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WW WW International

Filed: 5 May 21, 4:32pm

 

 

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 April 3, 2021

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 April 28, 2021 was 69,520,571.

 

 

 


 

 

 

WW INTERNATIONAL, INC.

TABLE OF CONTENTS

 

 

 

Page No.

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.     

Financial Statements

 

2

 

 

 

 

 

Unaudited Consolidated Balance Sheets at April 3, 2021 and January 2, 2021

 

2

 

 

 

 

 

Unaudited Consolidated Statements of Net Income for the three months ended April 3, 2021 and March 28, 2020

 

3

 

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Income for the three months ended April 3, 2021 and March 28, 2020

 

4

 

 

 

 

 

Unaudited Consolidated Statements of Changes in Total Deficit for the three months ended April 3, 2021 and March 28, 2020

 

5

 

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the three months ended April 3, 2021 and March 28, 2020

 

6

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

7

 

 

 

Cautionary Notice Regarding Forward-Looking Statements

 

23

 

 

 

 

Item 2.     

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

 

25

 

 

 

 

Item 3.     

Quantitative and Qualitative Disclosures About Market Risk

 

43

 

 

 

 

Item 4.     

Controls and Procedures

 

43

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

Item 1.     

Legal Proceedings

 

44

 

 

 

 

Item 1A.     

Risk Factors

 

44

 

 

 

 

Item 2.     

Unregistered Sales of Equity Securities and Use of Proceeds

 

44

 

 

 

 

Item 3.     

Defaults Upon Senior Securities

 

44

 

 

 

 

Item 4.     

Mine Safety Disclosures

 

44

 

 

 

 

Item 5.     

Other Information

 

44

 

 

 

 

Item 6.     

Exhibits

 

45

 

 

 

Signatures

 

46

 

 

 


 

 

PART I—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

WW INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS AT

(IN THOUSANDS)

 

 

 

April 3,

 

 

January 2,

 

 

 

2021

 

 

2021

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

113,313

 

 

$

165,887

 

Receivables (net of allowances: April 3, 2021 - $2,211 and

   January 2, 2021 - $2,298)

 

 

39,889

 

 

 

34,555

 

Inventories

 

 

34,369

 

 

 

39,456

 

Prepaid income taxes

 

 

31,079

 

 

 

20,028

 

Prepaid marketing and advertising

 

 

6,344

 

 

 

15,656

 

Prepaid expenses and other current assets

 

 

26,182

 

 

 

23,610

 

TOTAL CURRENT ASSETS

 

 

251,176

 

 

 

299,192

 

Property and equipment, net

 

 

46,893

 

 

 

51,935

 

Operating lease assets

 

 

108,138

 

 

 

119,102

 

Franchise rights acquired

 

 

786,371

 

 

 

765,850

 

Goodwill

 

 

155,781

 

 

 

155,617

 

Other intangible assets, net

 

 

59,468

 

 

 

59,709

 

Deferred income taxes

 

 

13,045

 

 

 

13,625

 

Other noncurrent assets

 

 

15,502

 

 

 

16,144

 

TOTAL ASSETS

 

$

1,436,374

 

 

$

1,481,174

 

LIABILITIES AND TOTAL DEFICIT

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Portion of long-term debt due within one year

 

$

77,000

 

 

$

77,000

 

Portion of operating lease liabilities due within one year

 

 

24,045

 

 

 

28,551

 

Accounts payable

 

 

21,030

 

 

 

23,052

 

Salaries and wages payable

 

 

60,483

 

 

 

58,047

 

Accrued marketing and advertising

 

 

10,070

 

 

 

15,556

 

Accrued interest

 

 

9,352

 

 

 

2,710

 

Other accrued liabilities

 

 

48,145

 

 

 

48,615

 

Derivative payable

 

 

23,053

 

 

 

28,283

 

Income taxes payable

 

 

4,132

 

 

 

7,810

 

Deferred revenue

 

 

50,016

 

 

 

50,475

 

TOTAL CURRENT LIABILITIES

 

 

327,326

 

 

 

340,099

 

Long-term debt, net

 

 

1,391,019

 

 

 

1,408,800

 

Long-term operating lease liabilities

 

 

93,552

 

 

 

101,561

 

Deferred income taxes

 

 

172,765

 

 

 

173,713

 

Other

 

 

7,490

 

 

 

5,212

 

TOTAL LIABILITIES

 

 

1,992,152

 

 

 

2,029,385

 

TOTAL DEFICIT

 

 

 

 

 

 

 

 

Common stock, $0 par value; 1,000,000 shares authorized; 121,801

   shares issued at April 3, 2021 and 121,470 shares issued at

   January 2, 2021

 

 

0

 

 

 

0

 

Treasury stock, at cost, 52,471 shares at April 3, 2021 and 52,497

   shares at January 2, 2021

 

 

(3,139,855

)

 

 

(3,140,903

)

Retained earnings

 

 

2,606,171

 

 

 

2,617,841

 

Accumulated other comprehensive loss

 

 

(22,094

)

 

 

(25,149

)

TOTAL DEFICIT

 

 

(555,778

)

 

 

(548,211

)

TOTAL LIABILITIES AND TOTAL DEFICIT

 

$

1,436,374

 

 

$

1,481,174

 

 

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

 

 

 

April 3,

 

 

March 28,

 

 

 

2021

 

 

2020

 

Subscription revenues, net

 

$

279,820

 

 

$

324,657

 

Product sales and other, net

 

 

51,976

 

 

 

75,704

 

Revenues, net

 

 

331,796

 

 

 

400,361

 

Cost of subscription revenues

 

 

99,103

 

 

 

135,566

 

Cost of product sales and other

 

 

39,258

 

 

 

53,804

 

Cost of revenues

 

 

138,361

 

 

 

189,370

 

Gross profit

 

 

193,435

 

 

 

210,991

 

Marketing expenses

 

 

116,933

 

 

 

117,933

 

Selling, general and administrative expenses

 

 

73,671

 

 

 

64,526

 

Goodwill impairment

 

 

 

 

 

3,665

 

Operating income

 

 

2,831

 

 

 

24,867

 

Interest expense

 

 

29,123

 

 

 

31,551

 

Other (income) expense, net

 

 

(237

)

 

 

24

 

Loss before income taxes

 

 

(26,055

)

 

 

(6,708

)

Benefit from income taxes

 

 

(7,828

)

 

 

(651

)

Net loss

 

 

(18,227

)

 

 

(6,057

)

Net income attributable to the noncontrolling interest

 

 

 

 

 

(6

)

Net loss attributable to WW International, Inc.

 

$

(18,227

)

 

$

(6,063

)

Net loss per share attributable to WW International, Inc.

 

 

 

 

 

 

 

 

Basic

 

$

(0.26

)

 

$

(0.09

)

Diluted

 

$

(0.26

)

 

$

(0.09

)

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

69,084

 

 

 

67,436

 

Diluted

 

 

69,084

 

 

 

67,436

 

 

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

 

 

 

April 3,

 

 

March 28,

 

 

 

2021

 

 

2020

 

Net loss

 

$

(18,227

)

 

$

(6,057

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

Foreign currency translation loss

 

 

(1,120

)

 

 

(9,820

)

Income tax benefit on foreign currency translation loss

 

 

282

 

 

 

2,499

 

Foreign currency translation loss, net of taxes

 

 

(838

)

 

 

(7,321

)

Gain (loss) on derivatives

 

 

5,204

 

 

 

(12,956

)

Income tax (expense) benefit on gain (loss) on derivatives

 

 

(1,311

)

 

 

3,305

 

Gain (loss) on derivatives, net of taxes

 

 

3,893

 

 

 

(9,651

)

Total other comprehensive gain (loss)

 

 

3,055

 

 

 

(16,972

)

Comprehensive loss

 

 

(15,172

)

 

 

(23,029

)

Net income attributable to the noncontrolling interest

 

 

 

 

 

(6

)

Foreign currency translation loss, net of taxes

   attributable to the noncontrolling interest

 

 

 

 

 

98

 

Comprehensive loss attributable to the noncontrolling interest

 

 

 

 

 

92

 

Comprehensive loss attributable to WW International, Inc.

 

$

(15,172

)

 

$

(22,937

)

 

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)

 

 

 

 

 

 

 

 

 

WW International, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Three Months Ended April 3, 2021

 

Noncontrolling

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

 

Interest

 

 

 

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 (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,055

 

 

 

(18,227

)

 

 

(15,172

)

Issuance of treasury stock under

   stock plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26

)

 

 

1,048

 

 

 

 

 

 

 

(1,083

)

 

 

(35

)

Compensation expense on share-

   based awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,340

 

 

 

5,340

 

Issuance of common stock

 

 

 

 

 

 

 

331

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,300

 

 

 

2,300

 

Balance at April 3, 2021

 

$

 

 

 

 

121,801

 

 

$

0

 

 

 

52,471

 

 

$

(3,139,855

)

 

$

(22,094

)

 

$

2,606,171

 

 

$

(555,778

)

 

 

 

 

 

 

 

 

 

WW International, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Three Months Ended March 28, 2020

 

Noncontrolling

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

 

Interest

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at December 28, 2019

 

$

3,722

 

 

 

 

120,352

 

 

$

0

 

 

 

52,933

 

 

$

(3,158,274

)

 

$

(27,352

)

 

$

2,500,083

 

 

$

(685,543

)

Comprehensive loss

 

 

(92

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,874

)

 

 

(6,063

)

 

 

(22,937

)

Issuance of treasury stock under

   stock plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

1,367

 

 

 

 

 

 

 

(1,325

)

 

 

42

 

Compensation expense on share-

   based awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,965

 

 

 

3,965

 

Balance at March 28, 2020

 

$

3,630

 

 

 

 

120,352

 

 

$

0

 

 

 

52,899

 

 

$

(3,156,907

)

 

$

(44,226

)

 

$

2,496,660

 

 

$

(704,473

)

 

 

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)

 

 

 

Three Months Ended

 

 

 

April 3,

 

 

March 28,

 

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(18,227

)

 

$

(6,057

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

13,180

 

 

 

12,211

 

Amortization of deferred financing costs and debt discount

 

 

2,231

 

 

 

2,184

 

Goodwill impairment

 

 

 

 

 

3,665

 

Impairment of intangible and long-lived assets

 

 

184

 

 

 

 

Share-based compensation expense

 

 

5,341

 

 

 

3,965

 

Deferred tax (benefit) provision

 

 

(1,361

)

 

 

14,624

 

Allowance for doubtful accounts

 

 

(12

)

 

 

(221

)

Reserve for inventory obsolescence

 

 

2,416

 

 

 

2,664

 

Foreign currency exchange rate (gain) loss

 

 

(372

)

 

 

916

 

Changes in cash due to:

 

 

 

 

 

 

 

 

Receivables

 

 

(6,008

)

 

 

(12,275

)

Inventories

 

 

2,792

 

 

 

(9,690

)

Prepaid expenses

 

 

(4,313

)

 

 

(9,287

)

Accounts payable

 

 

(842

)

 

 

15,400

 

Accrued liabilities

 

 

(1,756

)

 

 

(6,799

)

Deferred revenue

 

 

(211

)

 

 

(487

)

Other long term assets and liabilities, net

 

 

(738

)

 

 

(384

)

Income taxes

 

 

(4,182

)

 

 

(2,013

)

Cash (used for) provided by operating activities

 

 

(11,878

)

 

 

8,416

 

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(688

)

 

 

(13,533

)

Capitalized software expenditures

 

 

(9,447

)

 

 

(7,330

)

Cash paid for acquisitions

 

 

(10,849

)

 

 

 

Other items, net

 

 

(16

)

 

 

(5,051

)

Cash used for investing activities

 

 

(21,000

)

 

 

(25,914

)

Financing activities:

 

 

 

 

 

 

 

 

Net borrowings on revolver

 

 

 

 

 

148,000

 

Payments on long-term debt

 

 

(19,250

)

 

 

(19,250

)

Taxes paid related to net share settlement of equity awards

 

 

(237

)

 

 

(600

)

Proceeds from stock options exercised

 

 

2,468

 

 

 

120

 

Other items, net

 

 

(43

)

 

 

(64

)

Cash (used for) provided by financing activities

 

 

(17,062

)

 

 

128,206

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(2,634

)

 

 

(1,171

)

Net (decrease) increase in cash and cash equivalents

 

 

(52,574

)

 

 

109,537

 

Cash and cash equivalents, beginning of period

 

 

165,887

 

 

 

182,736

 

Cash and cash equivalents, end of period

 

$

113,313

 

 

$

292,273

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

 

6


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

1.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of WW International, Inc. and all of its subsidiaries. The terms “Company” and “WW” as used throughout these notes are used to indicate WW International, Inc. and all of its operations consolidated for purposes of its financial statements. The Company’s “Digital” business refers to providing subscriptions to the Company’s digital product offerings, including Digital 360 and Personal Coaching + Digital. The Company’s “Workshops + Digital” (formerly known as “Studio + Digital”) business refers to providing unlimited access to the Company’s workshops combined with the Company’s digital subscription product offerings to commitment plan subscribers. It also includes the provision of access to workshops for members who do not subscribe to commitment plans, including the Company’s “pay-as-you-go” members.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and include amounts that are based on management’s best estimates and judgments. While all available information has been considered, actual amounts could differ from those estimates. For example, the global outbreak of the coronavirus (COVID-19) has had and will continue to have a significant adverse impact on the Company’s business as well as on the business environment and the markets in which it operates. This global health crisis has also had a significant adverse effect on overall economic conditions and the Company expects consumer demand to continue to be negatively impacted due to changes in consumer behavior and confidence and health concerns. The situation remains dynamic and subject to rapid and possibly significant change, with the United States and other countries continuing to struggle with rolling outbreaks of the virus. Accordingly, the full extent of the magnitude and duration of the negative impact to the Company’s business from the COVID-19 pandemic cannot be predicted with certainty. The Company considered the impact of COVID-19 on the assumptions and estimates used when preparing its Quarterly Report on Form 10-Q quarterly financial statements. These assumptions and estimates may change as new events occur and additional information is obtained, and such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity. The consolidated financial statements include all of the Company’s majority-owned subsidiaries. All entities acquired, and any entity of which a majority interest was acquired, are included in the consolidated financial statements from the date of acquisition. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s operating results for any interim period are not necessarily indicative of future or annual results. The consolidated financial statements are unaudited and, accordingly, they do not include all of the information necessary for a comprehensive presentation of results of operations, financial position and cash flow activity required by GAAP for complete financial statements but, in the opinion of management, reflect all adjustments including those of a normal recurring nature necessary for a fair statement of the interim results presented.

