WW 10-Q/A
Ww International, Inc. (WW)
Me
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Amendment No. 1)
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of common stock outstanding as of April 25, 2024 was
EXPLANATORY NOTE
This Amendment is being filed solely to correct the Company’s Clinical End of Period Subscribers, Total End of Period Subscribers, Clinical Paid Weeks, and Total Paid Weeks for the fiscal quarter ended March 30, 2024 and related percentage changes versus the prior year period, as applicable, as presented in the “Metrics and Business Trends” subsection on page 35 of “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Original Filing. No other information in the Original Filing, including revenues, was incorrectly presented, and this Amendment should be read in conjunction with the Original Filing.
In accordance with Rule 12b-15 of the Securities Exchange Act of 1934, as amended, this Amendment includes new certifications required by Section 302 of the Sarbanes-Oxley Act of 2002, as amended, dated as of the filing date of this Amendment.
Other than as expressly described above, no changes have been made to the Original Filing. This Amendment does not reflect events occurring after the Original Filing.
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 (the “Exchange Act”), including, in particular, the statements about our plans, strategies, objectives and prospects 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:
1
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.
2
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
WW International, Inc. is a Virginia corporation with its principal executive offices in New York, New York. In this Quarterly Report on Form 10-Q unless the context indicates otherwise, “we,” “us,” “our,” the “Company,” “Weight Watchers” and “WW” refer to WW International, Inc. and all of its operations consolidated for purposes of its financial statements. Effective the first day of fiscal 2024 (i.e., December 31, 2023), as a result of the continued evolution of our centralized organizational structure in fiscal 2023, and management’s 2024 strategic planning process, our reportable segments changed to one segment for the purpose of making operational and resource decisions and assessing financial performance. Our “Digital” business refers to providing subscriptions to our digital product offerings. Our “Workshops + Digital” business refers to providing subscriptions for unlimited access to our workshops combined with our digital subscription product offerings. Our “Clinical” business refers to providing subscriptions to our clinical product offerings provided by WeightWatchers Clinic (formerly referred to as Sequence).
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:
The following terms used in this Quarterly Report on Form 10-Q are our trademarks: Weekend HealthTM, Weight Watchers®, and the Weight Watchers logo.
You should read the following discussion in conjunction with our Annual Report on Form 10-K for fiscal 2023 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”).
3
NON-GAAP FINANCIAL MEASURES
To supplement our consolidated results presented in accordance with accounting principles generally accepted in the United States (“GAAP”), we have disclosed non-GAAP financial measures of operating results that exclude or adjust certain items. Gross profit, gross margin, operating loss, operating loss margin and components thereof are discussed in this Quarterly Report on Form 10-Q both as reported (on a GAAP basis) and as adjusted (on a non-GAAP basis), as applicable, with respect to (i) the first quarter of fiscal 2024 to exclude (x) the impact of impairment charges for our franchise rights acquired related to our United States, Australia, New Zealand and United Kingdom units of account and (y) the net impact of charges associated with our previously disclosed 2023 restructuring plan (the “2023 plan”) and our previously disclosed 2022 restructuring plan (the “2022 plan”); and (ii) the first quarter of fiscal 2023 to exclude (x) the net impact of (a) charges associated with the 2023 plan, (b) charges associated with the 2022 plan or the reversal of certain of the charges associated with the 2022 plan, as applicable, (c) the reversal of certain of the charges associated with our previously disclosed 2021 organizational restructuring plan (the “2021 plan”), and (d) the reversal of certain of the charges associated with our previously disclosed 2020 organizational restructuring plan (the “2020 plan”); and (y) the impact of certain non-recurring transaction costs in connection with the acquisition of Sequence. We generally refer to such non-GAAP measures as excluding or adjusting for the impact of franchise rights acquired impairments, the net impact of restructuring charges, and the impact of acquisition transaction costs, as applicable. We also present within this Quarterly Report on Form 10-Q the non-GAAP financial measures: earnings before interest, taxes, depreciation, amortization and stock-based compensation (“EBITDAS”); earnings before interest, taxes, depreciation, amortization, stock-based compensation, franchise rights acquired and goodwill impairments, net restructuring charges, and certain non-recurring transaction costs in connection with the acquisition of Sequence (“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 titled measures reported by other companies.
USE OF CONSTANT CURRENCY
As exchange rates are an important factor in understanding period-to-period comparisons, we believe in certain cases the presentation of results on a constant currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this Quarterly Report on Form 10-Q, we calculate constant currency by calculating current-year results using prior-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant currency basis as excluding or adjusting for the impact of foreign currency or being on a constant currency basis. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP and are not meant to be considered in isolation. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP.
CRITICAL ACCOUNTING ESTIMATES
Franchise Rights Acquired
Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally less than one year. Indefinite-lived franchise rights acquired are tested for potential impairment on at least an annual basis or more often if events so require.
In performing the impairment analysis for indefinite-lived franchise rights acquired, the fair value for franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for franchise rights related to our Workshops + Digital business and a relief from royalty methodology for franchise rights related to our Digital business. The aggregate estimated fair value for these franchise rights is then compared to the carrying value of the unit of account for these rights. We have determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in both the Workshops + Digital business and the Digital business in the country in which the applicable acquisition occurred. The net book values of franchise rights acquired in the United States and United Kingdom units of account as of the March 30, 2024 balance sheet date were $122.9 million and $2.6 million, respectively.
4
In our hypothetical start-up approach analysis for fiscal 2024, we assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, we estimated future cash flows for the Workshops + Digital business in each country based on assumptions regarding revenue growth and operating income margins. In our relief from royalty approach analysis for fiscal 2024, the cash flows associated with the Digital business in each country were based on the expected Digital revenue for such country and the application of a royalty rate based on current market terms. The cash flows for the Workshops + Digital and the Digital businesses were discounted utilizing rates which were calculated using the weighted average cost of capital, which included the cost of equity and the cost of debt.
