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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 2, 2022

OR

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

For the transition period from              to             

Commission File Number: 001-16769

 

WW INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

 

Virginia

 

11-6040273

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

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

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (212589-2700

 

(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, 2022 was 70,331,228.

 

 

 


 

 

WW INTERNATIONAL, INC.

TABLE OF CONTENTS

 

 

 

Page No.

 

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

2

 

 

 

 

Unaudited Consolidated Balance Sheets at April 2, 2022 and January 1, 2022

2

 

 

 

 

Unaudited Consolidated Statements of Net Income for the three months ended April 2, 2022 and April 3, 2021

3

 

 

 

 

Unaudited Consolidated Statements of Comprehensive Income for the three months ended April 2, 2022 and April 3, 2021

4

 

 

 

 

Unaudited Consolidated Statements of Changes in Total Deficit for the three months ended April 2, 2022 and April 3, 2021

5

 

 

 

 

Unaudited Consolidated Statements of Cash Flows for the three months ended April 2, 2022 and April 3, 2021

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 2,

 

 

January 1,

 

 

 

2022

 

 

2022

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

127,640

 

 

$

153,794

 

Receivables (net of allowances: April 2, 2022 - $1,891 and

   January 1, 2022 - $1,726)

 

 

39,266

 

 

 

29,321

 

Inventories

 

 

29,496

 

 

 

30,566

 

Prepaid income taxes

 

 

29,382

 

 

 

30,478

 

Prepaid expenses and other current assets

 

 

31,841

 

 

 

27,014

 

TOTAL CURRENT ASSETS

 

 

257,625

 

 

 

271,173

 

Property and equipment, net

 

 

34,688

 

 

 

37,219

 

Operating lease assets

 

 

86,302

 

 

 

89,902

 

Franchise rights acquired

 

 

785,852

 

 

 

785,195

 

Goodwill

 

 

163,353

 

 

 

157,374

 

Other intangible assets, net

 

 

62,268

 

 

 

61,126

 

Deferred income taxes

 

 

11,504

 

 

 

11,259

 

Other noncurrent assets

 

 

17,834

 

 

 

15,686

 

TOTAL ASSETS

 

$

1,419,426

 

 

$

1,428,934

 

LIABILITIES AND TOTAL DEFICIT

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Portion of long-term debt due within one year

 

$

 

 

$

 

Portion of operating lease liabilities due within one year

 

 

18,969

 

 

 

20,297

 

Accounts payable

 

 

29,339

 

 

 

22,444

 

Salaries and wages payable

 

 

53,112

 

 

 

57,401

 

Accrued marketing and advertising

 

 

10,191

 

 

 

15,904

 

Accrued interest

 

 

10,815

 

 

 

5,085

 

Other accrued liabilities

 

 

41,717

 

 

 

45,728

 

Derivative payable

 

 

2,912

 

 

 

14,670

 

Income taxes payable

 

 

618

 

 

 

1,748

 

Deferred revenue

 

 

48,991

 

 

 

45,855

 

TOTAL CURRENT LIABILITIES

 

 

216,664

 

 

 

229,132

 

Long-term debt, net

 

 

1,419,149

 

 

 

1,418,104

 

Long-term operating lease liabilities

 

 

75,527

 

 

 

78,157

 

Deferred income taxes

 

 

154,759

 

 

 

157,718

 

Other

 

 

2,656

 

 

 

2,227

 

TOTAL LIABILITIES

 

 

1,868,755

 

 

 

1,885,338

 

TOTAL DEFICIT

 

 

 

 

 

 

 

 

Common stock, $0 par value; 1,000,000 shares authorized; 122,052

   shares issued at April 2, 2022 and 122,052 shares issued at

   January 1, 2022

 

 

0

 

 

 

0

 

Treasury stock, at cost, 51,923 shares at April 2, 2022 and 51,988

   shares at January 1, 2022

 

 

(3,117,434

)

 

 

(3,120,149

)

Retained earnings

 

 

2,675,767

 

 

 

2,682,349

 

Accumulated other comprehensive loss

 

 

(7,662

)

 

 

(18,604

)

TOTAL DEFICIT

 

 

(449,329

)

 

 

(456,404

)