These statements should be read in conjunction with the Company’s Annual Report on Form 10-K, as amended by Form 10-K/A, for fiscal 2020 filed on February 25, 2021 and March 30, 2021, respectively, which include additional information about the Company, its results of operations, its financial position and its cash flows.

2.

Accounting Standards Adopted in Current Year

7


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued updated guidance simplifying the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 as well as by improving consistent application of GAAP by clarifying and amending existing guidance. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. On January 3, 2021, the Company adopted the updated guidance simplifying the accounting for income taxes on a prospective basis, which did not have a material impact on the Company’s consolidated financial statements.

3.

Leases

A lease is defined as an arrangement that contractually specifies the right to use and control an identified asset for a specific period of time in exchange for consideration. Operating leases are included in operating lease assets, portion of operating lease liabilities due within one year, and long-term operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property and equipment, net, other accrued liabilities, and other long-term liabilities in the Company’s consolidated balance sheets. Lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term, using the Company’s incremental borrowing rate commensurate with the lease term, since the Company’s lessors do not provide an implicit rate, nor is one readily available. The incremental borrowing rate is calculated based on the Company’s credit yield curve and adjusted for collateralization, credit quality and economic environment impact, all where applicable. The lease asset includes scheduled lease payments and excludes lease incentives, such as free rent periods and tenant improvement allowances. The Company has certain leases that may include an option to renew and when it is reasonably probable to exercise such option, the Company will include the renewal option terms in determining the lease asset and lease liability. The Company does not have any renewal options that would have a material impact on the terms of the leases and that are also reasonably expected to be exercised as of April 3, 2021. A lease may contain both fixed and variable payments. Variable lease payments that are linked to an index or rate are measured based on the current index or rate at the implementation of the lease accounting standard, or lease commencement date for new leases, with the impact of future changes in the index or rate being recorded as a period expense. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company’s operating and finance leases are primarily for its studios, corporate offices, data centers and certain equipment, including automobiles.

At April 3, 2021 and January 2, 2021, the Company’s lease assets and lease liabilities were as follows:

 

 

 

April 3, 2021

 

 

January 2, 2021

 

Assets:

 

 

 

 

 

 

 

 

Operating lease assets

 

$

108,138

 

 

$

119,102

 

Finance lease assets

 

 

161

 

 

 

207

 

Total leased assets

 

$

108,299

 

 

$

119,309

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

Operating

 

$

24,045

 

 

$

28,551

 

Finance

 

 

54

 

 

 

88

 

Noncurrent

 

 

 

 

 

 

 

 

Operating

 

$

93,552

 

 

$

101,561

 

Finance

 

 

84

 

 

 

93

 

Total lease liabilities

 

$

117,735

 

 

$

130,293

 

8


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

For the three months ended April 3, 2021 and March 28, 2020, the components of the Company’s lease expense were as follows:

 

 

 

Three Months Ended

 

 

 

April 3,

 

 

March 28,

 

 

 

2021

 

 

2020

 

Operating lease cost:

 

 

 

 

 

 

 

 

Fixed lease cost

 

$

11,044

 

 

$

12,641

 

Lease termination cost

 

 

3,152

 

 

 

 

Variable lease cost

 

 

5

 

 

 

11

 

Total operating lease cost

 

$

14,201

 

 

$

12,652

 

Finance lease cost:

 

 

 

 

 

 

 

 

Amortization of leased assets

 

 

43

 

 

 

64

 

Interest on lease liabilities

 

 

2

 

 

 

3

 

Total finance lease cost

 

$

45

 

 

$

67

 

Total lease cost

 

$

14,246

 

 

$

12,719

 

At April 3, 2021 and January 2, 2021, the Company’s weighted average remaining lease term and weighted average discount rates were as follows:

 

 

 

April 3, 2021

 

 

January 2, 2021

 

Weighted Average Remaining Lease Term (years)

 

 

 

 

 

 

 

 

Operating leases

 

 

7.26

 

 

 

7.08

 

Finance leases

 

 

2.49

 

 

 

2.35

 

 

 

 

 

 

 

 

 

 

Weighted Average Discount Rate

 

 

 

 

 

 

 

 

Operating leases

 

 

7.02

 

 

 

6.95

 

Finance leases

 

 

5.46

 

 

 

5.51

 

The Company’s leases have remaining lease terms of 0 to 11 years with a weighted average lease term of 7.26 years as of April 3, 2021.

At April 3, 2021, 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 2021

$

23,754

 

 

$

52

 

 

$

23,806

 

2022

 

27,251

 

 

 

64

 

 

 

27,315

 

2023

 

20,721

 

 

 

26

 

 

 

20,747

 

2024

 

16,025

 

 

 

5

 

 

 

16,030

 

2025

 

11,572

 

 

 

 

 

 

11,572

 

Thereafter

 

54,542

 

 

 

 

 

 

54,542

 

Total lease payments

$

153,865

 

 

$

147

 

 

$

154,012

 

Less imputed interest

 

36,268

 

 

 

9

 

 

 

36,277

 

Present value of lease liabilities

$

117,597

 

 

$

138

 

 

$

117,735

 

 

9


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

Supplemental cash flow information related to leases for the three months ended April 3, 2021 and March 28, 2020 were as follows:

 

 

 

Three Months Ended

 

 

 

April 3,

 

 

March 28,

 

 

 

2021

 

 

2020

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

11,772

 

 

$

12,701

 

Operating cash flows from finance leases

 

$

2

 

 

$

3

 

Financing cash flows from finance leases

 

$

43

 

 

$

64

 

 

 

 

 

 

 

 

 

 

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

 

$

(1,892

)

 

$

8,488

 

Leased assets obtained in exchange for new finance lease liabilities

 

$

 

 

$

 

 

4.

Revenue

Revenues are recognized when control of the promised services or goods is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those services or goods.

The following table presents the Company’s revenues disaggregated by revenue source:

 

 

Three Months Ended

 

 

April 3,

 

 

March 28,

 

 

2021

 

 

2020

 

Digital Subscription Revenues

$

206,062

 

 

$

174,545

 

Workshops + Digital Fees

 

73,758

 

 

 

150,112

 

Subscription Revenues, net

$

279,820

 

 

$

324,657

 

Product sales and other, net

 

51,976

 

 

 

75,704

 

Revenues, net

$

331,796

 

 

$

400,361

 

 

The following tables present the Company’s revenues disaggregated by revenue source and segment:

 

 

Three Months Ended April 3, 2021

 

 

North

 

 

Continental

 

 

United

 

 

 

 

 

 

 

 

 

 

America

 

 

Europe

 

 

Kingdom

 

 

Other

 

 

Total

 

Digital Subscription Revenues

$

132,090

 

 

$

58,915

 

 

$

9,809

 

 

$

5,248

 

 

$

206,062

 

Workshops + Digital Fees

 

54,904

 

 

 

10,940

 

 

 

5,169

 

 

 

2,745

 

 

 

73,758

 

Subscription Revenues, net

$

186,994

 

 

$

69,855

 

 

$

14,978

 

 

$

7,993

 

 

$

279,820

 

Product sales and other, net

 

34,321

 

 

 

12,041

 

 

 

4,089

 

 

 

1,525

 

 

 

51,976

 

Revenues, net

$

221,315

 

 

$

81,896

 

 

$

19,067

 

 

$

9,518

 

 

$

331,796

 

 

 

Three Months Ended March 28, 2020

 

 

North

 

 

Continental

 

 

United

 

 

 

 

 

 

 

 

 

 

America

 

 

Europe

 

 

Kingdom

 

 

Other

 

 

Total

 

Digital Subscription Revenues

$

116,349

 

 

$

46,638

 

 

$

7,576

 

 

$

3,982

 

 

$

174,545

 

Workshops + Digital Fees

 

112,843

 

 

 

21,519

 

 

 

11,129

 

 

 

4,621

 

 

 

150,112

 

Subscription Revenues, net

$

229,192

 

 

$

68,157

 

 

$

18,705

 

 

$

8,603

 

 

$

324,657

 

Product sales and other, net

 

54,514

 

 

 

11,833

 

 

 

6,323

 

 

 

3,034

 

 

 

75,704

 

Revenues, net

$

283,706

 

 

$

79,990

 

 

$

25,028

 

 

$

11,637

 

 

$

400,361

 

 

10


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

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 are as follows:

 

 

 

Deferred

 

 

Deferred

 

 

 

Revenue

 

 

Revenue-Long Term

 

Balance as of January 2, 2021

 

$

50,475

 

 

$

44

 

Net decrease during the period

 

 

(459

)

 

 

(18

)

Balance as of April 3, 2021

 

$

50,016

 

 

$

26

 

 

Revenue recognized from amounts included in current deferred revenue as of January 2, 2021 was $45,275 for the three months ended April 3, 2021. The Company’s long-term deferred revenue, which is included in other liabilities on the Company’s consolidated balance sheet, had a balance of $26 and $44 at April 3, 2021 and January 2, 2021, respectively, for 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

Acquisition of Franchisees

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 ($8,255), cash payable on July 30, 2021 ($8,750), and assumed net liabilities ($495). Of the $8,750 of cash payable on July 30, 2021, $2,300 will be cash held in reserves. The total purchase price has been 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 has been allocated to franchise rights acquired ($3,040), customer relationship value ($42), property and equipment, net ($25), inventories ($6) and other assets ($1).

Both acquisitions have been accounted for under the purchase method of accounting and, accordingly, earnings of the acquired franchises have been included in the consolidated operating results of the Company since the date of acquisition.

 

6.

Franchise Rights Acquired, Goodwill and Other Intangible Assets

Franchise rights acquired are due to acquisitions of the Company’s franchised territories as well as the acquisition of franchise promotion agreements and other factors associated with the acquired franchise territories. For the three months ended April 3, 2021, the change in the carrying value of franchise rights acquired was due to the franchisee acquisitions as described in Note 5 and the effect of exchange rate changes.

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, Inc. (formerly known as WeightWatchers.com, Inc.) in 2005 and the Company’s franchised territories. For the three months ended April 3, 2021, the change in the carrying amount of goodwill was due to 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

 

Effect of exchange rate changes

 

 

515

 

 

 

(351

)

 

 

15

 

 

 

(15

)

 

 

164

 

Balance as of April 3, 2021

 

$

145,586

 

 

$

7,441

 

 

$

1,283

 

 

$

1,471

 

 

$

155,781

 

 

Finite-lived Intangible Assets

The carrying values of finite-lived intangible assets as of April 3, 2021 and January 2, 2021 were as follows:

 

 

 

April 3, 2021

 

 

January 2, 2021

 

 

 

Gross

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Carrying

 

 

Accumulated

 

 

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amortization

 

Capitalized software costs

 

$

133,242

 

 

$

111,540

 

 

$

131,420

 

 

$

109,170

 

Website development costs

 

 

100,461

 

 

 

71,928

 

 

 

95,718

 

 

 

67,656

 

Trademarks

 

 

12,018

 

 

 

11,512

 

 

 

11,999

 

 

 

11,457

 

Other

 

 

14,055

 

 

 

5,328

 

 

 

14,093

 

 

 

5,238

 

Trademarks and other intangible assets

 

$

259,776

 

 

$

200,308

 

 

$

253,230

 

 

$

193,521

 

Franchise rights acquired

 

 

7,844

 

 

 

4,547

 

 

 

7,925

 

 

 

4,575

 

Total finite-lived intangible assets

 

$

267,620

 

 

$

204,855

 

 

$

261,155

 

 

$

198,096

 

 

Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $7,998 and $7,165 for the three months ended April 3, 2021 and March 28, 2020, respectively.

