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WW INTERNATIONAL, INC. - Quarter Report: 2022 October (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2022

OR

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: 001-16769

 

WW INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

 

Virginia

 

11-6040273

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

675 Avenue of the Americas, 6th Floor, New York, New York 10010

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (212) 589-2700

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

WW

The Nasdaq Stock Market LLC

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. Yes No

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). Yes No

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.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

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 No

 

The number of shares of common stock outstanding as of October 27, 2022 was 70,526,717.

 

 


 

 

WW INTERNATIONAL, INC.

TABLE OF CONTENTS

 

 

 

Page No.

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

2

 

 

 

 

Unaudited Consolidated Balance Sheets at October 1, 2022 and January 1, 2022

2

 

 

 

 

Unaudited Consolidated Statements of Net Income for the three and nine months ended October 1, 2022 and October 2, 2021

3

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Income for the three and nine months ended October 1, 2022 and October 2, 2021

4

 

 

 

 

Unaudited Consolidated Statements of Changes in Total Deficit for the three and nine months ended October 1, 2022 and October 2, 2021

5

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the nine months ended October 1, 2022 and October 2, 2021

6

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

7

 

 

 

Cautionary Notice Regarding Forward-Looking Statements

26

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

56

 

 

 

Item 4.

Controls and Procedures

56

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

57

 

 

 

Item 1A.

Risk Factors

57

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

 

 

 

Item 3.

Defaults Upon Senior Securities

57

 

 

 

Item 4.

Mine Safety Disclosures

57

 

 

 

Item 5.

Other Information

57

 

 

 

Item 6.

Exhibits

58

 

 

 

Signatures

59

 

 


 

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WW INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS AT

(IN THOUSANDS)

 

 

 

October 1,

 

 

January 1,

 

 

 

2022

 

 

2022

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

188,291

 

 

$

153,794

 

Receivables (net of allowances: October 1, 2022 - $1,693 and
   January 1, 2022 - $
1,726)

 

 

28,192

 

 

 

29,321

 

Inventories

 

 

26,394

 

 

 

30,566

 

Prepaid income taxes

 

 

14,721

 

 

 

30,478

 

Prepaid expenses and other current assets

 

 

32,161

 

 

 

27,014

 

TOTAL CURRENT ASSETS

 

 

289,759

 

 

 

271,173

 

Property and equipment, net

 

 

30,112

 

 

 

37,219

 

Operating lease assets

 

 

79,911

 

 

 

89,902

 

Franchise rights acquired

 

 

440,515

 

 

 

785,195

 

Goodwill

 

 

156,155

 

 

 

157,374

 

Other intangible assets, net

 

 

62,952

 

 

 

61,126

 

Deferred income taxes

 

 

15,772

 

 

 

11,259

 

Other noncurrent assets

 

 

17,659

 

 

 

15,686

 

TOTAL ASSETS

 

$

1,092,835

 

 

$

1,428,934

 

LIABILITIES AND TOTAL DEFICIT

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Portion of operating lease liabilities due within one year

 

$

18,457

 

 

$

20,297

 

Accounts payable

 

 

17,384

 

 

 

22,444

 

Salaries and wages payable

 

 

64,047

 

 

 

57,401

 

Accrued marketing and advertising

 

 

10,277

 

 

 

15,904

 

Accrued interest

 

 

10,848

 

 

 

5,085

 

Other accrued liabilities

 

 

37,318

 

 

 

45,728

 

Derivative payable

 

 

 

 

 

14,670

 

Income taxes payable

 

 

1,850

 

 

 

1,748

 

Deferred revenue

 

 

39,772

 

 

 

45,855

 

TOTAL CURRENT LIABILITIES

 

 

199,953

 

 

 

229,132

 

Long-term debt, net

 

 

1,421,239

 

 

 

1,418,104

 

Long-term operating lease liabilities

 

 

70,848

 

 

 

78,157

 

Deferred income taxes

 

 

58,293

 

 

 

157,718

 

Other

 

 

2,005

 

 

 

2,227

 

TOTAL LIABILITIES

 

 

1,752,338

 

 

 

1,885,338

 

TOTAL DEFICIT

 

 

 

 

 

 

Common stock, $0 par value; 1,000,000 shares authorized; 122,052 
   shares issued at October 1, 2022 and
122,052 shares issued at
   January 1, 2022

 

 

0

 

 

 

0

 

Treasury stock, at cost, 51,667 shares at October 1, 2022 and 51,988
   shares at January 1, 2022

 

 

(3,106,098

)

 

 

(3,120,149

)

Retained earnings

 

 

2,457,912

 

 

 

2,682,349

 

Accumulated other comprehensive loss

 

 

(11,317

)

 

 

(18,604

)

TOTAL DEFICIT

 

 

(659,503

)

 

 

(456,404

)

TOTAL LIABILITIES AND TOTAL DEFICIT

 

$

1,092,835

 

 

$

1,428,934

 

 

 

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)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

October 1,

 

 

October 2,

 

 

October 1,

 

 

October 2,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Subscription revenues, net

$

220,746

 

 

$

262,401

 

 

$

718,122

 

 

$

815,092

 

Product sales and other, net

 

28,972

 

 

 

31,096

 

 

 

98,810

 

 

 

121,580

 

Revenues, net

 

249,718

 

 

 

293,497

 

 

 

816,932

 

 

 

936,672

 

Cost of subscription revenues

 

73,541

 

 

 

90,280

 

 

 

243,710

 

 

 

285,209

 

Cost of product sales and other

 

23,826

 

 

 

25,180

 

 

 

77,811

 

 

 

93,965

 

Cost of revenues

 

97,367

 

 

 

115,460

 

 

 

321,521

 

 

 

379,174

 

Gross profit

 

152,351

 

 

 

178,037

 

 

 

495,411

 

 

 

557,498

 

Marketing expenses

 

35,696

 

 

 

34,569

 

 

 

195,123

 

 

 

208,656

 

Selling, general and administrative expenses

 

58,443

 

 

 

63,745

 

 

 

193,320

 

 

 

206,615

 

Franchise rights acquired and goodwill impairments

 

312,741

 

 

 

 

 

 

339,161

 

 

 

 

Operating (loss) income

 

(254,529

)

 

 

79,723

 

 

 

(232,193

)

 

 

142,227

 

Interest expense

 

20,912

 

 

 

19,283

 

 

 

58,837

 

 

 

68,699

 

Other expense, net

 

1,344

 

 

 

764

 

 

 

3,303

 

 

 

908

 

Early extinguishment of debt

 

 

 

 

 

 

 

 

 

 

29,169

 

(Loss) income before income taxes

 

(276,785

)

 

 

59,676

 

 

 

(294,333

)

 

 

43,451

 

(Benefit from) provision for income taxes

 

(70,749

)

 

 

13,346

 

 

 

(75,431

)

 

 

6,488

 

Net (loss) income

$

(206,036

)

 

$

46,330

 

 

$

(218,902

)

 

$

36,963

 

(Net loss) earnings per share

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(2.93

)

 

$

0.66

 

 

$

(3.12

)

 

$

0.53

 

Diluted

$

(2.93

)

 

$

0.65

 

 

$

(3.12

)

 

$

0.52

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

Basic

 

70,383

 

 

 

69,875

 

 

 

70,258

 

 

 

69,516

 

Diluted

 

70,383

 

 

 

70,860

 

 

 

70,258

 

 

 

70,866

 

 

 

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)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

October 1,

 

 

October 2,

 

 

October 1,

 

 

October 2,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net (loss) income

$

(206,036

)

 

$

46,330

 

 

$

(218,902

)

 

$

36,963

 

Other comprehensive (loss) gain:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation loss

 

(9,552

)

 

 

(4,877

)

 

 

(18,018

)

 

 

(3,140

)

Income tax benefit on foreign currency translation loss

 

2,406

 

 

 

1,229

 

 

 

4,530

 

 

 

791

 

   Foreign currency translation loss, net of taxes

 

(7,146

)

 

 

(3,648

)

 

 

(13,488

)

 

 

(2,349

)

Gain on derivatives

 

8,590

 

 

 

1,891

 

 

 

27,748

 

 

 

8,617

 

Income tax expense on gain on derivatives

 

(2,159

)

 

 

(477

)

 

 

(6,973

)

 

 

(2,171

)

   Gain on derivatives, net of taxes

 

6,431

 

 

 

1,414

 

 

 

20,775

 

 

 

6,446

 

Total other comprehensive (loss) gain

 

(715

)

 

 

(2,234

)

 

 

7,287

 

 

 

4,097

 

Comprehensive (loss) income

$

(206,751

)

 

$

44,096

 

 

$

(211,615

)

 

$

41,060

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Three Months Ended October 1, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at July 2, 2022

 

 

122,052

 

 

$

0

 

 

 

51,691

 

 

$

(3,107,324

)

 

$

(10,602

)

 

$

2,661,818

 

 

$

(456,108

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(715

)

 

 

(206,036

)

 

 

(206,751

)

Issuance of treasury stock under stock plans

 

 

 

 

 

 

 

 

(24

)

 

 

1,226

 

 

 

 

 

 

(1,246

)

 

 

(20

)

Compensation expense on share-based awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,376

 

 

 

3,376

 

Balance at October 1, 2022

 

 

122,052

 

 

$

0

 

 

 

51,667

 

 

$

(3,106,098

)

 

$

(11,317

)

 

$

2,457,912

 

 

$

(659,503

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended October 1, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at January 1, 2022

 

 

122,052

 

 

$

0

 

 

 

51,988

 

 

$

(3,120,149

)

 

$

(18,604

)

 

$

2,682,349

 

 

$

(456,404

)

Comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,287

 

 

 

(218,902

)

 

 

(211,615

)

Issuance of treasury stock under stock plans

 

 

 

 

 

 

 

 

(321

)

 

 

14,051

 

 

 

 

 

 

(15,897

)

 

 

(1,846

)

Compensation expense on share-based awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,362

 

 

 

10,362

 

Balance at October 1, 2022

 

 

122,052

 

 

$

0

 

 

 

51,667

 

 

$

(3,106,098

)

 

$

(11,317

)

 

$

2,457,912

 

 

$

(659,503

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended October 2, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at July 3, 2021

 

 

122,052

 

 

$

0

 

 

 

52,211

 

 

$

(3,129,329

)

 

$

(18,818

)

 

$

2,610,250

 

 

$

(537,897

)

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,234

)

 

 

46,330

 

 

 

44,096

 

Issuance of treasury stock under stock plans

 

 

 

 

 

 

 

 

(50

)

 

 

2,034

 

 

 

 

 

 

(3,014

)

 

 

(980

)

Compensation expense on share-based awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,404

 

 

 

3,404

 

Balance at October 2, 2021

 

 

122,052

 

 

$

0

 

 

 

52,161

 

 

$

(3,127,295

)

 

$

(21,052

)

 

$

2,656,970

 

 

$

(491,377

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended October 2, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at January 2, 2021

 

 

121,470

 

 

$

0

 

 

 

52,497

 

 

$

(3,140,903

)

 

$

(25,149

)

 

$

2,617,841

 

 

$

(548,211

)

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,097

 

 

 

36,963

 

 

 

41,060

 

Issuance of treasury stock under stock plans

 

 

 

 

 

 

 

 

(336

)

 

 

13,608

 

 

 

 

 

 

(18,481

)

 

 

(4,873

)

Compensation expense on share-based awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,596

 

 

 

16,596

 

Issuance of common stock

 

 

582

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,051

 

 

 

4,051

 

Balance at October 2, 2021

 

 

122,052

 

 

$

0

 

 

 

52,161

 

 

$

(3,127,295

)

 

$

(21,052

)

 

$

2,656,970

 

 

$

(491,377

)

 

 

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)

 

 

 

Nine Months Ended

 

 

 

October 1,

 

 

October 2,

 

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(218,902

)

 

$

36,963

 

Adjustments to reconcile net (loss) income to cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

33,371

 

 

 

37,222

 

Amortization of deferred financing costs and debt discount

 

 

3,763

 

 

 

4,835

 

Impairment of franchise rights acquired and goodwill

 

 

339,161

 

 

 

 

Impairment of intangible and long-lived assets

 

 

2,088

 

 

 

421

 

Share-based compensation expense

 

 

10,362

 

 

 

16,596

 

Deferred tax benefit

 

 

(107,879

)

 

 

(10,788

)

Allowance for doubtful accounts

 

 

54

 

 

 

(91

)

Reserve for inventory obsolescence

 

 

4,712

 

 

 

5,805

 

Foreign currency exchange rate loss

 

 

3,562

 

 

 

553

 

Early extinguishment of debt

 

 

 

 

 

29,169

 

Changes in cash due to:

 

 

 

 

 

 

Receivables

 

 

(9,760

)

 

 

3,785

 

Inventories

 

 

(725

)

 

 

8,390

 

Prepaid expenses

 

 

17,613

 

 

 

2,585

 

Accounts payable

 

 

(3,634

)

 

 

(7,197

)

Accrued liabilities

 

 

15,390

 

 

 

4,440

 

Deferred revenue

 

 

(3,576

)

 

 

208

 

Other long term assets and liabilities, net

 

 

(4,662

)

 

 

(2,001

)

Income taxes

 

 

(392

)

 

 

(5,522

)

Cash provided by operating activities

 

 

80,546

 

 

 

125,373

 

Investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(1,756

)

 

 

(1,947

)

Capitalized software expenditures

 

 

(27,584

)

 

 

(27,204

)

Cash paid for acquisitions

 

 

(4,350

)

 

 

(12,833

)

Other items, net

 

 

(29

)

 

 

(1,593

)

Cash used for investing activities

 

 

(33,719

)

 

 

(43,577

)

Financing activities:

 

 

 

 

 

 

Net (payments) borrowings on revolver

 

 

 

 

 

 

Proceeds from long term debt

 

 

 

 

 

1,500,000

 

Financing costs and debt discount

 

 

 

 

 

(36,985

)

Payments on long-term debt

 

 

 

 

 

(1,511,500

)

Taxes paid related to net share settlement of equity awards

 

 

(1,938

)

 

 

(5,328

)

Proceeds from stock options exercised

 

 

 

 

 

4,469

 

Cash paid for acquisitions

 

 

(113

)

 

 

(6,450

)

Other items, net

 

 

(86

)

 

 

(116

)

Cash used for financing activities

 

 

(2,137

)

 

 

(55,910

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(10,193

)

 

 

(3,543

)

Net increase in cash and cash equivalents

 

 

34,497

 

 

 

22,343

 

Cash and cash equivalents, beginning of period

 

 

153,794

 

 

 

165,887

 

Cash and cash equivalents, end of period

 

$

188,291

 

 

$

188,230

 

 

 

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 Personal Coaching + Digital and Digital 360 as applicable. 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, including former Digital 360 members as applicable. 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. In the second quarter of fiscal 2022, the Company ceased offering its Digital 360 product. More than a majority of associated members were transitioned from the Company’s Digital business to its Workshops + Digital business during the second quarter of fiscal 2022, with a de minimis number transitioning during the beginning of the third quarter of fiscal 2022. The cessation of this product offering and these transitions of former Digital 360 members at the then-current pricing for such product impacted the number of End of Period Subscribers in each business as well as the associated Paid Weeks and Revenues for each business.

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. 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.

In the second quarter of fiscal 2022, the Company identified and recorded out-of-period adjustments related to income tax errors resulting primarily from the reversal of (i) a basis difference related to goodwill and other intangibles and (ii) a U.S. federal income tax receivable that should have been adjusted in prior fiscal years. The impact of correcting these errors, which were immaterial to prior period financial statements and corrected in the second quarter of fiscal 2022, resulted in an income tax benefit of $2,150 and decreased net loss by $2,150 for the nine months ended October 1, 2022.

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 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 January 2, 2022, the Company early adopted this updated guidance on a prospective basis, which did not have a material impact on its consolidated financial statements.

 

7


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

 

3.
Leases

At October 1, 2022 and January 1, 2022, the Company’s lease assets and lease liabilities, primarily for its studios and corporate offices, were as follows:

 

 

 

October 1, 2022

 

 

January 1, 2022

 

Assets:

 

 

 

 

 

 

Operating lease assets

 

$

79,911

 

 

$

89,902

 

Finance lease assets

 

 

72

 

 

 

127

 

Total leased assets

 

$

79,983

 

 

$

90,029

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Current

 

 

 

 

 

 

Operating

 

$

18,457

 

 

$

20,297

 

Finance

 

 

38

 

 

 

75

 

Noncurrent

 

 

 

 

 

 

Operating

 

$

70,848

 

 

$

78,157

 

Finance

 

 

9

 

 

 

29

 

Total lease liabilities

 

$

89,352

 

 

$

98,558

 

For the three and nine months ended October 1, 2022 and October 2, 2021, the components of the Company’s lease expense were as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1,

 

 

October 2,

 

 

October 1,

 

 

October 2,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating lease cost:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed lease cost

 

$

9,071

 

 

$

8,533

 

 

$

24,974

 

 

$

29,359

 

Lease termination cost

 

 

(189

)

 

 

2,320

 

 

 

1,912

 

 

 

8,680

 

Variable lease cost

 

 

7

 

 

 

6

 

 

 

20

 

 

 

15

 

Total operating lease cost

 

$

8,889

 

 

$

10,859

 

 

$

26,906

 

 

$

38,054

 

Finance lease cost:

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of leased assets

 

 

25

 

 

 

36

 

 

 

86

 

 

 

116

 

Interest on lease liabilities

 

 

4

 

 

 

2

 

 

 

6

 

 

 

7

 

Total finance lease cost

 

$

29

 

 

$

38

 

 

$

92

 

 

$

123

 

Total lease cost

 

$

8,918

 

 

$

10,897

 

 

$

26,998

 

 

$

38,177

 

In conjunction with the continued rationalization of its real estate portfolio, the Company has decided to enter into a sublease, which resulted in a lease asset impairment charge of $1,828 that was recognized in general and administrative expenses in the Company's consolidated statements of net income for the three and nine months ended October 1, 2022. The Company expects to begin recording sublease income as of the sublease commencement date in the fourth quarter of fiscal 2022 as an offset to general and administrative expenses.