Goodwill
In performing the impairment analysis for goodwill, the fair value for our reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting unit. We have determined the appropriate reporting units for purposes of assessing goodwill impairment to be the Behavioral and Clinical business lines. Our “Behavioral” business line consists of our Workshops + Digital business and Digital business. The net book values of goodwill in the Behavioral and Clinical reporting units as of the March 30, 2024 balance sheet date were $152.5 million and $89.7 million, respectively.
In performing the impairment analysis for goodwill, for all of our reporting units, we estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operations less capital expenditures) attributable to each of the Behavioral and Clinical reporting units and then applied expected future operating income growth rates for the respective reporting unit. We utilized operating income as the basis for measuring our potential growth because we believe it is the best indicator of the performance of our business. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the weighted average cost of capital, which included the cost of equity and the cost of debt.
Indefinite-Lived Franchise Rights Acquired and Goodwill Impairment Tests
We review indefinite-lived franchise rights acquired and goodwill for potential impairment on at least an annual basis or more often if events so require.
When determining fair value, we utilize various assumptions, including projections of future cash flows, revenue growth rates, operating income margins and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, we would be required to record a corresponding charge, which would impact earnings. We would also be required to reduce the carrying amounts of the related assets on our balance sheet. We continue to evaluate these assumptions and believe that these assumptions are appropriate.
In performing our impairment analyses, we also considered the trading value of both our equity and debt. If the trading values of both our equity and debt were to significantly decline from their levels at the time of testing, we may have to take an impairment charge at the appropriate time, which could be material. For additional information on risks associated with our recognizing asset impairment charges, see the risk factor titled “We have in the past and may in the future be required to recognize asset impairment charges for indefinite- and definite-lived assets” found in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for fiscal 2023.
Further information regarding the results of our franchise rights acquired and goodwill interim impairment tests for the first quarter of fiscal 2024 can be found in Note 6 “Franchise Rights Acquired, Goodwill and Other Intangible Assets” in the notes to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Critical Accounting Policies
Information concerning our critical accounting policies is set forth in “Note 2. Summary of Significant Accounting Policies” of our audited consolidated financial statements contained in our Annual Report on Form 10-K for fiscal 2023. Our critical accounting policies have not changed since the end of fiscal 2023.
5
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.
6
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 30, 2024 COMPARED TO THE THREE MONTHS ENDED APRIL 1, 2023
The table below sets forth selected financial information for the first quarter of fiscal 2024 from our consolidated statements of operations for the three months ended March 30, 2024 versus selected financial information for the first quarter of fiscal 2023 from our consolidated statements of operations for the three months ended April 1, 2023.
Summary of Selected Financial Data
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(In millions, except per share amounts) |
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For The Three Months Ended |
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March 30, 2024 |
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April 1, 2023 |
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Increase/ |
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% |
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% Change |
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Revenues, net |
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$ |
206.5 |
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$ |
241.9 |
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$ |
(35.3 |
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(14.6 |
%) |
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(14.9 |
%) |
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Cost of revenues |
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68.7 |
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122.4 |
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(53.6 |
) |
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(43.8 |
%) |
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(44.0 |
%) |
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Gross profit |
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137.8 |
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119.5 |
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18.3 |
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15.3 |
% |
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14.8 |
% |
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Gross Margin % |
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66.7 |
% |
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49.4 |
% |
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Marketing expenses |
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90.2 |
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88.2 |
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1.9 |
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2.2 |
% |
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1.9 |
% |
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Selling, general & administrative expenses |
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59.0 |
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59.9 |
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(0.9 |
) |
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(1.5 |
%) |
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(1.7 |
%) |
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Franchise rights acquired impairments |
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258.0 |
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— |
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258.0 |
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100.0 |
% |
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100.0 |
% |
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Operating loss |
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(269.3 |
) |
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(28.6 |
) |
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240.7 |
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100.0 |
% |
* |
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100.0 |
% |
* |
Operating Loss Margin % |
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(130.4 |
%) |
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(11.8 |
%) |
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Interest expense |
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24.7 |
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22.8 |
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1.9 |
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8.2 |
% |
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8.2 |
% |
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Other income, net |
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(1.6 |
) |
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(0.3 |
) |
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1.3 |
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100.0 |
% |
* |
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100.0 |
% |
* |
Loss before income taxes |
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(292.5 |
) |
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(51.1 |
) |
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241.4 |
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100.0 |
% |
* |
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100.0 |
% |
* |
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Provision for income taxes |
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55.4 |
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67.6 |
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(12.1 |
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(18.0 |
%) |
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(18.1 |
%) |
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Net loss |
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$ |
(347.9 |
) |
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$ |
(118.7 |
) |
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$ |
229.2 |
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100.0 |
% |
* |
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100.0 |
% |
* |
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Weighted average diluted shares outstanding |
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79.2 |
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70.6 |
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8.6 |
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12.2 |
% |
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12.2 |
% |
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Diluted net loss per share |
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$ |
(4.39 |
) |
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$ |
(1.68 |
) |
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$ |
2.71 |
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100.0 |
% |
* |
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100.0 |
% |
* |
Note: Totals may not sum due to rounding.
* Note: Percentage in excess of 100.0% and not meaningful.
7
Certain results for the first quarter of fiscal 2024 are adjusted to exclude the impact of franchise rights acquired impairments and the net impact of 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 March 30, 2024 which have been adjusted.
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Operating |
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Gross |
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Gross |
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Operating |
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Loss |
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(in millions except percentages) |
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Profit |
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Margin |
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Loss |
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Margin |
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First Quarter of Fiscal 2024 |
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$ |
137.8 |
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66.7 |
% |
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$ |
(269.3 |
) |
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(130.4 |
%) |
Adjustments to reported amounts (1) |
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Franchise rights acquired impairments |
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— |
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258.0 |
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2023 plan restructuring charges |
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2.4 |
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5.5 |
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2022 plan restructuring charges |
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0.0 |
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0.2 |
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Total adjustments (1) |
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2.5 |
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263.7 |
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First Quarter of Fiscal 2024, as adjusted (1) |
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$ |
140.3 |
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67.9 |
% |
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$ |
(5.6 |
) |
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(2.7 |
%) |
Note: Totals may not sum due to rounding.
