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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock outstanding as of April 28, 2022 was
WW INTERNATIONAL, INC.
TABLE OF CONTENTS
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Page No. |
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Item 1. |
2 |
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Unaudited Consolidated Balance Sheets at April 2, 2022 and January 1, 2022 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
43 |
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Item 4. |
43 |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
44 |
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Item 6. |
45 |
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46 |
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PART I—FINANCIAL INFORMATION
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ITEM 1. |
FINANCIAL STATEMENTS |
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS AT
(IN THOUSANDS)
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April 2, |
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January 1, |
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2022 |
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2022 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables (net of allowances: April 2, 2022 - $ January 1, 2022 - $ |
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Inventories |
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Prepaid income taxes |
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Prepaid expenses and other current assets |
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TOTAL CURRENT ASSETS |
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Property and equipment, net |
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Operating lease assets |
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Franchise rights acquired |
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Goodwill |
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Other intangible assets, net |
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Deferred income taxes |
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Other noncurrent assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND TOTAL DEFICIT |
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CURRENT LIABILITIES |
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Portion of long-term debt due within one year |
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$ |
— |
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$ |
— |
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Portion of operating lease liabilities due within one year |
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Accounts payable |
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Salaries and wages payable |
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Accrued marketing and advertising |
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Accrued interest |
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Other accrued liabilities |
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Derivative payable |
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Income taxes payable |
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Deferred revenue |
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TOTAL CURRENT LIABILITIES |
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Long-term debt, net |
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Long-term operating lease liabilities |
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Deferred income taxes |
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Other |
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TOTAL LIABILITIES |
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TOTAL DEFICIT |
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Common stock, $ shares issued at April 2, 2022 and 122,052 shares issued at January 1, 2022 |
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Treasury stock, at cost, shares at January 1, 2022 |
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( |
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Retained earnings |
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Accumulated other comprehensive loss |
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TOTAL DEFICIT |
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TOTAL LIABILITIES AND TOTAL DEFICIT |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
2
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF NET INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Three Months Ended |
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April 2, |
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April 3, |
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2022 |
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2021 |
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Subscription revenues, net |
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$ |
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$ |
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Product sales and other, net |
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Revenues, net |
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Cost of subscription revenues |
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Cost of product sales and other |
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Cost of revenues |
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Gross profit |
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Marketing expenses |
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Selling, general and administrative expenses |
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Operating income |
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Interest expense |
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Other expense (income), net |
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( |
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Loss before income taxes |
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Benefit from income taxes |
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Net loss |
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$ |
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$ |
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Net loss per share |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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Weighted average common shares outstanding |
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Basic |
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Diluted |
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The accompanying notes are an integral part of the consolidated financial statements.
3
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
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Three Months Ended |
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April 2, |
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April 3, |
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2022 |
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2021 |
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Net loss |
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$ |
( |
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$ |
( |
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Other comprehensive gain: |
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Foreign currency translation loss |
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( |
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Income tax benefit on foreign currency translation loss |
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Foreign currency translation loss, net of taxes |
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( |
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Gain on derivatives |
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Income tax expense on gain on derivatives |
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Gain on derivatives, net of taxes |
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Total other comprehensive gain |
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Comprehensive income (loss) |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
4
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED Consolidated Statements of Changes in Total Deficit
(IN THOUSANDS)
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Three Months Ended April 2, 2022 |
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Accumulated |
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Other |
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Common Stock |
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Treasury Stock |
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Comprehensive |
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Retained |
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Shares |
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Amount |
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Shares |
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Amount |
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Loss |
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Earnings |
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Total |
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Balance at January 1, 2022 |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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Comprehensive income (loss) |
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( |
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Issuance of treasury stock under stock plans |
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( |
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( |
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( |
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Compensation expense on share-based awards |
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Balance at April 2, 2022 |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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Three Months Ended April 3, 2021 |
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Accumulated |
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Other |
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Common Stock |
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Treasury Stock |
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Comprehensive |
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Retained |
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Shares |
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Amount |
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Shares |
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Amount |
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Loss |
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Earnings |
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Total |
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Balance at January 2, 2021 |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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Comprehensive (loss) income |
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( |
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( |
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Issuance of treasury stock under stock plans |
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( |
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( |
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( |
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Compensation expense on share-based awards |
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Issuance of common stock |
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Balance at April 3, 2021 |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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The accompanying notes are an integral part of the consolidated financial statements.
5
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
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Three Months Ended |
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April 2, |
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April 3, |
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2022 |
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2021 |
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Operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to cash used for operating activities: |
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Depreciation and amortization |
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Amortization of deferred financing costs and debt discount |
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Impairment of intangible and long-lived assets |
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Share-based compensation expense |
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Deferred tax benefit |
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( |
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( |
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Allowance for doubtful accounts |
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( |
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Reserve for inventory obsolescence |
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Foreign currency exchange rate loss (gain) |
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( |
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Changes in cash due to: |
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Receivables |
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( |
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( |
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Inventories |
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( |
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Prepaid expenses |
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( |
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( |
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Accounts payable |
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( |
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Accrued liabilities |
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( |
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( |
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Deferred revenue |
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( |
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Other long term assets and liabilities, net |
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( |
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( |
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Income taxes |
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( |
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( |
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Cash used for operating activities |
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( |
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( |
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Investing activities: |
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Capital expenditures |
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( |
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( |
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Capitalized software expenditures |
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( |
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( |
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Cash paid for acquisitions |
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( |
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( |
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Other items, net |
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( |
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( |
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Cash used for investing activities |
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( |
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( |
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Financing activities: |
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Payments on long-term debt |
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— |
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( |
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Taxes paid related to net share settlement of equity awards |
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( |
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( |
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Proceeds from stock options exercised |
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— |
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Other items, net |
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( |
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( |
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Cash used for financing activities |
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( |
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( |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
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( |
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Net decrease in cash and cash equivalents |
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( |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
6
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
1. |
Basis of Presentation |
The accompanying consolidated financial statements include the accounts of WW International, Inc. and all of its subsidiaries. The terms “Company” and “WW” as used throughout these notes are used to indicate WW International, Inc. and all of its operations consolidated for purposes of its financial statements. The Company’s “Digital” business refers to providing subscriptions to the Company’s digital product offerings, including Digital 360 and Personal Coaching + Digital. The Company’s “Workshops + Digital” business refers to providing unlimited access to the Company’s workshops combined with the Company’s digital subscription product offerings to commitment plan subscribers. It also includes the provision of access to workshops for members who do not subscribe to commitment plans, including the Company’s “pay-as-you-go” members.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and include amounts that are based on management’s best estimates and judgments. While all available information has been considered, actual amounts could differ from those estimates. For example, the Company considered the impact of COVID-19 and its variants on the assumptions and estimates used when preparing its Quarterly Report on Form 10-Q quarterly financial statements. These assumptions and estimates may change as new events occur and additional information is obtained, and such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity. The consolidated financial statements include all of the Company’s majority-owned subsidiaries. All entities acquired, and any entity of which a majority interest was acquired, are included in the consolidated financial statements from the date of acquisition. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s operating results for any interim period are not necessarily indicative of future or annual results. The consolidated financial statements are unaudited and, accordingly, they do not include all of the information necessary for a comprehensive presentation of results of operations, financial position and cash flow activity required by GAAP for complete financial statements but, in the opinion of management, reflect all adjustments including those of a normal recurring nature necessary for a fair statement of the interim results presented.
These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal 2021 filed on March 1, 2022, which includes additional information about the Company, its results of operations, its financial position and its cash flows.
|
2. |
Accounting Standards Adopted in Current Year |
In October 2021, the Financial Accounting Standards Board (the “FASB”) issued updated guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to (i) recognition of an acquired contract liability and (ii) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this update require an acquiring entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The new guidance should be applied prospectively to business combinations occurring on or after its effective date. On
7
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
3.Leases
At April 2, 2022 and January 1, 2022, the Company’s lease assets and lease liabilities, primarily for its studios and corporate offices, were as follows:
|
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April 2, 2022 |
|
|
January 1, 2022 |
|
||
|
Assets: |
|
|
|
|
|
|
|
|
|
Operating lease assets |
|
$ |
|
|
|
$ |
|
|
|
Finance lease assets |
|
|
|
|
|
|
|
|
|
Total leased assets |
|
$ |
|
|
|
$ |
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|
|
|
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|
|
|
|
|
|
Liabilities: |
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|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Operating |
|
$ |
|
|
|
$ |
|
|
|
Finance |
|
|
|
|
|
|
|
|
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Noncurrent |
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|
|
|
|
|
Operating |
|
$ |
|
|
|
$ |
|
|
|
Finance |
|
|
|
|
|
|
|
|
|
Total lease liabilities |
|
$ |
|
|
|
$ |
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|
|
|
|
Three Months Ended |
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|||||
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|
|
April 2, |
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April 3, |
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||
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|
2022 |
|
|
2021 |
|
||
|
Operating lease cost: |
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|
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|
|
|
|
|
Fixed lease cost |
|
$ |
|
|
|
$ |
|
|
|
Lease termination cost |
|
|
( |
) |
|
|
|
|
|
Variable lease cost |
|
|
|
|
|
|
|
|
|
Total operating lease cost |
|
$ |
|
|
|
$ |
|
|
|
Finance lease cost: |
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|
|
|
|
|
|
Amortization of leased assets |
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|
|
|
|
|
|
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
Total finance lease cost |
|
$ |
|
|
|
$ |
|
|
|
Total lease cost |
|
$ |
|
|
|
$ |
|
|
At April 2, 2022 and January 1, 2022, the Company’s weighted average remaining lease term and weighted average discount rates were as follows:
|
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|
April 2, 2022 |
|
|
January 1, 2022 |
|
||
|
Weighted Average Remaining Lease Term (years) |
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Operating leases |
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Finance leases |
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|
|
Weighted Average Discount Rate |
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|
|
|
Operating leases |
|
|
|
|
|
|
|
|
|
Finance leases |
|
|
|
|
|
|
|
|
The Company’s leases have remaining lease terms of 0 to
8
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
At April 2, 2022, the maturity of the Company’s lease liabilities in each of the next five fiscal years and thereafter were as follows:
|
|
Operating Leases |
|
|
Finance Leases |
|
|
Total |
|
|||
|
Remainder of fiscal 2022 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Fiscal 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2025 |
|
|
|
|
|
— |
|
|
|
|
|
|
Fiscal 2026 |
|
|
|
|
|
— |
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
— |
|
|
|
|
|
|
Total lease payments |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less imputed interest |
|
|
|
|
|
|
|
|
|
|
|
|
Present value of lease liabilities |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Supplemental cash flow information related to leases for the three months ended April 2, 2022 and April 3, 2021 were as follows:
|
|
|
Three Months Ended |
|
|||||
|
|
|
April 2, |
|
|
April 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
|
$ |
|
|
|
Operating cash flows from finance leases |
|
$ |
|
|
|
$ |
|
|
|
Financing cash flows from finance leases |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased assets obtained (modified) in exchange for new (modified) operating lease liabilities |
|
$ |
|
|
|
$ |
( |
) |
|
Leased assets obtained in exchange for new finance lease liabilities |
|
$ |
|
|
|
$ |
— |
|
|
4. |
Revenue |
Revenues are recognized when control of the promised services or goods is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those services or goods.
