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Equibles

10-Q

Ww International, Inc. (WW)

10-Q 2022-05-05 For: 2022-04-02
View Original
Added on April 09, 2026

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<br><br><br>incorporation or organization) (I.R.S. Employer<br><br><br>Identification No.)

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

(Address of principal executive offices) (Zip Code)

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

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

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

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, no par value WW The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares of common stock outstanding as of April 28, 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
ITEM 1. FINANCIAL STATEMENTS
--- ---

WW INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS AT

(IN THOUSANDS)

January 1,
2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents 127,640 $ 153,794
Receivables (net of allowances: April 2, 2022 - 1,891 and<br>   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<br>   shares issued at April 2, 2022 and 122,052 shares issued at<br>   January 1, 2022 0 0
Treasury stock, at cost, 51,923 shares at April 2, 2022 and 51,988<br>   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

All values are in US Dollars.

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

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.

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.

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.

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.

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.

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
Finance 101 75
Noncurrent
Operating $ 75,527 $ 78,157
Finance 22 29
Total lease liabilities $ 94,619 $ 98,558

For the three months ended April 2, 2022 and April 3, 2021, the components of the Company’s lease expense were as follows:

Three Months Ended
April 2, April 3,
2022 2021
Operating lease cost:
Fixed lease cost $ 8,112 $ 11,044
Lease termination cost (120 ) 3,152
Variable lease cost 7 5
Total operating lease cost $ 7,999 $ 14,201
Finance lease cost:
Amortization of leased assets 35 43
Interest on lease liabilities 1 2
Total finance lease cost $ 36 $ 45
Total lease cost $ 8,035 $ 14,246

At April 2, 2022 and January 1, 2022, the Company’s weighted average remaining lease term and weighted average discount rates were as follows:

April 2, 2022 January 1, 2022
Weighted Average Remaining Lease Term (years)
Operating leases 7.25 7.29
Finance leases 1.35 1.54
Weighted Average Discount Rate
Operating leases 7.15 7.15
Finance leases 4.56 5.31

The Company’s leases have remaining lease terms of 0 to 10 years with a weighted average lease term of 7.24 years as of April 2, 2022.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

At April 2, 2022, the maturity of the Company’s lease liabilities in each of the next five fiscal years and thereafter were as follows:

Operating<br><br><br>Leases Finance<br><br><br>Leases Total
Remainder of fiscal 2022 $ 19,048 $ 86 $ 19,134
Fiscal 2023 21,532 36 21,568
Fiscal 2024 16,123 5 16,128
Fiscal 2025 11,811 — 11,811
Fiscal 2026 9,472 — 9,472
Thereafter 45,573 — 45,573
Total lease payments $ 123,559 $ 127 $ 123,686
Less imputed interest 29,063 4 29,067
Present value of lease liabilities $ 94,496 $ 123 $ 94,619

Supplemental cash flow information related to leases for the three months ended April 2, 2022 and April 3, 2021 were as follows:

Three Months Ended
April 2, April 3,
2022 2021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 8,509 $ 11,772
Operating cash flows from finance leases $ 1 $ 2
Financing cash flows from finance leases $ 35 $ 43
Leased assets obtained (modified) in exchange for new (modified) operating lease liabilities $ 2,859 $ (1,892 )
Leased assets obtained in exchange for new finance lease liabilities $ 46 $ —
4. Revenue
--- ---

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

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

Three Months Ended
April 2, April 3,
2022 2021
Digital Subscription Revenues $ 191,482 $ 206,062
Workshops + Digital Fees 65,503 73,758
Subscription Revenues, net $ 256,985 $ 279,820
Product sales and other, net 40,776 51,976
Revenues, net $ 297,761 $ 331,796

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Three Months Ended April 2, 2022
North Continental United
America Europe Kingdom Other Total
Digital Subscription Revenues $ 125,319 $ 53,475 $ 7,805 $ 4,883 $ 191,482
Workshops + Digital Fees 50,980 8,222 4,422 1,879 65,503
Subscription Revenues, net $ 176,299 $ 61,697 $ 12,227 $ 6,762 $ 256,985
Product sales and other, net 28,014 9,205 2,212 1,345 40,776
Revenues, net $ 204,313 $ 70,902 $ 14,439 $ 8,107 $ 297,761
Three Months Ended April 3, 2021
--- --- --- --- --- --- --- --- --- --- ---
North Continental United
America Europe Kingdom Other Total
Digital Subscription Revenues $ 132,090 $ 58,915 $ 9,809 $ 5,248 $ 206,062
Workshops + Digital Fees 54,904 10,940 5,169 2,745 73,758
Subscription Revenues, net $ 186,994 $ 69,855 $ 14,978 $ 7,993 $ 279,820
Product sales and other, net 34,321 12,041 4,089 1,525 51,976
Revenues, net $ 221,315 $ 81,896 $ 19,067 $ 9,518 $ 331,796

Information about Contract Balances

For Subscription Revenues, the Company can collect payment in advance of providing services. Any amounts collected in advance of services being provided are recorded in deferred revenue. In the case where amounts are not collected, but the service has been provided and the revenue has been recognized, the amounts are recorded in accounts receivable. The opening and ending balances of the Company’s deferred revenues were as follows:

Deferred Deferred
Revenue Revenue-Long Term
Balance as of January 1, 2022 $ 45,855 $ 28
Net increase during the period 3,136 21
Balance as of April 2, 2022 $ 48,991 $ 49
Balance as of January 2, 2021 $ 50,475 $ 44
Net decrease during the period (459 ) (18 )
Balance as of April 3, 2021 $ 50,016 $ 26

Revenue recognized from amounts included in current deferred revenue as of January 1, 2022 was $41,393 for the three months ended April 2, 2022. Revenue recognized from amounts included in current deferred revenue as of January 2, 2021 was $45,275 for the three months ended April 3, 2021. The Company’s long-term deferred revenue, which is included in other liabilities on the Company’s consolidated balance sheet, represents revenue that will not be recognized during the next fiscal year and is generally related to upfront payments received as an inducement for entering into certain sales-based royalty agreements with third party licensees. This revenue is amortized on a straight-line basis over the term of the applicable agreement.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

5. Acquisitions

Acquisitions of Franchisees

On February 18, 2022, the Company acquired the entire issued share capital of its Republic of Ireland franchisee, Denross Limited, and its Northern Ireland franchisee, Checkweight Limited, as follows:

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

On August 16, 2021, the Company acquired substantially all of the assets of its franchisee for certain territories in Maine, Weight Watchers of Maine, Inc., for a purchase price of $2,250. Payment was in the form of cash ($1,999), cash in reserves ($225) and assumed net liabilities ($26). The total purchase price was allocated to goodwill ($2,153), customer relationship value ($56) and franchise rights acquired ($41). The goodwill will be deductible for tax purposes.

On March 22, 2021, the Company acquired substantially all of the assets of its Michigan franchisee, The WW Group, Inc., and its Ontario, Canada franchisee, The WW Group Co., as follows:

(a) The Company acquired substantially all of the assets of The WW Group, Inc., which operated franchises in certain territories in Michigan, for an aggregate purchase price of $17,500. Payment was in the form of cash paid on March 22, 2021 ($8,255), cash paid on July 30, 2021 ($6,450), cash in reserves ($2,300) and assumed net liabilities ($495). The total purchase price was allocated to franchise rights acquired ($16,885), customer relationship value ($408), inventories ($162), property and equipment, net ($41) and other assets ($4); and
(b) The Company acquired substantially all of the assets of The WW Group Co., which operated franchises in certain territories in Ontario, Canada, for an aggregate purchase price of $3,114. Payment was in the form of cash ($2,605), cash in reserves ($599) and assumed net assets ($90). The total purchase price was allocated to franchise rights acquired ($3,040), customer relationship value ($42), property and equipment, net ($25), inventories ($6) and other assets ($1).
--- ---

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

6. Franchise Rights Acquired, Goodwill and Other Intangible Assets

Franchise rights acquired are due to acquisitions of the Company’s franchised territories as well as the acquisition of franchise promotion agreements and other factors associated with the acquired franchise territories. For the three months ended April 2, 2022, the change in the carrying value of franchise rights acquired was due to the effect of exchange rate changes and the Northern Ireland franchisee acquisition as described in Note 5.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Goodwill primarily relates to the acquisition of the Company by The Kraft Heinz Company (successor to H.J. Heinz Company) in 1978, and the Company’s acquisitions of WW.com, LLC (formerly known as WW.com, Inc. and WeightWatchers.com, Inc.) in 2005 and the Company’s franchised territories. See Note 5 for additional information about acquisitions by the Company. For the three months ended April 2, 2022, the change in the carrying amount of goodwill was due to the Republic of Ireland franchisee and Northern Ireland franchisee acquisitions as described in Note 5 and the effect of exchange rate changes as follows:

North Continental United
America Europe Kingdom Other Total
Balance as of January 2, 2021 $ 145,071 $ 7,792 $ 1,268 $ 1,486 $ 155,617
Goodwill acquired during the period 2,153 — — — 2,153
Effect of exchange rate changes 306 (606 ) (14 ) (82 ) (396 )
Balance as of January 1, 2022 $ 147,530 $ 7,186 $ 1,254 $ 1,404 $ 157,374
Goodwill acquired during the period — — 5,936 — 5,936
Effect of exchange rate changes 418 (211 ) (210 ) 46 43
Balance as of April 2, 2022 $ 147,948 $ 6,975 $ 6,980 $ 1,450 $ 163,353

Finite-lived Intangible Assets

The carrying values of finite-lived intangible assets as of April 2, 2022 and January 1, 2022 were as follows:

April 2, 2022 January 1, 2022
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
Capitalized software costs $ 116,152 $ 97,682 $ 115,065 $ 94,771
Website development costs 118,528 83,342 110,678 78,629
Trademarks 12,126 11,730 12,116 11,677
Other 13,992 5,776 14,021 5,677
Trademarks and other intangible assets $ 260,798 $ 198,530 $ 251,880 $ 190,754
Franchise rights acquired 8,301 4,995 7,905 4,766
Total finite-lived intangible assets $ 269,099 $ 203,525 $ 259,785 $ 195,520

Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $8,174 and $7,998 for the three months ended April 2, 2022 and April 3, 2021, respectively.