Certain results for the first quarter of fiscal 2023 are adjusted to exclude the net impact of restructuring charges and the impact of acquisition transaction costs. 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 1, 2023 which have been adjusted.
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Operating |
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Gross |
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Gross |
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Operating |
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Loss |
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(in millions except percentages) |
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Profit |
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Margin |
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Loss |
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Margin |
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First Quarter of Fiscal 2023 |
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$ |
119.5 |
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49.4 |
% |
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$ |
(28.6 |
) |
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(11.8 |
%) |
Adjustments to reported amounts (1) |
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2023 plan restructuring charges |
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18.9 |
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22.6 |
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2022 plan restructuring charges |
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(0.3 |
) |
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0.0 |
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2021 plan restructuring charges |
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(0.0 |
) |
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(0.0 |
) |
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2020 plan restructuring charges |
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(0.0 |
) |
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(0.0 |
) |
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Acquisition transaction costs |
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— |
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3.7 |
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Total adjustments (1) |
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18.6 |
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26.4 |
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First Quarter of Fiscal 2023, as adjusted (1) |
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$ |
138.1 |
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57.1 |
% |
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$ |
(2.2 |
) |
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(0.9 |
%) |
Note: Totals may not sum due to rounding.
Consolidated Results
Revenues
Revenues for the first quarter of fiscal 2024 were $206.5 million, a decrease of $35.3 million, or 14.6%, versus the first quarter of fiscal 2023. Excluding the impact of foreign currency, which positively impacted our revenues in the first quarter of fiscal 2024 by $0.8 million, revenues for the first quarter of fiscal 2024 would have decreased 14.9% versus the prior year period. This decrease was driven primarily by the decline in Other Revenues from the discontinuation of our consumer products business at the end of fiscal 2023. Lower Subscription Revenues primarily due to a higher mix of subscribers within their initial, lower-priced, commitment periods and the continued mix shift from our Workshops + Digital business to our Digital business also contributed to the decrease in revenues in the quarter. Additionally, Subscription Revenues were negatively impacted by non-Clinical recruitment declines during the first quarter of fiscal 2024 versus the prior year period. Subscription Revenues included $18.8 million of Clinical Subscription Revenues for the first quarter of fiscal 2024. See “—Operating Results” for additional details on revenues.
8
Cost of Revenues
Cost of revenues for the first quarter of fiscal 2024 decreased $53.6 million, or 43.8%, versus the first quarter of fiscal 2023. Excluding the impact of foreign currency, which increased cost of revenues in the first quarter of fiscal 2024 by $0.2 million, cost of revenues for the first quarter of fiscal 2024 would have decreased 44.0% versus the prior year period. Excluding the net impact of the $2.5 million of restructuring charges in the first quarter of fiscal 2024 and the net impact of the $18.6 million of restructuring charges in the first quarter of fiscal 2023, cost of revenues for the first quarter of fiscal 2024 would have decreased by 36.1%, or 36.3% on a constant currency basis, versus the prior year period.
Gross Profit
Gross profit for the first quarter of fiscal 2024 increased $18.3 million, or 15.3%, versus the first quarter of fiscal 2023. Excluding the impact of foreign currency, which positively impacted gross profit in the first quarter of fiscal 2024 by $0.6 million, gross profit for the first quarter of fiscal 2024 would have increased 14.8% versus the prior year period. Excluding the net impact of the $2.5 million of restructuring charges in the first quarter of fiscal 2024 and the net impact of the $18.6 million of restructuring charges in the first quarter of fiscal 2023, gross profit for the first quarter of fiscal 2024 would have increased by 1.5%, or 1.1% on a constant currency basis, versus the prior year period. Gross margin for the first quarter of fiscal 2024 increased to 66.7%, both as reported and on a constant currency basis, versus 49.4% for the first quarter of fiscal 2023. Excluding the net impact of restructuring charges in the first quarter of fiscal 2024 and the net impact of restructuring charges in the first quarter of fiscal 2023, gross margin for the first quarter of fiscal 2024 would have increased 10.8% to 67.9%, both as adjusted and as adjusted on a constant currency basis, versus the prior year period. This gross margin increase was driven primarily by actions to reduce the fixed cost base and mix shift within our business. The first quarter of fiscal 2023 included the impact of accounting for subscription and consumer product promotional bundles.
Marketing
Marketing expenses for the first quarter of fiscal 2024 increased $1.9 million, or 2.2%, versus the first quarter of fiscal 2023. Excluding the impact of foreign currency, which increased marketing expenses in the first quarter of fiscal 2024 by $0.3 million, marketing expenses for the first quarter of fiscal 2024 would have increased 1.9% versus the prior year period. This increase in marketing expenses was primarily due to higher spend on Online advertising, including for our new Clinical business, partially offset by lower spend on TV advertising and production and agency fees. Marketing expenses as a percentage of revenue for the first quarter of fiscal 2024 increased to 43.7% from 36.5% for the first quarter of fiscal 2023.
Selling, General and Administrative
Selling, general and administrative expenses for the first quarter of fiscal 2024 decreased $0.9 million, or 1.5%, versus the first quarter of fiscal 2023. Excluding the impact of foreign currency, which increased selling, general and administrative expenses in the first quarter of fiscal 2024 by $0.1 million, selling, general and administrative expenses for the first quarter of fiscal 2024 would have decreased 1.7% versus the prior year period. Excluding the net impact of the $3.3 million of restructuring charges in the first quarter of fiscal 2024, the net impact of the $4.0 million of restructuring charges in the first quarter of fiscal 2023 and the impact of the $3.7 million of acquisition transaction costs in the first quarter of fiscal 2023, selling, general and administrative expenses for the first quarter of fiscal 2024 would have increased by 6.9%, or 6.7% on a constant currency basis, versus the prior year period. This increase in selling, general and administrative expenses was primarily due to the costs associated with our new Clinical business that we acquired in the second quarter of fiscal 2023. Selling, general and administrative expenses as a percentage of revenue for the first quarter of fiscal 2024 increased to 28.6% from 24.7% for the first quarter of fiscal 2023. Excluding the net impact of restructuring charges in the first quarter of fiscal 2024, the net impact of restructuring charges in the first quarter of fiscal 2023 and the impact of acquisition transaction costs in the first quarter of fiscal 2023, selling, general and administrative expenses as a percentage of revenue for the first quarter of fiscal 2024 would have increased by 5.4%, or 5.5% on a constant currency basis, versus the prior year period.