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

 

Remainder of fiscal 2021

 

$

21,633

 

Fiscal 2022

 

$

20,029

 

Fiscal 2023

 

$

9,876

 

Fiscal 2024

 

$

1,804

 

Fiscal 2025 and thereafter

 

$

9,423

 

 

12


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

7.

Long-Term Debt

The components of the Company’s long-term debt were as follows:

 

 

 

April 3, 2021

 

 

January 2, 2021

 

 

 

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

   November 29, 2022

 

$

 

 

$

 

 

$

 

 

 

0.00

%

 

$

 

 

$

 

 

$

 

 

 

3.03

%

Term Loan Facility due

   November 29, 2024

 

 

1,189,750

 

 

 

4,787

 

 

 

16,133

 

 

 

6.08

%

 

 

1,209,000

 

 

 

5,113

 

 

 

17,233

 

 

 

6.60

%

Notes due December 1, 2025

 

 

300,000

 

 

 

811

 

 

 

 

 

 

8.61

%

 

 

300,000

 

 

 

854

 

 

 

 

 

 

8.71

%

Total

 

$

1,489,750

 

 

$

5,598

 

 

$

16,133

 

 

 

6.59

%

 

$

1,509,000

 

 

$

5,967

 

 

$

17,233

 

 

 

6.94

%

Less: Current portion

 

 

77,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized deferred financing costs

 

 

5,598

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,967

 

 

 

 

 

 

 

 

 

 

 

 

 

Unamortized debt discount

 

 

16,133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,233

 

 

 

 

 

 

 

 

 

 

 

 

 

Total long-term debt

 

$

1,391,019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,408,800

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Includes amortization of deferred financing costs and debt discount.

On November 29, 2017, the Company refinanced its then-existing credit facilities (hereinafter referred to as “the November 2017 debt refinancing”) with proceeds received from $1,565,000 in an aggregate principal amount of borrowings under its new credit facilities, consisting of a $1,540,000 term loan facility and a $150,000 revolving credit facility (of which $25,000 was drawn upon at the time of the November 2017 debt refinancing) (collectively, as amended from time to time, the “Credit Facilities”) and proceeds received from the issuance of $300,000 in aggregate principal amount of 8.625% Senior Notes due 2025 (the “Notes”).

Senior Secured Credit Facilities

The Credit Facilities were issued under a new credit agreement, dated November 29, 2017 (as amended from time to time, the “Credit Agreement”), among the Company, as borrower, the lenders party thereto, JPMorgan Chase Bank, N.A. (“JPMorgan Chase”), as administrative agent and an issuing bank, Bank of America, N.A., as an issuing bank, and Citibank, N.A., as an issuing bank. The Credit Facilities initially consisted of (1) $1,540,000 in aggregate principal amount of senior secured tranche B term loans due in 2024 (the “Term Loan Facility”) and (2) a $150,000 in an aggregate principal amount of commitments under a senior secured revolving credit facility (which included borrowing capacity available for letters of credit) due in 2022 (the “Revolving Credit Facility”).

On June 14, 2020, the Company entered into an amendment to the Credit Agreement (the “Credit Agreement Amendment”) that provided for an increase in the aggregate principal amount of commitments under the Company’s Revolving Credit Facility by $25,000, providing the Company with $175,000 in aggregate principal amount of commitments under the Revolving Credit Facility, and that included certain other amendments to the Credit Agreement, which among other things, relaxed the requirements of the financial maintenance covenant under the Credit Agreement until the end of the second fiscal quarter of 2022, as further detailed below.

On both May 31, 2019 and October 10, 2019, the Company made a voluntary prepayment at par of $50,000 in an aggregate amount of its outstanding term loans under the Term Loan Facility. As a result of these prepayments, the Company wrote off deferred financing fees of $526 in the aggregate in fiscal 2019.

As previously disclosed, on March 23, 2020, as a precautionary measure in light of the COVID-19 outbreak, the Company drew down $148,000 in an aggregate principal amount under the Revolving Credit Facility in order to enhance its cash position and to provide additional financial flexibility. The revolver borrowing was classified as a short-term liability in connection with the Company’s monthly interest elections. The Company repaid $148,000 in aggregate principal amount of borrowings under the Revolving Credit Facility on June 5, 2020.

As of April 3, 2021, the Company had $1,189,750 in an aggregate principal amount of loans outstanding under its Credit Facilities, with $173,846 of availability and $1,154 in issued but undrawn letters of credit outstanding under the Revolving Credit Facility. There were 0 outstanding borrowings under the Revolving Credit Facility as of April 3, 2021.

13


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of the Company’s current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:

 

a pledge of 100% of the equity interests directly held by the Company and each guarantor in any wholly-owned domestic 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.

Under the terms of the Credit Agreement, depending on the Company’s Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement), on an annual basis on or about the time the Company is required to deliver its financial statements for any fiscal year, the Company is obligated to offer to prepay a portion of the outstanding principal amount of the Term Loan Facility in an aggregate amount determined by a percentage of its annual excess cash flow (as defined in the Credit Agreement) (said payment, a “Cash Flow Sweep”).

Borrowings under the Term Loan Facility and, after giving effect to the Credit Agreement Amendment, the Revolving Credit Facility, in each case, 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 higher of (i) the Federal Funds Effective Rate and (ii) the Overnight Bank Funding Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of JPMorgan Chase 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 1.75% 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 0.75%. 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 (except as otherwise described below), 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 higher of (i) the Federal Funds Effective Rate and (ii) the Overnight Bank Funding Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of JPMorgan Chase 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% 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. Under the terms of the Credit Agreement Amendment, a new level in the leverage based pricing grid was added providing for an applicable margin for extensions of credit under the Revolving Credit Facility of 3.00% when the Consolidated First Lien Leverage Ratio discussed below is greater than or equal to 3.75:1.00. As of April 3, 2021, the applicable margins for the LIBOR rate borrowings under the Term Loan Facility and the Revolving Credit Facility were 4.75% and 2.25%, 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. 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. Under the terms of the Credit Agreement Amendment, a new level in the leverage based pricing grid was added providing for a commitment fee of 0.625% when the Consolidated First Lien Leverage Ratio discussed below is greater than or equal to 3.75:1.00. Based on the Company’s Consolidated First Lien Leverage Ratio as of April 3, 2021, the commitment fee was 0.35% per annum. The Company’s Consolidated First Lien Leverage Ratio as of April 3, 2021 was 3.01:1.00.

The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default.


14


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 33 1/3% 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 3.75:1.00, provided, however, that the Credit Agreement Amendment increased the required Consolidated First Lien Leverage Ratio to 4.50:1.00, commencing with the second fiscal quarter of 2020 through the end of fiscal 2020, with a further step up to 5.00:1.00 for fiscal 2021, before stepping down to 4.50:1.00 for the first fiscal quarter of 2022, and again to 3.75:1.00, commencing with the second fiscal quarter of 2022 (such increases in the Consolidated First Lien Leverage Ratio and the timing applicable thereto, collectively, the “Financial Covenant Relief Period”). The Financial Covenant Relief Period is subject to the Company’s continued compliance with certain conditions, which include meeting a Consolidated First Lien Leverage Ratio of 3.75:1.00 with respect to certain types of investments, restricted payments and prepayments of junior debt during the Financial Covenant Relief Period. If at any time the Company expects that it will not be in compliance with the conditions of the Financial Covenant Relief Period, the Company expects it will reduce its extensions of credit under the Revolving Credit Facility to $58,333 or less prior to the last day of such fiscal quarter so that it is not required to comply with the conditions of the Financial Covenant Relief Period. In any such event, the Company would be able to reborrow the full amount under the Revolving Credit Facility subsequent to such fiscal quarter end given that the applicable Consolidated First Lien Leverage Ratio to be tested during the Financial Covenant Relief Period is only tested as of the last day of each fiscal quarter.

Senior Notes

The Notes were issued pursuant to an Indenture, dated as of November 29, 2017 (the “Indenture”), among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee. The Indenture contains customary covenants, events of default and other provisions 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 Notes accrue interest at a rate per annum equal to 8.625% and are due on December 1, 2025. Interest on the Notes is payable semi-annually on June 1 and December 1 of each year, beginning on June 1, 2018. On or after December 1, 2020, the Company may on any one or more occasions redeem some or all of the Notes at a purchase price equal to 104.313% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date, such optional redemption price decreasing to 102.156% on or after December 1, 2021 and to 100.000% on or after December 1, 2022. If a change of control occurs, the Company must offer to purchase for cash the Notes at a purchase price equal to 101% of the principal amount of the 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 Notes at a purchase price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. The Notes are guaranteed on a senior unsecured basis by the Company’s subsidiaries that guarantee the Credit Facilities.

Outstanding Debt

At April 3, 2021, the Company had $1,489,750 outstanding under the Credit Facilities and the Notes, consisting of borrowings under the Term Loan Facility of $1,189,750, $0 drawn down on the Revolving Credit Facility and $300,000 in aggregate principal amount of Notes issued and outstanding.

At April 3, 2021 and January 2, 2021, 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 6.59% and 7.03% per annum at April 3, 2021 and January 2, 2021, 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 7.06% and 7.41% per annum at April 3, 2021 and January 2, 2021, respectively, based on interest rates on these dates.

In April 2021, the Company refinanced its existing debt. See Note 17 for information relating to the debt refinancing.  

15


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

8.Per Share Data

Basic net loss per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted net loss per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented adjusted for the effect of dilutive common stock equivalents.

The following table sets forth the computation of basic and diluted loss per share data:

 

 

 

Three Months Ended

 

 

 

April 3,

 

 

March 28,

 

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

Net loss attributable to WW International, Inc.

 

$

(18,227

)

 

$

(6,063

)

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

69,084

 

 

 

67,436

 

Effect of dilutive common stock equivalents

 

 

 

 

 

 

Weighted average diluted common shares outstanding

 

 

69,084

 

 

 

67,436

 

Net loss per share attributable to WW International, Inc.

 

 

 

 

 

 

 

 

Basic

 

$

(0.26

)

 

$

(0.09

)

Diluted

 

$

(0.26

)

 

$

(0.09

)

The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted net loss per share was 6,360 and 4,042 for the three months ended April 3, 2021 and March 28, 2020, respectively.

9.Income Taxes

The effective tax rates for the three months ended April 3, 2021 and March 28, 2020 were 30.0% and 9.7%, respectively. For the three months ended April 3, 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 foreign-derived intangible income and a tax benefit related to tax windfalls from stock compensation. For the three months ended March 28, 2020, the difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to an impairment of its Brazil reporting unit which had a full valuation allowance, tax expense related to global intangible low-taxed income and state income tax expense, partially offset by a tax benefit from income earned in foreign jurisdictions.

10.Legal

Securities Class Action and Derivative Matters

In March 2019, two substantially identical class action complaints alleging violations of the federal securities laws were filed by individual shareholders against the Company, certain of the Company’s current officers and the Company’s former controlling shareholder, Artal Group S.A. (“Artal”), in the United States District Court for the Southern District of New York. The actions were consolidated and lead plaintiffs were appointed in June 2019. A consolidated amended complaint was filed on July 29, 2019, naming as defendants the Company, certain of the Company’s current officers and directors, and Artal and certain of its affiliates. A second consolidated amended complaint was filed on September 27, 2019. The operative complaint asserts claims on behalf of all purchasers of the Company’s common stock between May 4, 2018 and February 26, 2019, inclusive (the “Class Period”), including purchasers of the Company’s common stock traceable to the May 2018 secondary offering of the Company’s common stock by certain of its shareholders. The complaint alleges that, during the Class Period, the defendants disseminated materially false and misleading statements and/or concealed or recklessly disregarded material adverse facts. The complaint alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder, and with respect to the secondary offering, under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended. The plaintiffs sought to recover unspecified damages on behalf of the class members. The Company filed a motion to dismiss the complaint on October 31, 2019. On November 30, 2020, the Court granted the Company’s motion to dismiss in full and dismissed the complaint. The plaintiffs did not appeal.