TOTAL LIABILITIES AND TOTAL DEFICIT

 

$

1,419,426

 

 

$

1,428,934

 

 

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

2


WW INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF NET INCOME

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 

 

 

 

Three Months Ended

 

 

 

April 2,

 

 

April 3,

 

 

 

2022

 

 

2021

 

Subscription revenues, net

 

$

256,985

 

 

$

279,820

 

Product sales and other, net

 

 

40,776

 

 

 

51,976

 

Revenues, net

 

 

297,761

 

 

 

331,796

 

Cost of subscription revenues

 

 

86,041

 

 

 

99,103

 

Cost of product sales and other

 

 

31,622

 

 

 

39,258

 

Cost of revenues

 

 

117,663

 

 

 

138,361

 

Gross profit

 

 

180,098

 

 

 

193,435

 

Marketing expenses

 

 

107,570

 

 

 

116,933

 

Selling, general and administrative expenses

 

 

63,558

 

 

 

73,671

 

Operating income

 

 

8,970

 

 

 

2,831

 

Interest expense

 

 

18,671

 

 

 

29,123

 

Other expense (income), net

 

 

344

 

 

 

(237

)

Loss before income taxes

 

 

(10,045

)

 

 

(26,055

)

Benefit from income taxes

 

 

(1,802

)

 

 

(7,828

)

Net loss

 

$

(8,243

)

 

$

(18,227

)

Net loss per share

 

 

 

 

 

 

 

 

Basic

 

$

(0.12

)

 

$

(0.26

)

Diluted

 

$

(0.12

)

 

$

(0.26

)

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

70,086

 

 

 

69,084

 

Diluted

 

 

70,086

 

 

 

69,084

 

 

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 2,

 

 

April 3,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(8,243

)

 

$

(18,227

)

Other comprehensive gain:

 

 

 

 

 

 

 

 

Foreign currency translation loss

 

 

(141

)

 

 

(1,120

)

Income tax benefit on foreign currency translation loss

 

 

35

 

 

 

282

 

Foreign currency translation loss, net of taxes

 

 

(106

)

 

 

(838

)

Gain on derivatives

 

 

14,756

 

 

 

5,204

 

Income tax expense on gain on derivatives

 

 

(3,708

)

 

 

(1,311

)

Gain on derivatives, net of taxes

 

 

11,048

 

 

 

3,893

 

Total other comprehensive gain

 

 

10,942

 

 

 

3,055

 

Comprehensive income (loss)

 

$

2,699

 

 

$

(15,172

)

 

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

4


WW INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED Consolidated Statements of Changes in Total Deficit

(IN THOUSANDS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended April 2, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at January 1, 2022

 

 

122,052

 

 

$

0

 

 

 

51,988

 

 

$

(3,120,149

)

 

$

(18,604

)

 

$

2,682,349

 

 

$

(456,404

)

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,942

 

 

 

(8,243

)

 

 

2,699

 

Issuance of treasury stock under stock plans

 

 

 

 

 

 

 

 

 

 

(65

)

 

 

2,715

 

 

 

 

 

 

 

(3,039

)

 

 

(324

)

Compensation expense on share-based awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,700

 

 

 

4,700

 

Balance at April 2, 2022

 

 

122,052

 

 

$

0

 

 

 

51,923

 

 

$

(3,117,434

)

 

$

(7,662

)

 

$

2,675,767

 

 

$

(449,329

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended April 3, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Treasury Stock

 

 

Comprehensive

 

 

Retained

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at January 2, 2021

 

 

121,470

 

 

$

0

 

 

 

52,497

 

 

$

(3,140,903

)

 

$

(25,149

)

 

$

2,617,841

 

 

$

(548,211

)

Comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

)

 

 

 

 

 

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 2,

 

 

April 3,

 

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(8,243

)

 

$

(18,227

)

Adjustments to reconcile net loss to cash used for operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

10,759

 

 

 

13,180

 

Amortization of deferred financing costs and debt discount

 

 

1,254

 

 

 

2,231

 

Impairment of intangible and long-lived assets

 

 

42

 

 

 

184

 

Share-based compensation expense

 

 

4,700

 

 

 

5,341

 

