WW International, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022 (52 weeks), compared with fiscal 2021 (52 weeks). This filing reports annual results, not standalone fourth-quarter results.
Business context
WW earns most of its revenue from Digital and Workshops + Digital subscriptions, alongside consumer products, licensing and other revenue. At year-end, it reported approximately 3.5 million subscribers: 2.8 million Digital and 0.7 million Workshops + Digital. Management cited weaker recruitment and retention, adverse consumer sentiment, and PersonalPoints’ performance below expectations. The company ceased offering Digital 360 during 2022, transitioning most associated members to Workshops + Digital.
Financial and operating metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $1,040.9 million | $1,212.5 million |
| Gross profit / margin | $622.4 million / 59.8% | $726.4 million / 59.9% |
| Operating income (loss) | $(283.0) million | $196.3 million |
| Net income (loss) | $(251.4) million | $66.9 million |
| Diluted EPS | $(3.58) | $0.95 |
| Cash from operating activities | $76.6 million | $157.3 million |
| Cash and cash equivalents at year-end | $178.3 million | $153.8 million |
| Total debt at year-end | $1,445.0 million | $1,445.0 million |
- Revenue declined 14.2% reported and 11.0% at constant currency; foreign exchange reduced revenue by $38.6 million. Subscription revenue fell 13.5%, and consumer product sales, licensing, franchise royalties and other revenue fell 18.5%.
- End-of-period subscribers decreased 14.9% year over year. Total paid weeks declined 11.4%. Digital subscribers fell 17.6%; Workshops + Digital subscribers fell 2.3%, with comparisons affected by the Digital 360 transition.
- Reported operating results included $396.7 million of franchise-rights and goodwill impairment charges. Excluding those impairments and specified restructuring items, management reported adjusted operating income of $153.5 million (14.7% margin), versus $216.2 million (17.8%) in FY2021. Adjusted gross margin was 60.5%, versus 61.2%.
- Adjusted EBITDAS, a non-GAAP measure, was $207.1 million, down from $281.7 million. Net debt was $1,244.0 million and net debt/Adjusted EBITDAS was 6.0x.
- Working capital was positive $84.8 million including cash; excluding cash, the working capital deficit was $93.6 million. Net cash used in investing activities was $42.6 million.
Material changes and unusual items
- The $396.7 million impairment charge comprised approximately $393.6 million of franchise-rights impairment and $3.1 million of goodwill impairment. Charges affected U.S., Canada, U.K., Australia and New Zealand franchise rights, as well as the Republic of Ireland and Kurbo goodwill. Management cited weaker business performance, higher discount rates and declining market values among the drivers.
- Cash from operations fell $80.6 million, primarily reflecting the decline in net income, partly offset by higher non-cash adjustments. Interest expense decreased to $81.1 million from $87.9 million, although market rates rose during the second half.
- The income tax benefit was $114.4 million. It included a $48.3 million benefit from legal-entity restructuring and a $27.1 million valuation-allowance expense related to interest expense carryforwards; management said further valuation-allowance changes are possible.
- The company recorded $40.8 million of restructuring expenses in FY2022 across its 2022 and 2023 plans, net of certain reversals. The 2023 plan is expected to generate total charges of $39–$46 million, with most real-estate-related charges expected in the first half of FY2023.
- FY2022 had no debt-refinancing charge; FY2021 included $30.4 million of early-extinguishment-of-debt expense.
- Effective January 1, 2023, WW reorganized reporting into North America and International segments; FY2022 segment disclosures use the prior four-segment structure.
Liquidity, debt and outlook
- Debt comprised a $945 million variable-rate term loan due April 2028 and $500 million of 4.500% senior secured notes due April 2029. The company had no revolving-credit borrowings at year-end.
- Although the filing states WW was in compliance with its credit-agreement covenants generally, its first-lien secured leverage ratio was 5.77x, above the 5.75x threshold applicable at year-end when the revolver availability test applied. Consequently, quarter-end revolver borrowing was limited to $61.3 million, notwithstanding stated facility availability of $173.9 million.
- Of $945 million in variable-rate debt, $500 million was hedged with interest-rate swaps. WW estimated a 90-basis-point rate increase or decrease would change annual interest expense by approximately $4 million.
- Management said operating cash flow, cash on hand, available revolving credit and cost controls were expected to support liquidity. There is no specific financial guidance in the provided filing text. The company highlighted uncertainty from subscriber trends, economic conditions, competition, interest rates and its substantial debt burden.
- On March 4, 2023, WW agreed to acquire Weekend Health (Sequence), subject to closing conditions and expected to close in Q2 2023. Consideration is $132 million, inclusive of at least $26 million of acquired cash: $65 million cash and $35 million in WW shares at closing, plus two $16 million cash payments on the first and second anniversaries. Management expects an initial earnings-per-share dilution and identified integration and healthcare-regulatory risks.
Key investor verification points
- Review subscriber recruitment, retention, revenue trends and whether PersonalPoints and subsequent product changes improve demand.
- Assess the assumptions behind the $396.7 million impairment, including projected revenue, margins and discount rates, and the potential for further impairment.
- Confirm actual cash generation, restructuring payments and liquidity headroom, including the revolver borrowing restriction and covenant calculations.
- Track Weekend Health closing, funding, integration costs, expected dilution and healthcare compliance obligations.
- Reconcile reported GAAP results with management’s non-GAAP adjusted operating income and Adjusted EBITDAS measures.