16


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

Between March and July 2019, the Company received shareholder litigation demands alleging breaches of fiduciary duties by certain current and former Company directors and executive officers, to the alleged injury of the Company. The allegations in the demands relate to those contained in the dismissed securities class action litigation. In response to the demands, pursuant to Virginia law, the Board of Directors has created a special committee to investigate and evaluate the claims made in the demands. In addition, four derivative complaints were filed, each making allegations against certain of the Company’s officers and directors and/or Artal and certain of its affiliates. First, on June 13, 2019, a shareholder derivative complaint was filed in the Southern District of New York against certain of the Company’s officers and directors alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the Company. The plaintiff voluntarily dismissed the complaint on July 8, 2019 and the Company agreed to treat the complaint as a litigation demand. Second, on July 23, 2019, another shareholder derivative complaint was filed in the Southern District of New York against certain of the Company’s officers and directors alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the Company. The plaintiff voluntarily dismissed the complaint the same day. Third, on October 25, 2019, another shareholder derivative complaint was filed in the Southern District of New York against certain of the Company’s officers and directors alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the Company. Finally, on December 16, 2019, a shareholder derivative complaint was filed in New York Supreme Court against certain of the Company’s officers and directors, and Artal and certain of its affiliates, alleging, among other things, that the defendants breached fiduciary duties to the alleged injury of the Company. This action and the derivative action filed October 25, 2019 were initially stayed pending a decision on the defendants’ motion to dismiss the securities class action and all parties agreed to an additional stay until May 24, 2021. The Company believes that these actions are without merit and intends to vigorously defend them.

Member Class Action Matter

In June 2020, a Workshops + Digital (then known as Studio + Digital) member filed a class action complaint against the Company in the Superior Court of California in Ventura County. The complaint was filed on behalf of all Workshops + Digital members nationwide and regards the fees charged for Workshops + Digital memberships since the replacement of in-person workshops with virtual workshops in March 2020 in response to the COVID-19 pandemic. The complaint alleged, among other things, that the Company’s decision to charge its members the full Workshops + Digital membership fee while only providing a virtual workshop experience violated California state consumer protection laws and gave rise to claims for breach of contract, fraud, and other tort causes of action based on the same factual allegations that are the basis for the breach of contract claim. The plaintiff seeks to recover damages plus injunctive relief to enjoin the Company from engaging in similar conduct in the future on behalf of the class members.

On July 30, 2020, the Company filed a notice to remove the matter to the United States District Court for the Central District of California, and per the parties’ stipulation, on August 7, 2020, the case was transferred to the United States District Court for the Southern District of New York. On September 23, 2020, the Company filed a motion to dismiss all of the plaintiff’s claims with prejudice. At the parties’ September 29, 2020 preliminary conference, the court issued an order permitting the plaintiff to either submit her opposition to the motion to dismiss or file an amended complaint by October 14, 2020. On October 14, 2020, the plaintiff filed an amended complaint with predominantly the same claims. The Company filed another motion to dismiss the matter on November 4, 2020. The plaintiff filed her opposition brief on November 19, 2020, and the Company filed its reply brief on November 25, 2020. The Company believes that this matter is without merit and intends to vigorously defend it.

Other Litigation Matters

Due to the nature of the Company’s activities, it is also, at times, subject to other pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected, individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.

 


17


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

11.

Derivative Instruments and Hedging

As of April 3, 2021 and January 2, 2021, the Company had in effect interest rate swaps with an aggregate notional amount totaling $500,000 and $750,000, respectively.

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 is $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 (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 April 3, 2021 and January 2, 2021, cumulative unrealized losses for qualifying hedges were reported as a component of accumulated other comprehensive loss in the amounts of $17,086 ($22,956 before taxes) and $20,979 ($28,161 before taxes), respectively. As of April 3, 2021 and January 2, 2021, the aggregate fair values of the Company’s current swaps were liabilities of $23,053 and $28,283, respectively, which were included in derivative payable in the consolidated balance sheets.

The Company is hedging forecasted transactions for periods not exceeding the next three years. The Company expects approximately $3,852 ($5,150 before taxes) of derivative losses included in accumulated other comprehensive loss at April 3, 2021, 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.

 

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 April 3, 2021 and January 2, 2021. The fair value of the Company’s borrowings under the Revolving Credit Facility approximated a carrying value of $0 at both April 3, 2021 and January 2, 2021.

The fair value of the Company’s Credit Facilities is determined by utilizing average bid prices on or near the end of each fiscal quarter (Level 2 input). As of April 3, 2021 and January 2, 2021, the fair value of the Company’s long-term debt was approximately $1,484,132 and $1,501,148, respectively, as compared to the carrying value (net of deferred financing costs and debt discount) of $1,468,019 and $1,485,800, 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.

 


18


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

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 liability at April 3, 2021

 

$

23,053

 

 

 

$

 

 

$

23,053

 

 

$

 

Interest rate swap liability at January 2, 2021

 

$

28,283

 

 

 

$

 

 

$

28,283

 

 

$

 

The Company did 0t 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 three months ended April 3, 2021 and the fiscal year ended January 2, 2021.

13.

Accumulated Other Comprehensive Loss

Amounts reclassified out of accumulated other comprehensive loss are as follows:

Changes in Accumulated Other Comprehensive Loss by Component (a)  

 

 

 

Three Months Ended April 3, 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

 

 

1,175

 

 

 

(838

)

 

 

337

 

Amounts reclassified from accumulated other

   comprehensive loss, net of tax(b)

 

 

2,718

 

 

 

 

 

 

2,718

 

Net current period other comprehensive income (loss)

 

 

3,893

 

 

 

(838

)

 

 

3,055

 

Ending balance at April 3, 2021

 

$

(17,086

)

 

$

(5,008

)

 

$

(22,094

)

 

(a)

Amounts in parentheses indicate debits

(b)

See separate table below for details about these reclassifications

 

 

 

Three Months Ended March 28, 2020

 

 

 

Loss on

Qualifying

Hedges

 

 

Loss on

Foreign

Currency

Translation

 

 

Total

 

Beginning balance at December 28, 2019

 

$

(15,529

)

 

$

(11,823

)

 

$

(27,352

)

Other comprehensive loss before

   reclassifications, net of tax

 

 

(10,471

)

 

 

(7,321

)

 

 

(17,792

)

Amounts reclassified from accumulated other

   comprehensive loss, net of tax(b)

 

 

820

 

 

 

 

 

 

820

 

Net current period other comprehensive loss

   including noncontrolling interest

 

 

(9,651

)

 

 

(7,321

)

 

 

(16,972

)

Less: Net current period other comprehensive

   loss attributable to the noncontrolling interest

 

 

 

 

 

98

 

 

 

98

 

Ending balance at March 28, 2020

 

$

(25,180

)

 

$

(19,046

)

 

$

(44,226

)

 

(a)

Amounts in parentheses indicate debits

(b)

See separate table below for details about these reclassifications

19


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

Reclassifications out of Accumulated Other Comprehensive Loss (a)

 

 

 

Three Months Ended

 

 

 

April 3,

 

 

March 28,

 

 

 

 

 

2021

 

 

2020

 

 

 

Details about Other Comprehensive

Loss Components

 

Amounts Reclassified from

Accumulated Other

Comprehensive Loss

Affected Line Item in the

Statement Where Net

Income is Presented

Loss on Qualifying Hedges

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

$

(3,633

)

 

$

(1,099

)

 

Interest expense

 

 

 

(3,633

)

 

 

(1,099

)

 

Loss before income taxes

 

 

 

915

 

 

 

279

 

 

Benefit from income taxes

 

 

$

(2,718

)

 

$

(820

)

 

Net loss

 

(a)

Amounts in parentheses indicate debits to profit/loss

14.

Segment Data

The Company has 4 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 Revenue, net

 

 

Three Months Ended

 

 

April 3, 2021

 

 

March 28, 2020

 

North America

$

221,315

 

 

$

283,706

 

Continental Europe

 

81,896

 

 

 

79,990

 

United Kingdom

 

19,067

 

 

 

25,028

 

Other

 

9,518

 

 

 

11,637

 

Total revenue, net

$

331,796

 

 

$

400,361

 

 

 

Net Loss

 

 

Three Months Ended

 

 

April 3, 2021

 

 

March 28, 2020

 

Segment operating income:

 

 

 

 

 

 

 

North America

$

27,582

 

 

$

45,253

 

Continental Europe

 

20,054

 

 

 

13,572

 

United Kingdom

 

543

 

 

 

(837

)

Other

 

103

 

 

 

(2,776

)

Total segment operating income

 

48,282

 

 

 

55,212

 

General corporate expenses

 

45,451

 

 

 

30,345

 

Interest expense

 

29,123

 

 

 

31,551

 

Other (income) expense, net

 

(237

)

 

 

24

 

Benefit from income taxes

 

(7,828

)

 

 

(651

)

Net loss

$

(18,227

)

 

$

(6,057

)

Net income attributable to the noncontrolling interest

 

 

 

 

(6

)

Net loss attributable to WW International, Inc.

$

(18,227

)

 

$

(6,063

)

 

20


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

 

Depreciation and Amortization

 

 

Three Months Ended

 

 

April 3, 2021

 

 

March 28, 2020

 

North America

$

10,312

 

 

$

10,527

 

Continental Europe

 

434

 

 

 

388

 

United Kingdom

 

257

 

 

 

262

 

Other

 

113

 

 

 

97

 

Total segment depreciation and amortization

 

11,116

 

 

 

11,274

 

General corporate depreciation and amortization

 

4,295

 

 

 

3,121

 

Depreciation and amortization

$

15,411

 

 

$

14,395

 

 

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 consideration of Ms. Winfrey entering into the amendment to the Strategic Collaboration Agreement and the performance of her obligations thereunder, on December 15, 2019 the Company granted Ms. Winfrey a fully vested option to purchase 3,276 shares of the Company’s common stock (the "Winfrey Amendment Option") which became exercisable on May 6, 2020, the date on which shareholder approval of such option was obtained. The amendment to the Strategic Collaboration Agreement became operative on May 6, 2020 when the Company’s shareholders approved the Winfrey Amendment Option. Based on the Black Scholes option pricing method as of May 6, 2020, the Company recorded $32,686 of compensation expense in the second quarter of fiscal 2020 for the Winfrey Amendment Option. The Company used a dividend yield of 0.0%, 63.68% volatility and a risk-free interest rate of 0.41%. Compensation expense is included as a component of selling, general and administrative expenses.

In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to the Company totaling $474 and $938 for the three months ended April 3, 2021 and March 28, 2020, respectively, which services included advertising, production and related fees.

Entities related to Ms. Winfrey were reimbursed for actual costs incurred in connection with the WW Presents: Oprah’s 2020 Vision tour totaling $1,509 for the three months ended March 28, 2020.

The Company’s accounts payable to parties related to Ms. Winfrey at April 3, 2021 and January 2, 2021 was $0 and $76, respectively.

In March 2021, as permitted by the transfer provisions set forth in the previously disclosed Share Purchase Agreement, dated October 18, 2015, between the Company and Ms. Winfrey, as amended, and the previously disclosed Winfrey Option Agreement, dated October 18, 2015, between the Company and Ms. Winfrey, Ms. Winfrey sold 875 of the shares she purchased under such purchase agreement and exercised a portion of her stock options granted in 2015 resulting in the sale of 330 shares issuable under such options, respectively.

 


21


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

 

 

16.Restructuring

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 and will result in the termination of operating leases and elimination of certain positions worldwide. The Company had previously estimated this plan would cost approximately $18,000 in fiscal 2021. The Company revised its estimate and currently expects to record restructuring expenses of approximately $11,000 in fiscal 2021 related to this plan. The Company recorded expenses in connection with lease termination and other related costs of $4,720 and employee termination benefit costs of $818, totaling $5,538 ($4,143 after tax) for the three months ended April 3, 2021. These expenses impacted cost of revenues by $5,202 and selling, general and administrative expenses by $336 for the three months ended April 3, 2021. All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments. For the three months ended April 3, 2021, the Company made payments of $607 towards the liability for the lease termination costs. For the three months ended April 3, 2021, the Company made payments of $115 towards the liability for these employee termination benefit costs. The Company expects the remaining lease termination liability of $2,953 and the remaining employee termination benefit liability of $703 to be paid in full no later than the end of fiscal 2023.

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. The Company recorded expenses in connection with employee termination benefit costs of $25,103 and lease termination and other related costs of $7,989, totaling $33,092 ($24,756 after tax) for the fiscal year ended January 2, 2021. These expenses impacted cost of revenues by $23,300 and selling, general and administrative expenses by $9,792 for the fiscal year ended January 2, 2021. 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 $15,434 towards the liability for these employee termination benefit costs and increased provision estimates by $180. For the fiscal year ended January 2, 2021, the Company made payments of $645 towards the liability for these lease termination and related costs. For the three months ended April 3, 2021, the Company made payments of $3,666 towards the liability for these employee termination benefit costs and decreased provision estimates by $49. For the three months ended April 3, 2021, the Company made payments of $3,483 towards the liability for the lease termination costs and decreased provision estimates by $441. The Company expects the remaining employee termination benefit liability of $6,134 and the remaining lease termination liability of $1,397 to be paid in full no later than the end of fiscal 2023.

17.Subsequent Events

On April 13, 2021, the Company repaid in full approximately $1,189,750 of borrowings under the Credit Facilities and redeemed all of the $300,000 aggregate principal amount of Senior Notes with proceeds received from approximately $1,000,000 in an aggregate principal amount of borrowings under the Company’s new credit facilities and proceeds received from the issuance of $500,000 in aggregate principal amount of 4.500% Senior Secured Notes due 2029. The Company’s new credit facilities consist of a $1,000,000 term loan facility and a $175,000 revolving credit facility (which includes borrowing capacity available for letters of credit).