At October 1, 2022 and January 1, 2022, the Company’s weighted average remaining lease term and weighted average discount rates were as follows:

 

 

 

October 1, 2022

 

 

January 1, 2022

 

Weighted Average Remaining Lease Term (years)

 

 

 

 

 

 

Operating leases

 

 

7.00

 

 

 

7.29

 

Finance leases

 

 

1.00

 

 

 

1.54

 

 

 

 

 

 

 

 

Weighted Average Discount Rate

 

 

 

 

 

 

Operating leases

 

 

7.01

 

 

 

7.15

 

Finance leases

 

 

3.39

 

 

 

5.31

 

 

 

8


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

 

The Company’s leases have remaining lease terms of 0 to 10 years with a weighted average lease term of 6.99 years as of October 1, 2022.

At October 1, 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

$

4,734

 

 

$

13

 

 

$

4,747

 

Fiscal 2023

 

24,872

 

 

 

31

 

 

 

24,903

 

Fiscal 2024

 

18,014

 

 

 

4

 

 

 

18,018

 

Fiscal 2025

 

12,575

 

 

 

 

 

 

12,575

 

Fiscal 2026

 

9,683

 

 

 

 

 

 

9,683

 

Fiscal 2027

 

9,376

 

 

 

 

 

 

9,376

 

Thereafter

 

36,089

 

 

 

 

 

 

36,089

 

Total lease payments

$

115,343

 

 

$

48

 

 

$

115,391

 

Less imputed interest

 

26,038

 

 

 

1

 

 

 

26,039

 

Present value of lease liabilities

$

89,305

 

 

$

47

 

 

$

89,352

 

Supplemental cash flow information related to leases for the nine months ended October 1, 2022 and October 2, 2021 were as follows:

 

 

 

Nine Months Ended

 

 

 

October 1,

 

 

October 2,

 

 

 

2022

 

 

2021

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

24,244

 

 

$

31,021

 

Operating cash flows from finance leases

 

$

6

 

 

$

7

 

Financing cash flows from finance leases

 

$

86

 

 

$

116

 

 

 

 

 

 

 

 

Leased assets obtained (modified) in exchange for new (modified) operating lease liabilities

 

$

11,160

 

 

$

(496

)

Leased assets obtained in exchange for new finance lease liabilities

 

$

44

 

 

$

81

 

 

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

 

 

Nine Months Ended

 

 

October 1,

 

 

October 2,

 

 

October 1,

 

 

October 2,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Digital Subscription Revenues

$

155,881

 

 

$

195,288

 

 

$

521,582

 

 

$

606,687

 

Workshops + Digital Fees

 

64,865

 

 

 

67,113

 

 

 

196,540

 

 

 

208,405

 

Subscription Revenues, net

$

220,746

 

 

$

262,401

 

 

$

718,122

 

 

$

815,092

 

Product sales and other, net

 

28,972

 

 

 

31,096

 

 

 

98,810

 

 

 

121,580

 

Revenues, net

$

249,718

 

 

$

293,497

 

 

$

816,932

 

 

$

936,672

 

 

 

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 October 1, 2022

 

 

North

 

 

Continental

 

 

United

 

 

 

 

 

 

 

 

America

 

 

Europe

 

 

Kingdom

 

 

Other

 

 

Total

 

Digital Subscription Revenues

$

102,735

 

 

$

43,638

 

 

$

5,693

 

 

$

3,815

 

 

$

155,881

 

Workshops + Digital Fees

 

52,113

 

 

 

7,586

 

 

 

3,764

 

 

 

1,402

 

 

 

64,865

 

Subscription Revenues, net

$

154,848

 

 

$

51,224

 

 

$

9,457

 

 

$

5,217

 

 

$

220,746

 

Product sales and other, net

 

21,234

 

 

 

5,272

 

 

 

1,441

 

 

 

1,025

 

 

 

28,972

 

Revenues, net

$

176,082

 

 

$

56,496

 

 

$

10,898

 

 

$

6,242

 

 

$

249,718

 

 

 

Three Months Ended October 2, 2021

 

 

North

 

 

Continental

 

 

United

 

 

 

 

 

 

 

 

America

 

 

Europe

 

 

Kingdom

 

 

Other

 

 

Total

 

Digital Subscription Revenues

$

125,077

 

 

$

56,542

 

 

$

9,007

 

 

$

4,662

 

 

$

195,288

 

Workshops + Digital Fees

 

51,661

 

 

 

8,727

 

 

 

4,528

 

 

 

2,197

 

 

 

67,113

 

Subscription Revenues, net

$

176,738

 

 

$

65,269

 

 

$

13,535

 

 

$

6,859

 

 

$

262,401

 

Product sales and other, net

 

21,059

 

 

 

6,664

 

 

 

2,131

 

 

 

1,242

 

 

 

31,096

 

Revenues, net

$

197,797

 

 

$

71,933

 

 

$

15,666

 

 

$

8,101

 

 

$

293,497

 

 

 

Nine Months Ended October 1, 2022

 

 

North

 

 

Continental

 

 

United

 

 

 

 

 

 

 

 

America

 

 

Europe

 

 

Kingdom

 

 

Other

 

 

Total

 

Digital Subscription Revenues

$

342,489

 

 

$

145,920

 

 

$

20,106

 

 

$

13,067

 

 

$

521,582

 

Workshops + Digital Fees

 

155,558

 

 

 

23,599

 

 

 

12,482

 

 

 

4,901

 

 

 

196,540

 

Subscription Revenues, net

$

498,047

 

 

$

169,519

 

 

$

32,588

 

 

$

17,968

 

 

$

718,122

 

Product sales and other, net

 

70,363

 

 

 

19,621

 

 

 

5,506

 

 

 

3,320

 

 

 

98,810

 

Revenues, net

$

568,410

 

 

$

189,140

 

 

$

38,094

 

 

$

21,288

 

 

$

816,932

 

 

 

Nine Months Ended October 2, 2021

 

 

North

 

 

Continental

 

 

United

 

 

 

 

 

 

 

 

America

 

 

Europe

 

 

Kingdom

 

 

Other

 

 

Total

 

Digital Subscription Revenues

$

387,422

 

 

$

176,059

 

 

$

28,410

 

 

$

14,796

 

 

$

606,687

 

Workshops + Digital Fees

 

158,265

 

 

 

28,397

 

 

 

14,304

 

 

 

7,439

 

 

 

208,405

 

Subscription Revenues, net

$

545,687

 

 

$

204,456

 

 

$

42,714

 

 

$

22,235

 

 

$

815,092

 

Product sales and other, net

 

81,055

 

 

 

27,308

 

 

 

9,021

 

 

 

4,196

 

 

 

121,580

 

Revenues, net

$

626,742

 

 

$

231,764

 

 

$

51,735

 

 

$

26,431

 

 

$

936,672

 

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. The opening and ending balances of the Company’s deferred revenues were as follows:

 

 

 

Deferred

 

 

Deferred

 

 

 

Revenue

 

 

Revenue-Long Term

 

Balance as of January 1, 2022

 

$

45,855

 

 

$

28

 

Net (decrease) increase during the period

 

 

(6,083

)

 

 

11

 

Balance as of October 1, 2022

 

$

39,772

 

 

$

39

 

 

 

 

 

 

 

 

Balance as of January 2, 2021

 

$

50,475

 

 

$

44

 

Net decrease during the period

 

 

(244

)

 

 

(36

)

Balance as of October 2, 2021

 

$

50,231

 

 

$

8

 

 

 

10


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

 

Revenue recognized from amounts included in current deferred revenue as of January 1, 2022 was $44,375 for the nine months ended October 1, 2022. Revenue recognized from amounts included in current deferred revenue as of January 2, 2021 was $49,808 for the nine months ended October 2, 2021. The Company’s long-term deferred revenue, which is included in other liabilities on the Company’s consolidated balance sheet, represents revenue that will not be recognized during the next fiscal year and is generally related to upfront payments received as an inducement for entering into certain sales-based royalty agreements with third party licensees. This revenue is amortized on a straight-line basis over the term of the applicable agreement.

 

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 $4,500. Payment was in the form of cash paid on December 21, 2021 ($650), cash paid on February 18, 2022 ($3,100) and cash in reserves ($750). The total purchase price was allocated to goodwill ($4,645), deferred tax asset ($496) fully offset by a tax valuation allowance ($496), assumed liabilities ($166), customer relationship value ($14), cash ($4) and other receivables ($3). The goodwill will not be deductible for tax purposes; and
(b)
The Company acquired the entire issued share capital of Checkweight Limited for a purchase price of $1,500. Payment was in the form of cash ($1,250) and cash in reserves ($250). The total purchase price was allocated to goodwill ($1,291), franchise rights acquired ($240), assumed liabilities ($56), customer relationship value ($17), deferred tax asset ($5) fully offset by a tax valuation allowance ($5), cash ($4) and other receivables ($4). The goodwill will not be deductible for tax purposes.

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 $2,250. Payment was in the form of cash ($1,999), cash in reserves ($225) and assumed net liabilities ($26). The total purchase price was allocated to goodwill ($2,153), customer relationship value ($56) and franchise rights acquired ($41). The goodwill will be deductible for tax purposes.

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 $17,500. Payment was in the form of cash paid on March 22, 2021 ($8,255), cash paid on July 30, 2021 ($6,450), cash in reserves ($2,300) and assumed net liabilities ($495). The total purchase price was allocated to franchise rights acquired ($16,885), customer relationship value ($408), inventories ($162), property and equipment, net ($41) and other assets ($4); and
(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 $3,114. Payment was in the form of cash ($2,605), cash in reserves ($599) and assumed net assets ($90). The total purchase price was allocated to franchise rights acquired ($3,040), customer relationship value ($42), property and equipment, net ($25), inventories ($6) and other assets ($1).

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 nine months ended October 1, 2022, the change in the carrying value of franchise rights acquired was due to the impairments of the United States, Canada and New Zealand units of account as discussed below, 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. For the nine months ended October 1, 2022, the change in the carrying amount of goodwill was due to the Republic of Ireland franchisee and Northern Ireland franchisee acquisitions as described in Note 5, the impairment of the Company's wholly-owned subsidiary Kurbo, Inc. (“Kurbo”) as discussed below and the effect of exchange rate changes as follows:

 

 

 

North

 

 

Continental

 

 

United

 

 

 

 

 

 

 

 

 

America

 

 

Europe

 

 

Kingdom

 

 

Other

 

 

Total

 

Balance as of January 2, 2021

 

$

145,071

 

 

$

7,792

 

 

$

1,268

 

 

$

1,486

 

 

$

155,617

 

Goodwill acquired during the period

 

 

2,153

 

 

 

 

 

 

 

 

 

 

 

 

2,153

 

Effect of exchange rate changes

 

 

306

 

 

 

(606

)

 

 

(14

)

 

 

(82

)

 

 

(396

)

Balance as of January 1, 2022

 

$

147,530

 

 

$

7,186

 

 

$

1,254

 

 

$

1,404

 

 

$

157,374

 

Goodwill acquired during the period

 

 

 

 

 

 

 

 

5,936

 

 

 

 

 

 

5,936

 

Goodwill impairment

 

 

(1,101

)

 

 

 

 

 

 

 

 

 

 

 

(1,101

)

Effect of exchange rate changes

 

 

(3,651

)

 

 

(1,152

)

 

 

(1,084

)

 

 

(167

)

 

 

(6,054

)

Balance as of October 1, 2022

 

$

142,778

 

 

$

6,034

 

 

$

6,106

 

 

$

1,237

 

 

$

156,155

 

 

Franchise Rights Acquired

Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally less than one year. Indefinite-lived franchise rights acquired are tested for potential impairment on at least an annual basis or more often if events so require.

In performing the impairment analysis for indefinite-lived franchise rights acquired, the fair value for franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for franchise rights related to the Company’s Workshops + Digital business and a relief from royalty methodology for franchise rights related to the Company’s Digital business. The aggregate estimated fair value for these rights is then compared to the carrying value of the unit of account for those franchise rights. The Company has determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in both the Workshops + Digital business and the Digital business in the country in which the applicable acquisition occurred. The net book values of these franchise rights in the United States, Canada, United Kingdom, Australia and New Zealand as of the October 1, 2022 balance sheet date were $400,092, $19,342, $10,061, $5,753 and $2,141, respectively.

In its hypothetical start-up approach analysis for fiscal 2022, the Company assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, the Company estimated future cash flows for the Workshops + Digital business in each country based on assumptions regarding revenue growth and operating income margins. In the Company’s relief from royalty approach analysis for fiscal 2022, the cash flows associated with the Digital business in each country were based on the expected Digital revenue for such country and the application of a royalty rate based on current market terms. The cash flows for the Workshops + Digital and the Digital businesses were discounted utilizing rates which were calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.

Goodwill

In performing the impairment analysis for goodwill, the fair value for the Company’s reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting unit. The Company has determined the appropriate reporting unit for purposes of assessing annual impairment to be the country for all reporting units. The net book values of goodwill in the United States, Canada and other countries as of the October 1, 2022 balance sheet date were $104,019, $38,759 and $13,377, respectively.

For all of the Company’s reporting units tested as of May 8, 2022, the Company estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operations less capital expenditures) attributable to that country and then applied expected future operating income growth rates for such country. The Company utilized operating income as the basis for measuring its potential growth because it believes it is the best indicator of the performance of its business. The Company then discounted the estimated future cash flows utilizing a discount rate which was calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.

 

12


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

 

Indefinite-Lived Franchise Rights Acquired and Goodwill Annual Impairment Test

The Company reviews indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, and goodwill for potential impairment on at least an annual basis or more often if events so require. The Company performed fair value impairment testing as of May 8, 2022 and May 9, 2021, each the first day of fiscal May, on its indefinite-lived intangible assets and goodwill.

In performing its annual impairment analysis as of May 8, 2022, the Company determined that (i) the carrying amounts of its Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, the Company recorded impairment charges for its Canada and New Zealand units of account of $24,485 and $834, respectively, in the second quarter of fiscal 2022; and (ii) the carrying amounts of all of its other franchise rights acquired with indefinite-lived units of account did not exceed their respective fair values and, therefore, no impairment existed with respect thereto. In performing its annual impairment analysis as of May 9, 2021, the Company determined that the carrying amounts of its franchise rights acquired with indefinite-lived units of account did not exceed their respective fair values and, therefore, no impairment existed. In performing its annual impairment analysis as of May 8, 2022 and May 9, 2021, the Company determined that the carrying amounts of its goodwill reporting units did not exceed their respective fair values and, therefore, no impairment existed.

When determining fair value, the Company utilizes various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, the Company would be required to record a corresponding charge, which would impact earnings. The Company would also be required to reduce the carrying amounts of the related assets on its balance sheet.

Based on the results of the Company’s May 8, 2022 annual franchise rights acquired impairment test performed for its United States unit of account, which held 92.7% of the Company’s franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair value of this unit of account exceeded its carrying value by approximately 15%. Based on the results of the Company’s May 8, 2022 annual franchise rights acquired impairment analysis performed for its Canada and New Zealand units of account, which held 4.6 % and 0.5%, respectively, of the Company’s franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying values. The above difference or lack thereof between the estimated fair value of the applicable unit of account and its carrying value is referred to herein as the “Annual Impairment Headroom”. As previously disclosed, a change in the underlying assumptions for the United States, Canada and New Zealand could change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the United States, Canada and New Zealand, for which the net book values were $698,383, $34,556 and $3,574, respectively, as of July 2, 2022. Based on the results of the Company’s May 8, 2022 annual franchise rights acquired impairment analysis performed for its remaining units of account, which collectively held 2.2% of the Company’s franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account exceeded their respective carrying values by over 100%.

Based on the results of the Company’s May 8, 2022 annual goodwill impairment analysis performed for all of its reporting units, all units, except for the Republic of Ireland, had an estimated fair value at least 35% higher than the respective unit’s carrying amount. Collectively, these reporting units represented 97.4% of the Company’s total goodwill as of the October 1, 2022 balance sheet date. Based on the results of the Company’s May 8, 2022 annual goodwill impairment analysis performed for its Republic of Ireland reporting unit, which holds 2.6% of the Company’s goodwill as of the October 1, 2022 balance sheet date, the estimated fair value of this reporting unit exceeded its carrying value by approximately 14%. Accordingly, a change in the underlying assumptions for the Republic of Ireland may change the results of the impairment assessment and, as such, could result in an impairment of the goodwill related to the Republic of Ireland, for which the net book value was $4,009 as of October 1, 2022.