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

Remainder of fiscal 2022 $ 22,659
Fiscal 2023 $ 21,472
Fiscal 2024 $ 11,013
Fiscal 2025 $ 1,769
Fiscal 2026 and thereafter $ 8,661

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

7. Long-Term Debt

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

April 2, 2022 January 1, 2022
Principal<br><br><br>Balance Unamortized<br><br><br>Deferred<br><br><br>Financing<br><br><br>Costs Unamortized<br><br><br>Debt Discount Effective<br><br><br>Rate ^(1)^ Principal<br><br><br>Balance Unamortized<br><br><br>Deferred<br><br><br>Financing<br><br><br>Costs Unamortized<br><br><br>Debt Discount Effective<br><br><br>Rate ^(1)^
Revolving Credit Facility due<br><br><br>April 13, 2026 $ — $ — $ — 0.00 % $ — $ — $ — 2.61 %
Term Loan Facility due<br><br><br>April 13, 2028 945,000 6,653 13,787 4.46 % 945,000 6,930 14,362 4.48 %
Senior Secured Notes due<br><br><br>April 15, 2029 500,000 5,411 — 4.66 % 500,000 5,604 — 4.70 %
Total $ 1,445,000 $ 12,064 $ 13,787 4.53 % $ 1,445,000 $ 12,534 $ 14,362 5.15 %
Less: Current portion — —
Unamortized deferred<br><br><br>financing costs 12,064 12,534
Unamortized debt discount 13,787 14,362
Total long-term debt $ 1,419,149 $ 1,418,104
(1) Includes amortization of deferred financing costs and debt discount.
--- ---

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

Credit Facilities

The Credit Facilities were issued under a credit agreement, dated April 13, 2021 (as amended from time to time, the “Credit Agreement”), among the Company, as borrower, the lenders party thereto, and Bank of America, N.A. (“Bank of America”), as administrative agent and an issuing bank. The Credit Facilities consist of (1) $1,000,000 in aggregate principal amount of senior secured tranche B term loans due in 2028 (the “Term Loan Facility”) and (2) $175,000 in an aggregate principal amount of commitments under a senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2026 (the “Revolving Credit Facility”).

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

In accordance with the terms of the Credit Agreement, the Company expects to have an obligation to make an excess cash flow prepayment offer currently estimated to be $30,575 to the term loan lenders during the second quarter of fiscal 2023. The Company expects to satisfy this obligation with a prepayment no later than the required payment date.

As of April 2, 2022, the Company had $945,000 in an aggregate principal amount of loans outstanding under the Credit Facilities, with $173,911 of availability and $1,089 in issued but undrawn letters of credit outstanding under the Revolving Credit Facility. There were no outstanding borrowings under the Revolving Credit Facility as of April 2, 2022.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

• a pledge of 100% of the equity interests directly held by the Company and each guarantor in any wholly-owned material subsidiary of the Company or any guarantor (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, will not include more than 65% of the voting stock of such first-tier non-U.S. subsidiary), subject to certain exceptions; and
• a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions.
--- ---

The Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:

• 50% (which percentage will be reduced to 25% and 0% if the Company attains certain first lien secured net leverage ratios) of the Company’s annual excess cash flow;
• 100% of the net cash proceeds of certain non-ordinary course asset sales by the Company and its restricted subsidiaries (including casualty and condemnation events, subject to de minimis thresholds), and subject to the right to reinvest 100% of such proceeds, subject to certain qualifications; and
--- ---
• 100% of the net proceeds of any issuance or incurrence of debt by the Company or any of its restricted subsidiaries, other than certain debt permitted under the Credit Agreement.
--- ---

The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. The Company may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to LIBOR loans under the Credit Facilities.

Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.50% or (2) an applicable margin plus a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided that LIBOR is not lower than a floor of 0.50%. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at the Company’s option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.00% or (2) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided such rate is not lower than a floor of zero. As of April 2, 2022, the applicable margins for the LIBOR rate borrowings under the Term Loan Facility and the Revolving Credit Facility were 3.50% and 2.75%, respectively. In the event that LIBOR is phased out as is currently expected, the Credit Agreement provides that the Company and the administrative agent may amend the Credit Agreement to replace the LIBOR definition therein with a successor rate subject to notifying the lending syndicate of such change and not receiving within five business days of such notification objections to such replacement rate from lenders holding at least a majority of the aggregate principal amount of loans and commitments then outstanding under the Credit Agreement; provided that such lending syndicate may not object to a SOFR-based successor rate contained in any such amendment. If the Company fails to do so, its borrowings will be based off of the alternative base rate plus a margin.

On a quarterly basis, the Company pays a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon the Company’s Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement).

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

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, the Company must be in compliance with a Consolidated First Lien Leverage Ratio of, on or prior to the end of the first fiscal quarter of 2022, 6.00:1.00, with a step down to 5.75:1.00 for the period ending after the first fiscal quarter of 2022 through and including with the first fiscal quarter of 2023, with an additional step down to 5.50:1.00 for the period ending after the first fiscal quarter of 2023 through and including with the first fiscal quarter of 2024, with a step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including with the first fiscal quarter of 2025 and again to 5.00:1.00, for the period following the first fiscal quarter of 2025.

Senior Secured Notes

The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 13, 2021 (as amended, supplemented or modified from time to time, the “Indenture”), among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions.

The Senior Secured Notes accrue interest at a rate per annum equal to 4.500% and will mature on April 15, 2029. Interest on the Senior Secured Notes is payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021. On or after April 15, 2024, the Company may on any one or more occasions redeem some or all of the Senior Secured Notes at a purchase price equal to 102.250% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date, such optional redemption price decreasing to 101.125% on or after April 15, 2025 and to 100.000% on or after April 15, 2026. Prior to April 15, 2024, the Company may on any one or more occasions redeem up to 40% of the aggregate principal amount of the Senior Secured Notes with an amount not to exceed the net proceeds of certain equity offerings at 104.500% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Prior to April 15, 2024, the Company may redeem some or all of the Senior Secured Notes at a make-whole price plus accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, during any twelve-month period ending prior to April 15, 2024, the Company may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes at a purchase price equal to 103.000% of the principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If a change of control occurs, the Company must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. Following the sale of certain assets and subject to certain conditions, the Company must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

The Senior Secured Notes are guaranteed on a senior secured basis by the Company’s subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.

Outstanding Debt

At April 2, 2022, the Company had $1,445,000 outstanding under the Credit Facilities and the Senior Secured Notes, consisting of borrowings under the Term Loan Facility of $945,000, $0 drawn down on the Revolving Credit Facility and $500,000 in aggregate principal amount of Senior Secured Notes issued and outstanding.

At April 2, 2022 and January 1, 2022, the Company’s debt consisted of both fixed and variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with the Company’s variable-rate borrowings. See Note 11 for information on the Company’s interest rate swaps. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, exclusive of the impact of the swaps then in effect, was approximately 4.53% and 5.11% per annum at April 2, 2022 and January 1, 2022, respectively, based on interest rates on these dates. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, including the impact of the swaps then in effect, was approximately 5.07% and 5.62% per annum at April 2, 2022 and January 1, 2022, respectively, based on interest rates on these dates.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

8.Per Share Data

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

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

Three Months Ended
April 2, April 3,
2022 2021
Numerator:
Net loss $ (8,243 ) $ (18,227 )
Denominator:
Weighted average shares of common stock outstanding 70,086 69,084
Effect of dilutive common stock equivalents — —
Weighted average diluted common shares outstanding 70,086 69,084
Net loss per share
Basic $ (0.12 ) $ (0.26 )
Diluted $ (0.12 ) $ (0.26 )

The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted net loss per share was 7,040 and 6,360 for the three months ended April 2, 2022 and April 3, 2021, respectively.

9.Income Taxes

The effective tax rates for the three months ended April 2, 2022 and April 3, 2021 were 17.9% and 30.0%, respectively. For the three months ended April 2, 2022, the difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to a tax benefit related to foreign-derived intangible income (“FDII”), partially offset by state income tax expense and tax expense from income earned in foreign jurisdictions. For the three months ended April 3, 2021, the difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII and a tax benefit related to tax windfalls from stock compensation.

10.Legal

Federal Trade Commission Matter

The Company received a letter from the U.S. Federal Trade Commission (the “FTC”) dated September 3, 2019, advising that the FTC was conducting a non-public inquiry into the practices of the Company's wholly-owned subsidiary Kurbo, Inc. (“Kurbo”) relating to the collection, use, disclosure and sharing of personal information. Kurbo offers a paid private coaching service as well as a free app to help families teach children healthy habits. The FTC focused on whether certain practices in the Kurbo free app complied with the Children's Online Privacy Protection Act ("COPPA"). On February 16, 2022, the FTC filed a complaint and proposed settlement order in the United States District Court for the Northern District of California to resolve allegations that Kurbo violated COPPA by failing to provide required notices and obtain verifiable parental consent prior to collecting, using, and disclosing personal information from children using the Kurbo app. In connection with the settlement, Kurbo and the Company were required, among other things: (i) to update their procedures to ensure that they obtain verifiable parental consent before collecting personal information from children, (ii) to destroy all of the personal information they may have obtained without verifiable parental consent as well as any models or algorithms based on that information, (iii) to update their records retention policy to require destruction of user information one year after a child stops tracking in the Kurbo app, and (iv) to pay a civil penalty of $1,500. Kurbo and the Company deny all of the material allegations in the FTC complaint and deny that either Kurbo or the Company ever violated COPPA or otherwise engaged in any wrongdoing. They entered into the settlement solely to resolve the matter and avoid the expense of litigation. The settlement became final when the court entered the Consent Order on March 3, 2022.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Other Litigation Matters

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

11. Derivative Instruments and Hedging

As of April 2, 2022 and January 1, 2022, the Company had in effect interest rate swaps with an aggregate notional amount totaling $500,000.

On June 11, 2018, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2018 swap”) with an effective date of April 2, 2020 and a termination date of March 31, 2024. The initial notional amount of this swap was $500,000. During the term of this swap, the notional amount decreased from $500,000 effective April 2, 2020 to $250,000 on March 31, 2021. This interest rate swap effectively fixed the variable interest rate on the notional amount of this swap at 3.1005%. On June 7, 2019, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2019 swap”, and together with the 2018 swap, the “current swaps”) with an effective date of April 2, 2020 and a termination date of March 31, 2024. The notional amount of this swap is $250,000. This interest rate swap effectively fixed the variable interest rate on the notional amount of this swap at 1.901%. The current swaps qualify for hedge accounting and, therefore, changes in the fair value of the current swaps have been recorded in accumulated other comprehensive loss.

As of April 2, 2022, the cumulative unrealized gain for qualifying hedges was reported as a component of accumulated other comprehensive income in the amount of $205 ($134 before taxes). As of January 1, 2022, the cumulative unrealized loss for qualifying hedges was reported as a component of accumulated other comprehensive loss in the amount of $10,843 ($14,622 before taxes).

As of April 2, 2022, the fair value of the Company’s 2018 swap was a current liability of $2,912, which was included in derivative payable in the consolidated balance sheet. As of April 2, 2022, the fair value of the Company’s 2019 swap consisted of both a current asset of $30, which was included in prepaid expenses and other current assets in the consolidated balance sheet, and a noncurrent asset of $2,944, which was included in other noncurrent assets in the consolidated balance sheet. As of January 1, 2022, the aggregate fair value of the Company’s current swaps was a current liability of $14,670, which was included in derivative payable in the consolidated balance sheet.

The Company is hedging forecasted transactions for periods not exceeding the next two years. The Company expects approximately $531 ($709 before taxes) of net derivative losses included in accumulated other comprehensive loss at April 2, 2022, based on current market rates, will be reclassified into earnings within the next 12 months.