Impairments
In performing our interim impairment analysis as of March 30, 2024, we determined that the carrying amounts of our United States, Australia, New Zealand and United Kingdom franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our United States, Australia, New Zealand and United Kingdom units of account of $251.4 million, $4.1 million, $2.3 million and $0.2 million, respectively, in the first quarter of fiscal 2024.
9
Operating Loss
Operating loss for the first quarter of fiscal 2024 was $269.3 million compared to operating loss for the first quarter of fiscal 2023 of $28.6 million. Operating loss for the first quarter of fiscal 2024 was positively impacted by $0.3 million of foreign currency. Excluding the impact of the $258.0 million of franchise rights acquired impairments in the first quarter of fiscal 2024, the net impact of the $5.7 million of restructuring charges in the first quarter of fiscal 2024, the net impact of the $22.7 million of restructuring charges in the first quarter of fiscal 2023 and the impact of the $3.7 million of acquisition transaction costs in the first quarter of fiscal 2023, operating loss for the first quarter of fiscal 2024 would have increased to $5.6 million from $2.2 million of operating loss in the prior year period. Operating loss margin for the first quarter of fiscal 2024 was 130.4% compared to operating loss margin for the first quarter of fiscal 2023 of 11.8%. Excluding the impact of franchise rights acquired impairments in the first quarter of fiscal 2024, the net impact of restructuring charges in the first quarter of fiscal 2024, the net impact of restructuring charges in the first quarter of fiscal 2023 and the impact of acquisition transaction costs in the first quarter of fiscal 2023, operating loss margin for the first quarter of fiscal 2024 would have increased to 2.7% from 0.9% of operating loss margin in the prior year period. This increase in operating loss margin for the first quarter of fiscal 2024 versus the operating loss margin for the first quarter of fiscal 2023 was driven by an increase in marketing expenses as a percentage of revenue and an increase in selling, general and administrative expenses as a percentage of revenue, partially offset by an increase in gross margin.
Interest Expense
Interest expense for the first quarter of fiscal 2024 increased $1.9 million, or 8.2%, versus the first quarter of fiscal 2023. The increase in interest expense was driven primarily by an increase in the base rate of our Term Loan Facility (as defined below). The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the first quarter of fiscal 2024 and the first quarter of fiscal 2023 and excluding the impact of our interest rate swaps then in effect, increased to 7.78% per annum at the end of the first quarter of fiscal 2024 from 7.20% per annum at the end of the first quarter of fiscal 2023. 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 2024 and the first quarter of fiscal 2023, increased to 6.80% per annum at the end of the first quarter of fiscal 2024 from 6.48% per annum at the end of the first quarter of fiscal 2023. See “—Liquidity and Capital Resources—Long-Term Debt” for additional details regarding our debt, including interest rates and payments thereon. Further information regarding our interest rate swaps can be found in Note 11 “Derivative Instruments and Hedging” in the notes to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Other Income, Net
Other income, net, which consists primarily of the impact of foreign currency on intercompany transactions, increased by $1.3 million for the first quarter of fiscal 2024 to $1.6 million of income as compared to $0.3 million of income for the first quarter of fiscal 2023.
Tax
Our effective tax rate for the first quarter of fiscal 2024 was (19.0%) compared to (132.3%) for the first quarter of fiscal 2023. The effective tax rate for interim periods is determined using an annual effective tax rate, adjusted for discrete items. The forecasted full-year tax expense, which included an increase in valuation allowance against U.S. deferred tax assets, in relation to our forecasted full-year pretax loss (albeit minimal), drove an unusually high negative annual effective tax rate. Applying this negative annual effective tax rate to the pretax loss for the first quarter of fiscal 2024 resulted in an income tax expense of $55.4 million, which is mostly reflected in income taxes payable on our consolidated balance sheet and consolidated statement of cash flows. Given the seasonal nature of our business, this income tax expense is expected to largely reverse in the third and fourth quarters of fiscal 2024, when we expect to earn pretax income.
For the first quarter of fiscal 2024, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to the valuation allowance noted above. In addition, the effective tax rate was impacted by a tax benefit related to foreign-derived intangible income (“FDII”). The adoption of the Organization for Economic Cooperation and Development’s global tax reform initiative, which introduces a global minimum tax of 15% applicable to large multinational corporations, did not have an impact on the first quarter of 2024. For the first quarter of fiscal 2023, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to the valuation allowance noted above. In addition, the effective tax rate was impacted by tax expense from income earned in foreign jurisdictions, partially offset by tax benefits related to state income tax and FDII.
10
Net Loss and Diluted Net Loss Per Share
Net loss for the first quarter of fiscal 2024 was $347.9 million compared to net loss for the first quarter of fiscal 2023 of $118.7 million. Net loss for the first quarter of fiscal 2024 was positively impacted by $0.2 million of foreign currency. Net loss for the first quarter of fiscal 2024 included a $241.5 million impact from franchise rights acquired impairments and a $4.3 million net impact from restructuring charges. Net loss for the first quarter of fiscal 2023 included a $17.0 million net impact from restructuring charges and a $3.3 million impact from acquisition transaction costs.
Diluted net loss per share for the first quarter of fiscal 2024 was $4.39 compared to diluted net loss per share for the first quarter of fiscal 2023 of $1.68. Diluted net loss per share for the first quarter of fiscal 2024 included a $3.05 impact from franchise rights acquired impairments and a $0.05 net impact from restructuring charges. Diluted net loss per share for the first quarter of fiscal 2023 included a $0.24 net impact from restructuring charges and a $0.05 impact from acquisition transaction costs.
