about how our activation rate is the best IT expenses 2020. We are seeing core retention now over 11 months, a lot of product improvements also happening on the clinic side as well. And so it takes time for these these improvements to read through. And so much of our business visit more debated that we are at the more we are able to activate our members, the more likely they are to be successful, full and telephone and and so on.
We're really excited about the next sort of fleet of of changes, if you will, and really kind of honing in on that care experience and feeling like somebody who comes in is just going to have everything after that. They need to be successful and make them the healthy habits, the date that they need and ultimately any great product roadmap starts with solving member problems.
And so as we continue to get to know the insights and data from from each new cohort, we continue to develop and shift our roadmap alongside of that. And so what a lot of those things that you're seeing are are the problems that we are addressing having to do with making better food decisions that built on, for instance, to what your strategy from last year or the work that we are done doing on WW together and the opening up at the clinic have is also a extension of the work that we started to do is to do around progress and community.
And so these are just ongoing builds to helping our members be more activated, have more success for us, increases MPS. But does that help answer the question is on or any other follow-up?

Nathan Feather

Yes, there's a bit of. Yes, that's helpful. Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Sima Sistani for any closing remarks.

Sima Sistani

So just to recap, we are proud of the results we are seeing so far in 2024. Really encouraged by our progress in improving retention are for Weight Watchers program, growing our clinical business and building momentum. And B2B. I'm looking forward to our live virtual that next week making the shift a new way to think about weight with Oprah Winfrey.
Joining the conversation will be diverse and influential voices and leading medical expert, the May 9 events. It's going to start at 6 PM Eastern will be live streamed on YouTube and remain available for on-demand viewing out. We are really dedicated to shifting the culture, changing the conversation from weight loss to White House. And I believe this will be a highly visible cultural moment that's going to help us amplify that commitment.

Operator

And I think you all the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.