Indefinite-Lived Franchise Rights Acquired Interim Impairment Test

During the quarter ended October 1, 2022, the Company identified various qualitative and quantitative factors which collectively, when combined with the Annual Impairment Headroom discussed above for the United States, Canada and New Zealand units of account, indicated a triggering event had occurred within these units of account. These factors included actual business performance as compared to the assumptions used in its annual impairment test, the continued decline in the Company’s market capitalization and market factors, including the increase in interest rates. As a result of this triggering event, the Company performed an interim impairment test of these units of account. In performing this interim impairment test as of October 1, 2022, the Company determined that the carrying amounts of its United States, Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values. Accordingly, the Company recorded impairment charges for its United States, Canada and New Zealand units of account of $298,291, $13,312 and $1,138, respectively, in the third quarter of fiscal 2022. The preponderance of these impairments was driven by the increased weighted-average cost of capital used in this interim impairment test as compared to the weighted-average cost of capital used in the May 8, 2022 annual impairment test of its indefinite-lived franchise rights acquired, reflecting market factors including higher interest rates and the trading values of the Company's equity and debt.

 

13


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

 

When determining fair value, the Company utilizes various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, the Company would be required to record a corresponding charge, which would impact earnings. The Company would also be required to reduce the carrying amounts of the related assets on its balance sheet.

Based on the results of the Company’s October 1, 2022 interim franchise rights acquired impairment test performed for its United States, Canada and New Zealand units of account, which hold 91.5%, 4.4% and 0.5%, respectively, of the Company’s franchise rights acquired as of the October 1, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying values. Accordingly, a change in the underlying assumptions for the United States, Canada and New Zealand may change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the United States, Canada and New Zealand, for which the net book values were $400,092, $19,342 and $2,141, respectively, as of October 1, 2022.

Kurbo Goodwill Impairment

On August 10, 2018, the Company acquired substantially all of the assets of Kurbo Health, Inc., a family-based healthy lifestyle coaching program, for a net purchase price of $3,063, of which $1,101 was allocated to goodwill. The goodwill was deductible annually for tax purposes. The Company determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of its strategic plan. As a result of this determination, the Company recorded an impairment charge of $1,101 in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo.

Finite-lived Intangible Assets

The carrying values of finite-lived intangible assets as of October 1, 2022 and January 1, 2022 were as follows:

 

 

 

October 1, 2022

 

 

January 1, 2022

 

 

 

Gross

 

 

 

 

 

Gross

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Accumulated

 

 

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amortization

 

Capitalized software costs

 

$

115,746

 

 

$

101,017

 

 

$

115,065

 

 

$

94,771

 

Website development costs

 

 

130,738

 

 

 

90,790

 

 

 

110,678

 

 

 

78,629

 

Trademarks

 

 

12,145

 

 

 

11,833

 

 

 

12,116

 

 

 

11,677

 

Other

 

 

13,880

 

 

 

5,917

 

 

 

14,021

 

 

 

5,677

 

Trademarks and other intangible assets

 

$

272,509

 

 

$

209,557

 

 

$

251,880

 

 

$

190,754

 

Franchise rights acquired

 

 

8,126

 

 

 

5,001

 

 

 

7,905

 

 

 

4,766

 

Total finite-lived intangible assets

 

$

280,635

 

 

$

214,558

 

 

$

259,785

 

 

$

195,520

 

Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $8,347 and $25,282 for the three and nine months ended October 1, 2022, respectively. Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $8,032 and $24,066 for the three and nine months ended October 2, 2021, respectively.

Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and thereafter is as follows:

 

Remainder of fiscal 2022

 

$

8,223

 

Fiscal 2023

 

$

27,053

 

Fiscal 2024

 

$

16,687

 

Fiscal 2025

 

$

5,378

 

Fiscal 2026

 

$

845

 

Fiscal 2027

 

$

720

 

Thereafter

 

$

7,171

 

 

 

14


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:

 

 

 

October 1, 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

 

$

 

 

$

 

 

$

 

 

 

0.00

%

 

$

 

 

$

 

 

$

 

 

 

2.61

%

Term Loan Facility due
   April 13, 2028

 

 

945,000

 

 

 

6,098

 

 

 

12,638

 

 

 

5.15

%

 

 

945,000

 

 

 

6,930

 

 

 

14,362

 

 

 

4.48

%

Senior Secured Notes due
   April 15, 2029

 

 

500,000

 

 

 

5,025

 

 

 

 

 

 

4.65

%

 

 

500,000

 

 

 

5,604

 

 

 

 

 

 

4.70

%

Total

 

$

1,445,000

 

 

$

11,123

 

 

$

12,638

 

 

 

4.98

%

 

$

1,445,000

 

 

$

12,534

 

 

$

14,362

 

 

 

5.15

%

Less: Current portion

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized deferred
   financing costs

 

 

11,123

 

 

 

 

 

 

 

 

 

 

 

 

12,534

 

 

 

 

 

 

 

 

 

 

Unamortized debt discount

 

 

12,638

 

 

 

 

 

 

 

 

 

 

 

 

14,362

 

 

 

 

 

 

 

 

 

 

Total long-term debt

 

$

1,421,239

 

 

 

 

 

 

 

 

 

 

 

$

1,418,104

 

 

 

 

 

 

 

 

 

 

 

(1)
Includes amortization of deferred financing costs and debt discount.

On April 13, 2021, the Company (1) repaid in full approximately $1,189,750 in aggregate principal amount of senior secured tranche B term loans due in 2024 under its then-existing credit facilities and (2) redeemed all of the $300,000 in aggregate principal amount of its then-outstanding 8.625% Senior Notes due in 2025 (the “Discharged Senior Notes”). On April 13, 2021, the Company’s then-existing credit facilities included a senior secured revolving credit facility (which included borrowing capacity available for letters of credit) due in 2022 with $175,000 in an aggregate principal amount of commitments. There were no outstanding borrowings under such revolving credit facility on that date. The Company funded such repayment of loans and redemption of notes with cash on hand as well as with proceeds received from approximately $1,000,000 in an aggregate principal amount of borrowings under its new credit facilities (as amended from time to time, the “Credit Facilities”) and proceeds received from the issuance of $500,000 in aggregate principal amount of 4.500% Senior Secured Notes due 2029 (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, the Company incurred fees of $37,910 (which included $12,939 of a prepayment penalty on the Discharged Senior Notes and $5,000 of a debt discount on its Term Loan Facility (as defined below)) in connection with the April 2021 debt refinancing. In addition, the Company recorded a loss on early extinguishment of debt of $29,169 in connection thereto. This early extinguishment of debt charge was comprised of $12,939 of a prepayment penalty on the Discharged Senior Notes, $9,017 of financing fees paid in connection with the April 2021 debt refinancing and the write-off of $7,213 of pre-existing deferred financing fees and debt discount.

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) $1,000,000 in aggregate principal amount of senior secured tranche B term loans due in 2028 (the “Term Loan Facility”) and (2) $175,000 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 (the “Revolving Credit Facility”).

In December 2021, the Company made voluntary prepayments at par in an aggregate amount of $52,500 in respect of its outstanding term loans under the Term Loan Facility. As a result of these prepayments, the Company wrote off a debt discount and deferred financing fees of $1,183 in the aggregate in the fourth quarter of fiscal 2021.

As of October 1, 2022, the Company had $945,000 in an aggregate principal amount of loans outstanding under the Credit Facilities, with $173,911 of availability and $1,089 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 October 1, 2022.

 

15


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 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. 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) 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 the Company’s 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 October 1, 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 the Company 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 the Company fails to do so, its borrowings will be based off of the alternative base rate plus a margin.

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.

 

16


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 35% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, the Company must be in compliance with a Consolidated First Lien Leverage Ratio of 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 a 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 an additional 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. As of October 1, 2022, the Company’s actual Consolidated First Lien Leverage Ratio was 4.99:1.00 and there were no borrowings under its Revolving Credit Facility and total letters of credit issued were $1,089. The Company expects it may not be able to satisfy the Consolidated First Lien Leverage Ratio in the near future, and as a result, the amount of funds the Company is able to borrow under the Revolving Credit Facility would be effectively limited.

Senior Secured Notes

The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 13, 2021 (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.

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, the Company 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, the Company 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, the Company 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, the Company 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, the Company 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, the Company 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 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 October 1, 2022, the Company had $1,445,000 outstanding under the Credit Facilities and the Senior Secured Notes, consisting of borrowings under the Term Loan Facility of $945,000, $0 drawn down on the Revolving Credit Facility and $500,000 in aggregate principal amount of Senior Secured Notes issued and outstanding.

At October 1, 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 4.98% and 5.11% per annum at October 1, 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 the Company’s outstanding debt, including the impact of the swaps then in effect, was approximately 5.28% and 5.62% per annum at October 1, 2022 and January 1, 2022, respectively, based on interest rates on these dates.

 

17


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) earnings per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted (net loss) earnings 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) earnings per share data:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

October 1,

 

 

October 2,

 

 

October 1,

 

 

October 2,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(206,036

)

 

$

46,330

 

 

$

(218,902

)

 

$

36,963

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

70,383

 

 

 

69,875

 

 

 

70,258

 

 

 

69,516

 

Effect of dilutive common stock equivalents

 

 

 

 

985

 

 

 

 

 

 

1,350

 

Weighted average diluted common shares outstanding

 

70,383

 

 

 

70,860

 

 

 

70,258

 

 

 

70,866

 

(Net loss) earnings per share

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(2.93

)

 

$

0.66

 

 

$

(3.12

)

 

$

0.53

 

Diluted

$

(2.93

)

 

$

0.65

 

 

$

(3.12

)

 

$

0.52

 

The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted (net loss) earnings per share was 9,229 and 5,426 for the three months ended October 1, 2022 and October 2, 2021, respectively. The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted (net loss) earnings per share was 8,307 and 5,270 for the nine months ended October 1, 2022 and October 2, 2021, respectively.

9.
Taxes

Income Taxes

The effective tax rates for the three and nine months ended October 1, 2022 were 25.6% and 25.6%, respectively. For the nine months ended October 1, 2022, the tax benefit was impacted by out-of-period income tax adjustments and a U.S. state tax rate change, partially offset by tax shortfalls from stock compensation. For the nine months ended October 1, 2022, the difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to foreign-derived intangible income (“FDII”).

The effective tax rates for the three and nine months ended October 2, 2021 were 22.4% and 14.9%, respectively. For the nine months ended October 2, 2021, the tax expense was impacted by tax windfalls from stock compensation and the reversal of a valuation allowance related to tax benefits for foreign losses that are now expected to be realized. For the nine months ended October 2, 2021, the difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII.

The U.S. federal government has recently signed into law the Inflation Reduction Act of 2022 (the “IRA”) which, among other things, imposes a minimum “book” tax on certain large corporations and creates a new excise tax on stock repurchases made by certain publicly traded corporations after December 31, 2022. Although the Company is continuing to evaluate the impact of the IRA on its consolidated financial statements as it awaits further guidance, the Company does not currently expect a material impact.

Non-Income Tax Matters

The Internal Revenue Service notified the Company of certain penalties assessed related to the annual disclosure and reporting requirements of the Affordable Care Act. The Company is in the process of appealing this determination and does not believe it has any liability with respect to this matter.

 

18


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

 

10.
Legal

Due to the nature of the Company’s activities, it is, at times, subject to 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 October 1, 2022 and January 1, 2022, the Company had in effect interest rate swaps with an aggregate notional amount totaling $500,000.

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 April 2, 2020 and a termination date of March 31, 2024. The initial notional amount of this swap was $500,000. During the term of this swap, the notional amount decreased from $500,000 effective April 2, 2020 to $250,000 on March 31, 2021. This interest rate swap effectively fixed the variable interest rate on the notional amount of this swap at 3.1005%. On June 7, 2019, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2019 swap”, and together with the 2018 swap, the “current swaps”) with an effective date of April 2, 2020 and a termination date of March 31, 2024. The notional amount of this swap is $250,000. This interest rate swap effectively fixed the variable interest rate on the notional amount of this swap at 1.901%. The current swaps qualify for hedge accounting and, therefore, changes in the fair value of the current swaps have been recorded in accumulated other comprehensive loss.

As of October 1, 2022, the cumulative unrealized gain for qualifying hedges was reported as a component of accumulated other comprehensive loss in the amount of $9,932 ($13,127 before taxes). As of January 1, 2022, the cumulative unrealized loss for qualifying hedges was reported as a component of accumulated other comprehensive loss in the amount of $10,843 ($14,622 before taxes).

The following table presents the aggregate fair value of the Company’s derivative financial instruments by balance sheet classification and location:

 

 

 

 

 

 

 

Fair Value

 

 

 

Balance Sheet Classification

 

Balance Sheet
Location

 

October 1, 2022

 

 

January 1, 2022

 

Assets:

 

 

 

 

 

 

 

 

 

 

   Interest rate swaps - current swaps

 

Current asset

 

Prepaid expenses and other current assets

 

$

8,631

 

 

$

 

   Interest rate swaps - current swaps

 

Noncurrent asset

 

Other noncurrent assets

 

 

4,513

 

 

 

 

      Total assets

 

 

 

 

 

$

13,144

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

   Interest rate swaps - current swaps

 

Current liability

 

Derivative payable

 

$

 

 

$

14,670

 

      Total liabilities

 

 

 

 

 

$

 

 

$

14,670

 

The Company is hedging forecasted transactions for periods not exceeding the next two years. The Company expects approximately $6,287 ($8,397 before taxes) of net derivative gains included in accumulated other comprehensive loss at October 1, 2022, based on current market rates, will be reclassified into earnings within the next 12 months.

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.

 

19


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

 

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.

Fair Value of Financial Instruments

The Company’s significant financial instruments include long-term debt and interest rate swap agreements as of October 1, 2022 and January 1, 2022. Since there were no outstanding borrowings under the Revolving Credit Facility as of October 1, 2022 and January 1, 2022, the fair value approximated a carrying value of $0 at both October 1, 2022 and January 1, 2022.

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 October 1, 2022 and January 1, 2022, the fair value of the Company’s long-term debt was approximately $922,092 and $1,389,306, respectively, as compared to the carrying value (net of deferred financing costs and debt discount) of $1,421,239 and $1,418,104, respectively.

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 October 1, 2022

 

$

8,631

 

 

 

$

 

 

$

8,631

 

 

$

 

Interest rate swap noncurrent asset at October 1, 2022

 

$

4,513

 

 

 

$

 

 

$

4,513

 

 

$

 

Interest rate swap current liability at January 1, 2022

 

$

14,670

 

 

 

$

 

 

$

14,670

 

 

$

 

The Company did not have any transfers into or out of Levels 1 and 2 and did not maintain any assets or liabilities classified as Level 3 during the nine months ended October 1, 2022 and the fiscal year ended January 1, 2022.

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)

 

 

 

Nine Months Ended October 1, 2022

 

 

 

(Loss) Gain on
Qualifying
Hedges

 

 

Loss on
Foreign
Currency
Translation

 

 

Total

 

Beginning balance at January 1, 2022

 

$

(10,843

)

 

$

(7,761

)

 

$

(18,604

)

Other comprehensive income (loss) before
   reclassifications, net of tax

 

 

17,350

 

 

 

(13,488

)

 

 

3,862

 

Amounts reclassified from accumulated other
   comprehensive loss, net of tax
(2)

 

 

3,425

 

 

 

 

 

 

3,425

 

Net current period other comprehensive income (loss)

 

 

20,775

 

 

 

(13,488

)

 

 

7,287

 

Ending balance at October 1, 2022

 

$

9,932

 

 

$

(21,249

)

 

$

(11,317

)

 

(1)
Amounts in parentheses indicate debits
(2)
See separate table below for details about these reclassifications

 

 

20


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

 

 

 

Nine Months Ended October 2, 2021

 

 

 

Loss on
Qualifying
Hedges

 

 

Loss on
Foreign
Currency
Translation

 

 

Total

 

Beginning balance at January 2, 2021

 

$

(20,979

)

 

$

(4,170

)

 

$

(25,149

)

Other comprehensive income (loss) before
   reclassifications, net of tax

 

 

418

 

 

 

(2,349

)

 

 

(1,931

)

Amounts reclassified from accumulated other
   comprehensive loss, net of tax
(2)

 

 

6,028

 

 

 

 

 

 

6,028

 

Net current period other comprehensive income (loss)

 

 

6,446

 

 

 

(2,349

)

 

 

4,097

 

Ending balance at October 2, 2021

 

$

(14,533

)

 

$

(6,519

)

 

$

(21,052

)

 

(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

 

 

Nine Months Ended

 

 

October 1,

 

 

October 2,

 

 

October 1,

 

 

October 2,

 

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

Details about Other Comprehensive
Loss Components

Amounts Reclassified from
Accumulated Other
Comprehensive Loss

 

 

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

$

(326

)

 

$

(2,213

)

 

$

(4,575

)

 

$

(8,058

)

 

Interest expense

 

 

(326

)

 

 

(2,213

)

 

 

(4,575

)

 

 

(8,058

)

 

(Loss) income before income taxes

 

 

82

 

 

 

557

 

 

 

1,150

 

 

 

2,030

 

 

(Benefit from) provision for income taxes

 

$

(244

)

 

$

(1,656

)

 

$

(3,425

)

 

$

(6,028

)

 

Net (loss) income

 

(1)
Amounts in parentheses indicate debits to profit/loss
14.
Segment Data

The Company has four reportable segments based on an integrated geographical structure as follows: North America, Continental Europe (CE), United Kingdom and Other. Other consists of Australia, New Zealand and emerging markets operations and franchise revenues and related costs, all of which have been grouped together as if they were a single reportable segment because they do not meet any of the quantitative thresholds and are immaterial for separate disclosure. To be consistent with the information that is presented to the chief operating decision maker, the Company does not include intercompany activity in the segment results.