The following table presents the Company’s revenues disaggregated by revenue source:
|
|
Three Months Ended |
|
|||||
|
|
April 2, |
|
|
April 3, |
|
||
|
|
2022 |
|
|
2021 |
|
||
|
Digital Subscription Revenues |
$ |
|
|
|
$ |
|
|
|
Workshops + Digital Fees |
|
|
|
|
|
|
|
|
Subscription Revenues, net |
$ |
|
|
|
$ |
|
|
|
Product sales and other, net |
|
|
|
|
|
|
|
|
Revenues, net |
$ |
|
|
|
$ |
|
|
9
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The following tables present the Company’s revenues disaggregated by revenue source and segment:
|
|
Three Months Ended April 2, 2022 |
|
|||||||||||||||||
|
|
North |
|
|
Continental |
|
|
United |
|
|
|
|
|
|
|
|
|
|||
|
|
America |
|
|
Europe |
|
|
Kingdom |
|
|
Other |
|
|
Total |
|
|||||
|
Digital Subscription Revenues |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Workshops + Digital Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Product sales and other, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Three Months Ended April 3, 2021 |
|
|||||||||||||||||
|
|
North |
|
|
Continental |
|
|
United |
|
|
|
|
|
|
|
|
|
|||
|
|
America |
|
|
Europe |
|
|
Kingdom |
|
|
Other |
|
|
Total |
|
|||||
|
Digital Subscription Revenues |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Workshops + Digital Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Product sales and other, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Information about Contract Balances
For Subscription Revenues, the Company can collect payment in advance of providing services. Any amounts collected in advance of services being provided are recorded in deferred revenue. In the case where amounts are not collected, but the service has been provided and the revenue has been recognized, the amounts are recorded in accounts receivable.
|
|
|
Deferred |
|
|
Deferred |
|
||
|
|
|
Revenue |
|
|
Revenue-Long Term |
|
||
|
Balance as of January 1, 2022 |
|
$ |
|
|
|
$ |
|
|
|
Net increase during the period |
|
|
|
|
|
|
|
|
|
Balance as of April 2, 2022 |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 2, 2021 |
|
$ |
|
|
|
$ |
|
|
|
Net decrease during the period |
|
|
( |
) |
|
|
( |
) |
|
Balance as of April 3, 2021 |
|
$ |
|
|
|
$ |
|
|
Revenue recognized from amounts included in current deferred revenue as of January 1, 2022 was $
10
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
5. |
Acquisitions |
Acquisitions of Franchisees
On February 18, 2022, the Company acquired the entire issued share capital of its Republic of Ireland franchisee, Denross Limited, and its Northern Ireland franchisee, Checkweight Limited, as follows:
|
|
(a) |
The Company acquired the entire issued share capital of Denross Limited for a purchase price of $ |
|
|
(b) |
The Company acquired the entire issued share capital of Checkweight Limited for a purchase price of $ |
On August 16, 2021, the Company acquired substantially all of the assets of its franchisee for certain territories in Maine, Weight Watchers of Maine, Inc., for a purchase price of $
On March 22, 2021, the Company acquired substantially all of the assets of its Michigan franchisee, The WW Group, Inc., and its Ontario, Canada franchisee, The WW Group Co., as follows:
|
|
(a) |
The Company acquired substantially all of the assets of The WW Group, Inc., which operated franchises in certain territories in Michigan, for an aggregate purchase price of $ |
|
|
(b) |
The Company acquired substantially all of the assets of The WW Group Co., which operated franchises in certain territories in Ontario, Canada, for an aggregate purchase price of $ |
These acquisitions have been accounted for under the purchase method of accounting and, accordingly, earnings of the acquired franchises have been included in the consolidated operating results of the Company since the date of acquisition.
|
6. |
Franchise Rights Acquired, Goodwill and Other Intangible Assets |
Franchise rights acquired are due to acquisitions of the Company’s franchised territories as well as the acquisition of franchise promotion agreements and other factors associated with the acquired franchise territories. For the three months ended April 2, 2022, the change in the carrying value of franchise rights acquired was due to the effect of exchange rate changes and the Northern Ireland franchisee acquisition as described in Note 5.
11
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Goodwill primarily relates to the acquisition of the Company by The Kraft Heinz Company (successor to H.J. Heinz Company) in 1978, and the Company’s acquisitions of WW.com, LLC (formerly known as WW.com, Inc. and WeightWatchers.com, Inc.) in 2005 and the Company’s franchised territories. See Note 5 for additional information about acquisitions by the Company.
|
|
|
North |
|
|
Continental |
|
|
United |
|
|
|
|
|
|
|
|
|
|||
|
|
|
America |
|
|
Europe |
|
|
Kingdom |
|
|
Other |
|
|
Total |
|
|||||
|
Balance as of January 2, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Goodwill acquired during the period |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance as of January 1, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Goodwill acquired during the period |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Balance as of April 2, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Finite-lived Intangible Assets
The carrying values of finite-lived intangible assets as of April 2, 2022 and January 1, 2022 were as follows:
|
|
|
April 2, 2022 |
|
|
January 1, 2022 |
|
||||||||||
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
||
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
||||
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
||||
|
Capitalized software costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Website development costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and other intangible assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Franchise rights acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finite-lived intangible assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $
Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and thereafter was as follows:
|
Remainder of fiscal 2022 |
|
$ |
|
|
|
Fiscal 2023 |
|
$ |
|
|
|
Fiscal 2024 |
|
$ |
|
|
|
Fiscal 2025 |
|
$ |
|
|
|
Fiscal 2026 and thereafter |
|
$ |
|
|
12
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
7. |
Long-Term Debt |
The components of the Company’s long-term debt were as follows:
|
|
|
April 2, 2022 |
|
|
January 1, 2022 |
|
||||||||||||||||||||||||||
|
|
|
Principal Balance |
|
|
Unamortized Deferred Financing Costs |
|
|
Unamortized Debt Discount |
|
|
Effective Rate (1) |
|
|
Principal Balance |
|
|
Unamortized Deferred Financing Costs |
|
|
Unamortized Debt Discount |
|
|
Effective Rate (1) |
|
||||||||
|
Revolving Credit Facility due April 13, 2026 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
% |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
% |
|
Term Loan Facility due April 13, 2028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
Senior Secured Notes due April 15, 2029 |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
% |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
Less: Current portion |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized deferred financing costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized debt discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On April 13, 2021, the Company (1) repaid in full approximately $
Credit Facilities
The Credit Facilities were issued under a credit agreement, dated April 13, 2021 (as amended from time to time, the “Credit Agreement”), among the Company, as borrower, the lenders party thereto, and Bank of America, N.A. (“Bank of America”), as administrative agent and an issuing bank. The Credit Facilities consist of (1) $
In December 2021, the Company made voluntary prepayments at par in an aggregate amount of $
In accordance with the terms of the Credit Agreement, the Company expects to have an obligation to make an excess cash flow prepayment offer currently estimated to be $
As of April 2, 2022, the Company had $
13
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of the Company’s current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:
|
|
• |
a pledge of |
|
|
• |
a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions. |
The Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:
|
|
• |
|
|
|
• |
|
|
|
• |
|
The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. The Company may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to LIBOR loans under the Credit Facilities.
Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a)
On a quarterly basis, the Company pays a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon the Company’s Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement).
The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default.
14
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds
Senior Secured Notes
The Senior Secured Notes were issued pursuant to an Indenture, dated as of
The Senior Secured Notes accrue interest at a rate per annum equal to
The Senior Secured Notes are guaranteed on a senior secured basis by the Company’s subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.
Outstanding Debt
At April 2, 2022, the Company had $
At April 2, 2022 and January 1, 2022, the Company’s debt consisted of both fixed and variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with the Company’s variable-rate borrowings. See Note 11 for information on the Company’s interest rate swaps. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, exclusive of the impact of the swaps then in effect, was approximately
15
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
8.Per Share Data
Basic net loss per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted net loss per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented adjusted for the effect of dilutive common stock equivalents.
The following table sets forth the computation of basic and diluted net loss per share data:
|
|
|
Three Months Ended |
|
|||||
|
|
|
April 2, |
|
|
April 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
Numerator: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
Effect of dilutive common stock equivalents |
|
|
— |
|
|
|
— |
|
|
Weighted average diluted common shares outstanding |
|
|
|
|
|
|
|
|
|
Net loss per share |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
( |
) |
|
$ |
( |
) |
|
Diluted |
|
$ |
( |
) |
|
$ |
( |
) |
The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted net loss per share was
9.Income Taxes
The effective tax rates for the three months ended April 2, 2022 and April 3, 2021 were
10.Legal
Federal Trade Commission Matter
The Company received a letter from the U.S. Federal Trade Commission (the “FTC”) dated September 3, 2019, advising that the FTC was conducting a non-public inquiry into the practices of the Company's wholly-owned subsidiary Kurbo, Inc. (“Kurbo”) relating to the collection, use, disclosure and sharing of personal information. Kurbo offers a paid private coaching service as well as a free app to help families teach children healthy habits. The FTC focused on whether certain practices in the Kurbo free app complied with the Children's Online Privacy Protection Act ("COPPA"). On February 16, 2022, the FTC filed a complaint and proposed settlement order in the United States District Court for the Northern District of California to resolve allegations that Kurbo violated COPPA by failing to provide required notices and obtain verifiable parental consent prior to collecting, using, and disclosing personal information from children using the Kurbo app. In connection with the settlement, Kurbo and the Company were required, among other things: (i) to update their procedures to ensure that they obtain verifiable parental consent before collecting personal information from children, (ii) to destroy all of the personal information they may have obtained without verifiable parental consent as well as any models or algorithms based on that information, (iii) to update their records retention policy to require destruction of user information one year after a child stops tracking in the Kurbo app, and (iv) to pay a civil penalty of $
16
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Other Litigation Matters
Due to the nature of the Company’s activities, it is also, at times, subject to other pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected, individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.
|
11. |
Derivative Instruments and Hedging |
As of April 2, 2022 and January 1, 2022, the Company had in effect interest rate swaps with an aggregate notional amount totaling $
On June 11, 2018, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2018 swap”) with an effective date of
As of April 2, 2022, the cumulative unrealized gain for qualifying hedges was reported as a component of accumulated other comprehensive income in the amount of $
As of April 2, 2022, the fair value of the Company’s 2018 swap was a current liability of $
The Company is hedging forecasted transactions for periods not exceeding the next
|
12. |
Fair Value Measurements |
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
|
|
• |
Level 1 – Quoted prices in active markets for identical assets or liabilities. |
|
|
• |
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|
|
• |
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
When measuring fair value, the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs.
17
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Fair Value of Financial Instruments
The Company’s significant financial instruments include long-term debt and interest rate swap agreements as of April 2, 2022 and January 1, 2022. Since there were
The fair value of the Company’s Credit Facilities is determined by utilizing average bid prices on or near the end of each fiscal quarter (Level 2 input). As of April 2, 2022 and January 1, 2022, the fair value of the Company’s long-term debt was approximately $
Derivative Financial Instruments
The fair values for the Company’s derivative financial instruments are determined using observable current market information such as the prevailing LIBOR interest rate and LIBOR yield curve rates and include consideration of counterparty credit risk. See Note 11 for disclosures related to derivative financial instruments.