12. Fair Value Measurements

Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

• Level 1 – Quoted prices in active markets for identical assets or liabilities.
• Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
--- ---
• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
--- ---

When measuring fair value, the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Fair Value of Financial Instruments

The Company’s significant financial instruments include long-term debt and interest rate swap agreements as of April 2, 2022 and January 1, 2022. Since there were no outstanding borrowings under the Revolving Credit Facility as of April 2, 2022 and January 1, 2022, the fair value approximated a carrying value of $0 at both April 2, 2022 and January 1, 2022.

The fair value of the Company’s Credit Facilities is determined by utilizing average bid prices on or near the end of each fiscal quarter (Level 2 input). As of April 2, 2022 and January 1, 2022, the fair value of the Company’s long-term debt was approximately $1,242,201 and $1,389,306, respectively, as compared to the carrying value (net of deferred financing costs and debt discount) of $1,419,149 and $1,418,104, respectively.

Derivative Financial Instruments

The fair values for the Company’s derivative financial instruments are determined using observable current market information such as the prevailing LIBOR interest rate and LIBOR yield curve rates and include consideration of counterparty credit risk. See Note 11 for disclosures related to derivative financial instruments.

The following table presents the aggregate fair value of the Company’s derivative financial instruments:

Fair Value Measurements Using:
Total<br><br><br>Fair<br><br><br>Value Quoted Prices in<br><br><br>Active Markets<br><br><br>for Identical Assets<br><br><br>(Level 1) Significant Other<br><br><br>Observable Inputs<br><br><br>(Level 2) Significant<br><br><br>Unobservable<br><br><br>Inputs<br><br><br>(Level 3)
Interest rate swap current asset at April 2, 2022 $ 30 $ — $ 30 $ —
Interest rate swap noncurrent asset at April 2, 2022 $ 2,944 $ — $ 2,944 $ —
Interest rate swap current liability at April 2, 2022 $ 2,912 $ — $ 2,912 $ —
Interest rate swap current liability at January 1, 2022 $ 14,670 $ — $ 14,670 $ —

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

13. Accumulated Other Comprehensive Loss

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

Changes in Accumulated Other Comprehensive Loss by Component ^(^^1^^)^

Three Months Ended April 2, 2022
(Loss) Gain on<br><br><br>Qualifying<br><br><br>Hedges Loss on<br><br><br>Foreign<br><br><br>Currency<br><br><br>Translation Total
Beginning balance at January 1, 2022 $ (10,843 ) $ (7,761 ) $ (18,604 )
Other comprehensive income (loss) before<br><br><br>reclassifications, net of tax 9,391 (106 ) 9,285
Amounts reclassified from accumulated other<br><br><br>comprehensive loss, net of tax ^(2)^ 1,657 — 1,657
Net current period other comprehensive income (loss) 11,048 (106 ) 10,942
Ending balance at April 2, 2022 $ 205 $ (7,867 ) $ (7,662 )
(1) Amounts in parentheses indicate debits
--- ---
(2) See separate table below for details about these reclassifications
--- ---

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended April 3, 2021
Loss on<br><br><br>Qualifying<br><br><br>Hedges Loss on<br><br><br>Foreign<br><br><br>Currency<br><br><br>Translation Total
Beginning balance at January 2, 2021 $ (20,979 ) $ (4,170 ) $ (25,149 )
Other comprehensive income (loss) before<br><br><br>reclassifications, net of tax 1,175 (838 ) 337
Amounts reclassified from accumulated other<br><br><br>comprehensive loss, net of tax ^(2)^ 2,718 — 2,718
Net current period other comprehensive income (loss) 3,893 (838 ) 3,055
Ending balance at April 3, 2021 $ (17,086 ) $ (5,008 ) $ (22,094 )
(1) Amounts in parentheses indicate debits
--- ---
(2) See separate table below for details about these reclassifications
--- ---

Reclassifications out of Accumulated Other Comprehensive Loss ^(^^1^^)^

Three Months Ended
April 2, April 3,
2022 2021
Details about Other Comprehensive<br><br><br>Loss Components Amounts Reclassified from<br><br><br>Accumulated Other<br><br><br>Comprehensive Loss Affected Line Item in the<br><br><br>Statement Where Net<br><br><br>Income is Presented
Loss on Qualifying Hedges
Interest rate contracts $ (2,213 ) $ (3,633 ) Interest expense
(2,213 ) (3,633 ) Loss before income taxes
556 915 Benefit from income taxes
$ (1,657 ) $ (2,718 ) Net loss
(1) Amounts in parentheses indicate debits to profit/loss
--- ---
14. Segment Data
--- ---

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

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

Total Revenues, net
Three Months Ended
April 2, April 3,
2022 2021
North America $ 204,313 $ 221,315
Continental Europe 70,902 81,896
United Kingdom 14,439 19,067
Other 8,107 9,518
Total revenues, net $ 297,761 $ 331,796

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Net Loss
Three Months Ended
April 2, April 3,
2022 2021
Segment operating income (loss):
North America $ 21,514 $ 27,582
Continental Europe 20,443 20,054
United Kingdom (2,201 ) 543
Other (80 ) 103
Total segment operating income 39,676 48,282
General corporate expenses 30,706 45,451
Interest expense 18,671 29,123
Other expense (income), net 344 (237 )
Benefit from income taxes (1,802 ) (7,828 )
Net loss $ (8,243 ) $ (18,227 )
Depreciation and Amortization
--- --- --- --- ---
Three Months Ended
April 2, April 3,
2022 2021
North America $ 8,453 $ 10,312
Continental Europe 263 434
United Kingdom 148 257
Other 95 113
Total segment depreciation and amortization 8,959 11,116
General corporate depreciation and amortization 3,054 4,295
Depreciation and amortization $ 12,013 $ 15,411
15. Related Party
--- ---

As previously disclosed, on October 18, 2015, the Company entered into the Strategic Collaboration Agreement with Oprah Winfrey, under which she would consult with the Company and participate in developing, planning, executing and enhancing the WW program and related initiatives, and provide it with services in her discretion to promote the Company and its programs, products and services for an initial term of five years (the “Initial Term”).

As previously disclosed, on December 15, 2019, the Company entered into an amendment of the Strategic Collaboration Agreement with Ms. Winfrey, pursuant to which, among other things, the Initial Term of the Strategic Collaboration Agreement was extended until April 17, 2023 (with no additional successive renewal terms) after which a second term will commence and continue through the earlier of the date of the Company’s 2025 annual meeting of shareholders or May 31, 2025. Ms. Winfrey will continue to provide the above-described services during the remainder of the Initial Term and, during the second term, will provide certain consulting and other services to the Company.

In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to the Company totaling $432 and $474 for the three months ended April 2, 2022 and April 3, 2021, respectively, which services included advertising, production and related fees.

The Company’s accounts payable to parties related to Ms. Winfrey at April 2, 2022 and January 1, 2022 was $74 and $120, respectively.

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

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

16.Restructuring

2022 Plan – Subsequent Event

As previously disclosed, in the second quarter of fiscal 2022, the Company committed to a restructuring plan consisting of (i) an organizational realignment to simplify the Company’s corporate structure and reduce associated costs (the “Organizational Realignment”) and (ii) a continued rationalization of its real estate portfolio resulting in the termination of certain of the Company’s operating leases (together with the Organizational Realignment, the “2022 Plan”). In connection with the 2022 Plan, the Company anticipates recording restructuring charges which it currently estimates will range between $18,000 to $22,000 in the aggregate. The Organizational Realignment will result in the elimination of certain positions and termination of employment for certain employees worldwide. In connection with its Organizational Realignment, the Company anticipates recording charges of approximately $12,000 to $16,000 in the aggregate with respect to employee termination benefit costs (which are expected to consist of general and administrative expenses), the majority of which will be recorded in the second quarter of fiscal 2022. In connection with the termination of certain of its operating leases, the Company anticipates recording charges of approximately $6,000 in the aggregate consisting of lease termination and other related costs, the majority of which will be recorded in the second quarter of fiscal 2022. Substantially all of these costs arising from the 2022 Plan are expected to result in cash expenditures related to separation payments, other employee termination expenses, and lease termination payments. The Company expects the 2022 Plan to be fully paid by the end of fiscal 2023.

2021 Plan

As previously disclosed, in the first quarter of fiscal 2021, as the Company continued to evaluate its cost structure, anticipate consumer demand and focus on costs, the Company committed to a plan which has resulted in the termination of operating leases and elimination of certain positions worldwide. For the fiscal year ended January 1, 2022, the Company recorded restructuring expenses totaling $21,534 ($16,109 after tax).

For the fiscal year ended January 1, 2022, the components of the Company’s restructuring expenses were as follows:

Fiscal Year Ended
January 1, 2022
Lease termination and other related costs $ 12,688
Employee termination benefit costs 8,846
Total restructuring expenses $ 21,534

For the fiscal year ended January 1, 2022, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:

Fiscal Year Ended
January 1, 2022
Cost of revenues $ 16,727
Selling, general and administrative expenses 4,807
Total restructuring expenses $ 21,534

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

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

For the three months ended April 2, 2022, the Company made payments of $172 towards the liability for the lease termination costs, decreased provision estimates by $102 and incurred additional lease termination and other related costs of $120. For the three months ended April 2, 2022, the Company made payments of $1,956 towards the liability for the employee termination benefit costs, increased provision estimates by $98 and incurred additional employee termination benefit costs of $148.

The Company expects the remaining lease termination liability of $1,186 and the remaining employee termination benefit liability of $2,334 to be paid in full in fiscal 2023.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

2020 Plan

As previously disclosed, in the second quarter of fiscal 2020, in connection with its cost-savings initiative, and its continued response to the COVID-19 pandemic and the related shift in market conditions, the Company committed to a plan of reduction in force which has resulted in the elimination of certain positions and termination of employment for certain employees worldwide. To adjust to anticipated consumer demand, the Company evolved its workshop strategy and expanded its restructuring plan to include lease termination and other related costs. For the fiscal year ended January 2, 2021, the Company recorded restructuring expenses totaling $33,092 ($24,756 after tax).

For the fiscal year ended January 2, 2021, the components of the Company’s restructuring expenses were as follows:

Fiscal Year Ended
January 2, 2021
Lease termination and other related costs $ 7,989
Employee termination benefit costs 25,103
Total restructuring expenses $ 33,092

For the fiscal year ended January 2, 2021, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:

Fiscal Year Ended
January 2, 2021
Cost of revenues $ 23,300
Selling, general and administrative expenses 9,792
Total restructuring expenses $ 33,092

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

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

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

For the three months ended April 2, 2022, the Company decreased provision estimates for the lease termination costs by $116. For the three months ended April 2, 2022, the Company made payments of $605 towards the liability for the employee termination benefit costs.