Information about the Company’s reportable segments is as follows:

 

 

Total Revenues, net

 

 

Total Revenues, net

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1,

 

 

October 2,

 

 

October 1,

 

 

October 2,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

North America

$

176,082

 

 

$

197,797

 

 

$

568,410

 

 

$

626,742

 

 

Continental Europe

 

56,496

 

 

 

71,933

 

 

 

189,140

 

 

 

231,764

 

 

United Kingdom

 

10,898

 

 

 

15,666

 

 

 

38,094

 

 

 

51,735

 

 

Other

 

6,242

 

 

 

8,101

 

 

 

21,288

 

 

 

26,431

 

 

   Total revenues, net

$

249,718

 

 

$

293,497

 

 

$

816,932

 

 

$

936,672

 

 

 

 

21


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

 

 

Net (Loss) Income

 

 

Net (Loss) Income

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1,

 

 

October 2,

 

 

October 1,

 

 

October 2,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

Segment operating (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

North America

$

(255,269

)

 

$

74,310

 

 

$

(207,241

)

 

$

163,287

 

 

Continental Europe

 

27,013

 

 

 

36,116

 

 

 

75,477

 

 

 

89,620

 

 

United Kingdom

 

2,462

 

 

 

3,502

 

 

 

1,363

 

 

 

6,085

 

 

Other

 

(234

)

 

 

1,746

 

 

 

578

 

 

 

3,834

 

 

   Total segment operating (loss) income

 

(226,028

)

 

 

115,674

 

 

 

(129,823

)

 

 

262,826

 

 

General corporate expenses

 

28,501

 

 

 

35,951

 

 

 

102,370

 

 

 

120,599

 

 

Interest expense

 

20,912

 

 

 

19,283

 

 

 

58,837

 

 

 

68,699

 

 

Other expense, net

 

1,344

 

 

 

764

 

 

 

3,303

 

 

 

908

 

 

Early extinguishment of debt

 

 

 

 

 

 

 

 

 

 

29,169

 

 

(Benefit from) provision for income taxes

 

(70,749

)

 

 

13,346

 

 

 

(75,431

)

 

 

6,488

 

 

   Net (loss) income

$

(206,036

)

 

$

46,330

 

 

$

(218,902

)

 

$

36,963

 

 

 

 

Depreciation and Amortization

 

 

Depreciation and Amortization

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 1,

 

 

October 2,

 

 

October 1,

 

 

October 2,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

North America

$

7,939

 

 

$

9,635

 

 

$

24,738

 

 

$

29,752

 

 

Continental Europe

 

166

 

 

 

340

 

 

 

599

 

 

 

1,171

 

 

United Kingdom

 

109

 

 

 

160

 

 

 

475

 

 

 

639

 

 

Other

 

87

 

 

 

96

 

 

 

273

 

 

 

312

 

 

   Total segment depreciation and amortization

 

8,301

 

 

 

10,231

 

 

 

26,085

 

 

 

31,874

 

 

General corporate depreciation and amortization

 

3,532

 

 

 

2,200

 

 

 

11,049

 

 

 

10,183

 

 

   Depreciation and amortization

$

11,833

 

 

$

12,431

 

 

$

37,134

 

 

$

42,057

 

 

 

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 five years (the “Initial Term”).

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 $284 and $860 for the three and nine months ended October 1, 2022, respectively, and $80 and $746 for the three and nine months ended October 2, 2021, respectively, which services included advertising, production and related fees.

The Company’s accounts payable to parties related to Ms. Winfrey at October 1, 2022 and January 1, 2022 was $80 and $120, respectively.

During the nine months ended October 2, 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 1,542 of the shares she purchased under such purchase agreement and exercised a portion of her stock options granted in fiscal 2015 resulting in the sale of 581 shares issuable under such options, respectively.

 

22


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

 

16.
Restructuring

2022 Plan

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 previously expected to record restructuring charges of approximately $27,000 in the aggregate in fiscal 2022. The Company revised its estimate and currently expects to record restructuring expenses of approximately $33,000 in the aggregate in fiscal 2022 related to this plan. For the three and nine months ended October 1, 2022, the Company recorded restructuring expenses totaling $3,557 ($2,663 after tax) and $22,674 ($16,976 after tax), respectively.

The Organizational Realignment has resulted and will result in the elimination of certain positions and termination of employment for certain employees worldwide. In connection with its Organizational Realignment, the Company continues to expect to record charges of approximately $20,000 in the aggregate with respect to employee termination benefit costs (consisting primarily of general and administrative expenses), the majority of which were recorded in the second quarter of fiscal 2022.

In connection with the rationalization of its real estate portfolio, the Company previously expected to record charges of approximately $6,000 in the aggregate consisting of lease termination and other related costs in fiscal 2022. The Company revised its estimate and currently expects to record restructuring expenses with respect to lease termination and other related costs of approximately $12,000 in the aggregate in fiscal 2022.

Additionally, the Company expects to record other restructuring costs of approximately $1,000 in the aggregate in fiscal 2022.

Costs arising from the 2022 Plan related to separation payments, other employee termination expenses and lease termination and other related costs, except for lease impairment and accelerated depreciation and amortization related to leased locations, are expected to result in cash expenditures. For the three and nine months ended October 1, 2022, the components of the Company’s restructuring expenses were as follows:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

October 1, 2022

 

 

October 1, 2022

 

Lease termination and other related costs

$

(334

)

 

$

3,332

 

Employee termination benefit costs

 

1,882

 

 

 

16,789

 

Lease impairment

 

1,828

 

 

 

1,828

 

Other costs

 

181

 

 

 

725

 

   Total restructuring expenses

$

3,557

 

 

$

22,674

 

 

See Note 3 for additional information in regard to the Company's lease impairment for the three and nine months ended October 1, 2022.

For the three and nine months ended October 1, 2022, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

October 1, 2022

 

 

October 1, 2022

 

Cost of revenues

$

(98

)

 

$

4,401

 

Selling, general and administrative expenses

 

3,655

 

 

 

18,273

 

   Total restructuring expenses

$

3,557

 

 

$

22,674

 

 

All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.

For the nine months ended October 1, 2022, the Company made payments of $1,877 towards the liability for the lease termination costs. For the nine months ended October 1, 2022, the Company made payments of $7,505 towards the liability for the employee termination benefit costs.

The Company expects the remaining lease termination liability of $547 and the remaining employee termination benefit liability of $9,284 to be paid in full by the end of fiscal 2024.

 

23


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

 

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 $21,534 ($16,109 after tax).

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

$

12,688

 

Employee termination benefit costs

 

8,846

 

   Total restructuring expenses

$

21,534

 

 

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

$

16,727

 

Selling, general and administrative expenses

 

4,807

 

   Total restructuring expenses

$

21,534

 

 

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 $7,640 towards the liability for the lease termination costs and decreased provision estimates by $3. For the fiscal year ended January 1, 2022, the Company made payments of $4,802 towards the liability for the employee termination benefit costs.

For the nine months ended October 1, 2022, the Company made payments of $777 towards the liability for the lease termination costs, decreased provision estimates by $681 and incurred additional lease termination and other related costs of $119. For the nine months ended October 1, 2022, the Company made payments of $3,407 towards the liability for the employee termination benefit costs, increased provision estimates by $215 and incurred additional employee termination benefit costs of $148.

As of October 1, 2022, there was no outstanding lease termination liability. The Company expects the remaining employee termination benefit liability of $1,000 to be paid in full by the end of fiscal 2023.

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 $33,092 ($24,756 after tax).

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

$

7,989

 

Employee termination benefit costs

 

25,103

 

   Total restructuring expenses

$

33,092

 

 

 

24


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

 

 

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

$

23,300

 

Selling, general and administrative expenses

 

9,792

 

   Total restructuring expenses

$

33,092

 

 

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 $645 towards the liability for the lease termination costs. For the fiscal year ended January 2, 2021, the Company made payments of $15,434 towards the liability for the employee termination benefit costs and increased provision estimates by $180.

For the fiscal year ended January 1, 2022, the Company made payments of $4,649 towards the liability for the lease termination costs and decreased provision estimates by $470. For the fiscal year ended January 1, 2022, the Company made payments of $6,773 towards the liability for the employee termination benefit costs and decreased provision estimates by $1,136.

For the nine months ended October 1, 2022, the Company made payments of $86 towards the liability for the lease termination costs and decreased provision estimates by $116. For the nine months ended October 1, 2022, the Company made payments of $1,164 towards the liability for the employee termination benefit costs.

As of October 1, 2022, there was no outstanding lease termination liability. The Company expects the remaining employee termination benefit liability of $776 to be paid in full by the end of fiscal 2023.

 

25


 

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;
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;
the outcomes of litigation or regulatory actions;
the impact of existing and future laws and regulations;
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;
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

 

26


 

other risks and uncertainties, including those detailed from time to time in our periodic reports filed with the Securities and Exchange Commission.

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.

 

27


 

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 Personal Coaching + Digital and Digital 360 as applicable. Our “Workshops + Digital” business refers to providing unlimited access to our workshops combined with our digital subscription product offerings to commitment plan subscribers, including former Digital 360 members as applicable. 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. In the second quarter of fiscal 2022, we ceased offering our Digital 360 product. More than a majority of associated members were transitioned from our Digital business to our Workshops + Digital business during the second quarter of fiscal 2022, with a de minimis number transitioning during the beginning of the third quarter of fiscal 2022. For additional details on the cessation of this product offering and how these transitions of former Digital 360 members at the then-current pricing for such product impacted the fiscal 2022 second quarter and first half number of End of Period Subscribers in each business as well as the associated Paid Weeks and Revenues for each business, see our Quarterly Report on Form 10-Q for the second quarter of fiscal 2022.

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:

“fiscal 2015” refers to our fiscal year ended January 2, 2016;
“fiscal 2020” refers to our fiscal year ended January 2, 2021 (included a 53rd week);
“fiscal 2021” refers to our fiscal year ended January 1, 2022;
“fiscal 2022” refers to our fiscal year ended December 31, 2022;
“fiscal 2023” refers to our fiscal year ended December 30, 2023;
“fiscal 2024” refers to our fiscal year ended December 28, 2024;
“fiscal 2025” refers to our fiscal year ended January 3, 2026 (includes a 53rd week);
“fiscal 2026” refers to our fiscal year ended January 2, 2027; and
“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®, PersonalPointsTM 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”).

 

 

28


 

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 (loss) income, operating (loss) 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 third quarter of fiscal 2022 to exclude (a) the impact of the impairment charges for our franchise rights acquired related to our United States, Canada and New Zealand units of account and (b) the net impact of (x) charges associated with our previously disclosed 2022 restructuring plan (the “2022 plan”) and (y) charges associated with our previously disclosed 2021 organizational restructuring plan (the “2021 plan”); (ii) the first nine months of fiscal 2022 to exclude (a) the impact of impairment charges for our franchise rights acquired related to our United States, Canada and New Zealand units of account and the impairment charge for our goodwill related to our wholly-owned subsidiary Kurbo, Inc. (“Kurbo”) and (b) the net impact of (x) charges associated with the 2022 plan, (y) charges associated with the 2021 plan or the reversal of certain of the charges associated with the 2021 plan, as applicable, and (z) the reversal of certain of the charges associated with our previously disclosed 2020 organizational restructuring plan (the “2020 plan”); and (iii) the third quarter and first nine months of fiscal 2021 to exclude the net impact of (x) charges associated with the 2021 plan and (y) the reversal of certain of the charges associated with the 2020 plan. We generally refer to such non-GAAP measures as follows: (i) with respect to the adjustments for the third quarter of fiscal 2022, as excluding or adjusting for the impact of the franchise rights acquired impairments and the net impact of restructuring charges; (ii) with respect to the adjustments for the first nine months of fiscal 2022, as excluding or adjusting for the impact of franchise rights acquired and goodwill impairments and the net impact of restructuring charges; and (iii) with respect to the adjustments for the third quarter and first nine months of fiscal 2021, as excluding or adjusting for the net impact of 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, franchise rights acquired and goodwill impairments, net restructuring charges, and early extinguishment of debt with respect to the Company’s previously disclosed April 2021 debt refinancing and voluntary debt prepayments (“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

Franchise Rights Acquired

Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally less than one year. Indefinite-lived franchise rights acquired are tested for potential impairment on at least an annual basis or more often if events so require.

 

29


 

In performing the impairment analysis for our indefinite-lived franchise rights acquired, the fair value for our franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for our franchise rights related to our Workshops + Digital business and a relief from royalty methodology for our franchise rights related to our Digital business. The aggregate estimated fair value for these rights is then compared to the carrying value of the unit of account for those franchise rights. We have determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in both the Workshops + Digital business and the Digital business in the country in which the applicable acquisition occurred. The net book values of these franchise rights in the United States, Canada, United Kingdom, Australia and New Zealand as of the October 1, 2022 balance sheet date were $400.1 million, $19.3 million, $10.1 million, $5.8 million and $2.1 million, respectively.

In our hypothetical start-up approach analysis for fiscal 2022, we assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, we estimated future cash flows for the Workshops + Digital business in each country based on assumptions regarding revenue growth and operating income margins. In our relief from royalty approach analysis for fiscal 2022, the cash flows associated with the Digital business in each country were based on the expected Digital revenue for such country and the application of a royalty rate based on current market terms. The cash flows for the Workshops + Digital and the Digital businesses were discounted utilizing rates which were calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.

Goodwill

In performing the impairment analysis for goodwill, the fair value for our reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting unit. We have determined the appropriate reporting unit for purposes of assessing annual impairment to be the country for all reporting units. The net book values of goodwill in the United States, Canada and other countries as of the October 1, 2022 balance sheet date were $104.0 million, $38.8 million and $13.4 million, respectively.

For all of our reporting units tested as of May 8, 2022, we estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operations less capital expenditures) attributable to that country and then applied expected future operating income growth rates for such country. We utilized operating income as the basis for measuring our potential growth because we believe it is the best indicator of the performance of our business. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.

Indefinite-Lived Franchise Rights Acquired and Goodwill Annual Impairment Test

We review indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, and goodwill for potential impairment on at least an annual basis or more often if events so require. We performed fair value impairment testing as of May 8, 2022 and May 9, 2021, each the first day of fiscal May, on our indefinite-lived intangible assets and goodwill.

In performing our annual impairment analysis as of May 8, 2022, we determined that (i) the carrying amounts of our Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our Canada and New Zealand units of account of $24.5 million and $0.8 million, respectively, in the second quarter of fiscal 2022; and (ii) the carrying amounts of all of our other franchise rights acquired with indefinite-lived units of account did not exceed their respective fair values and, therefore, no impairment existed with respect thereto. In performing our annual impairment analysis as of May 9, 2021, we determined that the carrying amounts of our franchise rights acquired with indefinite-lived units of account did not exceed their respective fair values and, therefore, no impairment existed. In performing our annual impairment analysis as of May 8, 2022 and May 9, 2021, we determined that the carrying amounts of our goodwill reporting units did not exceed their respective fair values and, therefore, no impairment existed.

When determining fair value, we utilize various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, we would be required to record a corresponding charge, which would impact earnings. We would also be required to reduce the carrying amounts of the related assets on our balance sheet. We continue to evaluate these assumptions and believe that these assumptions are appropriate.

In performing our annual impairment analysis, we also considered the trading value of both our equity and debt. If the trading values of both our equity and debt were to significantly decline from their levels at the time of testing, we may have to take an impairment charge at the appropriate time, which could be material. For additional information on risks associated with our recognizing asset impairment charges, see “Item 1A. Risk Factors” of our Annual Report on Form 10-K for fiscal 2021.

 

30


 

Based on the results of our May 8, 2022 annual franchise rights acquired impairment test performed for our United States unit of account, which held 92.7% of our franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair value of this unit of account exceeded its carrying value by approximately 15%. Based on the results of our May 8, 2022 annual franchise rights acquired impairment analysis performed for our Canada and New Zealand units of account, which held 4.6% and 0.5%, respectively, of our franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying values. The above difference or lack thereof between the estimated fair value of the applicable unit of account and its carrying value is referred to herein as the Annual Impairment Headroom. As previously disclosed, a change in the underlying assumptions for the United States, Canada and New Zealand could change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the United States, Canada and New Zealand, for which the net book values were $698.4 million, $34.6 million and $3.6 million, respectively, as of July 2, 2022. Based on the results of our May 8, 2022 annual franchise rights acquired impairment analysis performed for our remaining units of account, which collectively held 2.2% of our franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account exceeded their respective carrying values by over 100%.