The following table presents the aggregate fair value of the Company’s derivative financial instruments:
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|
|||||||||
|
|
|
Total Fair Value |
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
|
Interest rate swap current asset at April 2, 2022 |
|
$ |
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
Interest rate swap noncurrent asset at April 2, 2022 |
|
$ |
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
Interest rate swap current liability at April 2, 2022 |
|
$ |
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
Interest rate swap current liability at January 1, 2022 |
|
$ |
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
The Company did
|
13. |
Accumulated Other Comprehensive Loss |
Amounts reclassified out of accumulated other comprehensive loss were as follows:
Changes in Accumulated Other Comprehensive Loss by Component (1)
|
|
|
Three Months Ended April 2, 2022 |
|
|||||||||
|
|
|
(Loss) Gain on Qualifying Hedges |
|
|
Loss on Foreign Currency Translation |
|
|
Total |
|
|||
|
Beginning balance at January 1, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications, net of tax |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax (2) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net current period other comprehensive income (loss) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Ending balance at April 2, 2022 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
(1) |
|
|
(2) |
|
18
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
|
|
Three Months Ended April 3, 2021 |
|
|||||||||
|
|
|
Loss on Qualifying Hedges |
|
|
Loss on Foreign Currency Translation |
|
|
Total |
|
|||
|
Beginning balance at January 2, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications, net of tax |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax (2) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net current period other comprehensive income (loss) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Ending balance at April 3, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
(1) |
Amounts in parentheses indicate debits |
|
(2) |
See separate table below for details about these reclassifications |
Reclassifications out of Accumulated Other Comprehensive Loss (1)
|
|
|
Three Months Ended |
|
|||||||
|
|
|
April 2, |
|
|
April 3, |
|
|
|
||
|
|
|
2022 |
|
|
2021 |
|
|
|
||
|
Details about Other Comprehensive Loss Components |
|
Amounts Reclassified from Accumulated Other Comprehensive Loss |
Affected Line Item in the Statement Where Net Income is Presented |
|||||||
|
Loss on Qualifying Hedges |
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
$ |
( |
) |
|
$ |
( |
) |
|
Interest expense |
|
|
|
|
( |
) |
|
|
( |
) |
|
Loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Net loss |
|
(1) |
|
|
14. |
Segment Data |
The Company has
Information about the Company’s reportable segments is as follows:
|
|
Total Revenues, net |
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
April 2, |
|
|
April 3, |
|
||
|
|
2022 |
|
|
2021 |
|
||
|
North America |
$ |
|
|
|
$ |
|
|
|
Continental Europe |
|
|
|
|
|
|
|
|
United Kingdom |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Total revenues, net |
$ |
|
|
|
$ |
|
|
19
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
|
Net Loss |
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
April 2, |
|
|
April 3, |
|
||
|
|
2022 |
|
|
2021 |
|
||
|
Segment operating income (loss): |
|
|
|
|
|
|
|
|
North America |
$ |
|
|
|
$ |
|
|
|
Continental Europe |
|
|
|
|
|
|
|
|
United Kingdom |
|
( |
) |
|
|
|
|
|
Other |
|
( |
) |
|
|
|
|
|
Total segment operating income |
|
|
|
|
|
|
|
|
General corporate expenses |
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
Other expense (income), net |
|
|
|
|
|
( |
) |
|
Benefit from income taxes |
|
( |
) |
|
|
( |
) |
|
Net loss |
$ |
( |
) |
|
$ |
( |
) |
|
|
Depreciation and Amortization |
|
|||||
|
|
Three Months Ended |
|
|||||
|
|
April 2, |
|
|
April 3, |
|
||
|
|
2022 |
|
|
2021 |
|
||
|
North America |
$ |
|
|
|
$ |
|
|
|
Continental Europe |
|
|
|
|
|
|
|
|
United Kingdom |
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
Total segment depreciation and amortization |
|
|
|
|
|
|
|
|
General corporate depreciation and amortization |
|
|
|
|
|
|
|
|
Depreciation and amortization |
$ |
|
|
|
$ |
|
|
|
15. |
Related Party |
As previously disclosed, on October 18, 2015, the Company entered into the Strategic Collaboration Agreement with Oprah Winfrey, under which she would consult with the Company and participate in developing, planning, executing and enhancing the WW program and related initiatives, and provide it with services in her discretion to promote the Company and its programs, products and services for an initial term of
As previously disclosed, on December 15, 2019, the Company entered into an amendment of the Strategic Collaboration Agreement with Ms. Winfrey, pursuant to which, among other things, the Initial Term of the Strategic Collaboration Agreement was extended until April 17, 2023 (with no additional successive renewal terms) after which a second term will commence and continue through the earlier of the date of the Company’s 2025 annual meeting of shareholders or May 31, 2025. Ms. Winfrey will continue to provide the above-described services during the remainder of the Initial Term and, during the second term, will provide certain consulting and other services to the Company.
In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to the Company totaling $
The Company’s accounts payable to parties related to Ms. Winfrey at April 2, 2022 and January 1, 2022 was $
In March 2021, as permitted by the transfer provisions set forth in the previously disclosed Share Purchase Agreement, dated October 18, 2015, between the Company and Ms. Winfrey, as amended, and the previously disclosed Winfrey Option Agreement, dated October 18, 2015, between the Company and Ms. Winfrey, Ms. Winfrey sold
20
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
16.Restructuring
2022 Plan – Subsequent Event
As previously disclosed, in the second quarter of fiscal 2022, the Company committed to a restructuring plan consisting of (i) an organizational realignment to simplify the Company’s corporate structure and reduce associated costs (the “Organizational Realignment”) and (ii) a continued rationalization of its real estate portfolio resulting in the termination of certain of the Company’s operating leases (together with the Organizational Realignment, the “2022 Plan”). In connection with the 2022 Plan, the Company anticipates recording restructuring charges which it currently estimates will range between $
2021 Plan
As previously disclosed, in the first quarter of fiscal 2021, as the Company continued to evaluate its cost structure, anticipate consumer demand and focus on costs, the Company committed to a plan which has resulted in the termination of operating leases and elimination of certain positions worldwide. For the fiscal year ended January 1, 2022, the Company recorded restructuring expenses totaling $
For the fiscal year ended January 1, 2022, the components of the Company’s restructuring expenses were as follows:
|
|
Fiscal Year Ended |
|
|
|
|
January 1, 2022 |
|
|
|
Lease termination and other related costs |
$ |
|
|
|
Employee termination benefit costs |
|
|
|
|
Total restructuring expenses |
$ |
|
|
For the fiscal year ended January 1, 2022, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
|
|
Fiscal Year Ended |
|
|
|
|
January 1, 2022 |
|
|
|
Cost of revenues |
$ |
|
|
|
Selling, general and administrative expenses |
|
|
|
|
Total restructuring expenses |
$ |
|
|
All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.
For the fiscal year ended January 1, 2022, the Company made payments of $
For the three months ended April 2, 2022, the Company made payments of $
The Company expects the remaining lease termination liability of $
21
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
2020 Plan
As previously disclosed, in the second quarter of fiscal 2020, in connection with its cost-savings initiative, and its continued response to the COVID-19 pandemic and the related shift in market conditions, the Company committed to a plan of reduction in force which has resulted in the elimination of certain positions and termination of employment for certain employees worldwide. To adjust to anticipated consumer demand, the Company evolved its workshop strategy and expanded its restructuring plan to include lease termination and other related costs. For the fiscal year ended January 2, 2021, the Company recorded restructuring expenses totaling $
For the fiscal year ended January 2, 2021, the components of the Company’s restructuring expenses were as follows:
|
|
Fiscal Year Ended |
|
|
|
|
January 2, 2021 |
|
|
|
Lease termination and other related costs |
$ |
|
|
|
Employee termination benefit costs |
|
|
|
|
Total restructuring expenses |
$ |
|
|
For the fiscal year ended January 2, 2021, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
|
|
Fiscal Year Ended |
|
|
|
|
January 2, 2021 |
|
|
|
Cost of revenues |
$ |
|
|
|
Selling, general and administrative expenses |
|
|
|
|
Total restructuring expenses |
$ |
|
|
All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.
For the fiscal year ended January 2, 2021, the Company made payments of $
For the fiscal year ended January 1, 2022, the Company made payments of $
For the three months ended April 2, 2022, the Company decreased provision estimates for the lease termination costs by $
The Company expects the remaining lease termination liability of $
22
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Quarterly Report on Form 10-Q includes “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including, in particular, the statements about our plans, strategies, objectives and prospects and the impact of the COVID-19 virus under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have generally used the words “may,” “will,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “aim” and similar expressions in this Quarterly Report on Form 10-Q to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. Actual results could differ materially from those projected in these forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things:
|
|
• |
the impact of the ongoing global outbreak of the COVID-19 virus on our business and liquidity and on the business and consumer environment and markets in which we operate; |
|
|
• |
competition from other weight management and wellness industry participants or the development of more effective or more favorably perceived weight management methods; |
|
|
• |
our failure to continue to retain and grow our subscriber base; |
|
|
• |
our ability to continue to develop new, innovative services and products and enhance our existing services and products or the failure of our services, products or brands to continue to appeal to the market, or our ability to successfully expand into new channels of distribution or respond to consumer trends or sentiment; |
|
|
• |
the ability to successfully implement strategic initiatives; |
|
|
• |
the effectiveness and efficiency of our advertising and marketing programs, including the strength of our social media presence; |
|
|
• |
the impact on our reputation of actions taken by our franchisees, licensees, suppliers and other partners; |
|
|
• |
the recognition of asset impairment charges; |
|
|
• |
the loss of key personnel, strategic partners or consultants or failure to effectively manage and motivate our workforce; |
|
|
• |
our chief executive officer transition; |
|
|
• |
the inability to renew certain of our licenses, or the inability to do so on terms that are favorable to us; |
|
|
• |
the expiration or early termination by us of leases; |
|
|
• |
uncertainties related to a downturn in general economic conditions or consumer confidence, including the potential impact of political and social unrest, and the existing inflationary environment; |
|
|
• |
our ability to successfully make acquisitions or enter into joint ventures or collaborations, including our ability to successfully integrate, operate or realize the anticipated benefits of such businesses; |
|
|
• |
the seasonal nature of our business; |
|
|
• |
the impact of events that discourage or impede people from gathering with others or impede accessing resources; |
|
|
• |
our failure to maintain effective internal control over financial reporting; |
|
|
• |
the impact of our substantial amount of debt, debt service obligations and debt covenants, and our exposure to variable rate indebtedness; |
|
|
• |
the ability to generate sufficient cash to service our debt and satisfy our other liquidity requirements; |
|
|
• |
uncertainties regarding the satisfactory operation of our technology or systems; |
|
|
• |
the impact of data security breaches and other malicious acts or privacy concerns, including the costs of compliance with evolving privacy laws and regulations; |
|
|
• |
our ability to enforce our intellectual property rights both domestically and internationally, as well as the impact of our involvement in any claims related to intellectual property rights; |
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• |
risks and uncertainties associated with our international operations, including regulatory, economic, political, social, intellectual property, and foreign currency risks, which risks may be exacerbated as a result of the war in Ukraine; |
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• |
the outcomes of litigation or regulatory actions; |
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• |
the impact of existing and future laws and regulations; |
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• |
the possibility that the interests of Artal Group S.A., or Artal, the largest holder of our common stock and a shareholder with significant influence over us, will conflict with our interests or the interests of other holders of our common stock; |
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• |
the impact that the sale of substantial amounts of our common stock by existing large shareholders, or the perception that such sales could occur, could have on the market price of our common stock; and |
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• |
other risks and uncertainties, including those detailed from time to time in our periodic reports filed with the Securities and Exchange Commission. |
23
You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause our results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, we do not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events or otherwise.
24
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ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
WW International, Inc. is a Virginia corporation with its principal executive offices in New York, New York. In this Quarterly Report on Form 10-Q unless the context indicates otherwise: “we,” “us,” “our,” the “Company,” “Weight Watchers” and “WW” refer to WW International, Inc. and all of its operations consolidated for purposes of its financial statements; “North America” refers to our North American Company-owned operations; “Continental Europe” refers to our Continental Europe Company-owned operations; “United Kingdom” refers to our United Kingdom Company-owned operations; and “Other” refers to Australia, New Zealand and emerging markets operations and franchise revenues and related costs. Each of North America, Continental Europe, United Kingdom and Other is also a reportable segment. Our “Digital” business refers to providing subscriptions to our digital product offerings, including Digital 360 and Personal Coaching + Digital. Our “Workshops + Digital” business refers to providing unlimited access to our workshops combined with our digital subscription product offerings to commitment plan subscribers. It also includes the provision of access to workshops for members who do not subscribe to commitment plans, including our “pay-as-you-go” members.
Our fiscal year ends on the Saturday closest to December 31st and consists of either 52- or 53-week periods. In this Quarterly Report on Form 10-Q:
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“fiscal 2015” refers to our fiscal year ended January 2, 2016; |
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• |
“fiscal 2020” refers to our fiscal year ended January 2, 2021 (included a 53rd week); |
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• |
“fiscal 2021” refers to our fiscal year ended January 1, 2022; |
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• |
“fiscal 2022” refers to our fiscal year ended December 31, 2022; |
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• |
“fiscal 2023” refers to our fiscal year ended December 30, 2023; |
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• |
“fiscal 2024” refers to our fiscal year ended December 28, 2024; |
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“fiscal 2025” refers to our fiscal year ended January 3, 2026 (includes a 53rd week); |
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“fiscal 2026” refers to our fiscal year ended January 2, 2027; and |
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“fiscal 2027” refers to our fiscal year ended January 1, 2028. |
The following terms used in this Quarterly Report on Form 10-Q are our trademarks: Digital 360® and Weight Watchers®.
