WW International, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended April 3, 2021; comparisons are with the three months ended March 28, 2020. Financial amounts below are in U.S. dollars; “million” is used for readability.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Revenue | $331.8 million | $400.4 million | Down 17.1% reported; down 19.7% at constant currency |
| Subscription revenue | $279.8 million | $324.7 million | Digital revenue rose 18.1%; Workshops + Digital fees fell 50.9% |
| Gross profit / margin | $193.4 million / 58.3% | $211.0 million / 52.7% | Profit down 8.3%; margin improved 5.6 percentage points |
| Operating income / margin | $2.8 million / 0.9% | $24.9 million / 6.2% | Operating income down 88.6% |
| Net loss attributable to WW | $18.2 million | $6.1 million | Loss per diluted share was $0.26 versus $0.09 |
| Operating cash flow | $(11.9) million | $8.4 million | Declined $20.3 million |
| Cash and cash equivalents | $113.3 million | $165.9 million at fiscal year-end | Down $52.6 million during the quarter |
| Debt | $1,489.8 million principal | $1,509.0 million at fiscal year-end | No revolver borrowings; $173.8 million revolver availability |
Cost of revenue fell 26.9%, helping lift gross margin, while marketing expense was nearly flat and SG&A rose 14.2%. Reported Q1 operating income included $5.5 million of restructuring charges; excluding those charges, the company reported non-GAAP operating income of $8.4 million and a 2.5% margin. Adjusted EBITDAS was $25.8 million, versus $44.7 million a year earlier. The company reported net debt of $1,354.7 million and a net debt/Adjusted EBITDAS ratio of 4.0x; these are non-GAAP measures.
At April 3, current assets were $251.2 million and current liabilities were $327.3 million. Total liabilities were $1,992.2 million, and total deficit was $555.8 million. Investing cash outflow was $21.0 million, including $10.8 million for acquisitions; financing cash outflow was $17.1 million, principally scheduled debt repayments. The prior-year financing inflow included $148.0 million of revolver borrowings.
Material changes and operating trends
- End-of-period subscribers declined 1.5% year over year. Digital subscribers rose 16.0%, while Workshops + Digital subscribers fell 47.1%; total paid weeks declined 3.5%.
- Management attributed lower revenue mainly to COVID-19-related studio closures and reduced operations, which weighed on workshop fees and in-studio product sales. North America revenue also compared against the prior-year Oprah’s 2020 Vision tour.
- Digital’s larger revenue mix contributed to the higher gross margin, but higher marketing and SG&A as a percentage of revenue contributed to sharply lower operating margin.
- Continental Europe revenue increased 2.4%; North America fell 22.0%, the U.K. fell 23.8%, and Other fell 18.2%.
Outlook, risks and notable items
- The filing provides no specific full-year revenue or earnings guidance. Management expected COVID-19 to significantly affect results in the first half of fiscal 2021 and potentially later periods; the duration and financial impact could not be estimated reliably.
- Management said cash on hand, operating cash generation, available revolving credit and continued cost controls were expected to provide sufficient liquidity for the next 12 months. It also noted flexibility to delay investment or reduce marketing spending.
- In April 2021, after quarter-end, WW refinanced its debt: it repaid approximately $1.19 billion of prior term loans and redeemed $300 million of 8.625% notes, using approximately $1.0 billion of new term loans and issuing $500 million of 4.500% senior secured notes due 2029. The new term loan is due 2028; the new revolver commitment is $175 million.
- The company recorded $5.5 million of Q1 2021 restructuring expense and revised its expected fiscal 2021 restructuring expense for the plan to approximately $11 million. The plan includes lease terminations and workforce reductions.
- Key risks include continued effects of COVID-19 on consumer demand and studio operations, subscriber recruitment and retention, competition, substantial debt and debt service, variable interest rates, technology and privacy risks, and litigation. A Workshops + Digital member class action and shareholder derivative matters remained pending; the company said it believed the claims were without merit and intended to defend them. The securities class action had been dismissed and was not appealed.
- Management reported disclosure controls and procedures were effective at the reasonable assurance level and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether digital subscriber growth can offset continued weakness in Workshops + Digital subscribers and studio-related revenue.
- Whether cash generation improves enough to support debt service, given negative Q1 operating cash flow and net debt/Adjusted EBITDAS of 4.0x.
- The actual post-refinancing debt balance, interest expense, repayment schedule and covenant headroom; the refinancing occurred after the April 3 balance-sheet date.
- Actual restructuring costs and savings compared with the revised fiscal 2021 estimate, and the pace and cost of studio closures or reopenings.
- Developments in COVID-19 impacts, the pending member and derivative litigation, and any related financial exposure.