Operating Results
As previously disclosed, effective the first day of fiscal 2024 (i.e., December 31, 2023), as a result of the continued evolution of our centralized organizational structure in fiscal 2023, and management’s 2024 strategic planning process, our reportable segments changed to one segment for the purpose of making operational and resource decisions and assessing financial performance.
Metrics and Business Trends
The following tables set forth key metrics for the first quarter of fiscal 2024 and the percentage change in those metrics versus the prior year period, as applicable:
(in millions except percentages and as noted)
Q1 2024 |
|
|||||||||||||||||||||||||||||||||
GAAP |
|
|
Constant Currency |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Subscription |
|
|
Other |
|
|
Total |
|
|
Subscription |
|
|
Other |
|
|
Total |
|
|
Total |
|
|
Incoming |
|
|
EOP |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
||||||||||||
$ |
204.1 |
|
|
$ |
2.5 |
|
|
$ |
206.5 |
|
|
$ |
203.3 |
|
|
$ |
2.5 |
|
|
$ |
205.8 |
|
|
|
51.8 |
|
|
|
3,797.5 |
|
|
|
4,003.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
% Change Q1 2024 vs. Q1 2023 |
|
|||||||||||||||||||||||||||||||||
|
(3.3 |
%) |
|
|
(91.9 |
%) |
|
|
(14.6 |
%) |
|
|
(3.7 |
%) |
|
|
(92.0 |
%) |
|
|
(14.9 |
%) |
|
|
1.6 |
% |
|
|
7.1 |
% |
|
|
(0.5 |
%) |
(in millions except percentages and as noted)
Q1 2024 |
|
|||||||||||||||||||||||||||||||||||||
Digital Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
|
Workshops + Digital Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
GAAP |
|
|
Constant |
|
|
Digital |
|
|
Incoming |
|
|
EOP |
|
|
GAAP |
|
|
Constant |
|
|
Workshops |
|
|
Incoming |
|
|
EOP |
|
||||||||||
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
||||||||||||||||
$ |
137.6 |
|
|
$ |
137.0 |
|
|
|
42.3 |
|
|
|
3,079.4 |
|
|
|
3,277.1 |
|
|
$ |
47.7 |
|
|
$ |
47.5 |
|
|
|
8.4 |
|
|
|
651.5 |
|
|
|
640.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
% Change Q1 2024 vs. Q1 2023 |
|
|||||||||||||||||||||||||||||||||||||
|
(7.8 |
%) |
|
|
(8.2 |
%) |
|
|
3.7 |
% |
|
|
8.6 |
% |
|
|
0.7 |
% |
|
|
(22.7 |
%) |
|
|
(23.0 |
%) |
|
|
(17.0 |
%) |
|
|
(8.3 |
%) |
|
|
(16.7 |
%) |
(in millions except as noted)
Q1 2024 |
|
|||||||||||||
Clinical Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
||||
GAAP |
|
|
Clinical |
|
|
Incoming |
|
|
EOP |
|
||||
|
|
|
|
|
|
(in thousands) |
|
|||||||
$ |
18.8 |
|
|
|
1.0 |
|
|
|
66.6 |
|
|
|
86.8 |
|
11
Operating Performance
The decrease in revenues for the first quarter of fiscal 2024 versus the prior year period was driven by a decrease in Other Revenues and, to a lesser extent, a decrease in Subscription Revenues. The decrease in Other Revenues for the first quarter of fiscal 2024 versus the prior year period was driven primarily by the discontinuation of our consumer products business at the end of fiscal 2023.
The decrease in Subscription Revenues for the first quarter of fiscal 2024 versus the prior year period was driven primarily by both a decrease in Workshops + Digital Subscription Revenues and a decrease in Digital Subscription Revenues due to a higher mix of subscribers within their initial, lower-priced, commitment periods and the continued mix shift from our Workshops + Digital business to our Digital business. Workshops + Digital Subscription Revenues and Digital Subscription Revenues were also negatively impacted by the recruitment decline during the first quarter of fiscal 2024 as compared to the prior year period. In addition, the lower number of Incoming Workshops + Digital Subscribers at the beginning of the first quarter of fiscal 2024 versus the beginning of the first quarter of fiscal 2023 contributed to the decrease in Workshops + Digital Subscription Revenues in the quarter. Subscription Revenues for the first quarter of fiscal 2024 benefited from Clinical Subscription Revenues following our acquisition of Sequence during the second quarter of fiscal 2023.
The increase in Total Paid Weeks for the first quarter of fiscal 2024 versus the prior year period was driven primarily by our new Clinical business that we acquired in the second quarter of fiscal 2023.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities have historically supplied us with our primary source of liquidity. We have used 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. Upon the completion of our acquisition of Sequence (the “Acquisition”), in the second quarter of fiscal 2023, we had a net cash outlay of $40.3 million on April 10, 2023 with respect to the payment of the purchase price and certain transaction costs. For additional details on the purchase price consideration for the Acquisition and related terms, including with respect to the first anniversary payment, see Note 5 “Acquisitions” in the notes to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. These cash outlays have reduced the liquidity available to us in the future. See “Risk Factors—Risks Related to Our Acquisition of Weekend Health, Inc. (d/b/a Sequence)—The Acquisition may not achieve its intended results.” and “Risk Factors—Risks Related to Our Liquidity—We may not be able to generate sufficient cash to service all of our debt and satisfy our other liquidity requirements.” contained in our Annual Report on Form 10-K for fiscal 2023 for additional details. We currently believe that cash generated by operations, our cash on hand of approximately $66.6 million at March 30, 2024, our availability under our Revolving Credit Facility (as defined and described below) at March 30, 2024 and our continued cost focus will provide us with sufficient liquidity to meet our obligations for the short- and long-term. In addition, if necessary, we have the flexibility to delay investments or reduce marketing spend.