You should read the following discussion in conjunction with our Annual Report on Form 10-K for fiscal 2021 that includes additional information about us, our results of operations, our financial position and our cash flows, and with our unaudited consolidated financial statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q (collectively referred to as the “Consolidated Financial Statements”).
25
NON-GAAP FINANCIAL MEASURES
To supplement our consolidated results presented in accordance with accounting principles generally accepted in the United States, or GAAP, we have disclosed non-GAAP financial measures of operating results that exclude or adjust certain items. Gross profit, gross profit margin, operating income, operating income margin and components thereof are discussed in this Quarterly Report on Form 10-Q both as reported (on a GAAP basis) and as adjusted (on a non-GAAP basis), as applicable, with respect to (i) the first quarter of fiscal 2022 to exclude (a) the net impact of (x) charges associated with our previously disclosed 2021 organizational restructuring plan (the “2021 plan”) and (y) the reversal of certain of the charges associated with our previously disclosed 2020 organizational restructuring plan (the “2020 plan”) or (b) the impact of charges associated with the 2021 plan; and (ii) the first quarter of fiscal 2021 to exclude the impact of charges associated with the 2021 plan. We generally refer to such non-GAAP measures as follows: (i) with respect to the adjustments for the first quarter of fiscal 2022, as excluding or adjusting for the net impact of restructuring charges or the impact of restructuring charges, as applicable; and (ii) with respect to the adjustments for the first quarter of fiscal 2021, as excluding or adjusting for the impact of the restructuring charges. We also present within this Quarterly Report on Form 10-Q the non-GAAP financial measures: earnings before interest, taxes, depreciation, amortization and stock-based compensation (“EBITDAS”); earnings before interest, taxes, depreciation, amortization, stock-based compensation, early extinguishment of debt with respect to the Company’s previously disclosed April 2021 debt refinancing and voluntary debt prepayments, and restructuring charges (including the net impact where applicable) (“Adjusted EBITDAS”); total debt less unamortized deferred financing costs, unamortized debt discount and cash on hand (i.e., net debt); and a net debt/Adjusted EBITDAS ratio. See “—Liquidity and Capital Resources—EBITDAS, Adjusted EBITDAS and Net Debt” for the reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measure in each case. Our management believes these non-GAAP financial measures provide useful supplemental information to investors regarding the performance of our business and are useful for period-over-period comparisons of the performance of our business. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies.
USE OF CONSTANT CURRENCY
As exchange rates are an important factor in understanding period-to-period comparisons, we believe in certain cases the presentation of results on a constant currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this Quarterly Report on Form 10-Q, we calculate constant currency by calculating current-year results using prior-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant currency basis as excluding or adjusting for the impact of foreign currency or being on a constant currency basis. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP and are not meant to be considered in isolation. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP.
CRITICAL ACCOUNTING ESTIMATES
For a discussion of the critical accounting estimates affecting us, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” of our Annual Report on Form 10-K for fiscal 2021. Our critical accounting estimates have not changed since the end of fiscal 2021.
PERFORMANCE INDICATORS
Our management team regularly reviews and analyzes a number of financial and operating metrics, including the key performance indicators listed below, in order to manage our business, measure our performance, identify trends affecting our business, determine the allocation of resources, make decisions regarding corporate strategies and assess the quality and potential variability of our cash flows and earnings. We also believe that these key performance indicators are useful to both management and investors for forecasting purposes and to facilitate comparisons to our historical operating results. These metrics are supplemental to our GAAP results and include operational measures.
26
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• |
Revenues—Our “Subscription Revenues” consist of “Digital Subscription Revenues” and “Workshops + Digital Fees”. “Digital Subscription Revenues” consist of the fees associated with subscriptions for our Digital offerings, including Digital 360 and Personal Coaching + Digital. “Workshops + Digital Fees” consist of the fees associated with our subscription plans for combined workshops and digital offerings and other payment arrangements for access to workshops. In addition, “product sales and other” consists of sales of consumer products via e-commerce, in studios and through our trusted partners, revenues from licensing and publishing, other revenues, and, in the case of the consolidated financial results and Other reportable segment, franchise fees with respect to commitment plans and royalties. |
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• |
Paid Weeks—The “Paid Weeks” metric reports paid weeks by WW customers in Company-owned operations for a given period as follows: (i) “Digital Paid Weeks” is the total paid subscription weeks for our digital subscription products (including Digital 360 and Personal Coaching + Digital); (ii) “Workshops + Digital Paid Weeks” is the sum of total paid commitment plan weeks which include workshops and digital offerings and total “pay-as-you-go” weeks; and (iii) “Total Paid Weeks” is the sum of Digital Paid Weeks and Workshops + Digital Paid Weeks. |
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• |
Incoming Subscribers—“Subscribers” refer to Digital subscribers and Workshops + Digital subscribers who participate in recur bill programs in Company-owned operations. The “Incoming Subscribers” metric reports WW subscribers in Company-owned operations at a given period start as follows: (i) “Incoming Digital Subscribers” is the total number of Digital, including Digital 360 and Personal Coaching + Digital, subscribers; (ii) “Incoming Workshops + Digital Subscribers” is the total number of commitment plan subscribers that have access to combined workshops and digital offerings; and (iii) “Incoming Subscribers” is the sum of Incoming Digital Subscribers and Incoming Workshops + Digital Subscribers. Recruitment and retention are key drivers for this metric. |
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End of Period Subscribers—The “End of Period Subscribers” metric reports WW subscribers in Company-owned operations at a given period end as follows: (i) “End of Period Digital Subscribers” is the total number of Digital, including Digital 360 and Personal Coaching + Digital, subscribers; (ii) “End of Period Workshops + Digital Subscribers” is the total number of commitment plan subscribers that have access to combined workshops and digital offerings; and (iii) “End of Period Subscribers” is the sum of End of Period Digital Subscribers and End of Period Workshops + Digital Subscribers. Recruitment and retention are key drivers for this metric. |
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Gross profit and operating expenses as a percentage of revenue. |
COVID-19 PANDEMIC
The novel coronavirus (including its variants, COVID-19) pandemic continues to evolve and have unpredictable impacts on consumer sentiment and behavior and on our business operations and the markets in which we operate. We have seen significant shifts in consumer sentiment with respect to the weight loss and wellness marketplace, which we believe in part is attributable to the evolution of the pandemic. COVID-19 has had a significant effect on our recruitments since its onset. Our Workshops + Digital recruitments were substantially negatively impacted during the first year of the pandemic. While Digital recruitments were strong in the beginning of the COVID-19 pandemic, a subsequent turn in consumer sentiment drove a decline in Digital recruitments. Given the long-term subscription model of our business, these declines in recruitment continued to impact the number of our End of Period Subscribers in the first quarter of fiscal 2022, which declined compared to the prior year period. Additionally, our mix shifting toward our Digital business, which was significant during the onset of the pandemic, especially when amplified by the nature of our subscription business, has negatively impacted revenue and may continue to impact it in the future. Over the longer term, it remains uncertain how the COVID-19 pandemic will impact consumer demand for our products and services and consumer preferences and behavior generally.
The extent to which our operations and business trends will continue in future periods to be impacted by, and any unforeseen costs will result from, the ongoing outbreak of COVID-19 will depend largely on future developments, which are highly uncertain and cannot be accurately predicted. These developments include, among other things, the severity of any variant or surges in COVID-19 cases, new information about health implications, vaccine availability and hesitancy, and actions by government authorities to contain the outbreak or treat its impact. This dynamic situation is driving uncertainty at the macroeconomic, local and consumer levels. We continue to actively monitor the ongoing global outbreak of COVID-19 and its impact and related developments.
27
As we continue to address the impact of the pandemic, and the related evolving legal and consumer landscape, we are focused on how to best meet our members’ and consumers’ needs. We continue to serve our members virtually, both via our Digital business and through virtual workshops, and to evolve our workshop strategy as we evaluate our cost structure and respond to shifting consumer sentiment. We consolidated certain of our studios and continue to close certain other branded studio locations. We continually evaluate our studio locations, and the decision to operate at any particular studio location is influenced by a number of factors, including applicable legal restrictions, consumer confidence and preferences, changes in consumer sentiment and behavior, and the protection of the health and safety of our employees and members, and is dependent on cost efficiencies and alignment with our digital and brand strategy. The current number of our studio locations is significantly lower than that prior to the pandemic, and we expect it to remain below pre-COVID-19 levels. As a result, we have incurred, and we expect to continue to incur, significant costs associated with our real estate realignment.
While we expect the effects of the pandemic and the related responses, including shifts in consumer sentiment and behavior, to negatively impact our results of operations, cash flows and financial position, the uncertainty of the full extent of the duration and severity of the consumer, economic and operational impacts of COVID-19 means we cannot reasonably estimate the related financial impact at this time. For more information, see “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for fiscal 2021. We continue to believe that our powerful communities and our ability to inspire people to adopt healthy habits will be invaluable to people across the globe as they continue to acclimate to new social and economic environments, and that they uniquely position us in the markets in which we operate.
28
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 2, 2022 COMPARED TO THE THREE MONTHS ENDED APRIL 3, 2021
The table below sets forth selected financial information for the first quarter of fiscal 2022 from our consolidated statements of net income for the three months ended April 2, 2022 versus selected financial information for the first quarter of fiscal 2021 from our consolidated statements of net income for the three months ended April 3, 2021.
Summary of Selected Financial Data
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(In millions, except per share amounts) |
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For The Three Months Ended |
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|
April 2, 2022 |
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April 3, 2021 |
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Increase/ (Decrease) |
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% Change |
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|
% Change Constant Currency |
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|||||
|
Revenues, net |
|
$ |
297.8 |
|
|
$ |
331.8 |
|
|
$ |
(34.0 |
) |
|
|
(10.3 |
%) |
|
|
(8.4 |
%) |
|
|
Cost of revenues |
|
|
117.7 |
|
|
|
138.4 |
|
|
|
(20.7 |
) |
|
|
(15.0 |
%) |
|
|
(13.6 |
%) |
|
|
Gross profit |
|
|
180.1 |
|
|
|
193.4 |
|
|
|
(13.3 |
) |
|
|
(6.9 |
%) |
|
|
(4.6 |
%) |
|
|
Gross Margin % |
|
|
60.5 |
% |
|
|
58.3 |
% |
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|
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|
|
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|
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|
|
|
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|
Marketing expenses |
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|
107.6 |
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|
116.9 |
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|
|
(9.4 |
) |
|
|
(8.0 |
%) |
|
|
(6.2 |
%) |
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|
Selling, general & administrative expenses |
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|
63.6 |
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|
73.7 |
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|
|
(10.1 |
) |
|
|
(13.7 |
%) |
|
|
(12.8 |
%) |
|
|
Operating income |
|
|
9.0 |
|
|
|
2.8 |
|
|
|
6.1 |
|
|
100.0 |
% |
* |
100.0 |
% |
* |
||
|
Operating Income Margin % |
|
|
3.0 |
% |
|
|
0.9 |
% |
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
Interest expense |
|
|
18.7 |
|
|
|
29.1 |
|
|
|
(10.5 |
) |
|
|
(35.9 |
%) |
|
|
(35.9 |
%) |
|
|
Other expense (income), net |
|
|
0.3 |
|
|
|
(0.2 |
) |
|
|
0.6 |
|
|
|
100.0 |
% |
* |
|
100.0 |
% |
* |
|
Loss before income taxes |
|
|
(10.0 |
) |
|
|
(26.1 |
) |
|
|
16.0 |
|
|
|
(61.4 |
%) |
|
|
(67.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes |
|
|
(1.8 |
) |
|
|
(7.8 |
) |
|
|
6.0 |
|
|
|
(77.0 |
%) |
|
|
(83.2 |
%) |
|
|
Net loss |
|
$ |
(8.2 |
) |
|
$ |
(18.2 |
) |
|
$ |
10.0 |
|
|
|
(54.8 |
%) |
|
|
(61.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
70.1 |
|
|
|
69.1 |
|
|
|
1.0 |
|
|
|
1.5 |
% |
|
|
1.5 |
% |
|
|
Diluted net loss per share |
|
$ |
(0.12 |
) |
|
$ |
(0.26 |
) |
|
$ |
0.15 |
|
|
|
(55.4 |
%) |
|
|
(61.8 |
%) |
|
Note: Totals may not sum due to rounding.