In performing this annual impairment analysis for fiscal 2022, in our hypothetical start-up approach analysis, for the year of maturity, we assumed Workshops + Digital revenue (comprised of Workshops + Digital Fees and revenues from products sold to members in studios) growth of 23.0% to 106.2% in the year of maturity from fiscal 2021, in each case, earned in the applicable country and assumed cumulative annual revenue growth rates for the years beyond the year of maturity of 2.4%. For the year of maturity and beyond, we assumed operating income margin rates of (3.0%) to 8.8%. In our relief from royalty approach, we assumed Digital revenue growth in each country of (25.6%) to 16.1% for fiscal 2022.

Based on the results of our May 8, 2022 annual goodwill impairment analysis performed for all of our reporting units, all units, except for the Republic of Ireland, had an estimated fair value at least 35% higher than the respective unit’s carrying amount. Collectively, these reporting units represented 97.4% of our total goodwill as of the October 1, 2022 balance sheet date. Based on the results of our May 8, 2022 annual goodwill impairment analysis performed for our Republic of Ireland reporting unit, which holds 2.6% of our goodwill as of the October 1, 2022 balance sheet date, the estimated fair value of this reporting unit exceeded its carrying value by approximately 14%. Accordingly, a change in the underlying assumptions for the Republic of Ireland may change the results of the impairment assessment and, as such, could result in an impairment of the goodwill related to the Republic of Ireland, for which the net book value was $4.0 million as of October 1, 2022.

The following are the more significant assumptions utilized in our annual impairment analyses for fiscal 2022 and fiscal 2021:

 

 

 

Fiscal 2022

 

Fiscal 2021

Debt-Free Cumulative Annual Cash Flow Growth Rate

 

1.2% to 20.6%

 

0.2% to 2.6%

Discount Rate

 

9.6%

 

8.5%

Indefinite-Lived Franchise Rights Acquired Interim Impairment Test

During the quarter ended October 1, 2022, we identified various qualitative and quantitative factors which collectively, when combined with the Annual Impairment Headroom discussed above for the United States, Canada and New Zealand units of account, indicated a triggering event had occurred within these units of account. These factors included actual business performance as compared to the assumptions used in our annual impairment test, the continued decline in our market capitalization and market factors, including the increase in interest rates. As a result of this triggering event, we performed an interim impairment test of these units of account. In performing this interim impairment test as of October 1, 2022, we determined that the carrying amounts of our United States, Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values. Accordingly, we recorded impairment charges for our United States, Canada and New Zealand units of account of $298.3 million, $13.3 million and $1.1 million, respectively, in the third quarter of fiscal 2022. The preponderance of these impairments was driven by the increased weighted-average cost of capital used in this interim impairment test of 13.4% as compared to the weighted-average cost of capital used in the May 8, 2022 annual impairment test of its indefinite-lived franchise rights acquired of 9.6%, reflecting market factors including higher interest rates and the trading values of our equity and debt.

When determining fair value, we utilize various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, we would be required to record a corresponding charge, which would impact earnings. We would also be required to reduce the carrying amounts of the related assets on our balance sheet. We continue to evaluate these assumptions and believe that these assumptions are appropriate.

 

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In performing this interim impairment analysis, in our hypothetical start-up approach analysis, for the year of maturity, we assumed Workshops + Digital revenue (comprised of Workshops + Digital Fees and revenues from products sold to members in studios) growth of 20.2% to 57.6% in the year of maturity from fiscal 2021, in each case, earned in the applicable country and assumed cumulative annual revenue growth rates for the years beyond the year of maturity of 2.5%. For the year of maturity and beyond, we assumed operating income margin rates of 2.3% to 8.8%. In our relief from royalty approach, we assumed Digital revenue growth in each country of (21.5%) to 1.6% for fiscal 2022.

Based on the results of our October 1, 2022 interim franchise rights acquired impairment test performed for our United States, Canada and New Zealand units of account, which hold 91.5%, 4.4% and 0.5%, respectively, of our franchise rights acquired as of the October 1, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying values. Accordingly, a change in the underlying assumptions for the United States, Canada and New Zealand may change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the United States, Canada and New Zealand, for which the net book values were $400.1 million, $19.3 million and $2.1 million, respectively, as of October 1, 2022.

Any impairment test is highly dependent on the assumptions used. The most significant assumptions used in the interim impairment test discussed above were the discount rate applied and the Digital revenue growth rates. We applied a discount rate of 13.4% based on our actual weighted-average cost of capital, which included the cost of equity and the cost of debt. We projected Digital revenues based upon our current and past performance. Changes in these assumptions would have a significant impact on the valuation model. Holding all other assumptions constant, a hypothetical 50 basis point increase in our discount rate assumption would decrease the fair values of the United States, Canada and New Zealand units of account by approximately 5.5%, 5.4% and 4.2%, respectively, which would result in additional impairment charges. Holding all other assumptions constant, a hypothetical 1% reduction in projected Digital revenues for each year in the analysis would decrease the fair values of the United States, Canada and New Zealand units of account by approximately 0.9%, 1.2% and 1.0%, respectively, which would also result in additional impairment charges.

Kurbo Goodwill Impairment

On August 10, 2018, we acquired substantially all of the assets of Kurbo Health, Inc., a family-based healthy lifestyle coaching program, for a net purchase price of $3.1 million, of which $1.1 million was allocated to goodwill. The goodwill was deductible annually for tax purposes. We determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of our strategic plan. As a result of this determination, we recorded an impairment charge of $1.1 million in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo.

Critical Accounting Policies

Information concerning our critical accounting policies is set forth in “Note 2. Summary of Significant Accounting Policies” of our audited consolidated financial statements contained in our Annual Report on Form 10-K for fiscal 2021. Our critical accounting policies 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.

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 Personal Coaching + Digital and Digital 360 as applicable. “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 Personal Coaching + Digital and Digital 360 as applicable); (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.
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 Personal Coaching + Digital and Digital 360 (as applicable), 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.
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 Personal Coaching + Digital and Digital 360 (as applicable), 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.
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, which in turn have impacted and may impact our business performance and operations. 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 had a significant effect on our recruitments starting in March 2020. 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 third quarter of fiscal 2022, which declined compared to the prior year period. Additionally, our mix shift toward our Digital business, which was significant during the onset of the pandemic, especially when amplified by the nature of our subscription business, negatively impacted revenue. 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.

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. 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 may 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. This dynamic situation continues to drive 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. For more information, see “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for fiscal 2021.

 

 

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RESULTS OF OPERATIONS

THREE MONTHS ENDED OCTOBER 1, 2022 COMPARED TO THE THREE MONTHS ENDED OCTOBER 2, 2021

The table below sets forth selected financial information for the third quarter of fiscal 2022 from our consolidated statements of net income for the three months ended October 1, 2022 versus selected financial information for the third quarter of fiscal 2021 from our consolidated statements of net income for the three months ended October 2, 2021.

Summary of Selected Financial Data

 

 

 

(In millions, except per share amounts)

 

 

 

 

 

 

 

 

 

 

For The Three Months Ended

 

 

 

 

 

 

 

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

Increase/
(Decrease)

 

 

%
Change

 

 

% Change
Constant
Currency

 

 

Revenues, net

 

$

249.7

 

 

$

293.5

 

 

$

(43.8

)

 

 

(14.9

%)

 

 

(10.7

%)

 

Cost of revenues

 

 

97.4

 

 

 

115.5

 

 

 

(18.1

)

 

 

(15.7

%)

 

 

(12.7

%)

 

Gross profit

 

 

152.4

 

 

 

178.0

 

 

 

(25.7

)

 

 

(14.4

%)

 

 

(9.4

%)

 

Gross Margin %

 

 

61.0

%

 

 

60.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing expenses

 

 

35.7

 

 

 

34.6

 

 

 

1.1

 

 

 

3.3

%

 

 

9.2

%

 

Selling, general & administrative expenses

 

 

58.4

 

 

 

63.7

 

 

 

(5.3

)

 

 

(8.3

%)

 

 

(5.6

%)

 

Franchise rights acquired impairments

 

 

312.7

 

 

 

 

 

 

312.7

 

 

 

100.0

%

 

 

100.0

%

 

Operating (loss) income

 

 

(254.5

)

 

 

79.7

 

 

 

(334.3

)

 

 

(100.0

%)

*

 

(100.0

%)

*

Operating (Loss) Income Margin %

 

 

(101.9

%)

 

 

27.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

20.9

 

 

 

19.3

 

 

 

1.6

 

 

 

8.4

%

 

 

8.4

%

 

Other expense, net

 

 

1.3

 

 

 

0.8

 

 

 

0.6

 

 

 

76.0

%

 

 

76.0

%

 

(Loss) income before income taxes

 

 

(276.8

)

 

 

59.7

 

 

 

(336.5

)

 

 

(100.0

%)

*

 

(100.0

%)

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Benefit from) provision for income taxes

 

 

(70.7

)

 

 

13.3

 

 

 

(84.1

)

 

 

(100.0

%)

*

 

(100.0

%)

*

Net (loss) income

 

$

(206.0

)

 

$

46.3

 

 

$

(252.4

)

 

 

(100.0

%)

*

 

(100.0

%)

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares
   outstanding

 

 

70.4

 

 

 

70.9

 

 

 

(0.5

)

 

 

(0.7

%)

 

 

(0.7

%)

 

Diluted (net loss) earnings per share

 

$

(2.93

)

 

$

0.65

 

 

$

(3.58

)

 

 

(100.0

%)

*

 

(100.0

%)

*

 

Note: Totals may not sum due to rounding.

*Note: Percentage in excess of 100.0%.

 

 

34


 

Certain results for the third quarter of fiscal 2022 are adjusted to exclude the impact of the $312.7 million of franchise rights acquired impairments and the net impact of the $3.6 million of 2022 plan restructuring charges and the $0.1 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 October 1, 2022 which have been adjusted.

 

 

 

 

 

 

Gross

 

 

 

 

 

Operating

 

 

 

Gross

 

 

Profit

 

 

Operating

 

 

(Loss) Income

 

(in millions except percentages)

 

Profit

 

 

Margin

 

 

(Loss) Income

 

 

Margin

 

Third Quarter of Fiscal 2022

 

$

152.4

 

 

 

61.0

%

 

$

(254.5

)

 

 

(101.9

%)

Adjustments to reported amounts (1)

 

 

 

 

 

 

 

 

 

 

 

 

Franchise rights acquired impairments

 

 

 

 

 

 

 

 

312.7

 

 

 

 

2022 plan restructuring charges

 

 

(0.1

)

 

 

 

 

 

3.6

 

 

 

 

2021 plan restructuring charges

 

 

0.1

 

 

 

 

 

 

0.1

 

 

 

 

Total adjustments (1)

 

 

0.0

 

 

 

 

 

 

316.4

 

 

 

 

Third Quarter of Fiscal 2022, as adjusted (1)

 

$

152.4

 

 

 

61.0

%

 

$

61.9

 

 

 

24.8

%

 

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 third quarter of fiscal 2022 to exclude the impact of the $312.7 million ($235.1 million after tax) of franchise rights acquired impairments and the net impact of the $3.6 million ($2.7 million after tax) of 2022 plan restructuring charges and the $0.1 million ($0.1 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.

 

Certain results for the third quarter of fiscal 2021 are adjusted to exclude the net impact of the $9.3 million of 2021 plan restructuring charges and the reversal of $0.7 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 October 2, 2021 which have been adjusted.

 

 

 

 

 

 

Gross

 

 

 

 

 

Operating

 

 

 

Gross

 

 

Profit

 

 

Operating

 

 

Income

 

(in millions except percentages)

 

Profit

 

 

Margin

 

 

Income

 

 

Margin

 

Third Quarter of Fiscal 2021

 

$

178.0

 

 

 

60.7

%

 

$

79.7

 

 

 

27.2

%

Adjustments to reported amounts (1)

 

 

 

 

 

 

 

 

 

 

 

 

2021 plan restructuring charges

 

 

5.6

 

 

 

 

 

 

9.3

 

 

 

 

2020 plan restructuring charges

 

 

(0.7

)

 

 

 

 

 

(0.7

)

 

 

 

Total adjustments (1)

 

 

4.9

 

 

 

 

 

 

8.6

 

 

 

 

Third Quarter of Fiscal 2021, as adjusted (1)

 

$

183.0

 

 

 

62.3

%

 

$

88.4

 

 

 

30.1

%

 

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 third quarter of fiscal 2021 to exclude the net impact of the $9.3 million ($7.0 million after tax) of 2021 plan restructuring charges and the reversal of $0.7 million ($0.5 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.

Consolidated Results

Revenues

Revenues for the third quarter of fiscal 2022 were $249.7 million, a decrease of $43.8 million, or 14.9%, versus the third quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted our revenues in the third quarter of fiscal 2022 by $12.4 million, revenues for the third quarter of fiscal 2022 would have decreased 10.7% versus the prior year period. This decrease was driven primarily by lower Subscription Revenues reflecting lower sign-ups throughout fiscal 2022 primarily due to worsened consumer sentiment and our PersonalPoints program not resonating with consumers to the extent anticipated. This worsened consumer sentiment in fiscal 2022 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.

 

35


 

Cost of Revenues

Total cost of revenues for the third quarter of fiscal 2022 decreased $18.1 million, or 15.7%, versus the third quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased cost of revenues in the third quarter of fiscal 2022 by $3.5 million, cost of revenues for the third quarter of fiscal 2022 would have decreased 12.7% versus the prior year period. Excluding the net impact of the $0.0 million of restructuring charges in the third quarter of fiscal 2022 and the net impact of the $4.9 million of restructuring charges in the third quarter of fiscal 2021, total cost of revenues for the third quarter of fiscal 2022 would have decreased by 11.9%, or 8.8% on a constant currency basis, versus the prior year period.

Gross Profit

Gross profit for the third quarter of fiscal 2022 decreased $25.7 million, or 14.4%, versus the third quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted gross profit in the third quarter of fiscal 2022 by $9.0 million, gross profit for the third quarter of fiscal 2022 would have decreased 9.4% versus the prior year period. Excluding the net impact of the $0.0 million of restructuring charges in the third quarter of fiscal 2022 and the net impact of the $4.9 million of restructuring charges in the third quarter of fiscal 2021, gross profit for the third quarter of fiscal 2022 would have decreased by 16.7%, or 11.8% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin for the third quarter of fiscal 2022 increased to 61.0% versus 60.7% for the third quarter of fiscal 2021. Excluding the impact of foreign currency, gross margin in the third quarter of fiscal 2022 would have increased 0.9% to 61.5% versus the prior year period. Excluding the net impact of restructuring charges in the third quarter of fiscal 2022 and the net impact of restructuring charges in the third quarter of fiscal 2021, gross margin for the third quarter of fiscal 2022 would have decreased 1.3% to 61.0% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the third quarter of fiscal 2022 and the net impact of restructuring charges in the third quarter of fiscal 2021, gross margin for the third quarter of fiscal 2022 would have decreased 0.8% to 61.5% versus the prior year period. The gross margin decrease was driven primarily by a revenue mix shift away from our higher margin Digital business to our lower margin Workshops + Digital business.

Marketing

Marketing expenses for the third quarter of fiscal 2022 increased $1.1 million, or 3.3%, versus the third quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased marketing expenses in the third quarter of fiscal 2022 by $2.1 million, marketing expenses for the third quarter of fiscal 2022 would have increased 9.2% versus the prior year period. This increase in marketing expenses was primarily due to an increase in online, social and TV media spend. Marketing expenses as a percentage of revenue for the third quarter of fiscal 2022 increased to 14.3% from 11.8% for the third quarter of fiscal 2021.

Selling, General and Administrative

Selling, general and administrative expenses for the third quarter of fiscal 2022 decreased $5.3 million, or 8.3%, versus the third quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses in the third quarter of fiscal 2022 by $1.7 million, selling, general and administrative expenses for the third quarter of fiscal 2022 would have decreased 5.6% versus the prior year period. Excluding the net impact of the $3.7 million of restructuring charges in the third quarter of fiscal 2022 and the net impact of the $3.7 million of restructuring charges in the third quarter of fiscal 2021, selling, general and administrative expenses for the third quarter of fiscal 2022 would have decreased by 8.7%, or 5.8% on a constant currency basis, versus the prior year period. This decrease in selling, general and administrative expenses was primarily due to an increase in capitalizable projects, lower salary costs and lower legal and professional fees. Selling, general and administrative expenses as a percentage of revenue for the third quarter of fiscal 2022 increased to 23.4% from 21.7% for the third quarter of fiscal 2021. Excluding the net impact of restructuring charges in the third quarter of fiscal 2022 and the net impact of restructuring charges in the third quarter of fiscal 2021, selling, general and administrative expenses as a percentage of revenue for the third quarter of fiscal 2022 would have increased by 1.5%, or 1.1% on a constant currency basis, versus the prior year period.

Impairment

In performing our interim impairment analysis as of October 1, 2022, we determined that the carrying amounts of our United States, Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our United States, Canada and New Zealand units of account of $298.3 million, $13.3 million and $1.1 million, respectively, in the third quarter of fiscal 2022.