 

 

 

22


 

 

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Except for historical information contained herein, this Quarterly Report on Form 10-Q includes “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including, in particular, the statements about our plans, strategies, objectives and prospects and the impact of the COVID-19 virus under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have generally used the words “may,” “will,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “aim” and similar expressions in this Quarterly Report on Form 10-Q to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. Actual results could differ materially from those projected in these forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things:

 

the impact of the global outbreak of the COVID-19 virus on our business and liquidity and on the business 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;

 

the ability to successfully implement strategic initiatives;

 

the effectiveness 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;

 

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;

 

our ability to successfully make acquisitions or enter into joint ventures, 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 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 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;

 

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

 

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


23


 

 

You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause our results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, we do not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events or otherwise.

24


 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

WW International, Inc., formerly known as Weight Watchers 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” and “WW” refer to WW International, Inc. and all of its operations consolidated for purposes of its financial statements; “North America” refers to our North American Company-owned operations; “Continental Europe” refers to our Continental Europe Company-owned operations; “United Kingdom” refers to our United Kingdom Company-owned operations; and “Other” refers to Australia, New Zealand and emerging markets operations and franchise revenues and related costs. Each of North America, Continental Europe, United Kingdom and Other is also a reportable segment. Our “Digital” business refers to providing subscriptions to our digital product offerings, including Digital 360 and Personal Coaching + Digital. Our “Workshops + Digital” (formerly known as “Studio + Digital”) business refers to providing unlimited access to our workshops combined with our digital subscription product offerings to commitment plan subscribers. It also includes the provision of access to workshops for members who do not subscribe to commitment plans, including our “pay-as-you-go” members.

Our fiscal year ends on the Saturday closest to December 31st and consists of either 52- or 53-week periods. In this Quarterly Report on Form 10-Q:

 

“fiscal 2017” refers to our fiscal year ended December 30, 2017;

 

“fiscal 2018” refers to our fiscal year ended December 29, 2018;

 

“fiscal 2019” refers to our fiscal year ended December 28, 2019;

 

“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); and

 

“fiscal 2026” refers to our fiscal year ended January 2, 2027.

The following terms used in this Quarterly Report on Form 10-Q are our trademarks: Digital 360TM, myWW® and Weight Watchers®.

You should read the following discussion in conjunction with our Annual Report on Form 10-K for fiscal 2020 as amended that includes additional information about us, our results of operations, our financial position and our cash flows, and with our unaudited consolidated financial statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q (collectively referred to as the “Consolidated Financial Statements”).


25


 

 

NON-GAAP FINANCIAL MEASURES

To supplement our consolidated results presented in accordance with accounting principles generally accepted in the United States, or GAAP, we have disclosed non-GAAP financial measures of operating results that exclude or adjust certain items. Gross profit, gross profit margin, operating income and operating income margin 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 the first quarter of fiscal 2021 to exclude the impact of the charges associated with our previously disclosed 2021 organizational restructuring plan and with respect to the first quarter of fiscal 2020 to exclude the impact of the impairment charge for our goodwill related to our Brazil reporting unit. We generally refer to such non-GAAP measures as excluding or adjusting for the impact of the 2021 restructuring charges and the goodwill impairment charge. 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, restructuring charges and goodwill impairment (“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 POLICIES

For a discussion of the critical accounting policies affecting us, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” of our Annual Report on Form 10-K for fiscal 2020 as amended. Our critical accounting policies have not changed since the end of fiscal 2020.

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” (formerly known as “Studio + Digital Fees”). “Digital Subscription Revenues” consist of the fees associated with subscriptions for our Digital offerings, including Digital 360 and Personal Coaching + Digital. “Workshops + Digital Fees” consist of the fees associated with our subscription plans for combined workshops and digital offerings and other payment arrangements for access to workshops. In addition, “product sales and other” consists of sales of consumer products via e-commerce, in studios and through our trusted partners, revenues from licensing and publishing, other revenues (including revenues from the WW Presents: Oprah’s 2020 Vision tour), and, in the case of the consolidated financial results and Other reportable segment, franchise fees with respect to commitment plans and royalties.


26


 

 

 

Paid Weeks—The “Paid Weeks” metric reports paid weeks by WW customers in Company-owned operations for a given period as follows: (i) “Digital Paid Weeks” is the total paid subscription weeks for our digital subscription products (including Digital 360 and Personal Coaching + Digital); (ii) “Workshops + Digital Paid Weeks” (formerly known as “Studio + 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 Digital 360 and Personal Coaching + Digital, subscribers; (ii) “Incoming Workshops + Digital Subscribers” (formerly known as “Incoming Studio + 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 Digital 360 and Personal Coaching + Digital, subscribers; (ii) “End of Period Workshops + Digital Subscribers” (formerly known as “End of Period Studio + 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 (COVID-19) pandemic continues to impact our business operations and the markets in which we operate. While the outbreak of COVID-19 did not have a significant effect on our reported results for the first quarter of fiscal 2020, it did have a significant effect on our reported results for the remainder of fiscal 2020 and the first quarter of fiscal 2021. The number of End of Period Subscribers for the first quarter of fiscal 2021 decreased 1.5% versus the prior year period. The challenging COVID-19 environment for our Workshops + Digital business drove a significant decrease in End of Period Workshops + Digital Subscribers for the first quarter of fiscal 2021 versus the prior year period, which was partially offset by the increase in End of Period Digital Subscribers. The negative impact of COVID-19 is expected to continue to significantly impact the Workshops + Digital business in the second quarter of fiscal 2021 and potentially in subsequent periods.

The extent to which our operations and business trends will continue in future periods to be impacted by, and any unforeseen costs will result from, the ongoing outbreak of COVID-19 and any virus variants will depend largely on future developments, which are highly uncertain and cannot be accurately predicted. These developments include, among other things, new information that may emerge concerning the severity of the outbreak, health implications and vaccine availability, actions by government authorities to contain the outbreak or treat its impact, and changes in consumer behavior resulting from the outbreak and such government actions. We continue to actively monitor the ongoing global outbreak of COVID-19 and its impact and related developments and expect that it will significantly impact our reported results for the first half of fiscal 2021 and may potentially do so in subsequent periods.

In response to the public health crisis posed by COVID-19, in March 2020, we suspended our in-person workshops and moved quickly to transition these workshops to an entirely virtual experience. In June 2020, we began a phased re-opening with reduced operations of a limited number of our studio locations. We continue to evolve our workshop strategy as we evaluate our cost structure and respond to shifting consumer sentiment. We are selectively resuming in-person workshops where we can in a cost-efficient manner that promotes the health and safety of our employees and members. However, during these uncertain times, we may need to close re-opened studios, may not be able to open studios as planned or may need to further reduce operations. We continue to serve our members virtually, both via our Digital business and through virtual workshops now available to our Workshops + Digital subscribers. Nevertheless, our business operations, recruitment trends with respect to our Workshops + Digital business and in-studio product sales remain substantially affected by our reduced operations. We expect that applicable regulatory restrictions, including continued or reinstated stay-at-home requirements and restrictions on in-person group gatherings, may impact our studio operations, including how we conduct our in-person workshops.


27


 

 

As we continue to address the impact of the pandemic, and the related evolving legal and consumer landscape, we are focused on how to best meet our members’ and consumers’ needs as restrictions are lifted or reinstated. We consolidated certain of our studios into branded studio locations and continue to close certain other branded studio locations. The decision to re-open a studio location, if at all, or further consolidate studio locations, will be influenced by a number of factors, including applicable legal restrictions, consumer confidence and preferences, changes in consumer behavior, and the protection of the health and safety of our employees and members, and will be dependent on cost efficiencies and alignment with our digital and brand strategy. The current number of our studio locations is significantly lower than that prior to the pandemic, and we expect it to remain below pre-COVID-19 levels. As a result, we have incurred and will incur significant costs associated with our real estate realignment.

While we expect the effects of the pandemic and the related responses 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 economic and operational impacts of COVID-19 means we cannot reasonably estimate the related financial impact at this time. For more information, see “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for fiscal 2020 as amended. We continue to believe that our powerful communities and our ability to inspire people to adopt healthy habits will be invaluable to people across the globe as they continue to acclimate to new social and economic environments, and that they uniquely position us in the markets in which we operate.


28


 

 

RESULTS OF OPERATIONS

THREE MONTHS ENDED APRIL 3, 2021 COMPARED TO THE THREE MONTHS ENDED MARCH 28, 2020

The table below sets forth selected financial information for the first quarter of fiscal 2021 from our consolidated statements of net income for the three months ended April 3, 2021 versus selected financial information for the first quarter of fiscal 2020 from our consolidated statements of net income for the three months ended March 28, 2020.

Summary of Selected Financial Data

 

 

 

(In millions, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

For The Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

April 3, 2021

 

 

March 28, 2020

 

 

Increase/

(Decrease)

 

 

%

Change

 

 

% Change

Constant

Currency

 

 

Revenues, net

 

$

331.8

 

 

$

400.4

 

 

$

(68.6

)

 

 

(17.1

%)

 

 

(19.7

%)

 

Cost of revenues

 

 

138.4

 

 

 

189.4

 

 

 

(51.0

)

 

 

(26.9

%)

 

 

(28.6

%)

 

Gross profit

 

 

193.4

 

 

 

211.0

 

 

 

(17.6

)

 

 

(8.3

%)

 

 

(11.8

%)

 

Gross Margin %

 

 

58.3

%

 

 

52.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketing expenses

 

 

116.9

 

 

 

117.9

 

 

 

(1.0

)

 

 

(0.8

%)

 

 

(4.1

%)

 

Selling, general & administrative

   expenses

 

 

73.7

 

 

 

64.5

 

 

 

9.1

 

 

 

14.2

%

 

 

12.3

%

 

Goodwill impairment

 

 

 

 

 

3.7

 

 

 

(3.7

)

 

 

(100.0

%)

 

 

(100.0

%)

 

Operating income

 

 

2.8

 

 

 

24.9

 

 

 

(22.0

)

 

 

(88.6

%)

 

 

(97.4

%)

 

Operating Income Margin %

 

 

0.9

%

 

 

6.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

29.1

 

 

 

31.6

 

 

 

(2.4

)

 

 

(7.7

%)

 

 

(7.7

%)

 

Other (income) expense, net

 

 

(0.2

)

 

 

0.0

 

 

 

(0.3

)

 

 

100.0

%

*

 

100.0

%

*

Loss before income taxes

 

 

(26.1

)

 

 

(6.7

)

 

 

(19.3

)

 

       100.0

%

*

100.0

%

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit from income taxes

 

 

(7.8

)

 

 

(0.7

)

 

 

(7.2

)

 

100.0

%

*

100.0

%

*

Net loss

 

 

(18.2

)

 

 

(6.1

)

 

 

(12.2

)

 

100.0

%

*

100.0

%

*

Net income attributable to the

   noncontrolling interest

 

 

 

 

 

(0.0

)

 

 

0.0

 

 

 

(100.0

%)

 

 

(100.0

%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to

   WW International, Inc.

 

$

(18.2

)

 

$

(6.1

)

 

$

(12.2

)

 

100.0

%

*

100.0

%

*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares

   outstanding

 

 

69.1

 

 

 

67.4

 

 

 

1.6

 

 

 

2.4

%

 

 

2.4

%

 

Diluted loss per share

 

$

(0.26

)

 

$

(0.09

)

 

$

(0.17

)

 

100.0

%

*

100.0

%

*

 

Note: Totals may not sum due to rounding.

*Note: Percentage in excess of 100.0%.

 


29


 

 

Certain results for the first quarter of fiscal 2021 are adjusted to exclude the impact of the $5.5 million of 2021 restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended April 3, 2021 which have been adjusted.

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

Operating

 

 

 

Gross

 

 

Profit

 

 

Operating

 

 

Income

 

(in millions except percentages)

 

Profit

 

 

Margin

 

 

Income

 

 

Margin

 

First Quarter of Fiscal 2021

 

$

193.4

 

 

 

58.3

%

 

$

2.8

 

 

 

0.9

%

Adjustments to reported amounts (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021 restructuring charges

 

 

5.2

 

 

 

 

 

 

 

5.5

 

 

 

 

 

Total adjustments (1)

 

 

5.2

 

 

 

 

 

 

 

5.5

 

 

 

 

 

First Quarter of Fiscal 2021, as adjusted (1)

 

$

198.6

 

 

 

59.9

%

 

$

8.4

 

 

 

2.5

%

 

Note: Totals may not sum due to rounding.

(1)

The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the first quarter of fiscal 2021 to exclude the impact of the $5.5 million ($4.1 million after tax) of 2021 restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures.

Certain results for the first quarter of fiscal 2020 are adjusted to exclude the impact of the $3.7 million impairment charge for goodwill related to our Brazil reporting unit. 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 March 28, 2020 which have been adjusted.