We continue to proactively manage our liquidity so we can maintain flexibility to fund investments in our business, honor our long-term debt obligations, and respond to evolving business and consumer conditions. To increase our flexibility and reduce our cash interest payments, we refinanced our then-existing credit facilities and then-existing senior notes in April 2021. Additionally, we instituted a number of measures throughout our operations to mitigate expenses and reduce costs as well as ensure liquidity. For example, we instituted restructuring plans in recent fiscal years which have resulted in aggregate cash outlays of approximately $8.8 million in the first quarter of fiscal 2024 and are expected to result in an additional $12.9 million for the remainder of fiscal 2024. For additional details, see Note 15 “Restructuring” in the notes to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. The evolving nature, and uncertain economic impact, of the current demand environment may impact our liquidity going forward. To the extent that we do not successfully manage our costs, our liquidity and financial results, as well as our ability to fully access our Revolving Credit Facility, may be adversely affected. Pursuant to their respective terms, our interest rate swaps in effect as of the end of the first quarter of fiscal 2024 terminated on March 31, 2024. Given then-current market conditions, management determined to not enter into any new swap arrangement during such quarter. Management continues to evaluate its exposure to interest rates and, from time to time, may opportunistically hedge any interest rate exposure by entering into new swap arrangements.
As market conditions warrant, we may, from time to time, seek to purchase our outstanding debt securities or loans, including the Senior Secured Notes and borrowings under the Credit Facilities (each as defined below). Such transactions could be privately negotiated or open market transactions, pursuant to tender offers or otherwise. Subject to any applicable limitations contained in the agreements governing, or terms of, our indebtedness, any such purchases made by us may be funded by the use of cash on our balance sheet, the incurrence of new secured or unsecured debt, the issuance of our equity or the sale of assets. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may equate to a substantial amount of a particular class or series of debt, which may reduce the trading liquidity of such class or series.
12
Balance Sheet Working Capital
The following table sets forth certain relevant measures of our balance sheet working capital deficit, excluding cash and cash equivalents at:
|
|
March 30, |
|
|
December 30, |
|
|
Increase/ |
|
|||
|
|
2024 |
|
|
2023 |
|
|
(Decrease) |
|
|||
|
|
(in millions) |
|
|||||||||
Total current assets |
|
$ |
117.0 |
|
|
$ |
179.5 |
|
|
$ |
(62.5 |
) |
Total current liabilities |
|
|
249.0 |
|
|
|
205.5 |
|
|
|
43.6 |
|
Working capital deficit |
|
|
(132.1 |
) |
|
|
(26.0 |
) |
|
|
106.1 |
|
Cash and cash equivalents |
|
|
66.6 |
|
|
|
109.4 |
|
|
|
(42.8 |
) |
Working capital deficit, excluding cash and cash equivalents |
|
$ |
(198.7 |
) |
|
$ |
(135.4 |
) |
|
$ |
63.3 |
|
Note: Totals may not sum due to rounding.
The following table sets forth a summary of the primary factors contributing to the $63.3 million increase in our working capital deficit, excluding cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
Impact to |
|
||||
|
|
March 30, |
|
|
December 30, |
|
|
Increase/ |
|
|
Working |
|
||||
|
|
2024 |
|
|
2023 |
|
|
(Decrease) |
|
|
Capital Deficit |
|
||||
|
|
(in millions) |
|
|||||||||||||
Operational liabilities and other, net of assets |
|
$ |
93.9 |
|
|
$ |
113.7 |
|
|
$ |
(19.8 |
) |
|
$ |
(19.8 |
) |
Portion of operating lease liabilities due within one year |
|
$ |
9.7 |
|
|
$ |
9.6 |
|
|
$ |
0.0 |
|
|
$ |
0.0 |
|
Deferred revenue |
|
$ |
36.0 |
|
|
$ |
34.0 |
|
|
$ |
2.0 |
|
|
$ |
2.0 |
|
Derivative receivable |
|
$ |
— |
|
|
$ |
3.6 |
|
|
$ |
(3.6 |
) |
|
$ |
3.6 |
|
Accrued interest |
|
$ |
11.2 |
|
|
$ |
5.3 |
|
|
$ |
5.9 |
|
|
$ |
5.9 |
|
Prepaid income taxes |
|
$ |
14.3 |
|
|
$ |
25.4 |
|
|
$ |
(11.1 |
) |
|
$ |
11.1 |
|
Income taxes payable |
|
$ |
62.1 |
|
|
$ |
1.6 |
|
|
$ |
60.5 |
|
|
$ |
60.5 |
|
Working capital deficit change, excluding cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
$ |
63.3 |
|
|||
Note: Totals may not sum due to rounding.
The decrease in operational liabilities and other, net of assets, which includes accrued salaries and wages, was driven primarily by a decrease in accrued liabilities due to the timing of our annual bonus payments. The increase in accrued interest was primarily due to the timing of payments. The decrease in prepaid income taxes and the increase in income taxes payable was primarily due to the outsized impact of a significant, largely non-cash, income tax expense resulting from the valuation allowance recorded to reflect the uncertainty of the realization of U.S. deferred tax assets. A decrease in income taxes payable is expected to largely reverse this impact in the third and fourth quarters of fiscal 2024.
Cash Flows
The following table sets forth a summary of our cash flows for the three months ended:
|
|
March 30, |
|
|
April 1, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in millions) |
|
|||||
Net cash used for operating activities |
|
$ |
(36.0 |
) |
|
$ |
(26.7 |
) |
Net cash used for investing activities |
|
$ |
(4.8 |
) |
|
$ |
(10.3 |
) |
Net cash used for financing activities |
|
$ |
(0.6 |
) |
|
$ |
(0.7 |
) |
Operating Activities
Cash flows used for operating activities of $36.0 million for the first three months of fiscal 2024 reflected an increase of $9.3 million from $26.7 million of cash flows used for operating activities for the first three months of fiscal 2023. This increase in cash flows used for operating activities was primarily attributable to an increase in net loss and a decrease in cash provided by operating assets and liabilities, partially offset by an increase in non-cash add-back adjustments driven by the franchise rights acquired impairments, in the first three months of fiscal 2024 as compared to the prior year period.