*Note: Percentage in excess of 100.0%.
29
Certain results for the first quarter of fiscal 2022 are adjusted to exclude the net impact of the $0.3 million of 2021 plan restructuring charges and the reversal of $0.1 million of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended April 2, 2022 which have been adjusted.
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|
Gross |
|
|
|
|
|
|
Operating |
|
||
|
|
|
Gross |
|
|
Profit |
|
|
Operating |
|
|
Income |
|
||||
|
(in millions except percentages) |
|
Profit |
|
|
Margin |
|
|
Income |
|
|
Margin |
|
||||
|
First Quarter of Fiscal 2022 |
|
$ |
180.1 |
|
|
|
60.5 |
% |
|
$ |
9.0 |
|
|
|
3.0 |
% |
|
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 plan restructuring charges |
|
|
0.0 |
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
2020 plan restructuring charges |
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
Total adjustments (1) |
|
|
(0.1 |
) |
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
First Quarter of Fiscal 2022, as adjusted (1) |
|
$ |
180.0 |
|
|
|
60.5 |
% |
|
$ |
9.1 |
|
|
|
3.1 |
% |
Note: Totals may not sum due to rounding.
|
(1) |
The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the first quarter of fiscal 2022 to exclude the net impact of $0.3 million ($0.2 million after tax) of 2021 plan restructuring charges and the reversal of $0.1 million ($0.1 million after tax) of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
Certain results for the first quarter of fiscal 2021 are adjusted to exclude the impact of the $5.5 million of 2021 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended April 3, 2021 which have been adjusted.
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Operating |
|
||
|
|
|
Gross |
|
|
Profit |
|
|
Operating |
|
|
Income |
|
||||
|
(in millions except percentages) |
|
Profit |
|
|
Margin |
|
|
Income |
|
|
Margin |
|
||||
|
First Quarter of Fiscal 2021 |
|
$ |
193.4 |
|
|
|
58.3 |
% |
|
$ |
2.8 |
|
|
|
0.9 |
% |
|
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 plan restructuring charges |
|
|
5.2 |
|
|
|
|
|
|
|
5.5 |
|
|
|
|
|
|
Total adjustments (1) |
|
|
5.2 |
|
|
|
|
|
|
|
5.5 |
|
|
|
|
|
|
First Quarter of Fiscal 2021, as adjusted (1) |
|
$ |
198.6 |
|
|
|
59.9 |
% |
|
$ |
8.4 |
|
|
|
2.5 |
% |
Note: Totals may not sum due to rounding.
|
(1) |
The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the first quarter of fiscal 2021 to exclude the impact of the $5.5 million ($4.1 million after tax) of 2021 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
Consolidated Results
Revenues
Revenues for the first quarter of fiscal 2022 were $297.8 million, a decrease of $34.0 million, or 10.3%, versus the first quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted our revenues in the first quarter of fiscal 2022 by $6.3 million, revenues for the first quarter of fiscal 2022 would have decreased 8.4% versus the prior year period. This decrease was driven primarily by lower Subscription Revenues reflecting worsened consumer sentiment. This worsened consumer sentiment was due in part to the evolution of the COVID-19 pandemic as well as the likely impact of certain macro factors including increasing inflation, social and political unrest and challenged economic growth. See “—Segment Results” for additional details on revenues.
Cost of Revenues
Total cost of revenues for the first quarter of fiscal 2022 decreased $20.7 million, or 15.0%, versus the first quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased cost of revenues in the first quarter of fiscal 2022 by $1.8 million, cost of revenues for the first quarter of fiscal 2022 would have decreased 13.6% versus the prior year period. Excluding the net impact of $(0.1) million of restructuring charges in the first quarter of fiscal 2022 and the impact of the $5.2 million of restructuring charges in the first quarter of fiscal 2021, total cost of revenues for the first quarter of fiscal 2022 would have decreased by 11.6%, or 10.2% on a constant currency basis, versus the prior year period.
30
Gross Profit
Gross profit for the first quarter of fiscal 2022 decreased $13.3 million, or 6.9%, versus the first quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted gross profit in the first quarter of fiscal 2022 by $4.5 million, gross profit for the first quarter of fiscal 2022 would have decreased 4.6% versus the prior year period. Excluding the net impact of $(0.1) million of restructuring charges in the first quarter of fiscal 2022 and the impact of the $5.2 million of restructuring charges in the first quarter of fiscal 2021, gross profit for the first quarter of fiscal 2022 would have decreased by 9.4%, or 7.1% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin for the first quarter of fiscal 2022 increased 2.2% to 60.5% versus 58.3% for the first quarter of fiscal 2021. Excluding the impact of foreign currency, gross margin in the first quarter of fiscal 2022 would have increased 2.4% to 60.7% versus the prior year period. Excluding the net impact of restructuring charges in the first quarter of fiscal 2022 and the impact of restructuring charges in the first quarter of fiscal 2021, gross margin for the first quarter of fiscal 2022 would have increased 0.6% to 60.5% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the first quarter of fiscal 2022 and the impact of restructuring charges in the first quarter of fiscal 2021, gross margin for the first quarter of fiscal 2022 would have increased 0.8% to 60.7% versus the prior year period. The gross margin increase was driven primarily by a revenue mix shift to our higher margin Digital business.
Marketing
Marketing expenses for the first quarter of fiscal 2022 decreased $9.4 million, or 8.0%, versus the first quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased marketing expenses in the first quarter of fiscal 2022 by $2.1 million, marketing expenses for the first quarter of fiscal 2022 would have decreased 6.2% versus the prior year period. This decrease in marketing expenses was primarily due to a decline in TV media. Marketing expenses as a percentage of revenue for the first quarter of fiscal 2022 increased to 36.1% from 35.2% for the first quarter of fiscal 2021.
Selling, General and Administrative
Selling, general and administrative expenses for the first quarter of fiscal 2022 decreased $10.1 million, or 13.7%, versus the first quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses in the first quarter of fiscal 2022 by $0.7 million, selling, general and administrative expenses for the first quarter of fiscal 2022 would have decreased 12.8% versus the prior year period. Excluding the impact of the $0.2 million of restructuring charges in the first quarter of fiscal 2022 and the impact of the $0.3 million of restructuring charges in the first quarter of fiscal 2021, selling, general and administrative expenses for the first quarter of fiscal 2022 would have decreased by 13.7%, or 12.7% on a constant currency basis, versus the prior year period. This decrease in selling, general and administrative expenses was primarily due to lower bonus expense driven by a change in timing of payment and a reduction in headcount. Selling, general and administrative expenses as a percentage of revenue for the first quarter of fiscal 2022 decreased to 21.3% from 22.2% for the first quarter of fiscal 2021.
Operating Income
Operating income for the first quarter of fiscal 2022 increased $6.1 million, or 216.8%, versus the first quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted operating income in the first quarter of fiscal 2022 by $1.7 million, operating income for the first quarter of fiscal 2022 would have increased 275.9% versus the prior year period. Excluding the net impact of the $0.1 million of restructuring charges in the first quarter of fiscal 2022 and the impact of the $5.5 million of restructuring charges in the first quarter of fiscal 2021, operating income for the first quarter of fiscal 2022 would have increased by 9.0%, or 29.0% on a constant currency basis, versus the prior year period. Operating income margin for the first quarter of fiscal 2022 increased 2.2% to 3.0% versus 0.9% for the first quarter of fiscal 2021. Excluding the net impact of restructuring charges in the first quarter of fiscal 2022 and the impact of restructuring charges in the first quarter of fiscal 2021, operating income margin for the first quarter of fiscal 2022 would have increased by 0.5%, or 1.0% on a constant currency basis, versus the prior year period. This increase in operating income margin was driven primarily by a decrease in selling, general and administrative expenses as a percentage of revenue and an increase in gross margin, partially offset by an increase in marketing expenses as a percentage of revenue, versus the prior year period.
31
Interest Expense
Interest expense for the first quarter of fiscal 2022 decreased $10.5 million, or 35.9%, versus the first quarter of fiscal 2021. The decrease in interest expense was driven primarily by lower interest rates under our Term Loan Facility (as defined below) and on our Senior Secured Notes (as defined below) as a result of our April 2021 debt refinancing (as defined below). The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the first quarter of fiscal 2022 and the first quarter of fiscal 2021 and excluding the impact of our interest rate swaps then in effect, decreased to 4.53% per annum at the end of the first quarter of fiscal 2022 from 6.59% per annum at the end of the first quarter of fiscal 2021. Including the impact of our interest rate swaps then in effect, the effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the first quarter of fiscal 2022 and the first quarter of fiscal 2021, decreased to 5.14% per annum at the end of the first quarter of fiscal 2022 from 7.56% per annum at the end of the first quarter of fiscal 2021. See “—Liquidity and Capital Resources—Long-Term Debt” for additional details regarding our debt, including interest rates and payments thereon. For additional details on our interest rate swaps, see “Item 3. Quantitative and Qualitative Disclosures about Market Risk” in Part I of this Quarterly Report on Form 10-Q.
Other Expense (Income), Net
Other expense (income), net, which consists primarily of the impact of foreign currency on intercompany transactions, changed by $0.6 million for the first quarter of fiscal 2022 to $0.3 million of expense as compared to $0.2 million of income for the first quarter of fiscal 2021.
Tax
Our effective tax rate for the first quarter of fiscal 2022 was 17.9% as compared to 30.0% for the first quarter of fiscal 2021. For the first quarter of fiscal 2022, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to a tax benefit related to foreign-derived intangible income, or FDII, partially offset by state income tax expense and tax expense from income earned in foreign jurisdictions. The effective tax rate for the first quarter of fiscal 2021 was impacted by state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII and a tax benefit related to tax windfalls from stock compensation.
Net Loss and Diluted Net Loss Per Share
Net loss for the first quarter of fiscal 2022 was $8.2 million, which decreased $10.0 million, or 54.8%, from the net loss for the first quarter of fiscal 2021 of $18.2 million. Excluding the impact of foreign currency, which negatively impacted net loss in the first quarter of fiscal 2022 by $1.2 million, net loss for the first quarter of fiscal 2022 would have decreased 61.3% from the prior year period. Net loss for the first quarter of fiscal 2022 included a $0.1 million net impact from restructuring charges. Net loss for the first quarter of fiscal 2021 included a $4.1 million impact from restructuring charges.
Diluted net loss per share for the first quarter of fiscal 2022 was a loss of $0.12 compared to a loss of $0.26 for the first quarter of fiscal 2021. Diluted net loss per share for the first quarter of fiscal 2022 included a $0.00 net impact from restructuring charges. Diluted net loss per share for the first quarter of fiscal 2021 included a $0.06 impact from restructuring charges.