 

 

 

 

 

 

 

Operating

 

 

 

Operating

 

 

Income

 

(in millions except percentages)

 

Income

 

 

Margin

 

First Quarter of Fiscal 2020

 

$

24.9

 

 

 

6.2

%

Adjustments to reported amounts (1)

 

 

 

 

 

 

 

 

Goodwill impairment

 

 

3.7

 

 

 

 

 

Total adjustments (1)

 

 

3.7

 

 

 

 

 

First Quarter of Fiscal 2020, as adjusted (1)

 

$

28.5

 

 

 

7.1

%

 

Note: Totals may not sum due to rounding.

(1)

The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the first quarter of fiscal 2020 to exclude the impact of the $3.7 million ($2.7 million after tax) impairment charge for goodwill related to our Brazil reporting unit. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures.

Consolidated Results

Revenues

Revenues in the first quarter of fiscal 2021 were $331.8 million, a decrease of $68.6 million, or 17.1%, versus the first quarter of fiscal 2020. Excluding the impact of foreign currency, which positively impacted our revenues for the first quarter of fiscal 2021 by $10.4 million, revenues in the first quarter of fiscal 2021 would have decreased 19.7% versus the prior year period. This decrease was driven primarily by lower revenues related to Workshops + Digital Fees and in-studio product sales as a result of the closure of our studios and reduced operations related to the COVID-19 pandemic. In North America, revenue also declined as we cycled against the revenues from the WW Presents: Oprah’s 2020 Vision tour. See “—Segment Results” for additional details on revenues.

30


 

Cost of Revenues and Gross Profit

Total cost of revenues in the first quarter of fiscal 2021 decreased $51.0 million, or 26.9%, versus the prior year period. Excluding the impact of $5.2 million of 2021 restructuring charges, total cost of revenues in the first quarter of fiscal 2021 would have decreased by 29.7%, or 31.3% on a constant currency basis, versus the prior year period. Gross profit decreased $17.6 million, or 8.3%, in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020. Excluding the impact of foreign currency, which positively impacted gross profit for the first quarter of fiscal 2021 by $7.2 million, gross profit in the first quarter of fiscal 2021 would have decreased 11.8% versus the prior year period. Excluding the impact of $5.2 million of 2021 restructuring charges, gross profit in the first quarter of fiscal 2021 would have decreased by 5.9%, or 9.3% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin in the first quarter of fiscal 2021 increased 5.6% to 58.3% versus 52.7% in the first quarter of fiscal 2020. Excluding the impact of foreign currency, gross margin in the first quarter of fiscal 2021 would have increased 5.2% to 57.9% versus the prior year period. Excluding the impact of the 2021 restructuring charges, gross margin in the first quarter of fiscal 2021 would have increased 7.2% to 59.9% versus the prior year period. Excluding the impact of both foreign currency and the 2021 restructuring charges, gross margin in the first quarter of fiscal 2021 would have increased 6.8% to 59.5% versus the prior year period. Gross margin increase was driven primarily by a mix shift to our higher margin Digital business and cycling against the net profit from the WW Presents: Oprah’s 2020 Vision tour as a percentage of revenue, offset in part by a contraction of margins in the Workshops + Digital business and lower margins related to consumer product sales.

Marketing

Marketing expenses in the first quarter of fiscal 2021 decreased $1.0 million, or 0.8%, versus the first quarter of fiscal 2020. Excluding the impact of foreign currency, which increased marketing expenses for the first quarter of fiscal 2021 by $3.9 million, marketing expenses in the first quarter of fiscal 2021 would have decreased 4.1% versus the first quarter of fiscal 2020. This decrease in marketing expenses was primarily due to fiscal 2020 including a 53rd week, which bridged the last week of December 2020 and ended on January 2, 2021. This 53rd week had a high concentration of advertising spending and thus pushed a portion of the marketing expense into the fourth quarter of fiscal 2020. Marketing expenses as a percentage of revenue for the first quarter of fiscal 2021 increased to 35.2% from 29.5% for the first quarter of fiscal 2020.

Selling, General and Administrative

Selling, general and administrative expenses in the first quarter of fiscal 2021 increased $9.1 million, or 14.2%, versus the first quarter of fiscal 2020. Excluding the impact of foreign currency, which increased selling, general and administrative expenses for the first quarter of fiscal 2021 by $1.2 million, selling, general and administrative expenses in the first quarter of fiscal 2021 would have increased 12.3% versus the prior year period. Excluding the impact of the $0.3 million of 2021 restructuring charges, selling, general and administrative expenses in the first quarter of fiscal 2021 would have increased by 13.7%, or 11.8% on a constant currency basis, versus the prior year period. The increase in selling, general and administrative expenses in the first quarter of fiscal 2021 was driven primarily by the timing of bonus payouts and related costs in fiscal 2021 and the negative impact of COVID-19 on our bonus payout for fiscal 2020. Selling, general and administrative expenses as a percentage of revenue for the first quarter of fiscal 2021 increased to 22.2% from 16.1% for the first quarter of fiscal 2020.

Impairment

For the first quarter of fiscal 2020, in performing our interim impairment analysis for our Brazil reporting unit, we determined that, based on the fair values calculated, the carrying amount of goodwill related to our Brazil reporting unit exceeded our fair value and recorded an impairment charge of $3.7 million.

Operating Income

Operating income in the first quarter of fiscal 2021 decreased $22.0 million, or 88.6%, versus the prior year period. Excluding the impact of foreign currency, which positively impacted operating income for the first quarter of fiscal 2021 by $2.2 million, operating income in the first quarter of fiscal 2021 would have decreased 97.4% versus the prior year period. Excluding the impact of the $5.5 million of 2021 restructuring charges in the first quarter of fiscal 2021 and the $3.7 million goodwill impairment charge related to our Brazil reporting unit in the first quarter of fiscal 2020, operating income in the first quarter of fiscal 2021 would have decreased by 70.7%, or 78.3% on a constant currency basis, versus the prior year period. Operating income margin in the first quarter of fiscal 2021 decreased 5.4% to 0.9% versus 6.2% in the first quarter of fiscal 2020. Excluding the impact of the 2021 restructuring charges in the first quarter of fiscal 2021 and the goodwill impairment charge in the first quarter of fiscal 2020, operating income margin in the first quarter of fiscal 2021 would have decreased by 4.6%, or 5.2% on a constant currency basis, versus the prior year period. The decrease in operating income margin was driven primarily by an increase in selling, general and administrative expenses as a percentage of revenue and an increase in marketing expenses as a percentage of revenue, partially offset by an increase in gross margin, versus the prior year period.


31


 

 

Interest Expense

Interest expense in the first quarter of fiscal 2021 decreased $2.4 million, or 7.7%, versus the first quarter of fiscal 2020. The decrease in interest expense was driven primarily by a decrease in our outstanding indebtedness resulting from principal repayments. The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the first quarter of fiscal 2021 and the first quarter of fiscal 2020 and excluding the impact of our interest rate swaps then in effect, decreased to 6.59% per annum at the end of the first quarter of fiscal 2021 from 7.54% per annum at the end of the first quarter of fiscal 2020. Including the impact of our interest rate swaps then in effect, the effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the first quarter of fiscal 2021 and the first quarter of fiscal 2020, decreased to 7.56% per annum at the end of the first quarter of fiscal 2021 from 7.82% per annum at the end of the first quarter of fiscal 2020. 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 (Income) Expense, Net

Other (income) expense, net, which consists primarily of the impact of foreign currency on intercompany transactions, changed by $0.3 million in the first quarter of fiscal 2021 to $0.2 million of income as compared to $0.0 million of expense in the prior year period.

Tax

Our effective tax rate in the first quarter of fiscal 2021 was 30.0% as compared to 9.7% in the first quarter of fiscal 2020. The effective tax rate in the first quarter of fiscal 2021 was impacted by state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to foreign-derived intangible income and a tax benefit related to tax windfalls from stock compensation. The effective tax rate in the first quarter of fiscal 2020 was impacted by an impairment of our Brazil reporting unit which had a full valuation allowance, tax expense related to global intangible low-taxed income and state income tax expense, partially offset by a tax benefit from income earned in foreign jurisdictions.

Net Loss Attributable to the Company and Loss Per Share

Net loss attributable to the Company in the first quarter of fiscal 2021 of $18.2 million, increased $12.2 million, or 200.6%, from the net loss attributable to the Company in the first quarter of fiscal 2020 of $6.1 million. Excluding the impact of foreign currency, which positively impacted net loss attributable to the Company in the first quarter of fiscal 2021 by $1.6 million, net loss attributable to the Company in the first quarter of fiscal 2021 would have increased 227.0% from the first quarter of fiscal 2020. Net loss attributable to the Company in the first quarter of fiscal 2021 included a $4.1 million impact from 2021 restructuring charges. Net loss attributable to the Company in the first quarter of fiscal 2020 included a $2.7 million impact from the goodwill impairment charge related to our Brazil reporting unit.

Diluted net loss per share in the first quarter of fiscal 2021 was a loss of $0.26 compared to a loss of $0.09 per share in the first quarter of fiscal 2020. Diluted net loss per share in the first quarter of fiscal 2021 included a $0.06 impact from 2021 restructuring charges. Diluted net loss per share in the first quarter of fiscal 2020 included a $0.05 impact from the goodwill impairment charge related to our Brazil reporting unit.

32


 

Segment Results

Metrics and Business Trends

The following tables set forth key metrics by reportable segment for the first quarter of fiscal 2021 and the percentage change in those metrics versus the prior year period:

(in millions except percentages and as noted)

 

 

Q1 2021

 

 

 

GAAP

 

 

Constant Currency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

 

 

 

 

 

 

 

 

 

Product

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

Sales &

 

 

Total

 

 

Subscription

 

 

Sales &

 

 

Total

 

 

Paid

 

 

Incoming

 

 

EOP

 

 

 

Revenues

 

 

Other

 

 

Revenues

 

 

Revenues

 

 

Other

 

 

Revenues

 

 

Weeks

 

 

Subscribers

 

 

Subscribers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

North America

 

$

187.0

 

 

$

34.3

 

 

$

221.3

 

 

$

186.3

 

 

$

34.2

 

 

$

220.5

 

 

 

40.1

 

 

 

2,822.3

 

 

 

3,160.5

 

CE

 

 

69.9

 

 

 

12.0

 

 

 

81.9

 

 

 

63.8

 

 

 

11.0

 

 

 

74.8

 

 

 

17.1

 

 

 

1,179.6

 

 

 

1,349.1

 

UK

 

 

15.0

 

 

 

4.1

 

 

 

19.1

 

 

 

13.9

 

 

 

3.8

 

 

 

17.7

 

 

 

4.4

 

 

 

323.5

 

 

 

340.3

 

Other (1)

 

 

8.0

 

 

 

1.5

 

 

 

9.5

 

 

 

7.1

 

 

 

1.4

 

 

 

8.5

 

 

 

1.4

 

 

 

97.7

 

 

 

107.0

 

Total

 

$

279.8

 

 

$

52.0

 

 

$

331.8

 

 

$

271.0

 

 

$

50.4

 

 

$

321.4

 

 

 

63.1

 

 

 

4,423.0

 

 

 

4,956.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change Q1 2021 vs. Q1 2020

 

North America

 

 

(18.4

%)

 

 

(37.0

%)

 

 

(22.0

%)

 

 

(18.7

%)

 

 

(37.3

%)

 

 

(22.3

%)

 

 

(5.3

%)

 

 

3.7

%

 

 

(2.8

%)

CE

 

 

2.5

%

 

 

1.8

%

 

 

2.4

%

 

 

(6.5

%)

 

 

(7.0

%)

 

 

(6.5

%)

 

 

6.8

%

 

 

11.3

%

 

 

6.8

%

UK

 

 

(19.9

%)

 

 

(35.3

%)

 

 

(23.8

%)

 

 

(25.7

%)

 

 

(39.7

%)

 

 

(29.2

%)

 

 

(19.2

%)

 

 

(10.5

%)

 

 

(15.8

%)

Other (1)

 

 

(7.1

%)

 

 

(49.7

%)

 

 

(18.2

%)

 

 

(17.9

%)

 

 

(54.1

%)

 

 

(27.4

%)

 

 

(7.2

%)

 

 

(4.3

%)

 

 

(7.8

%)

Total

 

 

(13.8

%)

 

 

(31.3

%)

 

 

(17.1

%)

 

 

(16.5

%)

 

 

(33.4

%)

 

 

(19.7

%)

 

 

(3.5

%)

 

 

4.2

%

 

 

(1.5

%)

Note: Totals may not sum due to rounding.