 

36


 

Operating (Loss) Income

Operating loss for the third quarter of fiscal 2022 was $254.5 million compared to operating income for the third quarter of fiscal 2021 of $79.7 million. Operating loss for the third quarter of fiscal 2022 was negatively impacted by $4.3 million of foreign currency. Excluding the impact of the $312.7 million of franchise rights acquired impairments in third quarter of fiscal 2022, the net impact of the $3.7 million of restructuring charges in the third quarter of fiscal 2022 and the net impact of the $8.6 million of restructuring charges in the third quarter of fiscal 2021, operating income would have been $61.9 million for the third quarter of fiscal 2022, a decrease of 30.0%, or 24.1% on a constant currency basis, versus operating income in the prior year period. Operating loss margin for the third quarter of fiscal 2022 was 101.9% compared to operating income margin for the third quarter of fiscal 2021 of 27.2%. Excluding the impact of the franchise rights acquired impairments in the third quarter of fiscal 2022, the net impact of restructuring charges in the third quarter of fiscal 2022 and the net impact of restructuring charges in the third quarter of fiscal 2021, operating income margin would have been 24.8% for the third quarter of fiscal 2022, a decrease of 5.3%, or 4.5% on a constant currency basis, versus operating income margin in the prior year period. This decrease in operating income margin was driven by an increase in marketing expenses as a percentage of revenue, an increase in selling, general and administrative expenses as a percentage of revenue and a decrease in gross margin versus the prior year period.

Interest Expense

Interest expense for the third quarter of fiscal 2022 increased $1.6 million, or 8.4%, versus the third quarter of fiscal 2021. The increase in interest expense was driven primarily by an increase in the base rate of our Term Loan Facility (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 third quarter of fiscal 2022 and the third quarter of fiscal 2021 and excluding the impact of our interest rate swaps then in effect, increased to 5.68% per annum at the end of the third quarter of fiscal 2022 from 4.69% per annum at the end of the third 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 third quarter of fiscal 2022 and the third quarter of fiscal 2021, increased to 5.77% per annum at the end of the third quarter of fiscal 2022 from 5.29% per annum at the end of the third 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, Net

Other expense, net, which consists primarily of the impact of foreign currency on intercompany transactions, increased by $0.6 million for the third quarter of fiscal 2022 to $1.3 million of expense as compared to $0.8 million of expense for the third quarter of fiscal 2021.

Tax

Our effective tax rate for the third quarter of fiscal 2022 was 25.6% as compared to 22.4% for the third quarter of fiscal 2021. The tax benefit for the third quarter of fiscal 2022 was impacted by a U.S. state tax rate change. For the third quarter of fiscal 2022, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to foreign-derived intangible income, or FDII. The tax expense for the third quarter of fiscal 2021 was impacted by the reversal of a valuation allowance related to tax benefits for foreign losses that are now expected to be realized. For the third quarter of fiscal 2021, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII.

We continue to evaluate the realizability of our deferred tax assets and if our U.S. business continues to decline, it is possible that some or all of the business interest expense carryforward may not be used. While this carryforward has an indefinite life, a change in the valuation allowance is possible in the foreseeable future which could materially increase our tax expense in the period the valuation allowance is recognized.

Net (Loss) Income and Diluted (Net Loss) Earnings Per Share

Net loss for the third quarter of fiscal 2022 was $206.0 million compared to net income for the third quarter of fiscal 2021 of $46.3 million. Net loss for the third quarter of fiscal 2022 was negatively impacted by $2.7 million of foreign currency. Net loss for the third quarter of fiscal 2022 included a $235.1 million impact from the franchise rights acquired impairments and a $2.7 million net impact from restructuring charges. Net income for the third quarter of fiscal 2021 included a $6.5 million net impact from restructuring charges.

 

37


 

Diluted net loss per share for the third quarter of fiscal 2022 was $2.93 compared to earnings per fully diluted share, or EPS, of $0.65 for the third quarter of fiscal 2021. Diluted net loss per share for the third quarter of fiscal 2022 included a $3.34 impact from the franchise rights acquired impairments and a $0.04 net impact from restructuring charges. EPS for the third quarter of fiscal 2021 included a $0.09 net impact from restructuring charges. Additionally, EPS for the third quarter of fiscal 2021 included a $0.02 tax benefit due to the reversal of a valuation allowance related to foreign losses that are now expected to be realized.

 

 

38


 

Segment Results

Metrics and Business Trends

The following tables set forth key metrics by reportable segment for the third quarter of fiscal 2022 and the percentage change in those metrics versus the prior year period:

(in millions except percentages and as noted)

 

 

Q3 2022

 

 

 

GAAP

 

 

Constant Currency

 

 

 

 

 

 

 

 

 

 

 

 

Subscription
Revenues

 

 

Product
Sales &
Other

 

 

Total
Revenues

 

 

Subscription
Revenues

 

 

Product
Sales &
Other

 

 

Total
Revenues

 

 

Total
Paid
Weeks

 

 

Incoming
Subscribers

 

 

EOP
Subscribers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

North America

 

$

154.8

 

 

$

21.2

 

 

$

176.1

 

 

$

155.2

 

 

$

21.3

 

 

$

176.5

 

 

 

34.0

 

 

 

2,805.1

 

 

 

2,463.8

 

CE

 

 

51.2

 

 

 

5.3

 

 

 

56.5

 

 

 

60.0

 

 

 

6.2

 

 

 

66.2

 

 

 

13.6

 

 

 

1,118.9

 

 

 

1,009.7

 

UK

 

 

9.5

 

 

 

1.4

 

 

 

10.9

 

 

 

11.1

 

 

 

1.7

 

 

 

12.8

 

 

 

3.2

 

 

 

254.8

 

 

 

234.0

 

Other (1)

 

 

5.2

 

 

 

1.0

 

 

 

6.2

 

 

 

5.6

 

 

 

1.1

 

 

 

6.7

 

 

 

1.1

 

 

 

88.7

 

 

 

86.1

 

Total

 

$

220.7

 

 

$

29.0

 

 

$

249.7

 

 

$

231.9

 

 

$

30.2

 

 

$

262.2

 

 

 

51.9

 

 

 

4,267.5

 

 

 

3,793.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change Q3 2022 vs. Q3 2021

 

North America

 

 

(12.4

%)

 

 

0.8

%

 

 

(11.0

%)

 

 

(12.2

%)

 

 

1.0

%

 

 

(10.8

%)

 

 

(13.5

%)

 

 

(11.2

%)

 

 

(15.6

%)

CE

 

 

(21.5

%)

 

 

(20.9

%)

 

 

(21.5

%)

 

 

(8.0

%)

 

 

(7.1

%)

 

 

(8.0

%)

 

 

(12.5

%)

 

 

(12.2

%)

 

 

(12.6

%)

UK

 

 

(30.1

%)

 

 

(32.4

%)

 

 

(30.4

%)

 

 

(18.2

%)

 

 

(20.9

%)

 

 

(18.6

%)

 

 

(20.1

%)

 

 

(24.4

%)

 

 

(20.0

%)

Other (1)

 

 

(23.9

%)

 

 

(17.5

%)

 

 

(22.9

%)

 

 

(18.0

%)

 

 

(13.0

%)

 

 

(17.2

%)

 

 

(11.1

%)

 

 

(9.6

%)

 

 

(11.0

%)

Total

 

 

(15.9

%)

 

 

(6.8

%)

 

 

(14.9

%)

 

 

(11.6

%)

 

 

(2.8

%)

 

 

(10.7

%)

 

 

(13.6

%)

 

 

(12.3

%)

 

 

(15.0

%)

 

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)

 

 

Q3 2022

 

 

 

Digital Subscription Revenues

 

 

 

 

 

 

 

 

 

 

 

Workshops + Digital Fees

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

 

Constant
Currency

 

 

Digital
Paid
Weeks

 

 

Incoming
Digital
Subscribers

 

 

EOP
Digital
Subscribers

 

 

GAAP

 

 

Constant
Currency

 

 

Workshops
+ Digital
Paid
Weeks

 

 

Incoming
Workshops
+ Digital
Subscribers

 

 

EOP
Workshops
+ Digital
Subscribers

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

North America

 

$

102.7

 

 

$

103.0

 

 

 

26.3

 

 

 

2,174.6

 

 

 

1,908.4

 

 

$

52.1

 

 

$

52.2

 

 

 

7.8

 

 

 

630.5

 

 

 

555.4

 

CE

 

 

43.6

 

 

 

51.1

 

 

 

12.1

 

 

 

1,009.8

 

 

 

898.1

 

 

 

7.6

 

 

 

8.9

 

 

 

1.5

 

 

 

109.1

 

 

 

111.6

 

UK

 

 

5.7

 

 

 

6.7

 

 

 

2.3

 

 

 

182.8

 

 

 

168.6

 

 

 

3.8

 

 

 

4.4

 

 

 

0.9

 

 

 

72.0

 

 

 

65.4

 

Other (1)

 

 

3.8

 

 

 

4.1

 

 

 

0.9

 

 

 

72.8

 

 

 

70.9

 

 

 

1.4

 

 

 

1.5

 

 

 

0.2

 

 

 

15.9

 

 

 

15.2

 

Total

 

$

155.9

 

 

$

164.9

 

 

 

41.6

 

 

 

3,440.0

 

 

 

3,046.1

 

 

$

64.9

 

 

$

67.0

 

 

 

10.3

 

 

 

827.6

 

 

 

747.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change Q3 2022 vs. Q3 2021

 

North America

 

 

(17.9

%)

 

 

(17.7

%)

 

 

(17.8

%)

 

 

(16.5

%)

 

 

(18.5

%)

 

 

0.9

%

 

 

1.1

%

 

 

5.7

%

 

 

13.8

%

 

 

(3.7

%)

CE

 

 

(22.8

%)

 

 

(9.6

%)

 

 

(15.5

%)

 

 

(14.4

%)

 

 

(15.5

%)

 

 

(13.1

%)

 

 

1.9

%

 

 

23.8

%

 

 

15.7

%

 

 

21.0

%

UK

 

 

(36.8

%)

 

 

(26.0

%)

 

 

(24.4

%)

 

 

(29.9

%)

 

 

(23.0

%)

 

 

(16.9

%)

 

 

(2.7

%)

 

 

(7.0

%)

 

 

(5.9

%)

 

 

(11.1

%)

Other (1)

 

 

(18.2

%)

 

 

(11.9

%)

 

 

(6.0

%)

 

 

(2.6

%)

 

 

(7.5

%)

 

 

(36.2

%)

 

 

(31.0

%)

 

 

(28.8

%)

 

 

(32.0

%)

 

 

(24.3

%)

Total

 

 

(20.2

%)

 

 

(15.6

%)

 

 

(17.3

%)

 

 

(16.5

%)

 

 

(17.7

%)

 

 

(3.3

%)

 

 

(0.1

%)

 

 

5.6

%

 

 

10.6

%

 

 

(2.0

%)

 

Note: Totals may not sum due to rounding.

(1)
Represents Australia, New Zealand and emerging markets operations and franchise revenues.

 

39


 

North America Performance

The decrease in North America revenues for the third quarter of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues. The decrease in Subscription Revenues for the third quarter of fiscal 2022 versus the prior year period was driven by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of the third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and the recruitment decline during the third 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 and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in North America Total Paid Weeks for the third 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 third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and lower recruitments for the third quarter of fiscal 2022 versus the prior year period. For the third quarter of fiscal 2022, Workshops + Digital Fees, Workshops + Digital Paid Weeks and End of Period Workshops + Digital Subscribers all substantially benefited from the transition of our former Digital 360 members from the Digital business to the Workshops + Digital business during the second and third quarters of fiscal 2022 as previously disclosed.

The slight increase in North America product sales and other for the third quarter of fiscal 2022 versus the prior year period was driven primarily by an increase in licensing, partially offset by a decrease in product sales.

Continental Europe Performance

The decrease in Continental Europe revenues for the third 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 third quarter of fiscal 2022 versus the prior year period was driven by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of the third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and the recruitment decline during the third 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 and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in Continental Europe Total Paid Weeks for the third quarter of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the third quarter of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of the third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021.

The decrease in Continental Europe product sales and other for the third quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in product sales.

United Kingdom Performance

The decrease in UK revenues for the third 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 third quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of the third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and the recruitment decline during the third 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 and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in UK Total Paid Weeks for the third 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 third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and lower recruitments for the third quarter of fiscal 2022 versus the prior year period.

The decrease in UK product sales and other for the third 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 third 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 third 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 Total Incoming Subscribers at the beginning of the third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and the recruitment decline during the third 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 and our PersonalPoints program not resonating with consumers to the extent anticipated.

The decrease in Other product sales and other for the third quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.

 

 

40


 

RESULTS OF OPERATIONS

NINE MONTHS ENDED OCTOBER 1, 2022 COMPARED TO THE NINE MONTHS ENDED OCTOBER 2, 2021

The table below sets forth selected financial information for the first nine months of fiscal 2022 from our consolidated statements of net income for the nine months ended October 1, 2022 versus selected financial information for the first nine months of fiscal 2021 from our consolidated statements of net income for the nine months ended October 2, 2021.

Summary of Selected Financial Data

 

 

 

(In millions, except per share amounts)

 

 

 

 

 

 

 

 

 

 

For The Nine Months Ended

 

 

 

 

 

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

Increase/
(Decrease)

 

 

%
Change

 

 

% Change
Constant
Currency

 

 

Revenues, net

 

$

816.9

 

 

$

936.7

 

 

$

(119.7

)

 

 

(12.8

%)

 

 

(9.6

%)

 

Cost of revenues

 

 

321.5

 

 

 

379.2

 

 

 

(57.7

)

 

 

(15.2

%)

 

 

(13.0

%)

 

Gross profit

 

 

495.4

 

 

 

557.5

 

 

 

(62.1

)

 

 

(11.1

%)

 

 

(7.3

%)

 

Gross Margin %

 

 

60.6

%

 

 

59.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing expenses

 

 

195.1

 

 

 

208.7

 

 

 

(13.5

)

 

 

(6.5

%)

 

 

(3.6

%)

 

Selling, general & administrative expenses

 

 

193.3

 

 

 

206.6

 

 

 

(13.3

)

 

 

(6.4

%)

 

 

(4.5

%)

 

Franchise rights acquired and goodwill
   impairments

 

 

339.2

 

 

 

 

 

 

339.2

 

 

 

100.0

%

 

 

100.0

%

 

Operating (loss) income

 

 

(232.2

)

 

 

142.2

 

 

 

(374.4

)

 

 

(100.0

%)

*

 

(100.0

%)

*

Operating (Loss) Income Margin %

 

 

(28.4

%)

 

 

15.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

58.8

 

 

 

68.7

 

 

 

(9.9

)

 

 

(14.4

%)

 

 

(14.4

%)

 

Other expense, net

 

 

3.3

 

 

 

0.9

 

 

 

2.4

 

 

 

100.0

%

*

 

100.0

%

*

Early extinguishment of debt

 

 

 

 

 

29.2

 

 

 

(29.2

)

 

 

(100.0

%)

 

 

(100.0

%)

 

(Loss) income before income taxes

 

 

(294.3

)

 

 

43.5

 

 

 

(337.8

)

 

 

(100.0

%)

*

 

(100.0

%)

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Benefit from) provision for income taxes

 

 

(75.4

)

 

 

6.5

 

 

 

(81.9

)

 

 

(100.0

%)

*

 

(100.0

%)

*

Net (loss) income

 

$

(218.9

)

 

$

37.0

 

 

$

(255.9

)

 

 

(100.0

%)

*

 

(100.0

%)

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares
   outstanding

 

 

70.3

 

 

 

70.9

 

 

 

(0.6

)

 

 

(0.9

%)

 

 

(0.9

%)

 

Diluted (net loss) earnings per share

 

$

(3.12

)

 

$

0.52

 

 

$

(3.64

)

 

 

(100.0

%)

*

 

(100.0

%)

*

 

Note: Totals may not sum due to rounding.

*Note: Percentage in excess of 100.0%.

 

 

41


 

 

Certain results for the first nine months of fiscal 2022 are adjusted to exclude the impact of the $339.2 million of franchise rights acquired and goodwill impairments and the net impact of the $22.7 million of 2022 plan restructuring charges, the reversal of $0.2 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 first nine months ended October 1, 2022 which have been adjusted.

 

 

 

 

 

 

Gross

 

 

 

 

 

Operating

 

 

 

Gross

 

 

Profit

 

 

Operating

 

 

(Loss) Income

 

(in millions except percentages)

 

Profit

 

 

Margin

 

 

(Loss) Income

 

 

Margin

 

First Nine Months of Fiscal 2022

 

$

495.4

 

 

 

60.6

%

 

$

(232.2

)

 

 

(28.4

%)

Adjustments to reported amounts (1)

 

 

 

 

 

 

 

 

 

 

 

 

Franchise rights acquired and goodwill impairments

 

 

 

 

 

 

 

 

339.2

 

 

 

 

2022 plan restructuring charges

 

 

4.4

 

 

 

 

 

 

22.7

 

 

 

 

2021 plan restructuring charges

 

 

(0.4

)

 

 

 

 

 

(0.2

)

 

 

 

2020 plan restructuring charges

 

 

(0.1

)

 

 

 

 

 

(0.1

)

 

 

 

Total adjustments (1)

 

 

3.9

 

 

 

 

 

 

361.5

 

 

 

 

First Nine Months of Fiscal 2022, as adjusted (1)

 

$

499.3

 

 

 

61.1

%

 

$

129.3

 

 

 

15.8

%

 

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 nine months of fiscal 2022 to exclude the impact of the $339.2 million ($256.4 million after tax) of franchise rights acquired and goodwill impairments and the net impact of the $22.7 million ($17.0 million after tax) of 2022 plan restructuring charges, the reversal of $0.2 million ($0.1 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 nine months of fiscal 2021 are adjusted to exclude the net impact of the $20.9 million of 2021 plan restructuring charges and the reversal of $1.5 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 first nine months ended October 2, 2021 which have been adjusted.