13
Investing Activities
Net cash used for investing activities totaled $4.8 million for the first three months of fiscal 2024, a decrease of $5.5 million as compared to the first three months of fiscal 2023. This decrease was primarily attributable to a decrease in capitalized software and website development expenditures in the first three months of fiscal 2024 as compared to the prior year period.
Financing Activities
Net cash used for financing activities totaled $0.6 million for the first three months of fiscal 2024, a decrease of $0.1 million as compared to the first three months of fiscal 2023. This decrease was primarily attributable to a decrease in taxes paid related to the net share settlement of equity awards in the first three months of fiscal 2024 as compared to the prior year period.
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 March 30, 2024:
Long-Term Debt
At March 30, 2024
(in millions)
|
|
March 30, 2024 |
|
|
Term Loan Facility due April 13, 2028 |
|
$ |
945.0 |
|
Senior Secured Notes due April 15, 2029 |
|
|
500.0 |
|
Total |
|
|
1,445.0 |
|
Less: Current portion |
|
|
— |
|
Unamortized deferred financing costs |
|
|
8.3 |
|
Unamortized debt discount |
|
|
9.2 |
|
Total long-term debt |
|
$ |
1,427.5 |
|
Note: Totals may not sum due to rounding.
In the second quarter of fiscal 2021, in connection with our refinancing of our then-existing credit facilities, we incurred approximately $1,000.0 million in an aggregate principal amount of borrowings under our new credit facilities (as amended from time to time, the “Credit Facilities”) and issued $500.0 million in aggregate principal amount of 4.500% Senior Secured Notes due 2029 (the “Senior Secured Notes”), each as described in further detail below.
Credit Facilities
The Credit Facilities were issued under a credit agreement, dated April 13, 2021 (as amended from time to time, the “Credit Agreement”), among the Company, as borrower, the lenders party thereto, and Bank of America, N.A. (“Bank of America”), as administrative agent and an issuing bank. The Credit Facilities consist of (1) $1,000.0 million in aggregate principal amount of senior secured tranche B term loans due in 2028 (the “Term Loan Facility”) and (2) $175.0 million in an aggregate principal amount of commitments under a senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2026 (the “Revolving Credit Facility”).
As of March 30, 2024, we had $945.0 million in an aggregate principal amount of loans outstanding under our Credit Facilities, with $173.8 million of availability and $1.2 million in issued but undrawn letters of credit outstanding under the Revolving Credit Facility subject to its terms and conditions as discussed below. There were no outstanding borrowings under the Revolving Credit Facility as of March 30, 2024.
All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of our current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:
14
The Credit Facilities require us to prepay outstanding term loans, subject to certain exceptions, with:
The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. We may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to Term SOFR loans under the Credit Facilities.
In June 2023, in connection with the planned phase-out of LIBOR, we amended our Credit Facilities to replace LIBOR with Term SOFR as the benchmark rate under the Credit Agreement, which will be calculated to include a credit spread adjustment of 0.11448%, 0.26161%, 0.42826%, or 0.71513% for 1, 3, 6, or 12 months period, respectively, in addition to the Term SOFR Screen Rate (as defined in the Credit Agreement) and the margin (which was not amended).
Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at our option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the Term SOFR 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 Term SOFR 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 Term SOFR is not lower than a floor of 0.50%. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at our option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the Term SOFR 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 Term SOFR 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 March 30, 2024, the applicable margins for the Term SOFR rate borrowings under the Term Loan Facility and the Revolving Credit Facility were 3.50% and 2.75%, respectively.
On a quarterly basis, we pay a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon our Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement).
The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default. As of March 30, 2024, we were in compliance with the covenants under the Credit Agreement that were in effect on such date.
The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, we must be in compliance with a Consolidated First Lien Leverage Ratio of 5.50:1.00 for the period ending after the first fiscal quarter of 2023 through and including the first fiscal quarter of 2024, with a step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including the first fiscal quarter of 2025, and an additional step down to 5.00:1.00, for the period following the first fiscal quarter of 2025. As of March 30, 2024, our actual Consolidated First Lien Leverage Ratio was 8.87:1.00 and there were no borrowings under our Revolving Credit Facility and total letters of credit issued were $1.2 million. We were not in compliance with the Consolidated First Lien Leverage Ratio as of March 30, 2024, and as a result, we are limited to borrowing no more than 35%, or $61.3 million, of the amount of the aggregate commitments under the Revolving Credit Facility as of each fiscal quarter end until we comply with the applicable ratio.
15
Senior Secured Notes
The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 13, 2021 (as amended, supplemented or modified from time to time, the “Indenture”), among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions. As of March 30, 2024, we were in compliance with the covenants under the Indenture that were in effect on such date.
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. 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. If a change of control occurs, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. Following the sale of certain assets and subject to certain conditions, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date.
The Senior Secured Notes are guaranteed on a senior secured basis by our subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with our and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.
Outstanding Debt
At March 30, 2024, we had $1,445.0 million outstanding under the Credit Facilities and the Senior Secured Notes, consisting of borrowings under the Term Loan Facility of $945.0 million, $0.0 drawn down on the Revolving Credit Facility and $500.0 million in aggregate principal amount of Senior Secured Notes issued and outstanding.
At March 30, 2024 and December 30, 2023, 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 Note 11 “Derivative Instruments and Hedging” in the notes to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. 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 7.78% and 7.64% per annum at March 30, 2024 and December 30, 2023, 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 6.59% and 6.53% per annum at March 30, 2024 and December 30, 2023, respectively, based on interest rates on these dates.
The following schedule sets forth our year-by-year debt obligations at March 30, 2024:
Total Debt Obligation
(Including Current Portion)
At March 30, 2024
(in millions)
Remainder of fiscal 2024 |
|
$ |
— |
|
Fiscal 2025 |
|
|
— |
|
Fiscal 2026 |
|
|
— |
|
Fiscal 2027 |
|
|
10.0 |
|
Fiscal 2028 |
|
|
935.0 |
|
Fiscal 2029 |
|
|
500.0 |
|
Thereafter |
|
|
— |
|
Total |
|
$ |
1,445.0 |
|
Note: Totals may not sum due to rounding.