(1)

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

 

 

(in millions except percentages and as noted)

 

 

Q1 2021

 

 

 

Digital Subscription Revenues

 

 

Digital

 

 

Incoming

 

 

EOP

 

 

Workshops + Digital Fees

 

 

Workshops

+ Digital

 

 

Incoming

Workshops

 

 

EOP

Workshops

 

 

 

 

 

 

 

Constant

 

 

Paid

 

 

Digital

 

 

Digital

 

 

 

 

 

 

Constant

 

 

Paid

 

 

+ Digital

 

 

+ Digital

 

 

 

GAAP

 

 

Currency

 

 

Weeks

 

 

Subscribers

 

 

Subscribers

 

 

GAAP

 

 

Currency

 

 

Weeks

 

 

Subscribers

 

 

Subscribers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

North America

 

$

132.1

 

 

$

131.6

 

 

 

33.5

 

 

 

2,334.1

 

 

 

2,630.7

 

 

$

54.9

 

 

$

54.7

 

 

 

6.7

 

 

 

488.2

 

 

 

529.8

 

CE

 

 

58.9

 

 

 

53.8

 

 

 

15.5

 

 

 

1,059.9

 

 

 

1,237.8

 

 

 

10.9

 

 

 

10.0

 

 

 

1.5

 

 

 

119.7

 

 

 

111.3

 

UK

 

 

9.8

 

 

 

9.1

 

 

 

3.4

 

 

 

235.0

 

 

 

267.2

 

 

 

5.2

 

 

 

4.8

 

 

 

1.0

 

 

 

88.5

 

 

 

73.0

 

Other (1)

 

 

5.2

 

 

 

4.6

 

 

 

1.1

 

 

 

74.0

 

 

 

81.7

 

 

 

2.7

 

 

 

2.5

 

 

 

0.3

 

 

 

23.7

 

 

 

25.3

 

Total

 

$

206.1

 

 

$

199.0

 

 

 

53.5

 

 

 

3,703.0

 

 

 

4,217.5

 

 

$

73.8

 

 

$

72.0

 

 

 

9.6

 

 

 

720.0

 

 

 

739.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% Change Q1 2021 vs. Q1 2020

 

North America

 

 

13.5

%

 

 

13.1

%

 

 

13.8

%

 

 

24.8

%

 

 

13.8

%

 

 

(51.3

%)

 

 

(51.5

%)

 

 

(48.6

%)

 

 

(42.7

%)

 

 

(43.6

%)

CE

 

 

26.3

%

 

 

15.3

%

 

 

20.0

%

 

 

22.8

%

 

 

19.9

%

 

 

(49.2

%)

 

 

(53.6

%)

 

 

(49.6

%)

 

 

(39.1

%)

 

 

(51.8

%)

UK

 

 

29.5

%

 

 

20.1

%

 

 

17.9

%

 

 

23.9

%

 

 

21.0

%

 

 

(53.6

%)

 

 

(56.9

%)

 

 

(60.2

%)

 

 

(48.5

%)

 

 

(60.1

%)

Other (1)

 

 

31.8

%

 

 

15.7

%

 

 

15.2

%

 

 

20.1

%

 

 

13.2

%

 

 

(40.6

%)

 

 

(46.9

%)

 

 

(42.8

%)

 

 

(41.5

%)

 

 

(42.3

%)

Total

 

 

18.1

%

 

 

14.0

%

 

 

15.8

%

 

 

24.0

%

 

 

16.0

%

 

 

(50.9

%)

 

 

(52.1

%)

 

 

(50.1

%)

 

 

(42.9

%)

 

 

(47.1

%)

Note: Totals may not sum due to rounding.

(1)

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

33


 

 

North America Performance

The decrease in North America revenues in the first quarter of fiscal 2021 versus the prior year period was driven by both a decrease in Subscription Revenues and a decrease in product sales and other. The decrease in Subscription Revenues in the first quarter of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by the significant recruitment decline in the first quarter of fiscal 2021 driven by the closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment. The decrease in North America Total Paid Weeks was driven primarily by lower recruitments in the first quarter of fiscal 2021 versus the prior year period due to cycling against the successful launch of the myWW program in the first quarter of fiscal 2020 and the COVID-19 environment.

The decrease in North America product sales and other in the first quarter of fiscal 2021 versus the prior year period was driven primarily by a decrease in in-studio product sales and the revenue received in connection with the WW Presents: Oprah’s 2020 Vision tour in the first quarter of fiscal 2020.

Continental Europe Performance

The increase in Continental Europe revenues in the first quarter of fiscal 2021 versus the prior year period was driven primarily by an increase in Subscription Revenues. The increase in Subscription Revenues in the first quarter of fiscal 2021 versus the prior year period was driven by an increase in Digital Subscription Revenues, partially offset by a decrease in Workshops + Digital Fees. Workshops + Digital Fees were negatively impacted by the significant recruitment decline in the first quarter of fiscal 2021 driven by the closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment. The increase in Continental Europe Total Paid Weeks was driven primarily by the higher number of Incoming Digital Subscribers at the beginning of the first quarter of fiscal 2021 versus the beginning of the first quarter of fiscal 2020 and higher Digital recruitments in the first quarter of fiscal 2021 versus the prior year period.

The increase in Continental Europe product sales and other in the first quarter of fiscal 2021 versus the prior year period was driven primarily by an increase in e-commerce product sales.

United Kingdom Performance

The decrease in UK revenues in the first quarter of fiscal 2021 versus the prior year period was driven by both a decrease in Subscription Revenues and a decrease in product sales and other. The decrease in Subscription Revenues in the first quarter of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by the significant recruitment decline in the first quarter of fiscal 2021 driven by the closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment. The decrease in UK Total Paid Weeks was driven primarily by lower recruitments in the first quarter of fiscal 2021 versus the prior year period due to cycling against the successful launch of the myWW program in the first quarter of fiscal 2020 and the COVID-19 environment.

The decrease in UK product sales and other in the first quarter of fiscal 2021 versus the prior year period was driven primarily by a decrease in in-studio product sales.

Other Performance

The decrease in Other revenues in the first quarter of fiscal 2021 versus the prior year period was driven by both a decrease in product sales and other and a decrease in Subscription Revenues. The decrease in Subscription Revenues in the first quarter of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees. Workshops + Digital Fees were negatively impacted by the significant recruitment decline in the first quarter of fiscal 2021 driven by the closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment.

The decrease in Other product sales and other in the first quarter of fiscal 2021 versus the prior year period was driven primarily by a decrease in franchise commissions and a decrease in product sales.


34


 

 

LIQUIDITY AND CAPITAL RESOURCES

Cash flows provided by operating activities have historically supplied, and are expected to continue to supply, us with our primary source of liquidity. We use these cash flows, supplemented with long-term debt and short-term borrowings, to fund our operations and global strategic initiatives, pay down debt and engage in selective acquisitions. We currently believe that cash generated by operations, our cash on hand of approximately $113.3 million at April 3, 2021, our $173.8 million of availability under our New Revolving Credit Facility (as defined below) and our continued cost focus will provide us with sufficient liquidity to meet our obligations for the next twelve months. 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 arising from the COVID-19 pandemic. To increase our flexibility and reduce our cash interest payments, we refinanced our Terminated Credit Facilities and Discharged Senior Notes (each as defined below) in April 2021. See “—Long-Term Debt—April 2021 Debt Refinancing” for additional details on this refinancing. Additionally, we instituted a number of measures throughout our operations to mitigate expenses and reduce costs as well as ensure liquidity and the availability of our New Revolving Credit Facility. The evolving nature, and uncertain economic impact, of COVID-19 and any variants may impact our liquidity going forward. To the extent that we do not successfully manage our costs, our liquidity and financial results, as well as our ability to access our New 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 New Credit Facilities (each as defined below). Such transactions could be privately negotiated or open market transactions, pursuant to tender offers or otherwise. Subject to any applicable limitations contained in the agreements governing, or terms of, our indebtedness, any such purchases made by us may be funded by the use of cash on our balance sheet, the incurrence of new secured or unsecured debt, the issuance of our equity or the sale of assets. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may equate to a substantial amount of a particular class or series of debt, which may reduce the trading liquidity of such class or series.

Balance Sheet Working Capital

The following table sets forth certain relevant measures of our balance sheet working capital deficit, excluding cash and cash equivalents and current portion of long-term debt at:

 

 

 

April 3,

 

 

January 2,

 

 

Increase/

 

 

 

2021

 

 

2021

 

 

(Decrease)

 

 

 

(in millions)

 

Total current assets

 

$

251.2

 

 

$

299.2

 

 

$

(48.0

)

Total current liabilities

 

 

327.3

 

 

 

340.1

 

 

 

(12.8

)

Working capital deficit

 

 

(76.1

)

 

 

(40.9

)

 

 

35.2

 

Cash and cash equivalents

 

 

113.3

 

 

 

165.9

 

 

 

(52.6

)

Current portion of long-term debt

 

 

77.0

 

 

 

77.0

 

 

 

0.0

 

Working capital deficit, excluding cash and cash

   equivalents and current portion of long-term debt

 

$

(112.5

)

 

$

(129.8

)

 

$

(17.3

)

 

Note: Totals may not sum due to rounding.


35


 

 

The following table sets forth a summary of the primary factors contributing to the $17.3 million decrease in our working capital deficit, excluding cash and cash equivalents and current portion of long-term debt:

 

 

 

April 3,

 

 

January 2,

 

 

Increase/

 

 

Impact to

Working

 

 

 

2021

 

 

2021

 

 

(Decrease)

 

 

Capital Deficit

 

 

 

(in millions)

 

Prepaid income taxes

 

$

31.1

 

 

$

20.0

 

 

$

11.1

 

 

$

(11.1

)

Derivative payable

 

$

23.1

 

 

$

28.3

 

 

$

(5.2

)

 

$

(5.2

)

Portion of operating lease liabilities due within

   one year

 

$

24.0

 

 

$

28.6

 

 

$

(4.5

)

 

$

(4.5

)

Income taxes payable

 

$

4.1

 

 

$

7.8

 

 

$

(3.7

)

 

$

(3.7

)

Deferred revenue

 

$

50.0

 

 

$

50.5

 

 

$

(0.5

)

 

$

(0.5

)

Operational liabilities and other, net of assets

 

$

33.1

 

 

$

32.0

 

 

$

1.1

 

 

$

1.1

 

Accrued interest

 

$

9.4

 

 

$

2.7

 

 

$

6.6

 

 

$

6.6

 

Working capital deficit change, excluding cash

   and cash equivalents and current portion of

   long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(17.3

)

Note: Totals may not sum due to rounding.

The increase in prepaid income taxes was primarily due to an accrual of tax benefits from the pre-tax loss and the tax windfall from stock options exercised by Ms. Oprah Winfrey, each in the first quarter of fiscal 2021. The decrease in derivative payable was due to a change in fair value driven by the change in interest rates. The decrease in the portion of operating lease liabilities due within one year was due to the increase in lease terminations. The decrease in income taxes payable was primarily due to foreign tax payments, partially offset by foreign tax accruals. The increase in accrued interest was due to the timing of debt principal payments.

Cash Flows

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

 

 

 

April 3, 2021

 

 

March 28, 2020

 

 

 

(in millions)

 

Net cash (used for) provided by operating activities

 

$

(11.9

)

 

$

8.4

 

Net cash used for investing activities

 

$

(21.0

)

 

$

(25.9

)

Net cash (used for) provided by financing activities

 

$

(17.1

)

 

$

128.2

 

 

Operating Activities

First Quarter of Fiscal 2021

Cash flows used for operating activities of $11.9 million in the first quarter of fiscal 2021 reflected a decrease of $20.3 million from $8.4 million of cash flows provided by operating activities in the first quarter of fiscal 2020. The decrease in cash provided by operating activities was primarily the result of an increase in net loss attributable to the Company of $12.2 million in the first quarter of fiscal 2021 as compared to the prior year period.

First Quarter of Fiscal 2020

Cash flows provided by operating activities of $8.4 million in the first quarter of fiscal 2020 reflected an increase of $1.2 million from $7.2 million of cash flows provided by operating activities in the first quarter of fiscal 2019. The increase in cash provided by operating activities was primarily the result of a decrease in net loss attributable to the Company of $4.6 million in the first quarter of fiscal 2020 as compared to the prior year period.


36


 

 

Investing Activities

First Quarter of Fiscal 2021

Net cash used for investing activities totaled $21.0 million in the first quarter of fiscal 2021, a decrease of $4.9 million as compared to the first quarter of fiscal 2020. This decrease was primarily attributable to lower capital expenditures and cycling against the $5.0 million investment in ClassPass Inc. (“ClassPass”), partially offset by an increase in cash paid for acquisitions, in the first quarter of fiscal 2021 compared to the prior year period.

First Quarter of Fiscal 2020

Net cash used for investing activities totaled $25.9 million in the first quarter of fiscal 2020, an increase of $14.7 million as compared to the first quarter of fiscal 2019. This increase was primarily attributable to higher capital expenditures in the first quarter of fiscal 2020. In the first quarter of fiscal 2020, we entered into a strategic collaboration agreement with ClassPass and also invested $5.0 million in ClassPass’ recent $285.0 million Series E Preferred Stock funding round.

Financing Activities

First Quarter of Fiscal 2021

Net cash used for financing activities totaled $17.1 million in the first quarter of fiscal 2021 primarily due to $19.3 million used for scheduled debt repayments under our Term Loan Facility. See “—Long-Term Debt” for additional details on debt.