 

 

 

 

 

 

Gross

 

 

 

 

 

Operating

 

 

 

Gross

 

 

Profit

 

 

Operating

 

 

Income

 

(in millions except percentages)

 

Profit

 

 

Margin

 

 

Income

 

 

Margin

 

First Nine Months of Fiscal 2021

 

$

557.5

 

 

 

59.5

%

 

$

142.2

 

 

 

15.2

%

Adjustments to reported amounts (1)

 

 

 

 

 

 

 

 

 

 

 

 

2021 plan restructuring charges

 

 

16.4

 

 

 

 

 

 

20.9

 

 

 

 

2020 plan restructuring charges

 

 

(1.3

)

 

 

 

 

 

(1.5

)

 

 

 

Total adjustments (1)

 

 

15.1

 

 

 

 

 

 

19.4

 

 

 

 

First Nine Months of Fiscal 2021, as adjusted (1)

 

$

572.6

 

 

 

61.1

%

 

$

161.6

 

 

 

17.3

%

 

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 nine months of fiscal 2021 to exclude the net impact of the $20.9 million ($15.6 million after tax) of 2021 plan restructuring charges and the reversal of $1.5 million ($1.1 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.

Consolidated Results

Revenues

Revenues for the first nine months of fiscal 2022 were $816.9 million, a decrease of $119.7 million, or 12.8%, versus the first nine months of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted our revenues in the first nine months of fiscal 2022 by $29.5 million, revenues for the first nine months of fiscal 2022 would have decreased 9.6% versus the prior year period. This decrease was driven primarily by lower Subscription Revenues reflecting lower sign-ups primarily due to worsened consumer sentiment and our PersonalPoints program not resonating with consumers to the extent anticipated. 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.

 

42


 

Cost of Revenues

Total cost of revenues for the first nine months of fiscal 2022 decreased $57.7 million, or 15.2%, versus the first nine months of fiscal 2021. Excluding the impact of foreign currency, which decreased cost of revenues in the first nine months of fiscal 2022 by $8.3 million, cost of revenues for the first nine months of fiscal 2022 would have decreased 13.0% versus the prior year period. Excluding the net impact of the $3.9 million of restructuring charges in the first nine months of fiscal 2022 and the net impact of the $15.1 million of restructuring charges in the first nine months of fiscal 2021, total cost of revenues for the first nine months of fiscal 2022 would have decreased by 12.7%, or 10.5% on a constant currency basis, versus the prior year period.

Gross Profit

Gross profit for the first nine months of fiscal 2022 decreased $62.1 million, or 11.1%, versus the first nine months of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted gross profit in the first nine months of fiscal 2022 by $21.1 million, gross profit for the first nine months of fiscal 2022 would have decreased 7.3% versus the prior year period. Excluding the net impact of the $3.9 million of restructuring charges in the first nine months of fiscal 2022 and the net impact of the $15.1 million of restructuring charges in the first nine months of fiscal 2021, gross profit for the first nine months of fiscal 2022 would have decreased by 12.8%, or 9.1% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin for the first nine months of fiscal 2022 increased to 60.6% versus 59.5% for the first nine months of fiscal 2021. Excluding the impact of foreign currency, gross margin in the first nine months of fiscal 2022 would have increased 1.5% to 61.0% versus the prior year period. Excluding the net impact of restructuring charges in the first nine months of fiscal 2022 and the net impact of restructuring charges in the first nine months of fiscal 2021, gross margin for the first nine months of fiscal 2022 would have been flat at 61.1% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the first nine months of fiscal 2022 and the net impact of restructuring charges in the first nine months of fiscal 2021, gross margin for the first nine months of fiscal 2022 would have increased 0.4% to 61.5% versus the prior year period. The gross margin increase was driven primarily by margin expansion in the Workshops + Digital business resulting from a more efficient studio footprint and a reduction in labor costs.

Marketing

Marketing expenses for the first nine months of fiscal 2022 decreased $13.5 million, or 6.5%, versus the first nine months of fiscal 2021. Excluding the impact of foreign currency, which decreased marketing expenses in the first nine months of fiscal 2022 by $6.1 million, marketing expenses for the first nine months of fiscal 2022 would have decreased 3.6% 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 nine months of fiscal 2022 increased to 23.9% from 22.3% for the first nine months of fiscal 2021.

Selling, General and Administrative

Selling, general and administrative expenses for the first nine months of fiscal 2022 decreased $13.3 million, or 6.4%, versus the first nine months of fiscal 2021. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses in the first nine months of fiscal 2022 by $4.0 million, selling, general and administrative expenses for the first nine months of fiscal 2022 would have decreased 4.5% versus the prior year period. Excluding the impact of the $18.5 million of restructuring charges in the first nine months of fiscal 2022 and the net impact of the $4.3 million of restructuring charges in the first nine months of fiscal 2021, selling, general and administrative expenses for the first nine months of fiscal 2022 would have decreased by 13.6%, or 11.6% on a constant currency basis, versus the prior year period. This decrease in selling, general and administrative expenses was primarily due to lower stock compensation expense, lower salary costs, lower professional fees and an increase in capitalizable projects. Selling, general and administrative expenses as a percentage of revenue for the first nine months of fiscal 2022 increased to 23.7% from 22.1% for the first nine months of fiscal 2021. Excluding the impact of restructuring charges in the first nine months of fiscal 2022 and the net impact of restructuring charges in the first nine months of fiscal 2021, selling, general and administrative expenses as a percentage of revenue for the first nine months of fiscal 2022 would have decreased by 0.2%, or 0.5% on a constant currency basis, versus the prior year period.

Impairments

In performing our interim impairment analysis as of October 1, 2022, we determined that the carrying amounts of our United States, Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our United States, Canada and New Zealand units of account of $298.3 million, $13.3 million and $1.1 million, respectively, in the third quarter of fiscal 2022.

 

43


 

In performing our annual impairment analysis as of May 8, 2022, we determined that the carrying amounts of our Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our Canada and New Zealand units of account of $24.5 million and $0.8 million, respectively, in the second quarter of fiscal 2022. In addition, we determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of our strategic plan. As a result of this determination, we recorded an impairment charge of $1.1 million in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo.

Operating (Loss) Income

Operating loss for the first nine months of fiscal 2022 was $232.2 million compared to operating income for the first nine months of fiscal 2021 of $142.2 million. Operating loss for the first nine months of fiscal 2022 was negatively impacted by $8.9 million of foreign currency. Excluding the impact of the $339.2 million of franchise rights acquired and goodwill impairments in the first nine months of fiscal 2022, the net impact of the $22.4 million of restructuring charges in the first nine months of fiscal 2022 and the net impact of the $19.4 million of restructuring charges in the first nine months of fiscal 2021, operating income would have been $129.3 million for the first nine months of fiscal 2022, a decrease of 20.0%, or 13.1% on a constant currency basis, versus operating income in the prior year period. Operating loss margin for the first nine months of fiscal 2022 was 28.4% compared to operating income margin for the first nine months of fiscal 2021 of 15.2%. Excluding the impact of the franchise rights acquired and goodwill impairments in the first nine months of fiscal 2022, the net impact of restructuring charges in the first nine months of fiscal 2022 and the net impact of restructuring charges in the first nine months of fiscal 2021, operating income margin would have been 15.8% for the first nine months of fiscal 2022, a decrease of 1.4%, or 0.7% on a constant currency basis, versus operating income margin in the prior year period. This decrease in operating income margin was driven by an increase in marketing expenses as a percentage of revenue, partially offset by a decrease in selling, general and administrative expenses as a percentage of revenue and an increase in gross margin, versus the prior year period.

Interest Expense

Interest expense for the first nine months of fiscal 2022 decreased $9.9 million, or 14.4%, versus the first nine months of fiscal 2021. The decrease in interest expense was driven primarily by lower interest rates under our Term Loan Facility 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 nine months of fiscal 2022 and the first nine months of fiscal 2021 and excluding the impact of our interest rate swaps then in effect, decreased to 4.98% per annum at the end of the first nine months of fiscal 2022 from 5.28% per annum at the end of the first nine months 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 nine months of fiscal 2022 and the first nine months of fiscal 2021, decreased to 5.40% per annum at the end of the first nine months of fiscal 2022 from 6.00% per annum at the end of the first nine months 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, Net

Other expense, net, which consists primarily of the impact of foreign currency on intercompany transactions, increased by $2.4 million for the first nine months of fiscal 2022 to $3.3 million of expense as compared to $0.9 million of expense for the first nine months of fiscal 2021.

Early Extinguishment of Debt

In the second quarter of fiscal 2021, we wrote-off $29.2 million of fees in connection with our April 2021 debt refinancing that we recorded as an early extinguishment of debt charge, comprised of $12.9 million of a prepayment penalty on the Discharged Senior Notes (as defined below), $9.0 million of financing fees and $7.2 million of pre-existing deferred financing fees and debt discount. For additional details on this refinancing, see “—Liquidity and Capital Resources—Long-Term Debt”.

 

44


 

Tax

Our effective tax rate for the first nine months of fiscal 2022 was 25.6% as compared to 14.9% for the first nine months of fiscal 2021. The tax benefit for the first nine months of fiscal 2022 was impacted by out-of-period income tax adjustments and a U.S. state tax rate change, partially offset by tax shortfalls from stock compensation. For the first nine months of fiscal 2022, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII. The tax expense for the first nine months of fiscal 2021 was impacted by tax windfalls from stock compensation and the reversal of a valuation allowance related to tax benefits for foreign losses that are now expected to be realized. For the first nine months of fiscal 2021, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII.

We continue to evaluate the realizability of our deferred tax assets and if our U.S. business continues to decline, it is possible that some or all of the business interest expense carryforward may not be used. While this carryforward has an indefinite life, a change in the valuation allowance is possible in the foreseeable future which could materially increase our tax expense in the period the valuation allowance is recognized.

Net (Loss) Income and Diluted (Net Loss) Earnings Per Share

Net loss for the first nine months of fiscal 2022 was $218.9 million compared to net income for the first nine months of fiscal 2021 of $37.0 million. Net loss for the first nine months of fiscal 2022 was negatively impacted by $5.7 million of foreign currency. Net loss for the first nine months of fiscal 2022 included a $256.4 million impact from franchise rights acquired and goodwill impairments and a $16.7 million net impact from restructuring charges. Net income for the first nine months of fiscal 2021 included a $21.8 million impact from the write-off of fees related to our April 2021 debt refinancing and an $14.5 million net impact from restructuring charges.

Diluted net loss per share for the first nine months of fiscal 2022 was $3.12 compared to EPS of $0.52 for the first nine months of fiscal 2021. Diluted net loss per share for the first nine months of fiscal 2022 included a $3.65 impact from franchise rights acquired and goodwill impairments and a $0.24 net impact from restructuring charges. EPS for the first nine months of fiscal 2021 included a $0.31 impact from the write-off of fees related to our April 2021 debt refinancing and a $0.20 net impact from restructuring charges. Additionally, EPS in the first nine months of fiscal 2021 included a $0.02 tax benefit due to the reversal of a valuation allowance related to foreign losses that are now expected to be realized.

 

 

45


 

Segment Results

Metrics and Business Trends

The following tables set forth key metrics by reportable segment for the first nine months of fiscal 2022 and the percentage change in those metrics versus the prior year period:

(in millions except percentages and as noted)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Nine Months of Fiscal 2022

 

 

 

GAAP

 

 

Constant Currency

 

 

 

 

 

 

 

 

 

 

 

 

Subscription
Revenues

 

 

Product
Sales &
Other

 

 

Total
Revenues

 

 

Subscription
Revenues

 

 

Product
Sales &
Other

 

 

Total
Revenues

 

 

Total
Paid
Weeks

 

 

Incoming
Subscribers

 

 

EOP
Subscribers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

North America

 

$

498.0

 

 

$

70.4

 

 

$

568.4

 

 

$

498.8

 

 

$

70.5

 

 

$

569.3

 

 

 

110.5

 

 

 

2,734.9

 

 

 

2,463.8

 

CE

 

 

169.5

 

 

 

19.6

 

 

 

189.1

 

 

 

190.7

 

 

 

21.9

 

 

 

212.6

 

 

 

44.1

 

 

 

1,094.1

 

 

 

1,009.7

 

UK

 

 

32.6

 

 

 

5.5

 

 

 

38.1

 

 

 

35.8

 

 

 

6.0

 

 

 

41.8

 

 

 

10.1

 

 

 

245.0

 

 

 

234.0

 

Other (1)

 

 

18.0

 

 

 

3.3

 

 

 

21.3

 

 

 

19.2

 

 

 

3.5

 

 

 

22.7

 

 

 

3.6

 

 

 

94.5

 

 

 

86.1

 

Total

 

$

718.1

 

 

$

98.8

 

 

$

816.9

 

 

$

744.5

 

 

$

101.9

 

 

$

846.4

 

 

 

168.3

 

 

 

4,168.6

 

 

 

3,793.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change First Nine Months of Fiscal 2022 vs. First Nine Months of Fiscal 2021

 

North America

 

 

(8.7

%)

 

 

(13.2

%)

 

 

(9.3

%)

 

 

(8.6

%)

 

 

(13.1

%)

 

 

(9.2

%)

 

 

(8.5

%)

 

 

(3.1

%)

 

 

(15.6

%)

CE

 

 

(17.1

%)

 

 

(28.1

%)

 

 

(18.4

%)

 

 

(6.7

%)

 

 

(19.7

%)

 

 

(8.3

%)

 

 

(11.5

%)

 

 

(7.2

%)

 

 

(12.6

%)

UK

 

 

(23.7

%)

 

 

(39.0

%)

 

 

(26.4

%)

 

 

(16.2

%)

 

 

(33.3

%)

 

 

(19.2

%)

 

 

(21.7

%)

 

 

(24.3

%)

 

 

(20.0

%)

Other (1)

 

 

(19.2

%)

 

 

(20.9

%)

 

 

(19.5

%)

 

 

(13.6

%)

 

 

(16.8

%)

 

 

(14.1

%)

 

 

(8.5

%)

 

 

(3.2

%)

 

 

(11.0

%)

Total

 

 

(11.9

%)

 

 

(18.7

%)

 

 

(12.8

%)

 

 

(8.7

%)

 

 

(16.2

%)

 

 

(9.6

%)

 

 

(10.2

%)

 

 

(5.8

%)

 

 

(15.0

%)

 

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)

 

 

First Nine Months of Fiscal 2022

 

 

 

Digital Subscription Revenues

 

 

 

 

 

 

 

 

 

 

 

Workshops + Digital Fees

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

 

Constant
Currency

 

 

Digital
Paid
Weeks

 

 

Incoming
Digital
Subscribers

 

 

EOP
Digital
Subscribers

 

 

GAAP

 

 

Constant
Currency

 

 

Workshops
+ Digital
Paid
Weeks

 

 

Incoming
Workshops
+ Digital
Subscribers

 

 

EOP
Workshops
+ Digital
Subscribers

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

North America

 

$

342.5

 

 

$

343.1

 

 

 

87.7

 

 

 

2,186.9

 

 

 

1,908.4

 

 

$

155.6

 

 

$

155.8

 

 

 

22.7

 

 

 

548.0

 

 

 

555.4

 

CE

 

 

145.9

 

 

 

164.1

 

 

 

39.9

 

 

 

998.5

 

 

 

898.1

 

 

 

23.6

 

 

 

26.6

 

 

 

4.2

 

 

 

95.7

 

 

 

111.6

 

UK

 

 

20.1

 

 

 

22.1

 

 

 

7.4

 

 

 

179.7

 

 

 

168.6

 

 

 

12.5

 

 

 

13.8

 

 

 

2.7

 

 

 

65.3

 

 

 

65.4

 

Other (1)

 

 

13.1

 

 

 

14.0

 

 

 

3.0

 

 

 

76.0

 

 

 

70.9

 

 

 

4.9

 

 

 

5.2

 

 

 

0.7

 

 

 

18.5

 

 

 

15.2

 

Total

 

$

521.6

 

 

$

543.2

 

 

 

138.1

 

 

 

3,441.1

 

 

 

3,046.1

 

 

$

196.5

 

 

$

201.3

 

 

 

30.3

 

 

 

727.4

 

 

 

747.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change First Nine Months of Fiscal 2022 vs. First Nine Months of Fiscal 2021

 

North America

 

 

(11.6

%)

 

 

(11.4

%)

 

 

(11.9

%)

 

 

(6.3

%)

 

 

(18.5

%)

 

 

(1.7

%)

 

 

(1.6

%)

 

 

7.4

%

 

 

12.3

%

 

 

(3.7

%)

CE

 

 

(17.1

%)

 

 

(6.8

%)

 

 

(12.8

%)

 

 

(5.8

%)

 

 

(15.5

%)

 

 

(16.9

%)

 

 

(6.3

%)

 

 

3.5

%

 

 

(20.1

%)

 

 

21.0

%

UK

 

 

(29.2

%)

 

 

(22.4

%)

 

 

(25.1

%)

 

 

(23.5

%)

 

 

(23.0

%)

 

 

(12.7

%)

 

 

(3.9

%)

 

 

(10.7

%)

 

 

(26.2

%)

 

 

(11.1

%)

Other (1)

 

 

(11.7

%)

 

 

(5.6

%)

 

 

(2.4

%)

 

 

2.8

%

 

 

(7.5

%)

 

 

(34.1

%)

 

 

(29.6

%)

 

 

(28.8

%)

 

 

(21.9

%)

 

 

(24.3

%)

Total

 

 

(14.0

%)

 

 

(10.5

%)

 

 

(12.8

%)

 

 

(7.1

%)

 

 

(17.7

%)

 

 

(5.7

%)

 

 

(3.4

%)

 

 

3.8

%

 

 

1.0

%

 

 

(2.0

%)

 

Note: Totals may not sum due to rounding.