The Company expects the remaining lease termination liability of $86 and the remaining employee termination benefit liability of $1,335 to be paid in full in fiscal 2022.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

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

• the impact of the ongoing global outbreak of the COVID-19 virus on our business and liquidity and on the business and consumer environment and markets in which we operate;
• competition from other weight management and wellness industry participants or the development of more effective or more favorably perceived weight management methods;
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• our failure to continue to retain and grow our subscriber base;
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• our ability to continue to develop new, innovative services and products and enhance our existing services and products or the failure of our services, products or brands to continue to appeal to the market, or our ability to successfully expand into new channels of distribution or respond to consumer trends or sentiment;
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• the ability to successfully implement strategic initiatives;
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• the effectiveness and efficiency of our advertising and marketing programs, including the strength of our social media presence;
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• the impact on our reputation of actions taken by our franchisees, licensees, suppliers and other partners;
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• the recognition of asset impairment charges;
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• the loss of key personnel, strategic partners or consultants or failure to effectively manage and motivate our workforce;
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• our chief executive officer transition;
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• the inability to renew certain of our licenses, or the inability to do so on terms that are favorable to us;
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• the expiration or early termination by us of leases;
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• uncertainties related to a downturn in general economic conditions or consumer confidence, including the potential impact of political and social unrest, and the existing inflationary environment;
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• our ability to successfully make acquisitions or enter into joint ventures or collaborations, including our ability to successfully integrate, operate or realize the anticipated benefits of such businesses;
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• the seasonal nature of our business;
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• the impact of events that discourage or impede people from gathering with others or impede accessing resources;
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• our failure to maintain effective internal control over financial reporting;
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• the impact of our substantial amount of debt, debt service obligations and debt covenants, and our exposure to variable rate indebtedness;
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• the ability to generate sufficient cash to service our debt and satisfy our other liquidity requirements;
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• uncertainties regarding the satisfactory operation of our technology or systems;
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• the impact of data security breaches and other malicious acts or privacy concerns, including the costs of compliance with evolving privacy laws and regulations;
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• our ability to enforce our intellectual property rights both domestically and internationally, as well as the impact of our involvement in any claims related to intellectual property rights;
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• risks and uncertainties associated with our international operations, including regulatory, economic, political, social, intellectual property, and foreign currency risks, which risks may be exacerbated as a result of the war in Ukraine;
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• the outcomes of litigation or regulatory actions;
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• the impact of existing and future laws and regulations;
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• the possibility that the interests of Artal Group S.A., or Artal, the largest holder of our common stock and a shareholder with significant influence over us, will conflict with our interests or the interests of other holders of our common stock;
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• the impact that the sale of substantial amounts of our common stock by existing large shareholders, or the perception that such sales could occur, could have on the market price of our common stock; and
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• other risks and uncertainties, including those detailed from time to time in our periodic reports filed with the Securities and Exchange Commission.
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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.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

WW International, Inc. is a Virginia corporation with its principal executive offices in New York, New York. In this Quarterly Report on Form 10-Q unless the context indicates otherwise: “we,” “us,” “our,” the “Company,” “Weight Watchers” and “WW” refer to WW International, Inc. and all of its operations consolidated for purposes of its financial statements; “North America” refers to our North American Company-owned operations; “Continental Europe” refers to our Continental Europe Company-owned operations; “United Kingdom” refers to our United Kingdom Company-owned operations; and “Other” refers to Australia, New Zealand and emerging markets operations and franchise revenues and related costs. Each of North America, Continental Europe, United Kingdom and Other is also a reportable segment. Our “Digital” business refers to providing subscriptions to our digital product offerings, including Digital 360 and Personal Coaching + Digital. Our “Workshops + Digital” business refers to providing unlimited access to our workshops combined with our digital subscription product offerings to commitment plan subscribers. It also includes the provision of access to workshops for members who do not subscribe to commitment plans, including our “pay-as-you-go” members.

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

• “fiscal 2015” refers to our fiscal year ended January 2, 2016;
• “fiscal 2020” refers to our fiscal year ended January 2, 2021 (included a 53^rd^ week);
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• “fiscal 2021” refers to our fiscal year ended January 1, 2022;
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• “fiscal 2022” refers to our fiscal year ended December 31, 2022;
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• “fiscal 2023” refers to our fiscal year ended December 30, 2023;
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• “fiscal 2024” refers to our fiscal year ended December 28, 2024;
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• “fiscal 2025” refers to our fiscal year ended January 3, 2026 (includes a 53^rd^ week);
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• “fiscal 2026” refers to our fiscal year ended January 2, 2027; and
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• “fiscal 2027” refers to our fiscal year ended January 1, 2028.
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The following terms used in this Quarterly Report on Form 10-Q are our trademarks: Digital 360^®^ and Weight Watchers^®^.

You should read the following discussion in conjunction with our Annual Report on Form 10-K for fiscal 2021 that includes additional information about us, our results of operations, our financial position and our cash flows, and with our unaudited consolidated financial statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q (collectively referred to as the “Consolidated Financial Statements”).

NON-GAAP FINANCIAL MEASURES

To supplement our consolidated results presented in accordance with accounting principles generally accepted in the United States, or GAAP, we have disclosed non-GAAP financial measures of operating results that exclude or adjust certain items. Gross profit, gross profit margin, operating income, operating income margin and components thereof are discussed in this Quarterly Report on Form 10-Q both as reported (on a GAAP basis) and as adjusted (on a non-GAAP basis), as applicable, with respect to (i) the first quarter of fiscal 2022 to exclude (a) the net impact of (x) charges associated with our previously disclosed 2021 organizational restructuring plan (the “2021 plan”) and (y) the reversal of certain of the charges associated with our previously disclosed 2020 organizational restructuring plan (the “2020 plan”) or (b) the impact of charges associated with the 2021 plan; and (ii) the first quarter of fiscal 2021 to exclude the impact of charges associated with the 2021 plan. We generally refer to such non-GAAP measures as follows: (i) with respect to the adjustments for the first quarter of fiscal 2022, as excluding or adjusting for the net impact of restructuring charges or the impact of restructuring charges, as applicable; and (ii) with respect to the adjustments for the first quarter of fiscal 2021, as excluding or adjusting for the impact of the restructuring charges. We also present within this Quarterly Report on Form 10-Q the non-GAAP financial measures: earnings before interest, taxes, depreciation, amortization and stock-based compensation (“EBITDAS”); earnings before interest, taxes, depreciation, amortization, stock-based compensation, early extinguishment of debt with respect to the Company’s previously disclosed April 2021 debt refinancing and voluntary debt prepayments, and restructuring charges (including the net impact where applicable) (“Adjusted EBITDAS”); total debt less unamortized deferred financing costs, unamortized debt discount and cash on hand (i.e., net debt); and a net debt/Adjusted EBITDAS ratio. See “—Liquidity and Capital Resources—EBITDAS, Adjusted EBITDAS and Net Debt” for the reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measure in each case. Our management believes these non-GAAP financial measures provide useful supplemental information to investors regarding the performance of our business and are useful for period-over-period comparisons of the performance of our business. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies.

USE OF CONSTANT CURRENCY

As exchange rates are an important factor in understanding period-to-period comparisons, we believe in certain cases the presentation of results on a constant currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this Quarterly Report on Form 10-Q, we calculate constant currency by calculating current-year results using prior-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant currency basis as excluding or adjusting for the impact of foreign currency or being on a constant currency basis. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP and are not meant to be considered in isolation. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP.

CRITICAL ACCOUNTING ESTIMATES

For a discussion of the critical accounting estimates affecting us, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” of our Annual Report on Form 10-K for fiscal 2021. Our critical accounting estimates have not changed since the end of fiscal 2021.

PERFORMANCE INDICATORS

Our management team regularly reviews and analyzes a number of financial and operating metrics, including the key performance indicators listed below, in order to manage our business, measure our performance, identify trends affecting our business, determine the allocation of resources, make decisions regarding corporate strategies and assess the quality and potential variability of our cash flows and earnings. We also believe that these key performance indicators are useful to both management and investors for forecasting purposes and to facilitate comparisons to our historical operating results. These metrics are supplemental to our GAAP results and include operational measures.

• Revenues—Our “Subscription Revenues” consist of “Digital Subscription Revenues” and “Workshops + Digital Fees”. “Digital Subscription Revenues” consist of the fees associated with subscriptions for our Digital offerings, including Digital 360 and Personal Coaching + Digital. “Workshops + Digital Fees” consist of the fees associated with our subscription plans for combined workshops and digital offerings and other payment arrangements for access to workshops. In addition, “product sales and other” consists of sales of consumer products via e-commerce, in studios and through our trusted partners, revenues from licensing and publishing, other revenues, and, in the case of the consolidated financial results and Other reportable segment, franchise fees with respect to commitment plans and royalties.
• Paid Weeks—The “Paid Weeks” metric reports paid weeks by WW customers in Company-owned operations for a given period as follows: (i) “Digital Paid Weeks” is the total paid subscription weeks for our digital subscription products (including Digital 360 and Personal Coaching + Digital); (ii) “Workshops + Digital Paid Weeks” is the sum of total paid commitment plan weeks which include workshops and digital offerings and total “pay-as-you-go” weeks; and (iii) “Total Paid Weeks” is the sum of Digital Paid Weeks and Workshops + Digital Paid Weeks.
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• Incoming Subscribers—“Subscribers” refer to Digital subscribers and Workshops + Digital subscribers who participate in recur bill programs in Company-owned operations. The “Incoming Subscribers” metric reports WW subscribers in Company-owned operations at a given period start as follows: (i) “Incoming Digital Subscribers” is the total number of Digital, including Digital 360 and Personal Coaching + Digital, subscribers; (ii) “Incoming Workshops + Digital Subscribers” is the total number of commitment plan subscribers that have access to combined workshops and digital offerings; and (iii) “Incoming Subscribers” is the sum of Incoming Digital Subscribers and Incoming Workshops + Digital Subscribers. Recruitment and retention are key drivers for this metric.
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• End of Period Subscribers—The “End of Period Subscribers” metric reports WW subscribers in Company-owned operations at a given period end as follows: (i) “End of Period Digital Subscribers” is the total number of Digital, including Digital 360 and Personal Coaching + Digital, subscribers; (ii) “End of Period Workshops + Digital Subscribers” is the total number of commitment plan subscribers that have access to combined workshops and digital offerings; and (iii) “End of Period Subscribers” is the sum of End of Period Digital Subscribers and End of Period Workshops + Digital Subscribers. Recruitment and retention are key drivers for this metric.
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• Gross profit and operating expenses as a percentage of revenue.
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COVID-19 PANDEMIC

The novel coronavirus (including its variants, COVID-19) pandemic continues to evolve and have unpredictable impacts on consumer sentiment and behavior and on our business operations and the markets in which we operate. We have seen significant shifts in consumer sentiment with respect to the weight loss and wellness marketplace, which we believe in part is attributable to the evolution of the pandemic. COVID-19 has had a significant effect on our recruitments since its onset. Our Workshops + Digital recruitments were substantially negatively impacted during the first year of the pandemic. While Digital recruitments were strong in the beginning of the COVID-19 pandemic, a subsequent turn in consumer sentiment drove a decline in Digital recruitments. Given the long-term subscription model of our business, these declines in recruitment continued to impact the number of our End of Period Subscribers in the first quarter of fiscal 2022, which declined compared to the prior year period. Additionally, our mix shifting toward our Digital business, which was significant during the onset of the pandemic, especially when amplified by the nature of our subscription business, has negatively impacted revenue and may continue to impact it in the future. Over the longer term, it remains uncertain how the COVID-19 pandemic will impact consumer demand for our products and services and consumer preferences and behavior generally.