Deferred tax benefit

 

 

(6,693

)

 

 

(1,361

)

Allowance for doubtful accounts

 

 

72

 

 

 

(12

)

Reserve for inventory obsolescence

 

 

1,254

 

 

 

2,416

 

Foreign currency exchange rate loss (gain)

 

 

623

 

 

 

(372

)

Changes in cash due to:

 

 

 

 

 

 

 

 

Receivables

 

 

(10,596

)

 

 

(6,008

)

Inventories

 

 

(120

)

 

 

2,792

 

Prepaid expenses

 

 

(4,106

)

 

 

(4,313

)

Accounts payable

 

 

7,118

 

 

 

(842

)

Accrued liabilities

 

 

(5,268

)

 

 

(1,756

)

Deferred revenue

 

 

3,560

 

 

 

(211

)

Other long term assets and liabilities, net

 

 

(3,003

)

 

 

(738

)

Income taxes

 

 

(1,807

)

 

 

(4,182

)

Cash used for operating activities

 

 

(10,454

)

 

 

(11,878

)

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(323

)

 

 

(688

)

Capitalized software expenditures

 

 

(8,905

)

 

 

(9,447

)

Cash paid for acquisitions

 

 

(4,350

)

 

 

(10,849

)

Other items, net

 

 

(11

)

 

 

(16

)

Cash used for investing activities

 

 

(13,589

)

 

 

(21,000

)

Financing activities:

 

 

 

 

 

 

 

 

Payments on long-term debt

 

 

 

 

 

(19,250

)

Taxes paid related to net share settlement of equity awards

 

 

(374

)

 

 

(237

)

Proceeds from stock options exercised

 

 

 

 

 

2,468

 

Other items, net

 

 

(35

)

 

 

(43

)

Cash used for financing activities

 

 

(409

)

 

 

(17,062

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(1,702

)

 

 

(2,634

)

Net decrease in cash and cash equivalents

 

 

(26,154

)

 

 

(52,574

)

Cash and cash equivalents, beginning of period

 

 

153,794

 

 

 

165,887

 

Cash and cash equivalents, end of period

 

$

127,640

 

 

$

113,313

 

 

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

 

 

 

6


 

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

1.

Basis of Presentation

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

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and include amounts that are based on management’s best estimates and judgments. While all available information has been considered, actual amounts could differ from those estimates. For example, the Company considered the impact of COVID-19 and its variants on the assumptions and estimates used when preparing its Quarterly Report on Form 10-Q quarterly financial statements. These assumptions and estimates may change as new events occur and additional information is obtained, and such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity. The consolidated financial statements include all of the Company’s majority-owned subsidiaries. All entities acquired, and any entity of which a majority interest was acquired, are included in the consolidated financial statements from the date of acquisition. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s operating results for any interim period are not necessarily indicative of future or annual results. The consolidated financial statements are unaudited and, accordingly, they do not include all of the information necessary for a comprehensive presentation of results of operations, financial position and cash flow activity required by GAAP for complete financial statements but, in the opinion of management, reflect all adjustments including those of a normal recurring nature necessary for a fair statement of the interim results presented.

These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal 2021 filed on March 1, 2022, which includes additional information about the Company, its results of operations, its financial position and its cash flows.

2.

Accounting Standards Adopted in Current Year

In October 2021, the Financial Accounting Standards Board (the “FASB”) issued updated guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to (i) recognition of an acquired contract liability and (ii) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this update require an acquiring entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The new guidance should be applied prospectively to business combinations occurring on or after its effective date. On January 2, 2022, the Company early adopted this updated guidance on a prospective basis, which did not have a material impact on its consolidated financial statements.

7


WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

 

3.Leases

At April 2, 2022 and January 1, 2022, the Company’s lease assets and lease liabilities, primarily for its studios and corporate offices, were as follows:

 

 

 

April 2, 2022

 

 

January 1, 2022

 

Assets:

 

 

 

 

 

 

 

 

Operating lease assets

 

$

86,302

 

 

$

89,902

 

Finance lease assets

 

 

136

 

 

 

127

 

Total leased assets

 

$

86,438

 

 

$

90,029

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

Operating

 

$

18,969

 

 

$

20,297