First Quarter of Fiscal 2020

Net cash provided by financing activities totaled $128.2 million in the first quarter of fiscal 2020 primarily due to borrowings under the Revolving Credit Facility of $148.0 million. See “—Long-Term Debt” for additional details on debt.

Long-Term Debt

We currently plan to meet our long-term debt obligations by using cash flows provided by operating activities and opportunistically using other means to repay or refinance our obligations as we determine appropriate.

The following schedule sets forth our long-term debt obligations at April 3, 2021:

Long-Term Debt

At April 3, 2021

(Balances in millions)

 

 

Balance

 

Terminated Term Loan Facility due November 29, 2024

 

$

1,189.8

 

Discharged Senior Notes due December 1, 2025

 

 

300.0

 

Total

 

 

1,489.8

 

Less: Current portion

 

 

77.0

 

Unamortized deferred financing costs

 

 

5.6

 

Unamortized debt discount

 

 

16.1

 

Total long-term debt

 

$

1,391.0

 

 

Note: Totals may not sum due to rounding.

Terminated Senior Secured Credit Facilities

The Terminated Credit Facilities were issued under a credit agreement, dated November 29, 2017, or, as amended from time to time, the Terminated Credit Agreement, among the Company, as borrower, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent and an issuing bank, Bank of America, N.A., as an issuing bank, and Citibank, N.A., as an issuing bank. The Terminated Credit Facilities initially consisted of (1) $1,540.0 million in aggregate principal amount of senior secured tranche B term loans due in 2024, or the Terminated Term Loan Facility, and (2) $150.0 million in an aggregate principal amount of commitments under a senior secured revolving credit facility (which included borrowing capacity available for letters of credit) due in 2022, or the Terminated Revolving Credit Facility. The amount available under the Terminated Revolving Credit Facility was increased to $175.0 million in June 2020.

37


 

As of April 3, 2021, we had $1,189.8 million in an aggregate principal amount of loans outstanding under our Terminated Credit Facilities, with $173.8 million of availability and $1.2 million in issued but undrawn letters of credit outstanding under the Terminated Revolving Credit Facility. There were no outstanding borrowings under the Terminated Revolving Credit Facility as of April 3, 2021.

Discharged Senior Notes

The Discharged Senior Notes were issued pursuant to an Indenture, dated as of November 29, 2017, or the Discharged Indenture, among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee. The Discharged Senior Notes accrued interest at a rate per annum equal to 8.625% and their maturity date was December 1, 2025. On or after December 1, 2020, we were able to, on any one or more occasions, redeem some or all of the Discharged Senior Notes at a purchase price equal to 104.313% of the principal amount of the Discharged Senior Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date.

Outstanding Debt

At April 3, 2021, we had $1,489.8 million outstanding under the Terminated Credit Facilities and the Discharged Senior Notes, consisting of borrowings under the Terminated Term Loan Facility of $1,189.8 million, $0.0 drawn down on the Terminated Revolving Credit Facility and $300.0 million in aggregate principal amount of Discharged Senior Notes issued and outstanding.

At April 3, 2021 and January 2, 2021, 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 6.59% and 7.03% per annum at April 3, 2021 and January 2, 2021, 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 7.06% and 7.41% per annum at April 3, 2021 and January 2, 2021, respectively, based on interest rates on these dates.

April 2021 Debt Refinancing

On April 13, 2021, we repaid in full approximately $1.2 billion of borrowings under the Terminated Credit Facilities and redeemed all of the $300.0 million aggregate principal amount of Discharged Senior Notes with proceeds received from approximately $1,000.0 million in an aggregate principal amount of borrowings under our new 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. Our new credit facilities consist of a $1,000.0 million term loan facility and a $175.0 million revolving credit facility (which includes borrowing capacity available for letters of credit) (collectively, as amended from time to time, referred to herein as the New Credit Facilities).

New Credit Facilities

The New Credit Facilities were issued under a credit agreement, dated April 13, 2021 or, as amended from time to time, the New 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 New 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 New 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 New Revolving Credit Facility.

All obligations under the New 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 New 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.


38


 

 

The New 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 New Credit Agreement.

The foregoing mandatory prepayments will be used to reduce the installments of principal on the New Term Loan Facility. We may voluntarily repay outstanding loans under the New Credit Facilities at any time without premium or penalty, except (1) for customary “breakage” costs with respect to LIBOR loans under the New Credit Facilities and (2) during the six months following the Closing Date (as defined in the New Credit Agreement), with respect to certain voluntary prepayments or refinancings of the New Term Loan Facility that reduce the effective yield of the New Term Loan Facility, which will be subject to a 1.00% prepayment premium.

Borrowings under the New 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 New Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at our option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.00% or (2) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided such rate is not lower than a floor of zero. As of April 13, 2021, the applicable margins for the LIBOR rate borrowings under the New Term Loan Facility and the New Revolving Credit Facility were 3.50% and 2.50%, respectively. In the event that LIBOR is phased out as is currently expected, the New Credit Agreement provides that the Company and the administrative agent may amend the New 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 New 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 New 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 New Credit Facility).

The New 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 New Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the New Revolving Credit Facility in effect on such date, we must be in compliance with a Consolidated First Lien Leverage Ratio of, on or prior to the end of the first fiscal quarter of 2022, 6.00:1.00, with a step down to 5.75:1.00 for the period ending after the first fiscal quarter of 2022 through and including with first fiscal quarter of 2023, with an additional step down to 5.50:1.00 for the period ending after the first fiscal quarter of 2023 through and including with first fiscal quarter of 2024, with a step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including with first fiscal quarter of 2025 and again to 5.00:1.00, for the period following the first fiscal quarter of 2025.


39


 

 

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 New Indenture, among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The New 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, 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 New Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the New Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the New Credit Facilities and subject to certain thresholds, exceptions and permitted liens.

The following schedule sets forth our year-by-year debt obligations at April 3, 2021:

Total Debt Obligation

(Including Current Portion)

At April 3, 2021

(in millions)

 

Remainder of fiscal 2021

 

$

57.8

 

Fiscal 2022

 

 

77.0

 

Fiscal 2023

 

 

77.0

 

Fiscal 2024

 

 

978.0

 

Fiscal 2025

 

 

300.0

 

Fiscal 2026 and thereafter

 

 

 

Total

 

$

1,489.8

 

 

Note: Totals may not sum due to rounding.

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss includes changes in the fair value of derivative instruments and the effects of foreign currency translations. At April 3, 2021 and March 28, 2020, the cumulative balance of changes in the fair value of derivative instruments, net of taxes, was a loss of $17.1 million and $25.2 million, respectively. At April 3, 2021 and March 28, 2020, the cumulative balance of the effects of foreign currency translations, net of taxes, was a loss of $5.0 million and $19.0 million, respectively.


40


 

 

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 New Credit Facilities and the Indenture governing the Senior Secured Notes, and may be limited by the agreements governing other indebtedness we or our subsidiaries incur in the future.

On October 9, 2003, our Board of Directors authorized, and we announced, a program to repurchase up to $250.0 million of our outstanding common stock. On each of June 13, 2005, May 25, 2006 and October 21, 2010, our Board of Directors authorized, and we announced, the addition of $250.0 million to this program. The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions. No shares will be purchased from Artal Holdings Sp. z o.o., Succursale de Luxembourg and its parents and subsidiaries under this program. The repurchase program currently has no expiration date. During the three months ended April 3, 2021 and March 28, 2020, 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, restructuring charges and goodwill impairment.

The table below sets forth the reconciliations for EBITDAS and Adjusted EBITDAS, each a non-GAAP financial measure, to net loss, the most comparable GAAP financial measure, for the three months ended April 3, 2021 and March 28, 2020, and EBITDAS and Adjusted EBITDAS to net income for the trailing twelve months ended April 3, 2021:

(in millions)

 

 

Three Months Ended

 

 

 

 

 

 

 

April 3, 2021

 

 

March 28, 2020

 

 

Trailing Twelve

Months

 

Net (loss) income

 

$

(18.2

)

 

$

(6.1

)

 

$

62.9

 

Interest

 

 

29.1

 

 

 

31.6

 

 

 

120.9

 

Taxes

 

 

(7.8

)

 

 

(0.7

)

 

 

10.3

 

Depreciation and amortization

 

 

11.9

 

 

 

12.2

 

 

 

49.7

 

Stock-based compensation

 

 

5.3

 

 

 

4.0

 

 

 

56.4

 

EBITDAS

 

$

20.3

 

 

$

41.0

 

 

$

300.2

 

2021 restructuring charges

 

 

5.5

 

 

 

 

 

 

5.5

 

2020 restructuring charges

 

 

 

 

 

 

 

 

33.1

 

Goodwill impairment

 

 

 

 

 

3.7

 

 

 

 

Adjusted EBITDAS (1)

 

$

25.8

 

 

$

44.7

 

 

$

338.8

 

 

Note: Totals may not sum due to rounding.

(1)

The “Adjusted EBITDAS” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the first quarter of fiscal 2021 to exclude the $5.5 million of 2021 restructuring charges and adjusts the consolidated statements of net income for the first quarter of fiscal 2020 to exclude the $3.7 million impairment charge for goodwill related to our Brazil reporting unit. 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 April 3, 2021, our net debt/Adjusted EBITDAS ratio was 4.0x.

41


 

The table below sets forth the reconciliation for net debt, a non-GAAP financial measure, to total debt, the most comparable GAAP financial measure, for the three months ended:

(in millions)

 

 

April 3, 2021

 

Total debt

 

$

1,489.8

 

Less: Unamortized deferred financing costs

 

 

5.6

 

Less: Unamortized debt discount

 

 

16.1

 

Less: Cash on hand

 

 

113.3

 

Net debt

 

$

1,354.7

 

 

Note: Totals may not sum due to rounding.

We present EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS because we consider them to be useful supplemental measures of our performance. In addition, we believe EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS are useful to investors, analysts and rating agencies in measuring the ability of a company to meet its debt service obligations. See “—Non-GAAP Financial Measures” herein for an explanation of our use of these non-GAAP financial measures.

OFF-BALANCE SHEET ARRANGEMENTS

As part of our ongoing business, we do not participate in arrangements that generate relationships with unconsolidated entities or financial partnerships established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, such as entities often referred to as structured finance or special purpose entities.

SEASONALITY

Our business is seasonal due to the importance of the winter season to our overall member recruitment environment. Historically, we experience our highest level of recruitment during the first quarter of the year, which is supported with the highest concentration of advertising spending. Therefore, our number of End of Period Subscribers in the first quarter of the year is typically higher than the number in other quarters of the year, historically reflecting a decline over the course of the year.

AVAILABLE INFORMATION

Corporate information and our press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments thereto, are available free of charge on our corporate website at corporate.ww.com as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (i.e., generally the same day as the filing), or the SEC. Moreover, we also make available at that site the Section 16 reports filed electronically by our officers, directors and 10 percent shareholders.

We use our corporate website at corporate.ww.com and certain social media channels such as our corporate Facebook page (www.facebook.com/WW), Instagram account (Instagram.com/WW) and Twitter account (@ww_us) as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website and social media channels shall not be deemed to be incorporated herein by reference.

 


42


 

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of April 3, 2021, 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 2020 as amended have not materially changed from January 2, 2021.

At the end of the first quarter of fiscal 2021, borrowings under the Terminated Credit Facilities bore interest at LIBOR plus an applicable margin of 4.75%. For the Term Loan Facility, the minimum interest rate for LIBOR applicable to such facility pursuant to the terms of the Terminated Credit Agreement was set at 0.75%, referred to herein as the LIBOR Floor. In addition, as of April 3, 2021, our interest rate swaps in effect had an aggregate notional amount of $500.0 million. Accordingly, as of April 3, 2021, 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 $6.2 million, driven primarily by the interest rate applicable to our Terminated Term Loan Facility. A hypothetical 90 basis point decrease in interest rates would have resulted in no change to annual interest expense, driven primarily by the LIBOR Floor.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of April 3, 2021, the end of the first quarter of fiscal 2021. Based upon that evaluation and subject to the foregoing, our principal executive officer and our principal financial officer concluded that, as of the end of the first quarter of fiscal 2021, 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.

43


 

PART II – OTHER INFORMATION

ITEM 1.

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 2020 as amended.

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.


44


 

 

ITEM 6.

EXHIBITS

Exhibit Number

 

 

Description

 

 

 

*Exhibit 31.1

 

Rule 13a-14(a) Certification by Mindy Grossman, 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 April 3, 2021, formatted in Inline XBRL (included within the Exhibit 101 attachments).

 

*

Filed herewith.

45


 

 

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: May 5, 2021

By:  

/s/ Mindy Grossman

 

 

Mindy Grossman

 

 

President, Chief Executive Officer and Director 

(Principal Executive Officer)

 

Date: May 5, 2021

By:  

/s/ Amy O’Keefe

 

 

Amy O’Keefe

 

 

Chief Financial Officer

(Principal Financial Officer)

 

46