The extent to which our operations and business trends will continue in future periods to be impacted by, and any unforeseen costs will result from, the ongoing outbreak of COVID-19 will depend largely on future developments, which are highly uncertain and cannot be accurately predicted. These developments include, among other things, the severity of any variant or surges in COVID-19 cases, new information about health implications, vaccine availability and hesitancy, and actions by government authorities to contain the outbreak or treat its impact. This dynamic situation is driving uncertainty at the macroeconomic, local and consumer levels. We continue to actively monitor the ongoing global outbreak of COVID-19 and its impact and related developments.

As we continue to address the impact of the pandemic, and the related evolving legal and consumer landscape, we are focused on how to best meet our members’ and consumers’ needs. We continue to serve our members virtually, both via our Digital business and through virtual workshops, and to evolve our workshop strategy as we evaluate our cost structure and respond to shifting consumer sentiment. We consolidated certain of our studios and continue to close certain other branded studio locations. We continually evaluate our studio locations, and the decision to operate at any particular studio location is influenced by a number of factors, including applicable legal restrictions, consumer confidence and preferences, changes in consumer sentiment and behavior, and the protection of the health and safety of our employees and members, and is dependent on cost efficiencies and alignment with our digital and brand strategy. The current number of our studio locations is significantly lower than that prior to the pandemic, and we expect it to remain below pre-COVID-19 levels. As a result, we have incurred, and we expect to continue to incur, significant costs associated with our real estate realignment.

While we expect the effects of the pandemic and the related responses, including shifts in consumer sentiment and behavior, to negatively impact our results of operations, cash flows and financial position, the uncertainty of the full extent of the duration and severity of the consumer, economic and operational impacts of COVID-19 means we cannot reasonably estimate the related financial impact at this time. For more information, see “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for fiscal 2021. We continue to believe that our powerful communities and our ability to inspire people to adopt healthy habits will be invaluable to people across the globe as they continue to acclimate to new social and economic environments, and that they uniquely position us in the markets in which we operate.

RESULTS OF OPERATIONS

THREE MONTHS ENDED APRIL 2, 2022 COMPARED TO THE THREE MONTHS ENDED APRIL 3, 2021

The table below sets forth selected financial information for the first quarter of fiscal 2022 from our consolidated statements of net income for the three months ended April 2, 2022 versus selected financial information for the first quarter of fiscal 2021 from our consolidated statements of net income for the three months ended April 3, 2021.

Summary of Selected Financial Data

(In millions, except per share amounts)
For The Three Months Ended
April 2, 2022 April 3, 2021 Increase/<br><br><br>(Decrease) %<br><br><br>Change % Change<br><br><br>Constant<br><br><br>Currency
Revenues, net $ 297.8 $ 331.8 $ (34.0 ) (10.3 %) (8.4 %)
Cost of revenues 117.7 138.4 (20.7 ) (15.0 %) (13.6 %)
Gross profit 180.1 193.4 (13.3 ) (6.9 %) (4.6 %)
Gross Margin % 60.5 % 58.3 %
Marketing expenses 107.6 116.9 (9.4 ) (8.0 %) (6.2 %)
Selling, general & administrative<br><br><br>expenses 63.6 73.7 (10.1 ) (13.7 %) (12.8 %)
Operating income 9.0 2.8 6.1 100.0 % * 100.0 % *
Operating Income Margin % 3.0 % 0.9 %
Interest expense 18.7 29.1 (10.5 ) (35.9 %) (35.9 %)
Other expense (income), net 0.3 (0.2 ) 0.6 100.0 % * 100.0 % *
Loss before income taxes (10.0 ) (26.1 ) 16.0 (61.4 %) (67.9 %)
Benefit from income taxes (1.8 ) (7.8 ) 6.0 (77.0 %) (83.2 %)
Net loss $ (8.2 ) $ (18.2 ) $ 10.0 (54.8 %) (61.3 %)
Weighted average diluted shares<br><br><br>outstanding 70.1 69.1 1.0 1.5 % 1.5 %
Diluted net loss per share $ (0.12 ) $ (0.26 ) $ 0.15 (55.4 %) (61.8 %)

Note: Totals may not sum due to rounding.

*Note: Percentage in excess of 100.0%.

Certain results for the first quarter of fiscal 2022 are adjusted to exclude the net impact of the $0.3 million of 2021 plan restructuring charges and the reversal of $0.1 million of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended April 2, 2022 which have been adjusted.

Gross Operating
Gross Profit Operating Income
(in millions except percentages) Profit Margin Income Margin
First Quarter of Fiscal 2022 $ 180.1 60.5 % $ 9.0 3.0 %
Adjustments to reported amounts ^(1)^
2021 plan restructuring charges 0.0 0.3
2020 plan restructuring charges (0.1 ) (0.1 )
Total adjustments ^(1)^ (0.1 ) 0.1
First Quarter of Fiscal 2022, as adjusted ^(1)^ $ 180.0 60.5 % $ 9.1 3.1 %

Note: Totals may not sum due to rounding.

(1) The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the first quarter of fiscal 2022 to exclude the net impact of $0.3 million ($0.2 million after tax) of 2021 plan restructuring charges and the reversal of $0.1 million ($0.1 million after tax) of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures.

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

Gross Operating
Gross Profit Operating Income
(in millions except percentages) Profit Margin Income Margin
First Quarter of Fiscal 2021 $ 193.4 58.3 % $ 2.8 0.9 %
Adjustments to reported amounts ^(1)^
2021 plan restructuring charges 5.2 5.5
Total adjustments ^(1)^ 5.2 5.5
First Quarter of Fiscal 2021, as adjusted ^(1)^ $ 198.6 59.9 % $ 8.4 2.5 %

Note: Totals may not sum due to rounding.

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

Consolidated Results

Revenues

Revenues for the first quarter of fiscal 2022 were $297.8 million, a decrease of $34.0 million, or 10.3%, versus the first quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted our revenues in the first quarter of fiscal 2022 by $6.3 million, revenues for the first quarter of fiscal 2022 would have decreased 8.4% versus the prior year period. This decrease was driven primarily by lower Subscription Revenues reflecting worsened consumer sentiment. This worsened consumer sentiment was due in part to the evolution of the COVID-19 pandemic as well as the likely impact of certain macro factors including increasing inflation, social and political unrest and challenged economic growth. See “—Segment Results” for additional details on revenues.

Cost of Revenues

Total cost of revenues for the first quarter of fiscal 2022 decreased $20.7 million, or 15.0%, versus the first quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased cost of revenues in the first quarter of fiscal 2022 by $1.8 million, cost of revenues for the first quarter of fiscal 2022 would have decreased 13.6% versus the prior year period. Excluding the net impact of $(0.1) million of restructuring charges in the first quarter of fiscal 2022 and the impact of the $5.2 million of restructuring charges in the first quarter of fiscal 2021, total cost of revenues for the first quarter of fiscal 2022 would have decreased by 11.6%, or 10.2% on a constant currency basis, versus the prior year period.

Gross Profit

Gross profit for the first quarter of fiscal 2022 decreased $13.3 million, or 6.9%, versus the first quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted gross profit in the first quarter of fiscal 2022 by $4.5 million, gross profit for the first quarter of fiscal 2022 would have decreased 4.6% versus the prior year period. Excluding the net impact of $(0.1) million of restructuring charges in the first quarter of fiscal 2022 and the impact of the $5.2 million of restructuring charges in the first quarter of fiscal 2021, gross profit for the first quarter of fiscal 2022 would have decreased by 9.4%, or 7.1% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin for the first quarter of fiscal 2022 increased 2.2% to 60.5% versus 58.3% for the first quarter of fiscal 2021. Excluding the impact of foreign currency, gross margin in the first quarter of fiscal 2022 would have increased 2.4% to 60.7% versus the prior year period. Excluding the net impact of restructuring charges in the first quarter of fiscal 2022 and the impact of restructuring charges in the first quarter of fiscal 2021, gross margin for the first quarter of fiscal 2022 would have increased 0.6% to 60.5% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the first quarter of fiscal 2022 and the impact of restructuring charges in the first quarter of fiscal 2021, gross margin for the first quarter of fiscal 2022 would have increased 0.8% to 60.7% versus the prior year period. The gross margin increase was driven primarily by a revenue mix shift to our higher margin Digital business.

Marketing

Marketing expenses for the first quarter of fiscal 2022 decreased $9.4 million, or 8.0%, versus the first quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased marketing expenses in the first quarter of fiscal 2022 by $2.1 million, marketing expenses for the first quarter of fiscal 2022 would have decreased 6.2% versus the prior year period. This decrease in marketing expenses was primarily due to a decline in TV media. Marketing expenses as a percentage of revenue for the first quarter of fiscal 2022 increased to 36.1% from 35.2% for the first quarter of fiscal 2021.

Selling, General and Administrative

Selling, general and administrative expenses for the first quarter of fiscal 2022 decreased $10.1 million, or 13.7%, versus the first quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses in the first quarter of fiscal 2022 by $0.7 million, selling, general and administrative expenses for the first quarter of fiscal 2022 would have decreased 12.8% versus the prior year period. Excluding the impact of the $0.2 million of restructuring charges in the first quarter of fiscal 2022 and the impact of the $0.3 million of restructuring charges in the first quarter of fiscal 2021, selling, general and administrative expenses for the first quarter of fiscal 2022 would have decreased by 13.7%, or 12.7% on a constant currency basis, versus the prior year period. This decrease in selling, general and administrative expenses was primarily due to lower bonus expense driven by a change in timing of payment and a reduction in headcount. Selling, general and administrative expenses as a percentage of revenue for the first quarter of fiscal 2022 decreased to 21.3% from 22.2% for the first quarter of fiscal 2021.

Operating Income

Operating income for the first quarter of fiscal 2022 increased $6.1 million, or 216.8%, versus the first quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted operating income in the first quarter of fiscal 2022 by $1.7 million, operating income for the first quarter of fiscal 2022 would have increased 275.9% versus the prior year period. Excluding the net impact of the $0.1 million of restructuring charges in the first quarter of fiscal 2022 and the impact of the $5.5 million of restructuring charges in the first quarter of fiscal 2021, operating income for the first quarter of fiscal 2022 would have increased by 9.0%, or 29.0% on a constant currency basis, versus the prior year period. Operating income margin for the first quarter of fiscal 2022 increased 2.2% to 3.0% versus 0.9% for the first quarter of fiscal 2021. Excluding the net impact of restructuring charges in the first quarter of fiscal 2022 and the impact of restructuring charges in the first quarter of fiscal 2021, operating income margin for the first quarter of fiscal 2022 would have increased by 0.5%, or 1.0% on a constant currency basis, versus the prior year period. This increase in operating income margin was driven primarily by a decrease in selling, general and administrative expenses as a percentage of revenue and an increase in gross margin, partially offset by an increase in marketing expenses as a percentage of revenue, versus the prior year period.