32
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for the first quarter of fiscal 2022 and the percentage change in those metrics versus the prior year period:
(in millions except percentages and as noted)
|
|
|
Q1 2022 |
|
|||||||||||||||||||||||||||||||||
|
|
|
GAAP |
|
|
Constant Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|||
|
|
|
Subscription |
|
|
Sales & |
|
|
Total |
|
|
Subscription |
|
|
Sales & |
|
|
Total |
|
|
Paid |
|
|
Incoming |
|
|
EOP |
|
|||||||||
|
|
|
Revenues |
|
|
Other |
|
|
Revenues |
|
|
Revenues |
|
|
Other |
|
|
Revenues |
|
|
Weeks |
|
|
Subscribers |
|
|
Subscribers |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|||||
|
North America |
|
$ |
176.3 |
|
|
$ |
28.0 |
|
|
$ |
204.3 |
|
|
$ |
176.3 |
|
|
$ |
28.0 |
|
|
$ |
204.3 |
|
|
|
38.7 |
|
|
|
2,734.9 |
|
|
|
2,986.2 |
|
|
CE |
|
|
61.7 |
|
|
|
9.2 |
|
|
|
70.9 |
|
|
|
66.4 |
|
|
|
9.9 |
|
|
|
76.3 |
|
|
|
15.4 |
|
|
|
1,094.1 |
|
|
|
1,189.5 |
|
|
UK |
|
|
12.2 |
|
|
|
2.2 |
|
|
|
14.4 |
|
|
|
12.6 |
|
|
|
2.3 |
|
|
|
14.9 |
|
|
|
3.5 |
|
|
|
245.0 |
|
|
|
270.1 |
|
|
Other (1) |
|
|
6.8 |
|
|
|
1.3 |
|
|
|
8.1 |
|
|
|
7.2 |
|
|
|
1.4 |
|
|
|
8.6 |
|
|
|
1.3 |
|
|
|
94.5 |
|
|
|
99.6 |
|
|
Total |
|
$ |
257.0 |
|
|
$ |
40.8 |
|
|
$ |
297.8 |
|
|
$ |
262.5 |
|
|
$ |
41.6 |
|
|
$ |
304.0 |
|
|
|
58.9 |
|
|
|
4,168.6 |
|
|
|
4,545.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change Q1 2022 vs. Q1 2021 |
|
|||||||||||||||||||||||||||||||||
|
North America |
|
|
(5.7 |
%) |
|
|
(18.4 |
%) |
|
|
(7.7 |
%) |
|
|
(5.7 |
%) |
|
|
(18.4 |
%) |
|
|
(7.7 |
%) |
|
|
(3.6 |
%) |
|
|
(3.1 |
%) |
|
|
(5.5 |
%) |
|
CE |
|
|
(11.7 |
%) |
|
|
(23.6 |
%) |
|
|
(13.4 |
%) |
|
|
(4.9 |
%) |
|
|
(17.8 |
%) |
|
|
(6.8 |
%) |
|
|
(9.7 |
%) |
|
|
(7.2 |
%) |
|
|
(11.8 |
%) |
|
UK |
|
|
(18.4 |
%) |
|
|
(45.9 |
%) |
|
|
(24.3 |
%) |
|
|
(15.9 |
%) |
|
|
(44.5 |
%) |
|
|
(22.1 |
%) |
|
|
(21.3 |
%) |
|
|
(24.3 |
%) |
|
|
(20.6 |
%) |
|
Other (1) |
|
|
(15.4 |
%) |
|
|
(11.8 |
%) |
|
|
(14.8 |
%) |
|
|
(10.5 |
%) |
|
|
(7.4 |
%) |
|
|
(10.0 |
%) |
|
|
(6.6 |
%) |
|
|
(3.2 |
%) |
|
|
(6.9 |
%) |
|
Total |
|
|
(8.2 |
%) |
|
|
(21.5 |
%) |
|
|
(10.3 |
%) |
|
|
(6.2 |
%) |
|
|
(20.0 |
%) |
|
|
(8.4 |
%) |
|
|
(6.6 |
%) |
|
|
(5.8 |
%) |
|
|
(8.3 |
%) |
Note: Totals may not sum due to rounding.
|
(1) |
Represents Australia, New Zealand and emerging markets operations and franchise revenues. |
(in millions except percentages and as noted)
|
|
|
Q1 2022 |
|
|||||||||||||||||||||||||||||||||||||
|
|
|
Digital Subscription Revenues |
|
|
Digital |
|
|
Incoming |
|
|
EOP |
|
|
Workshops + Digital Fees |
|
|
Workshops + Digital |
|
|
Incoming Workshops |
|
|
EOP Workshops |
|
||||||||||||||||
|
|
|
|
|
|
|
Constant |
|
|
Paid |
|
|
Digital |
|
|
Digital |
|
|
|
|
|
|
Constant |
|
|
Paid |
|
|
+ Digital |
|
|
+ Digital |
|
||||||||
|
|
|
GAAP |
|
|
Currency |
|
|
Weeks |
|
|
Subscribers |
|
|
Subscribers |
|
|
GAAP |
|
|
Currency |
|
|
Weeks |
|
|
Subscribers |
|
|
Subscribers |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
||||||||||
|
North America |
|
$ |
125.3 |
|
|
$ |
125.3 |
|
|
|
31.4 |
|
|
|
2,186.9 |
|
|
|
2,450.7 |
|
|
$ |
51.0 |
|
|
$ |
51.0 |
|
|
|
7.3 |
|
|
|
548.0 |
|
|
|
535.4 |
|
|
CE |
|
|
53.5 |
|
|
|
57.5 |
|
|
|
14.1 |
|
|
|
998.5 |
|
|
|
1,088.3 |
|
|
|
8.2 |
|
|
|
8.9 |
|
|
|
1.3 |
|
|
|
95.7 |
|
|
|
101.1 |
|
|
UK |
|
|
7.8 |
|
|
|
8.0 |
|
|
|
2.6 |
|
|
|
179.7 |
|
|
|
206.0 |
|
|
|
4.4 |
|
|
|
4.6 |
|
|
|
0.9 |
|
|
|
65.3 |
|
|
|
64.1 |
|
|
Other (1) |
|
|
4.9 |
|
|
|
5.2 |
|
|
|
1.1 |
|
|
|
76.0 |
|
|
|
81.4 |
|
|
|
1.9 |
|
|
|
2.0 |
|
|
|
0.2 |
|
|
|
18.5 |
|
|
|
18.2 |
|
|
Total |
|
$ |
191.5 |
|
|
$ |
196.1 |
|
|
|
49.2 |
|
|
|
3,441.1 |
|
|
|
3,826.6 |
|
|
$ |
65.5 |
|
|
$ |
66.4 |
|
|
|
9.7 |
|
|
|
727.4 |
|
|
|
718.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change Q1 2022 vs. Q1 2021 |
|
|||||||||||||||||||||||||||||||||||||
|
North America |
|
|
(5.1 |
%) |
|
|
(5.1 |
%) |
|
|
(6.1 |
%) |
|
|
(6.3 |
%) |
|
|
(6.8 |
%) |
|
|
(7.1 |
%) |
|
|
(7.1 |
%) |
|
|
9.0 |
% |
|
|
12.3 |
% |
|
|
1.1 |
% |
|
CE |
|
|
(9.2 |
%) |
|
|
(2.3 |
%) |
|
|
(9.3 |
%) |
|
|
(5.8 |
%) |
|
|
(12.1 |
%) |
|
|
(24.8 |
%) |
|
|
(19.1 |
%) |
|
|
(13.2 |
%) |
|
|
(20.1 |
%) |
|
|
(9.1 |
%) |
|
UK |
|
|
(20.4 |
%) |
|
|
(18.1 |
%) |
|
|
(23.2 |
%) |
|
|
(23.5 |
%) |
|
|
(22.9 |
%) |
|
|
(14.5 |
%) |
|
|
(11.9 |
%) |
|
|
(15.4 |
%) |
|
|
(26.2 |
%) |
|
|
(12.3 |
%) |
|
Other (1) |
|
|
(6.9 |
%) |
|
|
(1.4 |
%) |
|
|
(0.2 |
%) |
|
|
2.8 |
% |
|
|
(0.3 |
%) |
|
|
(31.6 |
%) |
|
|
(27.7 |
%) |
|
|
(27.0 |
%) |
|
|
(21.9 |
%) |
|
|
(28.2 |
%) |
|
Total |
|
|
(7.1 |
%) |
|
|
(4.8 |
%) |
|
|
(8.0 |
%) |
|
|
(7.1 |
%) |
|
|
(9.3 |
%) |
|
|
(11.2 |
%) |
|
|
(10.0 |
%) |
|
|
1.5 |
% |
|
|
1.0 |
% |
|
|
(2.8 |
%) |
Note: Totals may not sum due to rounding.
|
(1) |
Represents Australia, New Zealand and emerging markets operations and franchise revenues. |
33
North America Performance
The decrease in North America revenues for the first quarter of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the first quarter of fiscal 2022 versus the prior year period was driven by both a decrease in Digital Subscription Revenues and a decrease in Workshops + Digital Fees. Subscription Revenues were negatively impacted by both the lower number of Incoming Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and the recruitment decline during the first quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment. The decrease in North America Total Paid Weeks for the first quarter of fiscal 2022 versus the prior year period was driven primarily by both the lower number of Total Incoming Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and lower recruitments for the first quarter of fiscal 2022 versus the prior year period.
The decrease in North America product sales and other for the first quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in product sales, including e-commerce.
Continental Europe Performance
The decrease in Continental Europe revenues for the first quarter of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the first quarter of fiscal 2022 versus the prior year period was driven by both a decrease in Workshops + Digital Fees and a decrease in Digital Subscription Revenues. Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and the recruitment decline during the first quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment. The decrease in Continental Europe Total Paid Weeks for the first quarter of fiscal 2022 versus the prior year period was driven primarily by both the lower number of Total Incoming Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and lower recruitments for the first quarter of fiscal 2022 versus the prior year period.
The decrease in Continental Europe product sales and other for the first quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
United Kingdom Performance
The decrease in UK revenues for the first quarter of fiscal 2022 versus the prior year period was driven by both a decrease in Subscription Revenues and a decrease in product sales and other. The decrease in Subscription Revenues for the first quarter of fiscal 2022 versus the prior year period was driven by a decrease in Digital Subscription Revenues and, to a lesser extent, a decrease in Workshops + Digital Fees. Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and the recruitment decline during the first quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment. The decrease in UK Total Paid Weeks for the first quarter of fiscal 2022 versus the prior year period was driven primarily by both the lower number of Total Incoming Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and lower recruitments for the first quarter of fiscal 2022 versus the prior year period.
The decrease in UK product sales and other for the first quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
Other Performance
The decrease in Other revenues for the first quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in Subscription Revenues. The decrease in Subscription Revenues for the first quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in Workshops + Digital Fees. Workshops + Digital Fees were negatively impacted by both the lower number of Incoming Workshops + Digital Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and the recruitment decline during the first quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment.
The decrease in Other product sales and other for the first quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in franchise commissions.
34
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities have historically supplied, and are expected to continue to supply, us with our primary source of liquidity. We use these cash flows, supplemented with long-term debt and short-term borrowings, to fund our operations and global strategic initiatives, pay down debt and engage in selective acquisitions. In accordance with the terms of the Credit Agreement, we expect to have an obligation to make an excess cash flow prepayment offer currently estimated to be $30.6 million to the term loan lenders during the second quarter of fiscal 2023. We expect to satisfy this obligation with a prepayment no later than the required payment date. We currently believe that cash generated by operations, our cash on hand of approximately $127.6 million at April 2, 2022, our $173.9 million of availability under our Revolving Credit Facility (as defined below) at April 2, 2022 and our continued cost focus will provide us with sufficient liquidity to meet our obligations for the short- and long-term. In addition, if necessary, we have the flexibility to delay investments or reduce marketing spend.
We continue to proactively manage our liquidity so we can maintain flexibility to fund investments in our business, honor our long-term debt obligations, and respond to evolving business and consumer conditions. To increase our flexibility and reduce our cash interest payments, we refinanced our then-existing credit facilities and then-existing senior notes in April 2021. See “—Long-Term Debt” for additional details on this refinancing. Additionally, we instituted a number of measures throughout our operations to mitigate expenses and reduce costs as well as ensure liquidity and the availability of our Revolving Credit Facility. The evolving nature, and uncertain economic impact, of the current demand environment may impact our liquidity going forward. To the extent that we do not successfully manage our costs, our liquidity and financial results, as well as our ability to access our Revolving Credit Facility, may be adversely affected.
As market conditions warrant, we may, from time to time, seek to purchase our outstanding debt securities or loans, including the Senior Secured Notes and borrowings under the Credit Facilities (each as defined below). Such transactions could be privately negotiated or open market transactions, pursuant to tender offers or otherwise. Subject to any applicable limitations contained in the agreements governing, or terms of, our indebtedness, any such purchases made by us may be funded by the use of cash on our balance sheet, the incurrence of new secured or unsecured debt, the issuance of our equity or the sale of assets. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may equate to a substantial amount of a particular class or series of debt, which may reduce the trading liquidity of such class or series.