(1)
Represents Australia, New Zealand and emerging markets operations and franchise revenues.

 

46


 

North America Performance

The decrease in North America revenues for the first nine months 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 nine months of fiscal 2022 versus the prior year period was driven primarily by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the recruitment decline during the first nine months of fiscal 2022 as compared to the prior year period and the lower number of Incoming Digital Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in North America Total Paid Weeks for the first nine months of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the first nine months of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. For the first nine months of fiscal 2022, Workshops + Digital Fees, Workshops + Digital Paid Weeks and End of Period Workshops + Digital Subscribers all substantially benefited from the transition of our former Digital 360 members from the Digital business to the Workshops + Digital business during the second and third quarters of fiscal 2022 as previously disclosed.

The decrease in North America product sales and other for the first nine months of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.

Continental Europe Performance

The decrease in Continental Europe revenues for the first nine months 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 nine months of fiscal 2022 versus the prior year period was driven primarily by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the recruitment decline during the first nine months of fiscal 2022 as compared to the prior year period and the lower number of Incoming Digital Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in Continental Europe Total Paid Weeks for the first nine months of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the first nine months of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021.

The decrease in Continental Europe product sales and other for the first nine months 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 nine months 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 nine months of fiscal 2022 versus the prior year period was driven primarily by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021 and the recruitment decline during the first nine months 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 and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in UK Total Paid Weeks for the first nine months of fiscal 2022 versus the prior year period was driven primarily by both the lower number of Total Incoming Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021 and lower recruitments for the first nine months of fiscal 2022 versus the prior year period.

The decrease in UK product sales and other for the first nine months 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 nine months 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 nine months of fiscal 2022 versus the prior year period was driven by a decrease in Workshops + Digital Fees and, to a lesser extent, a decrease in Digital Subscription Revenues. Subscription Revenues were negatively impacted by both the recruitment decline during the first nine months of fiscal 2022 as compared to the prior year period and the lower number of Total Incoming Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated.

 

47


 

The decrease in Other product sales and other for the first nine months of fiscal 2022 versus the prior year period was driven primarily by a decrease in product sales, licensing and franchise commissions.

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. We currently believe that cash generated by operations, our cash on hand of approximately $188.3 million at October 1, 2022, our availability under our Revolving Credit Facility (as defined below) at October 1, 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. 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 fully 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 at:

 

 

 

October 1,

 

 

January 1,

 

 

Increase/

 

 

 

2022

 

 

2022

 

 

(Decrease)

 

 

 

(in millions)

 

Total current assets

 

$

289.8

 

 

$

271.2

 

 

$

18.6

 

Total current liabilities

 

 

200.0

 

 

 

229.1

 

 

 

(29.2

)

Working capital surplus

 

 

89.8

 

 

 

42.0

 

 

 

(47.8

)

Cash and cash equivalents

 

 

188.3

 

 

 

153.8

 

 

 

34.5

 

Working capital deficit, excluding cash and cash equivalents

 

$

(98.5

)

 

$

(111.8

)

 

$

(13.3

)

 

Note: Totals may not sum due to rounding.

 

 

48


 

The following table sets forth a summary of the primary factors contributing to the $13.3 million decrease in our working capital deficit, excluding cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Impact to

 

 

 

October 1,

 

 

January 1,

 

 

Increase/

 

 

Working

 

 

 

2022

 

 

2022

 

 

(Decrease)

 

 

Capital Deficit

 

 

 

(in millions)

 

Derivative (receivable) payable, net

 

$

(8.6

)

 

$

14.7

 

 

$

(23.3

)

 

$

(23.3

)

Deferred revenue

 

$

39.8

 

 

$

45.9

 

 

$

(6.1

)

 

$

(6.1

)

Operational liabilities and other, net of assets

 

$

50.9

 

 

$

54.7

 

 

$

(3.8

)

 

$

(3.8

)

Portion of operating lease liabilities due within one year

 

$

18.5

 

 

$

20.3

 

 

$

(1.8

)

 

$

(1.8

)

Income taxes payable

 

$

1.8

 

 

$

1.7

 

 

$

0.1

 

 

$

0.1

 

Accrued interest

 

$

10.8

 

 

$

5.1

 

 

$

5.8

 

 

$

5.8

 

Prepaid income taxes

 

$

14.7

 

 

$

30.5

 

 

$

(15.8

)

 

$

15.8

 

Working capital deficit change, excluding cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

$

(13.3

)

 

Note: Totals may not sum due to rounding.

The change in derivative (receivable) payable, net was due to a change in fair value driven by the change in interest rates. The decrease in deferred revenue was driven primarily by lower signups compared to the prior year. The increase in accrued interest was due to the timing of debt principal payments. The decrease in prepaid income taxes was driven primarily by the timing of tax payments.

Cash Flows

The following table sets forth a summary of our cash flows for the nine months ended:

 

 

 

October 1,

 

 

October 2,

 

 

 

2022

 

 

2021

 

 

 

(in millions)

 

Net cash provided by operating activities

 

$

80.5

 

 

$

125.4

 

Net cash used for investing activities

 

$

(33.7

)

 

$

(43.6

)

Net cash used for financing activities

 

$

(2.1

)

 

$

(55.9

)

 

Operating Activities

First Nine Months of Fiscal 2022

Cash flows provided by operating activities of $80.5 million for the first nine months of fiscal 2022 reflected a decrease of $44.8 million from $125.4 million of cash flows provided by operating activities for the first nine months of fiscal 2021. The decrease in cash provided by operating activities was primarily the result of a decrease in net income, partially offset by an increase in non-cash add-back adjustments in the first nine months of fiscal 2022 as compared to the prior year period.

First Nine Months of Fiscal 2021

Cash flows provided by operating activities of $125.4 million for the first nine months of fiscal 2021 reflected a decrease of $2.1 million from $127.4 million of cash flows provided by operating activities for the first nine months of fiscal 2020.

Investing Activities

First Nine Months of Fiscal 2022

Net cash used for investing activities totaled $33.7 million for the first nine months of fiscal 2022, a decrease of $9.9 million as compared to the first nine months of fiscal 2021. This decrease was primarily attributable to a decrease in cash paid for acquisitions in the first nine months of fiscal 2022 as compared to the prior year period.

First Nine Months of Fiscal 2021

Net cash used for investing activities totaled $43.6 million for the first nine months of fiscal 2021, a decrease of $4.2 million as compared to the first nine months of fiscal 2020. This decrease was primarily attributable to lower capital expenditures, partially offset by an increase in cash paid for acquisitions, in the first nine months of fiscal 2021 as compared to the prior year period.

 

49


 

Financing Activities

First Nine Months of Fiscal 2022

Net cash used for financing activities totaled $2.1 million for the first nine months of fiscal 2022, a decrease of $53.8 million as compared to the first nine months of fiscal 2021. This decrease was primarily attributable to the April 13, 2021 payment in full of approximately $1.2 billion of borrowings under our then-existing credit facilities and redemption of all of the $300.0 million aggregate principal amount of our then-existing senior notes, as well as the payment in aggregate of $37.0 million of prepayment penalties, financing costs and debt discount in connection with the April 2021 debt refinancing in the first nine months of fiscal 2021. In addition, there was $19.3 million used for scheduled debt repayments under our then-existing term loan facility in the first quarter of fiscal 2021 and $2.5 million used for scheduled debt repayments under our Term Loan Facility (as defined below) in the third quarter of fiscal 2021. These payments were partially offset by the proceeds received of $1,000.0 million in an aggregate principal amount of borrowings under our Term Loan Facility and proceeds received from the issuance of $500.0 million in aggregate principal amount of our Senior Secured Notes (as defined below) in connection with our April 2021 debt refinancing in the first nine months of fiscal 2021. See “—Long-Term Debt” for additional details on debt.

First Nine Months of Fiscal 2021

Net cash used for financing activities totaled $55.9 million for the first nine months of fiscal 2021 primarily due to the April 13, 2021 payment in full of approximately $1.2 billion of borrowings under our then-existing credit facilities and redemption of all of the $300.0 million aggregate principal amount of our then-existing senior notes, as well as the payment in aggregate of $37.0 million of prepayment penalties, financing costs and debt discount in connection with the April 2021 debt refinancing. In addition, there was $19.3 million used for scheduled debt repayments under our then-existing term loan facility in the first quarter of fiscal 2021 and $2.5 million used for scheduled debt repayments under our Term Loan Facility in the third quarter of fiscal 2021. These payments were partially offset by the proceeds received of $1,000.0 million in an aggregate principal amount of borrowings under our Term Loan Facility and proceeds received from the issuance of $500.0 million in aggregate principal amount of our Senior Secured Notes in connection with our April 2021 debt refinancing. 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 October 1, 2022:

Long-Term Debt

At October 1, 2022

(Balances in millions)

 

 

October 1, 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

 

 

11.1

 

Unamortized debt discount

 

 

12.6

 

Total long-term debt

 

$

1,421.2

 

 

Note: Totals may not sum due to rounding.

 

 

50


 

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.

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.

As of October 1, 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 October 1, 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.

 

51


 

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 October 1, 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 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 a 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 an additional 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. As of October 1, 2022, our actual Consolidated First Lien Leverage Ratio was 4.99:1.00 and there were no borrowings under our Revolving Credit Facility and total letters of credit issued were $1.1 million. We expect we may not be able to satisfy the Consolidated First Lien Leverage Ratio in the near future, and as a result, the amount of funds we are able to borrow under the Revolving Credit Facility would be effectively limited.

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.

 

52


 

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 October 1, 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 October 1, 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 4.98% and 5.11% per annum at October 1, 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 5.28% and 5.62% per annum at October 1, 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 October 1, 2022:

Total Debt Obligation

(Including Current Portion)

At October 1, 2022

(in millions)

 

Remainder of fiscal 2022

 

$

 

Fiscal 2023

 

 

 

Fiscal 2024

 

 

 

Fiscal 2025

 

 

 

Fiscal 2026

 

 

 

Fiscal 2027

 

 

10.0

 

Thereafter

 

 

1,435.0

 

Total

 

$

1,445.0

 

 

Note: Totals may not sum due to rounding.

 

53


 

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 October 1, 2022 and October 2, 2021, the cumulative balance of changes in the fair value of derivative instruments, net of taxes, was a gain of $9.9 million and a loss of $14.5 million, respectively. At October 1, 2022 and October 2, 2021, the cumulative balance of the effects of foreign currency translations, net of taxes, was a loss of $21.2 million and a loss of $6.5 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 nine months ended October 1, 2022 and October 2, 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, franchise rights acquired and goodwill impairments, net restructuring charges and early extinguishment of debt.

 

 

54


 

The table below sets forth the reconciliations for EBITDAS and Adjusted EBITDAS, each a non-GAAP financial measure, to net (loss) income, the most comparable GAAP financial measure, for the three and nine months ended October 1, 2022 and October 2, 2021, and EBITDAS and Adjusted EBITDAS to net loss for the trailing twelve months ended October 1, 2022:

(in millions)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

 

 

October 1, 2022

 

 

October 2, 2021

 

 

October 1, 2022

 

 

October 2, 2021

 

 

Trailing Twelve
Months

 

Net (loss) income

 

$

(206.0

)

 

$

46.3

 

 

$

(218.9

)

 

$

37.0

 

 

$

(189.0

)

Interest

 

 

20.9

 

 

 

19.3

 

 

 

58.8

 

 

 

68.7

 

 

 

78.0

 

Taxes

 

 

(70.7

)

 

 

13.3

 

 

 

(75.4

)

 

 

6.5

 

 

 

(72.1

)

Depreciation and amortization

 

 

10.5

 

 

 

11.1

 

 

 

31.9

 

 

 

34.5

 

 

 

43.0

 

Stock-based compensation

 

 

3.4

 

 

 

3.4

 

 

 

10.4

 

 

 

16.6

 

 

 

15.1

 

   EBITDAS

 

$

(242.0

)

 

$

93.5

 

 

$

(193.2

)

 

$

163.2

 

 

$

(125.0

)

Franchise rights acquired and
   goodwill impairments

 

 

312.7

 

 

 

 

 

 

339.2

 

 

 

 

 

 

339.2

 

2022 plan restructuring charges

 

 

3.6

 

 

 

 

 

 

22.7

 

 

 

 

 

 

22.7

 

2021 plan restructuring charges

 

 

0.1

 

 

 

9.3

 

 

 

(0.2

)

 

 

20.9

 

 

 

0.4

 

2020 plan restructuring charges

 

 

 

 

 

(0.7

)

 

 

(0.1

)

 

 

(1.5

)

 

 

(0.2

)

Early extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

29.2

 

 

 

1.2

 

   Adjusted EBITDAS (1)

 

$

74.4

 

 

$

102.1

 

 

$

168.3

 

 

$

211.7

 

 

$

238.3

 

 

Note: Totals may not sum due to rounding.

(1)
The “Adjusted EBITDAS” measure is a non-GAAP financial measure that (i) adjusts the consolidated statements of net income for the three months ended October 1, 2022 to exclude the impact of the $312.7 million of franchise rights acquired impairments and the net impact of the $3.6 million of 2022 plan restructuring charges and the $0.1 million of 2021 plan restructuring charges; (ii) adjusts the consolidated statements of net income for the three months ended October 2, 2021 to exclude the net impact of the $9.3 million of 2021 plan restructuring charges and the reversal of $0.7 million of 2020 plan restructuring charges; (iii) adjusts the consolidated statements of net income for the nine months ended October 1, 2022 to exclude the impact of the $339.2 million of franchise rights acquired and goodwill impairments and the net impact of the $22.7 million of 2022 plan restructuring charges, the reversal of $0.2 million of 2021 plan restructuring charges and the reversal of $0.1 million of 2020 plan restructuring charges; (iv) adjusts the consolidated statements of net income for the nine months ended October 2, 2021 to exclude the net impact of the $20.9 million of 2021 plan restructuring charges and the reversal of $1.5 million of 2020 plan restructuring charges and the impact of the $29.2 million early extinguishment of debt; and (v) adjusts EBITDAS for the trailing twelve months ended October 1, 2022 to exclude the impact of the $339.2 million of franchise rights acquired and goodwill impairments, the net impact of the $22.7 million of 2022 plan restructuring charges, the $0.4 million of 2021 plan restructuring charges and the reversal of $0.2 million of 2020 plan restructuring charges and the impact of the $1.2 million early extinguishment of debt. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures.

Reducing leverage is a capital structure priority for the Company. As of October 1, 2022, our net debt/Adjusted EBITDAS ratio was 5.2x.

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 nine months ended:

(in millions)

 

 

October 1, 2022

 

Total debt

 

$

1,445.0

 

Less: Unamortized deferred financing costs

 

 

11.1

 

Less: Unamortized debt discount

 

 

12.6

 

Less: Cash on hand

 

 

188.3

 

   Net debt

 

$

1,232.9

 

 

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.

 

55


 

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of October 1, 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 third 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 October 1, 2022, our interest rate swaps in effect had an aggregate notional amount of $500.0 million. Accordingly, as of October 1, 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 $4.0 million. This increase and decrease would have been driven primarily by the interest rate applicable to our Term Loan Facility.

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 October 1, 2022, the end of the third 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 third 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

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.

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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Nothing to report under this item.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Nothing to report under this item.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Nothing to report under this item.

 

 

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ITEM 6. EXHIBITS

Exhibit Number

 

 

Description

 

 

 

*Exhibit 31.1

 

Rule 13a-14(a) Certification by Sima Sistani, Chief Executive Officer.

 

 

 

*Exhibit 31.2

 

Rule 13a-14(a) Certification by Amy O’Keefe, Chief Financial Officer.

 

 

 

*Exhibit 32.1

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

*Exhibit 101

 

 

 

 

 

*EX-101.INS

 

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.

 

 

 

*EX-101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

*EX-101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

*EX-101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

*EX-101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

*EX-101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

*Exhibit 104

 

The cover page from WW International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended October 1, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments).

 

* Filed herewith.

 

58


 

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.

 

 

WW INTERNATIONAL, INC.

 

 

 

Date: November 3, 2022

By:

/s/ Sima Sistani

 

 

Sima Sistani

 

 

Chief Executive Officer and Director

(Principal Executive Officer)

 

Date: November 3, 2022

By:

/s/ Amy O’Keefe

 

 

Amy O’Keefe

 

 

Chief Financial Officer

(Principal Financial Officer)

 

 

59