Interest Expense

Interest expense for the first quarter of fiscal 2022 decreased $10.5 million, or 35.9%, versus the first quarter of fiscal 2021. The decrease in interest expense was driven primarily by lower interest rates under our Term Loan Facility (as defined below) and on our Senior Secured Notes (as defined below) as a result of our April 2021 debt refinancing (as defined below). The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the first quarter of fiscal 2022 and the first quarter of fiscal 2021 and excluding the impact of our interest rate swaps then in effect, decreased to 4.53% per annum at the end of the first quarter of fiscal 2022 from 6.59% per annum at the end of the first quarter of fiscal 2021. Including the impact of our interest rate swaps then in effect, the effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the first quarter of fiscal 2022 and the first quarter of fiscal 2021, decreased to 5.14% per annum at the end of the first quarter of fiscal 2022 from 7.56% per annum at the end of the first quarter of fiscal 2021.  See “—Liquidity and Capital Resources—Long-Term Debt” for additional details regarding our debt, including interest rates and payments thereon. For additional details on our interest rate swaps, see “Item 3. Quantitative and Qualitative Disclosures about Market Risk” in Part I of this Quarterly Report on Form 10-Q.

Other Expense (Income), Net

Other expense (income), net, which consists primarily of the impact of foreign currency on intercompany transactions, changed by $0.6 million for the first quarter of fiscal 2022 to $0.3 million of expense as compared to $0.2 million of income for the first quarter of fiscal 2021.

Tax

Our effective tax rate for the first quarter of fiscal 2022 was 17.9% as compared to 30.0% for the first quarter of fiscal 2021. For the first quarter of fiscal 2022, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to a tax benefit related to foreign-derived intangible income, or FDII, partially offset by state income tax expense and tax expense from income earned in foreign jurisdictions. The effective tax rate for the first quarter of fiscal 2021 was impacted by state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII and a tax benefit related to tax windfalls from stock compensation.

Net Loss and Diluted Net Loss Per Share

Net loss for the first quarter of fiscal 2022 was $8.2 million, which decreased $10.0 million, or 54.8%, from the net loss for the first quarter of fiscal 2021 of $18.2 million. Excluding the impact of foreign currency, which negatively impacted net loss in the first quarter of fiscal 2022 by $1.2 million, net loss for the first quarter of fiscal 2022 would have decreased 61.3% from the prior year period. Net loss for the first quarter of fiscal 2022 included a $0.1 million net impact from restructuring charges. Net loss for the first quarter of fiscal 2021 included a $4.1 million impact from restructuring charges.

Diluted net loss per share for the first quarter of fiscal 2022 was a loss of $0.12 compared to a loss of $0.26 for the first quarter of fiscal 2021. Diluted net loss per share for the first quarter of fiscal 2022 included a $0.00 net impact from restructuring charges. Diluted net loss per share for the first quarter of fiscal 2021 included a $0.06 impact from restructuring charges.

Segment Results

Metrics and Business Trends

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

(in millions except percentages and as noted)

Q1 2022
GAAP Constant Currency
Product Product Total
Subscription Sales & Total Subscription Sales & Total Paid Incoming EOP
Revenues Other Revenues Revenues Other Revenues Weeks Subscribers Subscribers
(in thousands)
North America $ 176.3 $ 28.0 $ 204.3 $ 176.3 $ 28.0 $ 204.3 38.7 2,734.9 2,986.2
CE 61.7 9.2 70.9 66.4 9.9 76.3 15.4 1,094.1 1,189.5
UK 12.2 2.2 14.4 12.6 2.3 14.9 3.5 245.0 270.1
Other ^(1)^ 6.8 1.3 8.1 7.2 1.4 8.6 1.3 94.5 99.6
Total $ 257.0 $ 40.8 $ 297.8 $ 262.5 $ 41.6 $ 304.0 58.9 4,168.6 4,545.4
% Change Q1 2022 vs. Q1 2021
North America (5.7 %) (18.4 %) (7.7 %) (5.7 %) (18.4 %) (7.7 %) (3.6 %) (3.1 %) (5.5 %)
CE (11.7 %) (23.6 %) (13.4 %) (4.9 %) (17.8 %) (6.8 %) (9.7 %) (7.2 %) (11.8 %)
UK (18.4 %) (45.9 %) (24.3 %) (15.9 %) (44.5 %) (22.1 %) (21.3 %) (24.3 %) (20.6 %)
Other ^(1)^ (15.4 %) (11.8 %) (14.8 %) (10.5 %) (7.4 %) (10.0 %) (6.6 %) (3.2 %) (6.9 %)
Total (8.2 %) (21.5 %) (10.3 %) (6.2 %) (20.0 %) (8.4 %) (6.6 %) (5.8 %) (8.3 %)

Note: Totals may not sum due to rounding.

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

(in millions except percentages and as noted)

Q1 2022
Digital Subscription Revenues Digital Incoming EOP Workshops + Digital Fees Workshops<br><br><br>+ Digital Incoming<br><br><br>Workshops EOP<br><br><br>Workshops
Constant Paid Digital Digital Constant Paid + Digital + Digital
GAAP Currency Weeks Subscribers Subscribers GAAP Currency Weeks Subscribers Subscribers
(in thousands) (in thousands)
North America $ 125.3 $ 125.3 31.4 2,186.9 2,450.7 $ 51.0 $ 51.0 7.3 548.0 535.4
CE 53.5 57.5 14.1 998.5 1,088.3 8.2 8.9 1.3 95.7 101.1
UK 7.8 8.0 2.6 179.7 206.0 4.4 4.6 0.9 65.3 64.1
Other ^(1)^ 4.9 5.2 1.1 76.0 81.4 1.9 2.0 0.2 18.5 18.2
Total $ 191.5 $ 196.1 49.2 3,441.1 3,826.6 $ 65.5 $ 66.4 9.7 727.4 718.8
% Change Q1 2022 vs. Q1 2021
North America (5.1 %) (5.1 %) (6.1 %) (6.3 %) (6.8 %) (7.1 %) (7.1 %) 9.0 % 12.3 % 1.1 %
CE (9.2 %) (2.3 %) (9.3 %) (5.8 %) (12.1 %) (24.8 %) (19.1 %) (13.2 %) (20.1 %) (9.1 %)
UK (20.4 %) (18.1 %) (23.2 %) (23.5 %) (22.9 %) (14.5 %) (11.9 %) (15.4 %) (26.2 %) (12.3 %)
Other ^(1)^ (6.9 %) (1.4 %) (0.2 %) 2.8 % (0.3 %) (31.6 %) (27.7 %) (27.0 %) (21.9 %) (28.2 %)
Total (7.1 %) (4.8 %) (8.0 %) (7.1 %) (9.3 %) (11.2 %) (10.0 %) 1.5 % 1.0 % (2.8 %)

Note: Totals may not sum due to rounding.

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

North America Performance

The decrease in North America revenues for the first quarter of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the first quarter of fiscal 2022 versus the prior year period was driven by both a decrease in Digital Subscription Revenues and a decrease in Workshops + Digital Fees. Subscription Revenues were negatively impacted by both the lower number of Incoming Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and the recruitment decline during the first quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment. The decrease in North America Total Paid Weeks for the first quarter of fiscal 2022 versus the prior year period was driven primarily by both the lower number of Total Incoming Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and lower recruitments for the first quarter of fiscal 2022 versus the prior year period.

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

Continental Europe Performance

The decrease in Continental Europe revenues for the first quarter of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the first quarter of fiscal 2022 versus the prior year period was driven by both a decrease in Workshops + Digital Fees and a decrease in Digital Subscription Revenues. Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and the recruitment decline during the first quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment. The decrease in Continental Europe Total Paid Weeks for the first quarter of fiscal 2022 versus the prior year period was driven primarily by both the lower number of Total Incoming Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and lower recruitments for the first quarter of fiscal 2022 versus the prior year period.

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

United Kingdom Performance

The decrease in UK revenues for the first quarter of fiscal 2022 versus the prior year period was driven by both a decrease in Subscription Revenues and a decrease in product sales and other. The decrease in Subscription Revenues for the first quarter of fiscal 2022 versus the prior year period was driven by a decrease in Digital Subscription Revenues and, to a lesser extent, a decrease in Workshops + Digital Fees. Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and the recruitment decline during the first quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment. The decrease in UK Total Paid Weeks for the first quarter of fiscal 2022 versus the prior year period was driven primarily by both the lower number of Total Incoming Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and lower recruitments for the first quarter of fiscal 2022 versus the prior year period.

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

Other Performance

The decrease in Other revenues for the first quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in Subscription Revenues. The decrease in Subscription Revenues for the first quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in Workshops + Digital Fees. Workshops + Digital Fees were negatively impacted by both the lower number of Incoming Workshops + Digital Subscribers at the beginning of the first quarter of fiscal 2022 versus the beginning of the first quarter of fiscal 2021 and the recruitment decline during the first quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment.

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

LIQUIDITY AND CAPITAL RESOURCES

Cash flows provided by operating activities have historically supplied, and are expected to continue to supply, us with our primary source of liquidity. We use these cash flows, supplemented with long-term debt and short-term borrowings, to fund our operations and global strategic initiatives, pay down debt and engage in selective acquisitions. In accordance with the terms of the Credit Agreement, we expect to have an obligation to make an excess cash flow prepayment offer currently estimated to be $30.6 million to the term loan lenders during the second quarter of fiscal 2023. We expect to satisfy this obligation with a prepayment no later than the required payment date. We currently believe that cash generated by operations, our cash on hand of approximately $127.6 million at April 2, 2022, our $173.9 million of availability under our Revolving Credit Facility (as defined below) at April 2, 2022 and our continued cost focus will provide us with sufficient liquidity to meet our obligations for the short- and long-term. In addition, if necessary, we have the flexibility to delay investments or reduce marketing spend.

We continue to proactively manage our liquidity so we can maintain flexibility to fund investments in our business, honor our long-term debt obligations, and respond to evolving business and consumer conditions. To increase our flexibility and reduce our cash interest payments, we refinanced our then-existing credit facilities and then-existing senior notes in April 2021. See “—Long-Term Debt” for additional details on this refinancing. Additionally, we instituted a number of measures throughout our operations to mitigate expenses and reduce costs as well as ensure liquidity and the availability of our Revolving Credit Facility. The evolving nature, and uncertain economic impact, of the current demand environment may impact our liquidity going forward. To the extent that we do not successfully manage our costs, our liquidity and financial results, as well as our ability to access our Revolving Credit Facility, may be adversely affected.