Balance Sheet Working Capital
The following table sets forth certain relevant measures of our balance sheet working capital deficit, excluding cash and cash equivalents and current portion of long-term debt at:
|
|
|
April 2, |
|
|
January 1, |
|
|
Increase/ |
|
|||
|
|
|
2022 |
|
|
2022 |
|
|
(Decrease) |
|
|||
|
|
|
(in millions) |
|
|||||||||
|
Total current assets |
|
$ |
257.6 |
|
|
$ |
271.2 |
|
|
$ |
(13.5 |
) |
|
Total current liabilities |
|
|
216.7 |
|
|
|
229.1 |
|
|
|
(12.5 |
) |
|
Working capital surplus |
|
|
41.0 |
|
|
|
42.0 |
|
|
|
1.1 |
|
|
Cash and cash equivalents |
|
|
127.6 |
|
|
|
153.8 |
|
|
|
(26.2 |
) |
|
Current portion of long-term debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Working capital deficit, excluding cash and cash equivalents and current portion of long-term debt |
|
$ |
(86.7 |
) |
|
$ |
(111.8 |
) |
|
$ |
(25.1 |
) |
Note: Totals may not sum due to rounding.
35
The following table sets forth a summary of the primary factors contributing to the $25.1 million decrease in our working capital deficit, excluding cash and cash equivalents and current portion of long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact to |
|
|
|
|
|
April 2, |
|
|
January 1, |
|
|
Increase/ |
|
|
Working |
|
||||
|
|
|
2022 |
|
|
2022 |
|
|
(Decrease) |
|
|
Capital Deficit |
|
||||
|
|
|
(in millions) |
|
|||||||||||||
|
Operational liabilities and other, net of assets |
|
$ |
33.9 |
|
|
$ |
54.7 |
|
|
$ |
(20.8 |
) |
|
$ |
(20.8 |
) |
|
Derivative payable, net |
|
$ |
2.9 |
|
|
$ |
14.7 |
|
|
$ |
(11.8 |
) |
|
$ |
(11.8 |
) |
|
Portion of operating lease liabilities due within one year |
|
$ |
19.0 |
|
|
$ |
20.3 |
|
|
$ |
(1.3 |
) |
|
$ |
(1.3 |
) |
|
Income taxes payable |
|
$ |
0.6 |
|
|
$ |
1.7 |
|
|
$ |
(1.1 |
) |
|
$ |
(1.1 |
) |
|
Prepaid income taxes |
|
$ |
29.4 |
|
|
$ |
30.5 |
|
|
$ |
(1.1 |
) |
|
$ |
1.1 |
|
|
Deferred revenue |
|
$ |
49.0 |
|
|
$ |
45.9 |
|
|
$ |
3.1 |
|
|
$ |
3.1 |
|
|
Accrued interest |
|
$ |
10.8 |
|
|
$ |
5.1 |
|
|
$ |
5.7 |
|
|
$ |
5.7 |
|
|
Working capital deficit change, excluding cash and cash equivalents and current portion of long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(25.1 |
) |
Note: Totals may not sum due to rounding.
The decrease in operational liabilities and other, net of assets, which includes accrued salaries and wages, was driven primarily by a decrease in accrued liabilities and an increase in receivables, partially offset by an increase in account payable, all due to seasonality and timing. The decrease in derivative payable, net was due to a change in fair value driven by the change in interest rates. The increase in accrued interest was primarily due to the timing of debt payments.
Cash Flows
The following table sets forth a summary of our cash flows for the three months ended:
|
|
|
April 2, |
|
|
April 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(in millions) |
|
|||||
|
Net cash used for operating activities |
|
$ |
(10.5 |
) |
|
$ |
(11.9 |
) |
|
Net cash used for investing activities |
|
$ |
(13.6 |
) |
|
$ |
(21.0 |
) |
|
Net cash used for financing activities |
|
$ |
(0.4 |
) |
|
$ |
(17.1 |
) |
Operating Activities
First Quarter of Fiscal 2022
Cash flows used for operating activities of $10.5 million for the first quarter of fiscal 2022 reflected a decrease of $1.4 million from $11.9 million of cash flows used for operating activities for the first quarter of fiscal 2021. The decrease in cash used for operating activities was primarily the result of a decrease in cash used for operating assets and liabilities for the first quarter of fiscal 2022 as compared to the prior year period.
First Quarter of Fiscal 2021
Cash flows used for operating activities of $11.9 million for the first quarter of fiscal 2021 reflected a decrease of $20.3 million from $8.4 million of cash flows provided by operating activities for the first quarter of fiscal 2020. The decrease in cash provided by operating activities was primarily the result of an increase in net loss of $12.2 million for the first quarter of fiscal 2021 as compared to the prior year period.
Investing Activities
First Quarter of Fiscal 2022
Net cash used for investing activities totaled $13.6 million for the first quarter of fiscal 2022, a decrease of $7.4 million as compared to the first quarter of fiscal 2021. This decrease was primarily attributable to a decrease in cash paid for acquisitions for the first quarter of fiscal 2022 as compared to the prior year period.
36
First Quarter of Fiscal 2021
Net cash used for investing activities totaled $21.0 million for the first quarter of fiscal 2021, a decrease of $4.9 million as compared to the first quarter of fiscal 2020. This decrease was primarily attributable to lower capital expenditures and cycling against the $5.0 million investment in ClassPass Inc., partially offset by an increase in cash paid for acquisitions, for the first quarter of fiscal 2021 compared to the prior year period.
Financing Activities
First Quarter of Fiscal 2022
Net cash used for financing activities totaled $0.4 million for the first quarter of fiscal 2022, a decrease of $16.7 million as compared to the first quarter of fiscal 2021. This decrease was primarily attributable to a decrease in debt repayments for the first quarter of fiscal 2022 as compared to the prior year period. See “—Long-Term Debt” for additional details on debt.
First Quarter of Fiscal 2021
Net cash used for financing activities totaled $17.1 million for the first quarter of fiscal 2021 primarily due to $19.3 million used for scheduled debt repayments under our then-existing term loan facility. See “—Long-Term Debt” for additional details on debt.
Long-Term Debt
We currently plan to meet our long-term debt obligations by using cash flows provided by operating activities and opportunistically using other means to repay or refinance our obligations as we determine appropriate.
The following schedule sets forth our long-term debt obligations at April 2, 2022:
Long-Term Debt
At April 2, 2022
(Balances in millions)
|
|
|
April 2, 2022 |
|
|
|
Term Loan Facility due April 13, 2028 |
|
$ |
945.0 |
|
|
Senior Secured Notes due April 15, 2029 |
|
|
500.0 |
|
|
Total |
|
|
1,445.0 |
|
|
Less: Current portion |
|
|
— |
|
|
Unamortized deferred financing costs |
|
|
12.1 |
|
|
Unamortized debt discount |
|
|
13.8 |
|
|
Total long-term debt |
|
$ |
1,419.1 |
|
Note: Totals may not sum due to rounding.
On April 13, 2021, we (1) repaid in full approximately $1.2 billion in aggregate principal amount of senior secured tranche B term loans due in 2024 under our then-existing credit facilities and (2) redeemed all of the $300.0 million in aggregate principal amount of our then-outstanding 8.625% Senior Notes due in 2025, or the Discharged Senior Notes. On April 13, 2021, our then-existing credit facilities included a senior secured revolving credit facility (which included borrowing capacity available for letters of credit) due in 2022 with $175.0 million in an aggregate principal amount of commitments. There were no outstanding borrowings under such revolving credit facility on that date. We funded such repayment of loans and redemption of notes with cash on hand as well as with proceeds received from approximately $1,000.0 million in an aggregate principal amount of borrowings under our new credit facilities (as amended from time to time, referred to herein as the Credit Facilities) and proceeds received from the issuance of $500.0 million in aggregate principal amount of 4.500% Senior Secured Notes due 2029, or the Senior Secured Notes, each as described below. These transactions are collectively referred to herein as the April 2021 debt refinancing. During the second quarter of fiscal 2021, we incurred fees of $37.9 million (which included $12.9 million of a prepayment penalty on the Discharged Senior Notes and $5.0 million of a debt discount on our Term Loan Facility (as defined below)) in connection with our April 2021 debt refinancing. In addition, we recorded a loss on early extinguishment of debt of $29.2 million in connection thereto. This early extinguishment of debt charge was comprised of $12.9 million of a prepayment penalty on the Discharged Senior Notes, $9.0 million of financing fees paid in connection with our April 2021 debt refinancing and the write-off of $7.2 million of pre-existing deferred financing fees and debt discount.
37
Credit Facilities
The Credit Facilities were issued under a credit agreement, dated April 13, 2021 or, as amended from time to time, the Credit Agreement, among the Company, as borrower, the lenders party thereto, and Bank of America, N.A., or Bank of America, as administrative agent and an issuing bank. The Credit Facilities consist of (1) $1,000.0 million in aggregate principal amount of senior secured tranche B term loans due in 2028, or the Term Loan Facility, and (2) $175.0 million in an aggregate principal amount of commitments under a senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2026, or the Revolving Credit Facility.
In December 2021, we made voluntary prepayments at par in an aggregate amount of $52.5 million in respect of our outstanding term loans under the Term Loan Facility. As a result of these prepayments, we wrote off a debt discount and deferred financing fees of $1.2 million in the aggregate in the fourth quarter of fiscal 2021.
In accordance with the terms of the Credit Agreement, we expect to have an obligation to make an excess cash flow prepayment offer currently estimated to be $30.6 million to the term loan lenders during the second quarter of fiscal 2023. We expect to satisfy this obligation with a prepayment no later than the required payment date.
As of April 2, 2022, we had $945.0 million in an aggregate principal amount of loans outstanding under our Credit Facilities, with $173.9 million of availability and $1.1 million in issued but undrawn letters of credit outstanding under the Revolving Credit Facility. There were no outstanding borrowings under the Revolving Credit Facility as of April 2, 2022.
All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of our current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:
|
|
• |
a pledge of 100% of the equity interests directly held by the Company and each guarantor in any wholly-owned material subsidiary of the Company or any guarantor (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, will not include more than 65% of the voting stock of such first-tier non-U.S. subsidiary), subject to certain exceptions; and |
|
|
• |
a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions. |
The Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:
|
|
• |
50% (which percentage will be reduced to 25% and 0% if the Company attains certain first lien secured net leverage ratios) of the Company’s annual excess cash flow; |
|
|
• |
100% of the net cash proceeds of certain non-ordinary course asset sales by the Company and its restricted subsidiaries (including casualty and condemnation events, subject to de minimis thresholds), and subject to the right to reinvest 100% of such proceeds, subject to certain qualifications; and |
|
|
• |
100% of the net proceeds of any issuance or incurrence of debt by the Company or any of its restricted subsidiaries, other than certain debt permitted under the Credit Agreement. |
The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. We may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to LIBOR loans under the Credit Facilities.
38
Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at our option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.50% or (2) an applicable margin plus a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided that LIBOR is not lower than a floor of 0.50%. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at our option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.00% or (2) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided such rate is not lower than a floor of zero. As of April 2, 2022, the applicable margins for the LIBOR rate borrowings under the Term Loan Facility and the Revolving Credit Facility were 3.50% and 2.75%, respectively. In the event that LIBOR is phased out as is currently expected, the Credit Agreement provides that we and the administrative agent may amend the Credit Agreement to replace the LIBOR definition therein with a successor rate subject to notifying the lending syndicate of such change and not receiving within five business days of such notification objections to such replacement rate from lenders holding at least a majority of the aggregate principal amount of loans and commitments then outstanding under the Credit Agreement; provided that such lending syndicate may not object to a SOFR-based successor rate contained in any such amendment. If we fail to do so, our borrowings will be based off of the alternative base rate plus a margin.
On a quarterly basis, we pay a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon our Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement).
The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default.
The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, we must be in compliance with a Consolidated First Lien Leverage Ratio of, on or prior to the end of the first fiscal quarter of 2022, 6.00:1.00, with a step down to 5.75:1.00 for the period ending after the first fiscal quarter of 2022 through and including with the first fiscal quarter of 2023, with an additional step down to 5.50:1.00 for the period ending after the first fiscal quarter of 2023 through and including with the first fiscal quarter of 2024, with a step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including with the first fiscal quarter of 2025 and again to 5.00:1.00, for the period following the first fiscal quarter of 2025.