16
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 March 30, 2024 and April 1, 2023, the cumulative balance of changes in the fair value of derivative instruments, net of taxes, was $0.0 million and a gain of $8.4 million, respectively. At March 30, 2024 and April 1, 2023, the cumulative balance of the effects of foreign currency translations, net of taxes, was a loss of $16.9 million and a loss of $16.1 million, respectively.
Dividends and Stock Transactions
We do not currently pay a dividend and we have no current plans to pay dividends in the foreseeable future. Any future determination to declare and pay dividends will be made at the sole discretion of our Board of Directors, after taking into account our financial condition and results of operations, capital requirements, contractual, legal, tax and regulatory restrictions, the provisions of Virginia law affecting the payment of distributions to shareholders and such other factors our Board of Directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants in our existing indebtedness, including the Credit Agreement governing the Credit Facilities and the Indenture governing the Senior Secured Notes, and may be limited by the agreements governing other indebtedness we or our subsidiaries incur in the future.
On October 9, 2003, our Board of Directors authorized, and we announced, a program to repurchase up to $250.0 million of our outstanding common stock. On each of June 13, 2005, May 25, 2006 and October 21, 2010, our Board of Directors authorized, and we announced, the addition of $250.0 million to this program. The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions. The repurchase program currently has no expiration date. During the three months ended March 30, 2024 and April 1, 2023, we did not repurchase any 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, net restructuring charges, certain non-recurring transaction costs in connection with the Acquisition, and franchise rights acquired and goodwill impairments.
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 March 30, 2024 and April 1, 2023, and EBITDAS and Adjusted EBITDAS to net loss for the trailing twelve months ended March 30, 2024:
(in millions)
|
|
Three Months Ended |
|
|
|
|
|
||||||
|
|
March 30, 2024 |
|
|
April 1, 2023 |
|
|
Trailing Twelve |
|
|
|||
Net loss |
|
$ |
(347.9 |
) |
|
$ |
(118.7 |
) |
|
$ |
(341.5 |
) |
|
Interest |
|
|
24.7 |
|
|
|
22.8 |
|
|
|
97.8 |
|
|
Taxes |
|
|
55.4 |
|
|
|
67.6 |
|
|
|
26.5 |
|
|
Depreciation and amortization |
|
|
10.4 |
|
|
|
10.3 |
|
|
|
45.8 |
|
|
Stock-based compensation |
|
|
2.4 |
|
|
|
2.7 |
|
|
|
11.0 |
|
|
EBITDAS |
|
$ |
(254.9 |
) |
|
$ |
(15.3 |
) |
|
$ |
(160.4 |
) |
|
Franchise rights acquired and goodwill impairments |
|
|
258.0 |
|
|
|
— |
|
|
|
261.6 |
|
|
2023 plan restructuring charges |
|
|
5.5 |
|
|
|
22.6 |
|
|
|
36.6 |
|
|
2022 plan restructuring charges |
|
|
0.2 |
|
|
|
0.0 |
|
|
|
1.3 |
|
|
2021 plan restructuring charges |
|
|
— |
|
|
|
(0.0 |
) |
|
|
0.1 |
|
|
2020 plan restructuring charges |
|
|
— |
|
|
|
(0.0 |
) |
|
|
(0.0 |
) |
|
Acquisition transaction costs |
|
|
— |
|
|
|
3.7 |
|
|
|
4.9 |
|
(1) |
Adjusted EBITDAS (2) |
|
$ |
8.8 |
|
|
$ |
11.1 |
|
|
$ |
144.1 |
|
|
17
Note: Totals may not sum due to rounding.
Reducing leverage is a capital structure priority for the Company. As of March 30, 2024, our total debt less unamortized deferred financing costs and unamortized debt discount/net loss ratio was (4.2)x. As of March 30, 2024, our net debt/Adjusted EBITDAS ratio was 9.4x.
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)
|
|
March 30, 2024 |
|
|
Total debt |
|
$ |
1,445.0 |
|
Less: Unamortized deferred financing costs |
|
|
8.3 |
|
Less: Unamortized debt discount |
|
|
9.2 |
|
Less: Cash on hand |
|
|
66.6 |
|
Net debt |
|
$ |
1,360.9 |
|
Note: Totals may not sum due to rounding.
We present EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS because we consider them to be useful supplemental measures of our performance. In addition, we believe EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS are useful to investors, analysts and rating agencies in measuring the ability of a company to meet its debt service obligations. See “—Non-GAAP Financial Measures” herein for an explanation of our use of these non-GAAP financial measures.
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 has been 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 SEC. 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 Instagram account (Instagram.com/weightwatchers), corporate Facebook page (www.facebook.com/weightwatchers), X (formerly Twitter) account (@ww_us) and LinkedIn page (www.linkedin.com/company/weightwatchers) 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.
18
ITEM 6. EXHIBITS
Exhibit Number |
|
Description |
|
|
|
*Exhibit 31.1 |
|
Rule 13a-14(a) Certification by Sima Sistani, Chief Executive Officer. |
|
|
|
*Exhibit 31.2 |
|
Rule 13a-14(a) Certification by Heather Stark, Chief Financial Officer. |
|
|
|
*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 With Embedded Linkbase Documents. |
|
|
|
*Exhibit 104 |
|
The cover page from WW International, Inc.’s Quarterly Report on Form 10-Q/A for the quarter ended March 30, 2024, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
* Filed herewith.
19
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 9, 2024 |
By: |
/s/ Sima Sistani |
|
|
Sima Sistani |
|
|
Chief Executive Officer and Director (Principal Executive Officer) |
Date: May 9, 2024 |
By: |
/s/ Heather Stark |
|
|
Heather Stark |
|
|
Chief Financial Officer (Principal Financial Officer) |
20