As market conditions warrant, we may, from time to time, seek to purchase our outstanding debt securities or loans, including the Senior Secured Notes and borrowings under the Credit Facilities (each as defined below). Such transactions could be privately negotiated or open market transactions, pursuant to tender offers or otherwise. Subject to any applicable limitations contained in the agreements governing, or terms of, our indebtedness, any such purchases made by us may be funded by the use of cash on our balance sheet, the incurrence of new secured or unsecured debt, the issuance of our equity or the sale of assets. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may equate to a substantial amount of a particular class or series of debt, which may reduce the trading liquidity of such class or series.

Balance Sheet Working Capital

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

April 2, January 1, Increase/
2022 2022 (Decrease)
(in millions)
Total current assets $ 257.6 $ 271.2 $ (13.5 )
Total current liabilities 216.7 229.1 (12.5 )
Working capital surplus 41.0 42.0 1.1
Cash and cash equivalents 127.6 153.8 (26.2 )
Current portion of long-term debt — — —
Working capital deficit, excluding cash and cash<br><br><br>equivalents and current portion of long-term debt $ (86.7 ) $ (111.8 ) $ (25.1 )

Note: Totals may not sum due to rounding.

The following table sets forth a summary of the primary factors contributing to the $25.1 million decrease in our working capital deficit, excluding cash and cash equivalents and current portion of long-term debt:

Impact to
April 2, January 1, Increase/ Working
2022 2022 (Decrease) Capital Deficit
(in millions)
Operational liabilities and other, net of assets $ 33.9 $ 54.7 $ (20.8 ) $ (20.8 )
Derivative payable, net $ 2.9 $ 14.7 $ (11.8 ) $ (11.8 )
Portion of operating lease liabilities due within<br><br><br>one year $ 19.0 $ 20.3 $ (1.3 ) $ (1.3 )
Income taxes payable $ 0.6 $ 1.7 $ (1.1 ) $ (1.1 )
Prepaid income taxes $ 29.4 $ 30.5 $ (1.1 ) $ 1.1
Deferred revenue $ 49.0 $ 45.9 $ 3.1 $ 3.1
Accrued interest $ 10.8 $ 5.1 $ 5.7 $ 5.7
Working capital deficit change, excluding cash<br><br><br>and cash equivalents and current portion of<br><br><br>long-term debt $ (25.1 )

Note: Totals may not sum due to rounding.

The decrease in operational liabilities and other, net of assets, which includes accrued salaries and wages, was driven primarily by a decrease in accrued liabilities and an increase in receivables, partially offset by an increase in account payable, all due to seasonality and timing. The decrease in derivative payable, net was due to a change in fair value driven by the change in interest rates. The increase in accrued interest was primarily due to the timing of debt payments.

Cash Flows

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

April 2, April 3,
2022 2021
(in millions)
Net cash used for operating activities $ (10.5 ) $ (11.9 )
Net cash used for investing activities $ (13.6 ) $ (21.0 )
Net cash used for financing activities $ (0.4 ) $ (17.1 )

Operating Activities

First Quarter of Fiscal 2022

Cash flows used for operating activities of $10.5 million for the first quarter of fiscal 2022 reflected a decrease of $1.4 million from $11.9 million of cash flows used for operating activities for the first quarter of fiscal 2021. The decrease in cash used for operating activities was primarily the result of a decrease in cash used for operating assets and liabilities for the first quarter of fiscal 2022 as compared to the prior year period.

First Quarter of Fiscal 2021

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

Investing Activities

First Quarter of Fiscal 2022

Net cash used for investing activities totaled $13.6 million for the first quarter of fiscal 2022, a decrease of $7.4 million as compared to the first quarter of fiscal 2021. This decrease was primarily attributable to a decrease in cash paid for acquisitions for the first quarter of fiscal 2022 as compared to the prior year period.

First Quarter of Fiscal 2021

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

Financing Activities

First Quarter of Fiscal 2022

Net cash used for financing activities totaled $0.4 million for the first quarter of fiscal 2022, a decrease of $16.7 million as compared to the first quarter of fiscal 2021. This decrease was primarily attributable to a decrease in debt repayments for the first quarter of fiscal 2022 as compared to the prior year period. See “—Long-Term Debt” for additional details on debt.

First Quarter of Fiscal 2021

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

Long-Term Debt

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

The following schedule sets forth our long-term debt obligations at April 2, 2022:

Long-Term Debt

At April 2, 2022

(Balances in millions)

April 2, 2022
Term Loan Facility due April 13, 2028 $ 945.0
Senior Secured Notes due April 15, 2029 500.0
Total 1,445.0
Less: Current portion —
Unamortized deferred financing costs 12.1
Unamortized debt discount 13.8
Total long-term debt $ 1,419.1

Note: Totals may not sum due to rounding.

On April 13, 2021, we (1) repaid in full approximately $1.2 billion in aggregate principal amount of senior secured tranche B term loans due in 2024 under our then-existing credit facilities and (2) redeemed all of the $300.0 million in aggregate principal amount of our then-outstanding 8.625% Senior Notes due in 2025, or the Discharged Senior Notes. On April 13, 2021, our then-existing credit facilities included a senior secured revolving credit facility (which included borrowing capacity available for letters of credit) due in 2022 with $175.0 million in an aggregate principal amount of commitments. There were no outstanding borrowings under such revolving credit facility on that date. We funded such repayment of loans and redemption of notes with cash on hand as well as with proceeds received from approximately $1,000.0 million in an aggregate principal amount of borrowings under our new credit facilities (as amended from time to time, referred to herein as the Credit Facilities) and proceeds received from the issuance of $500.0 million in aggregate principal amount of 4.500% Senior Secured Notes due 2029, or the Senior Secured Notes, each as described below. These transactions are collectively referred to herein as the April 2021 debt refinancing. During the second quarter of fiscal 2021, we incurred fees of $37.9 million (which included $12.9 million of a prepayment penalty on the Discharged Senior Notes and $5.0 million of a debt discount on our Term Loan Facility (as defined below)) in connection with our April 2021 debt refinancing. In addition, we recorded a loss on early extinguishment of debt of $29.2 million in connection thereto. This early extinguishment of debt charge was comprised of $12.9 million of a prepayment penalty on the Discharged Senior Notes, $9.0 million of financing fees paid in connection with our April 2021 debt refinancing and the write-off of $7.2 million of pre-existing deferred financing fees and debt discount.

Credit Facilities

The Credit Facilities were issued under a credit agreement, dated April 13, 2021 or, as amended from time to time, the Credit Agreement, among the Company, as borrower, the lenders party thereto, and Bank of America, N.A., or Bank of America, as administrative agent and an issuing bank. The Credit Facilities consist of (1) $1,000.0 million in aggregate principal amount of senior secured tranche B term loans due in 2028, or the Term Loan Facility, and (2) $175.0 million in an aggregate principal amount of commitments under a senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2026, or the Revolving Credit Facility.

In December 2021, we made voluntary prepayments at par in an aggregate amount of $52.5 million in respect of our outstanding term loans under the Term Loan Facility. As a result of these prepayments, we wrote off a debt discount and deferred financing fees of $1.2 million in the aggregate in the fourth quarter of fiscal 2021.

In accordance with the terms of the Credit Agreement, we expect to have an obligation to make an excess cash flow prepayment offer currently estimated to be $30.6 million to the term loan lenders during the second quarter of fiscal 2023. We expect to satisfy this obligation with a prepayment no later than the required payment date.

As of April 2, 2022, we had $945.0 million in an aggregate principal amount of loans outstanding under our Credit Facilities, with $173.9 million of availability and $1.1 million in issued but undrawn letters of credit outstanding under the Revolving Credit Facility. There were no outstanding borrowings under the Revolving Credit Facility as of April 2, 2022.

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

• a pledge of 100% of the equity interests directly held by the Company and each guarantor in any wholly-owned material subsidiary of the Company or any guarantor (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, will not include more than 65% of the voting stock of such first-tier non-U.S. subsidiary), subject to certain exceptions; and
• a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions.
--- ---

The Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:

• 50% (which percentage will be reduced to 25% and 0% if the Company attains certain first lien secured net leverage ratios) of the Company’s annual excess cash flow;
• 100% of the net cash proceeds of certain non-ordinary course asset sales by the Company and its restricted subsidiaries (including casualty and condemnation events, subject to de minimis thresholds), and subject to the right to reinvest 100% of such proceeds, subject to certain qualifications; and
--- ---
• 100% of the net proceeds of any issuance or incurrence of debt by the Company or any of its restricted subsidiaries, other than certain debt permitted under the Credit Agreement.
--- ---

The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. We may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to LIBOR loans under the Credit Facilities.

Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at our option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.50% or (2) an applicable margin plus a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided that LIBOR is not lower than a floor of 0.50%. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at our option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.00% or (2) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided such rate is not lower than a floor of zero. As of April 2, 2022, the applicable margins for the LIBOR rate borrowings under the Term Loan Facility and the Revolving Credit Facility were 3.50% and 2.75%, respectively. In the event that LIBOR is phased out as is currently expected, the Credit Agreement provides that we and the administrative agent may amend the Credit Agreement to replace the LIBOR definition therein with a successor rate subject to notifying the lending syndicate of such change and not receiving within five business days of such notification objections to such replacement rate from lenders holding at least a majority of the aggregate principal amount of loans and commitments then outstanding under the Credit Agreement; provided that such lending syndicate may not object to a SOFR-based successor rate contained in any such amendment. If we fail to do so, our borrowings will be based off of the alternative base rate plus a margin.

On a quarterly basis, we pay a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon our Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement).

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

The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, we must be in compliance with a Consolidated First Lien Leverage Ratio of, on or prior to the end of the first fiscal quarter of 2022, 6.00:1.00, with a step down to 5.75:1.00 for the period ending after the first fiscal quarter of 2022 through and including with the first fiscal quarter of 2023, with an additional step down to 5.50:1.00 for the period ending after the first fiscal quarter of 2023 through and including with the first fiscal quarter of 2024, with a step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including with the first fiscal quarter of 2025 and again to 5.00:1.00, for the period following the first fiscal quarter of 2025.

Senior Secured Notes

The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 13, 2021, or, as amended, supplemented or modified from time to time, the Indenture, among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions.

The Senior Secured Notes accrue interest at a rate per annum equal to 4.500% and will mature on April 15, 2029. Interest on the Senior Secured Notes is payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021. On or after April 15, 2024, we may on any one or more occasions redeem some or all of the Senior Secured Notes at a purchase price equal to 102.250% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date, such optional redemption price decreasing to 101.125% on or after April 15, 2025 and to 100.000% on or after April 15, 2026. Prior to April 15, 2024, we may on any one or more occasions redeem up to 40% of the aggregate principal amount of the Senior Secured Notes with an amount not to exceed the net proceeds of certain equity offerings at 104.500% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Prior to April 15, 2024, we may redeem some or all of the Senior Secured Notes at a make-whole price plus accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, during any twelve-month period ending prior to April 15, 2024, we may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes at a purchase price equal to 103.000% of the principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If a change of control occurs, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. Following the sale of certain assets and subject to certain conditions, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

The Senior Secured Notes are guaranteed on a senior secured basis by our subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.