Senior Secured Notes
The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 13, 2021, or, as amended, supplemented or modified from time to time, the Indenture, among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions.
39
The Senior Secured Notes accrue interest at a rate per annum equal to 4.500% and will mature on April 15, 2029. Interest on the Senior Secured Notes is payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021. On or after April 15, 2024, we may on any one or more occasions redeem some or all of the Senior Secured Notes at a purchase price equal to 102.250% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date, such optional redemption price decreasing to 101.125% on or after April 15, 2025 and to 100.000% on or after April 15, 2026. Prior to April 15, 2024, we may on any one or more occasions redeem up to 40% of the aggregate principal amount of the Senior Secured Notes with an amount not to exceed the net proceeds of certain equity offerings at 104.500% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Prior to April 15, 2024, we may redeem some or all of the Senior Secured Notes at a make-whole price plus accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, during any twelve-month period ending prior to April 15, 2024, we may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes at a purchase price equal to 103.000% of the principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If a change of control occurs, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. Following the sale of certain assets and subject to certain conditions, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date.
The Senior Secured Notes are guaranteed on a senior secured basis by our subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.
Outstanding Debt
At April 2, 2022, we had $1,445.0 million outstanding under the Credit Facilities and the Senior Secured Notes, consisting of borrowings under the Term Loan Facility of $945.0 million, $0.0 drawn down on the Revolving Credit Facility and $500.0 million in aggregate principal amount of Senior Secured Notes issued and outstanding.
At April 2, 2022 and January 1, 2022, our debt consisted of both fixed and variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with our variable-rate borrowings. Further information regarding our interest rate swaps can be found in Part I, Item 1 of this Quarterly Report on Form 10-Q under Note 11 “Derivative Instruments and Hedging” in the Notes to the Consolidated Financial Statements. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on our outstanding debt, exclusive of the impact of the swaps then in effect, was approximately 4.53% and 5.11% per annum at April 2, 2022 and January 1, 2022, respectively, based on interest rates on these dates. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on our outstanding debt, including the impact of the swaps then in effect, was approximately 5.07% and 5.62% per annum at April 2, 2022 and January 1, 2022, respectively, based on interest rates on these dates.
The following schedule sets forth our year-by-year debt obligations at April 2, 2022:
Total Debt Obligation
(Including Current Portion)
At April 2, 2022
(in millions)
|
Remainder of fiscal 2022 |
|
$ |
— |
|
|
Fiscal 2023 |
|
|
30.6 |
|
|
Fiscal 2024 |
|
|
— |
|
|
Fiscal 2025 |
|
|
— |
|
|
Fiscal 2026 |
|
|
— |
|
|
Fiscal 2027 and thereafter |
|
|
1,414.4 |
|
|
Total |
|
$ |
1,445.0 |
|
Note: Totals may not sum due to rounding.
40
Accumulated Other Comprehensive Loss
Our accumulated other comprehensive loss includes changes in the fair value of derivative instruments and the effects of foreign currency translations. At April 2, 2022 and April 3, 2021, the cumulative balance of changes in the fair value of derivative instruments, net of taxes, was a gain of $0.2 million and a loss of $17.1 million, respectively. At April 2, 2022 and April 3, 2021, the cumulative balance of the effects of foreign currency translations, net of taxes, was a loss of $7.9 million and a loss of $5.0 million, respectively.
Dividends and Stock Transactions
We do not currently pay a dividend and we have no current plans to pay dividends in the foreseeable future. Any future determination to declare and pay dividends will be made at the sole discretion of our Board of Directors, after taking into account our financial condition and results of operations, capital requirements, contractual, legal, tax and regulatory restrictions, the provisions of Virginia law affecting the payment of distributions to shareholders and such other factors our Board of Directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants in our existing indebtedness, including the Credit Agreement governing the Credit Facilities and the Indenture governing the Senior Secured Notes, and may be limited by the agreements governing other indebtedness we or our subsidiaries incur in the future.
On October 9, 2003, our Board of Directors authorized, and we announced, a program to repurchase up to $250.0 million of our outstanding common stock. On each of June 13, 2005, May 25, 2006 and October 21, 2010, our Board of Directors authorized, and we announced, the addition of $250.0 million to this program. The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions. No shares will be purchased from Artal Holdings Sp. z o.o., Succursale de Luxembourg and its parents and subsidiaries under this program. The repurchase program currently has no expiration date. During the three months ended April 2, 2022 and April 3, 2021, we repurchased no shares of our common stock under this program.
EBITDAS, Adjusted EBITDAS and Net Debt
We define EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation, amortization and stock-based compensation and Adjusted EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation, amortization, stock-based compensation, early extinguishment of debt and restructuring charges (including the net impact where applicable).
The table below sets forth the reconciliations for EBITDAS and Adjusted EBITDAS, each a non-GAAP financial measure, to net loss, the most comparable GAAP financial measure, for the three months ended April 2, 2022 and April 3, 2021, and EBITDAS and Adjusted EBITDAS to net income for the trailing twelve months ended April 2, 2022:
(in millions)
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
April 2, 2022 |
|
|
April 3, 2021 |
|
|
Trailing Twelve Months |
|
|||
|
Net (loss) income |
|
$ |
(8.2 |
) |
|
$ |
(18.2 |
) |
|
$ |
76.9 |
|
|
Interest |
|
|
18.7 |
|
|
|
29.1 |
|
|
|
77.5 |
|
|
Taxes |
|
|
(1.8 |
) |
|
|
(7.8 |
) |
|
|
15.8 |
|
|
Depreciation and amortization |
|
|
10.8 |
|
|
|
11.9 |
|
|
|
44.3 |
|
|
Stock-based compensation |
|
|
4.7 |
|
|
|
5.3 |
|
|
|
20.7 |
|
|
EBITDAS |
|
$ |
24.1 |
|
|
$ |
20.3 |
|
|
$ |
235.2 |
|
|
Early extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
30.4 |
|
|
2021 plan restructuring charges |
|
|
0.3 |
|
|
|
5.5 |
|
|
|
16.3 |
|
|
2020 plan restructuring charges |
|
|
(0.1 |
) |
|
|
— |
|
|
|
(1.7 |
) |
|
Adjusted EBITDAS (1) |
|
$ |
24.2 |
|
|
$ |
25.8 |
|
|
$ |
280.0 |
|
Note: Totals may not sum due to rounding.
|
(1) |
The “Adjusted EBITDAS” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the three months ended April 2, 2022 to exclude the net impact of $0.3 million of 2021 plan restructuring charges and the reversal of $0.1 million of 2020 plan restructuring charges; adjusts the consolidated statements of net income for the three months ended April 3, 2021 to exclude the impact of $5.5 million of 2021 plan restructuring charges; and adjusts EBITDAS for the trailing twelve months ended April 2, 2022 to exclude (a) the $30.4 million early extinguishment of debt and (b) the net impact of $16.3 million of 2021 plan restructuring charges and the reversal of $1.7 million of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
41
Reducing leverage is a capital structure priority for the Company. As of April 2, 2022, our net debt/Adjusted EBITDAS ratio was 4.6x.
The table below sets forth the reconciliation for net debt, a non-GAAP financial measure, to total debt, the most comparable GAAP financial measure, for the three months ended:
(in millions)
|
|
|
April 2, 2022 |
|
|
|
Total debt |
|
$ |
1,445.0 |
|
|
Less: Unamortized deferred financing costs |
|
|
12.1 |
|
|
Less: Unamortized debt discount |
|
|
13.8 |
|
|
Less: Cash on hand |
|
|
127.6 |
|
|
Net debt |
|
$ |
1,291.5 |
|
Note: Totals may not sum due to rounding.
We present EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS because we consider them to be useful supplemental measures of our performance. In addition, we believe EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS are useful to investors, analysts and rating agencies in measuring the ability of a company to meet its debt service obligations. See “—Non-GAAP Financial Measures” herein for an explanation of our use of these non-GAAP financial measures.
OFF-BALANCE SHEET ARRANGEMENTS
As part of our ongoing business, we do not participate in arrangements that generate relationships with unconsolidated entities or financial partnerships established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, such as entities often referred to as structured finance or special purpose entities.
SEASONALITY
Our business is seasonal due to the importance of the winter season to our overall member recruitment environment. Historically, we experience our highest level of recruitment during the first quarter of the year, which is supported with the highest concentration of advertising spending. Therefore, our number of End of Period Subscribers in the first quarter of the year is typically higher than the number in other quarters of the year, historically reflecting a decline over the course of the year.
AVAILABLE INFORMATION
Corporate information and our press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments thereto, are available free of charge on our corporate website at corporate.ww.com as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (i.e., generally the same day as the filing), or the SEC. Moreover, we also make available at that site the Section 16 reports filed electronically by our officers, directors and 10 percent shareholders.
We use our corporate website at corporate.ww.com and certain social media channels such as our corporate Facebook page (www.facebook.com/WW), Instagram account (Instagram.com/WW) and Twitter account (@ww_us) as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website and social media channels shall not be deemed to be incorporated herein by reference.
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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of April 2, 2022, the market risk disclosures appearing in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for fiscal 2021 have not materially changed from January 1, 2022.
At the end of the first quarter of fiscal 2022, borrowings under the Credit Facilities bore interest at LIBOR plus an applicable margin of 3.50%. For the Term Loan Facility, the minimum interest rate for LIBOR applicable to such facility pursuant to the terms of the Credit Agreement was set at 0.50%, referred to herein as the LIBOR Floor. In addition, as of April 2, 2022, our interest rate swaps in effect had an aggregate notional amount of $500.0 million. Accordingly, as of April 2, 2022, based on the amount of variable rate debt outstanding and the then-current LIBOR rate, after giving consideration to the impact of the interest rate swaps and the LIBOR Floor, a hypothetical 90 basis point increase in interest rates would have increased annual interest expense by approximately $4.0 million and a hypothetical 90 basis point decrease in interest rates would have decreased annual interest expense by approximately $2.1 million. This increase and decrease would have been driven primarily by the interest rate applicable to our Term Loan Facility.
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ITEM 4. |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of April 2, 2022, the end of the first quarter of fiscal 2022. Based upon that evaluation and subject to the foregoing, our principal executive officer and our principal financial officer concluded that, as of the end of the first quarter of fiscal 2022, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
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ITEM 1. |
LEGAL PROCEEDINGS |
The information called for by this item is incorporated herein by reference to Note 10 “Legal” of the notes to the unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.
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ITEM 1A. |
RISK FACTORS |
There have been no material changes in the risk factors from those detailed in our Annual Report on Form 10-K for fiscal 2021.
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ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Nothing to report under this item.
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ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
Nothing to report under this item.
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ITEM 4. |
MINE SAFETY DISCLOSURES |
Not applicable.
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ITEM 5. |
OTHER INFORMATION |
Nothing to report under this item.
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ITEM 6. |
EXHIBITS |
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Exhibit Number |
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Description |
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†**Exhibit 10.1 |
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†**Exhibit 10.2 |
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†**Exhibit 10.3 |
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†**Exhibit 10.4 |
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†**Exhibit 10.5 |
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*Exhibit 31.1 |
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Rule 13a-14(a) Certification by Sima Sistani, Chief Executive Officer. |
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*Exhibit 31.2 |
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Rule 13a-14(a) Certification by Amy O’Keefe, Chief Financial Officer. |
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*Exhibit 32.1 |
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*Exhibit 101 |
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*EX-101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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*EX-101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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*EX-101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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*EX-101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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*EX-101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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*EX-101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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*Exhibit 104 |
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The cover page from WW International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
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* |
Filed herewith. |
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** |
Previously filed. |
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† |
Represents a management arrangement or compensatory plan. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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WW INTERNATIONAL, INC. |
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Date: May 5, 2022 |
By: |
/s/ Sima Sistani |
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Sima Sistani |
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Chief Executive Officer and Director (Principal Executive Officer) |
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Date: May 5, 2022 |
By: |
/s/ Amy O’Keefe |
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Amy O’Keefe |
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Chief Financial Officer (Principal Financial Officer) |
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