Outstanding Debt

At April 2, 2022, we had $1,445.0 million outstanding under the Credit Facilities and the Senior Secured Notes, consisting of borrowings under the Term Loan Facility of $945.0 million, $0.0 drawn down on the Revolving Credit Facility and $500.0 million in aggregate principal amount of Senior Secured Notes issued and outstanding.

At April 2, 2022 and January 1, 2022, our debt consisted of both fixed and variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with our variable-rate borrowings. Further information regarding our interest rate swaps can be found in Part I, Item 1 of this Quarterly Report on Form 10-Q under Note 11 “Derivative Instruments and Hedging” in the Notes to the Consolidated Financial Statements. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on our outstanding debt, exclusive of the impact of the swaps then in effect, was approximately 4.53% and 5.11% per annum at April 2, 2022 and January 1, 2022, respectively, based on interest rates on these dates. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on our outstanding debt, including the impact of the swaps then in effect, was approximately 5.07% and 5.62% per annum at April 2, 2022 and January 1, 2022, respectively, based on interest rates on these dates.

The following schedule sets forth our year-by-year debt obligations at April 2, 2022:

Total Debt Obligation

(Including Current Portion)

At April 2, 2022

(in millions)

Remainder of fiscal 2022 $ —
Fiscal 2023 30.6
Fiscal 2024 —
Fiscal 2025 —
Fiscal 2026 —
Fiscal 2027 and thereafter 1,414.4
Total $ 1,445.0

Note: Totals may not sum due to rounding.

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss includes changes in the fair value of derivative instruments and the effects of foreign currency translations. At April 2, 2022 and April 3, 2021, the cumulative balance of changes in the fair value of derivative instruments, net of taxes, was a gain of $0.2 million and a loss of $17.1 million, respectively. At April 2, 2022 and April 3, 2021, the cumulative balance of the effects of foreign currency translations, net of taxes, was a loss of $7.9 million and a loss of $5.0 million, respectively.

Dividends and Stock Transactions

We do not currently pay a dividend and we have no current plans to pay dividends in the foreseeable future. Any future determination to declare and pay dividends will be made at the sole discretion of our Board of Directors, after taking into account our financial condition and results of operations, capital requirements, contractual, legal, tax and regulatory restrictions, the provisions of Virginia law affecting the payment of distributions to shareholders and such other factors our Board of Directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants in our existing indebtedness, including the Credit Agreement governing the Credit Facilities and the Indenture governing the Senior Secured Notes, and may be limited by the agreements governing other indebtedness we or our subsidiaries incur in the future.

On October 9, 2003, our Board of Directors authorized, and we announced, a program to repurchase up to $250.0 million of our outstanding common stock. On each of June 13, 2005, May 25, 2006 and October 21, 2010, our Board of Directors authorized, and we announced, the addition of $250.0 million to this program. The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions. No shares will be purchased from Artal Holdings Sp. z o.o., Succursale de Luxembourg and its parents and subsidiaries under this program. The repurchase program currently has no expiration date. During the three months ended April 2, 2022 and April 3, 2021, we repurchased no shares of our common stock under this program.

EBITDAS, Adjusted EBITDAS and Net Debt

We define EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation, amortization and stock-based compensation and Adjusted EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation, amortization, stock-based compensation, early extinguishment of debt and restructuring charges (including the net impact where applicable).

The table below sets forth the reconciliations for EBITDAS and Adjusted EBITDAS, each a non-GAAP financial measure, to net loss, the most comparable GAAP financial measure, for the three months ended April 2, 2022 and April 3, 2021, and EBITDAS and Adjusted EBITDAS to net income for the trailing twelve months ended April 2, 2022:

(in millions)

Three Months Ended
April 2, 2022 April 3, 2021 Trailing Twelve<br><br><br>Months
Net (loss) income $ (8.2 ) $ (18.2 ) $ 76.9
Interest 18.7 29.1 77.5
Taxes (1.8 ) (7.8 ) 15.8
Depreciation and amortization 10.8 11.9 44.3
Stock-based compensation 4.7 5.3 20.7
EBITDAS $ 24.1 $ 20.3 $ 235.2
Early extinguishment of debt — — 30.4
2021 plan restructuring charges 0.3 5.5 16.3
2020 plan restructuring charges (0.1 ) — (1.7 )
Adjusted EBITDAS ^(1)^ $ 24.2 $ 25.8 $ 280.0

Note: Totals may not sum due to rounding.

(1) The “Adjusted EBITDAS” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the three months ended April 2, 2022 to exclude the net impact of $0.3 million of 2021 plan restructuring charges and the reversal of $0.1 million of 2020 plan restructuring charges; adjusts the consolidated statements of net income for the three months ended April 3, 2021 to exclude the impact of $5.5 million of 2021 plan restructuring charges; and adjusts EBITDAS for the trailing twelve months ended April 2, 2022 to exclude (a) the $30.4 million early extinguishment of debt and (b) the net impact of $16.3 million of 2021 plan restructuring charges and the reversal of $1.7 million of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures.

Reducing leverage is a capital structure priority for the Company. As of April 2, 2022, our net debt/Adjusted EBITDAS ratio was 4.6x.

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

(in millions)

April 2, 2022
Total debt $ 1,445.0
Less: Unamortized deferred financing costs 12.1
Less: Unamortized debt discount 13.8
Less: Cash on hand 127.6
Net debt $ 1,291.5

Note: Totals may not sum due to rounding.

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

OFF-BALANCE SHEET ARRANGEMENTS

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

SEASONALITY

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

AVAILABLE INFORMATION

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

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

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of April 2, 2022, the market risk disclosures appearing in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for fiscal 2021 have not materially changed from January 1, 2022.

At the end of the first quarter of fiscal 2022, borrowings under the Credit Facilities bore interest at LIBOR plus an applicable margin of 3.50%. For the Term Loan Facility, the minimum interest rate for LIBOR applicable to such facility pursuant to the terms of the Credit Agreement was set at 0.50%, referred to herein as the LIBOR Floor. In addition, as of April 2, 2022, our interest rate swaps in effect had an aggregate notional amount of $500.0 million. Accordingly, as of April 2, 2022, based on the amount of variable rate debt outstanding and the then-current LIBOR rate, after giving consideration to the impact of the interest rate swaps and the LIBOR Floor, a hypothetical 90 basis point increase in interest rates would have increased annual interest expense by approximately $4.0 million and a hypothetical 90 basis point decrease in interest rates would have decreased annual interest expense by approximately $2.1 million. This increase and decrease would have been driven primarily by the interest rate applicable to our Term Loan Facility.

ITEM  4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of April 2, 2022, the end of the first quarter of fiscal 2022. Based upon that evaluation and subject to the foregoing, our principal executive officer and our principal financial officer concluded that, as of the end of the first quarter of fiscal 2022, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 1. LEGAL PROCEEDINGS

The information called for by this item is incorporated herein by reference to Note 10 “Legal” of the notes to the unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors from those detailed in our Annual Report on Form 10-K for fiscal 2021.

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

Nothing to report under this item.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Nothing to report under this item.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Nothing to report under this item.

ITEM 6. EXHIBITS
Exhibit Number Description
--- ---
†**Exhibit 10.1 Employment Agreement, dated as of February 23, 2022, by and between WW International, Inc. and Sima Sistani (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on February 24, 2022 (File No. 001-16769), and incorporated herein by reference).
†**Exhibit 10.2 Continuity Agreement, dated as of February 23, 2022, by and between WW International, Inc. and Sima Sistani (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed on February 24, 2022 (File No. 001-16769), and incorporated herein by reference).
†**Exhibit 10.3 Form of Term Sheet for Employee Stock Option Awards and Form of Terms and Conditions for Employee Stock Option Awards (Chief Executive Officer Initial Equity Award—Stock Incentive Plan Award) (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, as filed on February 24, 2022 (File No. 001-16769), and incorporated herein by reference).
†**Exhibit 10.4 Form of Term Sheet for Employee Stock Option Awards and Form of Terms and Conditions for Employee Stock Option Awards (Chief Executive Officer Initial Equity Award—Inducement Grant Award) (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K, as filed on February 24, 2022 (File No. 001-16769), and incorporated herein by reference).
†**Exhibit 10.5 Form of Term Sheet for Employee Restricted Stock Unit Awards and Form of Terms and Conditions for Employee Restricted Stock Unit Awards (Chief Executive Officer Initial Equity Award) (filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K, as filed on February 24, 2022 (File No. 001-16769), and incorporated herein by reference).
*Exhibit 31.1 Rule 13a-14(a) Certification by Sima Sistani, Chief Executive Officer.
*Exhibit 31.2 Rule 13a-14(a) Certification by Amy O’Keefe, Chief Financial Officer.
*Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*Exhibit 101
*EX-101.INS Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*EX-101.SCH Inline XBRL Taxonomy Extension Schema Document
*EX-101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
*EX-101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
*EX-101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
*EX-101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
*Exhibit 104 The cover page from WW International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments).
* Filed herewith.
--- ---
** Previously filed.
--- ---
† Represents a management arrangement or compensatory plan.
--- ---

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

WW INTERNATIONAL, INC.
Date: May 5, 2022 By: /s/ Sima Sistani
Sima Sistani
Chief Executive Officer and Director<br><br><br>(Principal Executive Officer)
Date: May 5, 2022 By: /s/ Amy O’Keefe
--- --- ---
Amy O’Keefe
Chief Financial Officer<br><br><br>(Principal Financial Officer)

46

ww-ex311_6.htm

EXHIBIT 31.1

CERTIFICATION

I, Sima Sistani, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of WW International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
--- ---
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
--- ---
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
--- ---
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
--- ---
Date: May 5, 2022 Signature: /s/ Sima Sistani
--- --- ---
Sima Sistani
Chief Executive Officer and Director
(Principal Executive Officer)

ww-ex312_8.htm

EXHIBIT 31.2

CERTIFICATION

I, Amy O’Keefe, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of WW International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
--- ---
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
--- ---
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
--- ---
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
--- ---
Date: May 5, 2022 Signature: /s/ Amy O’Keefe
--- --- ---
Amy O’Keefe
Chief Financial Officer
(Principal Financial Officer)

ww-ex321_9.htm

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of WW International, Inc. (the “Company”) for the quarterly period ended April 2, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, the undersigned officers of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
--- ---
Date: May 5, 2022 Signature: /s/ Sima Sistani
--- --- ---
Sima Sistani
Chief Executive Officer and Director
(Principal Executive Officer)
Signature: /s/ Amy O’Keefe
Amy O’Keefe
Chief Financial Officer
(Principal Financial Officer)

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