WW International, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 30, 2024; comparison is the three months ended April 1, 2023. WW provides digital, Workshops + Digital, and clinical weight-management subscriptions. Beginning in fiscal 2024, it reports one operating and reportable segment; the filing presents Behavioral and Clinical as goodwill reporting units.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $206.5 million | $241.9 million |
| Gross profit / margin | $137.8 million / 66.7% | $119.5 million / 49.4% |
| Operating loss | $(269.3) million | $(28.6) million |
| Net loss | $(347.9) million | $(118.7) million |
| Diluted loss per share | $(4.39) | $(1.68) |
| Cash used in operating activities | $(36.0) million | $(26.7) million |
| Cash used in investing activities | $(4.8) million | $(10.3) million |
| Cash used in financing activities | $(0.6) million | $(0.7) million |
- Revenue declined 14.6% (14.9% constant currency). Subscription revenue fell 3.3%; other revenue fell 91.9%, mainly following the end of consumer-products sales. Digital subscription revenue decreased 7.8% and Workshops + Digital decreased 22.7%. Clinical subscription revenue contributed $18.8 million following the 2023 Sequence acquisition.
- Total paid weeks increased 1.7%, primarily reflecting Clinical. End-of-period subscribers were 4.008 million, down 0.4%; incoming subscribers increased 7.1%.
- Reported gross margin rose to 66.7%. Excluding restructuring charges, gross margin was 67.9%, versus 57.1% adjusted in the prior period. Management attributed the improvement to lower fixed costs and business mix; prior-year results also included subscription and consumer-product promotional bundle accounting.
- Excluding specified impairment, restructuring, and acquisition items, operating loss was $5.6 million versus $2.2 million. Adjusted EBITDAS, a non-GAAP measure, was $8.8 million versus $11.1 million; trailing-12-month adjusted EBITDAS was $144.1 million.
Balance sheet, debt and liquidity
- At March 30, 2024, cash was $66.6 million, down from $109.4 million at fiscal year-end. Current assets were $117.0 million and current liabilities $249.0 million; working-capital deficit was $132.1 million, or $198.7 million excluding cash.
- Principal debt was $1.445 billion: $945 million term loans and $500 million senior secured notes. Net debt, as defined by the company, was $1.361 billion. Reported long-term debt carrying value was $1.428 billion. Weighted-average debt rate was 7.78% excluding swaps and 6.59% including swaps at quarter-end.
- The company reported $173.8 million of undrawn revolving-facility availability, but its 8.87:1 first-lien leverage ratio restricts borrowing to no more than $61.3 million (35% of commitments) until the applicable ratio is met. No revolver borrowings were outstanding.
- Net cash decreased $42.8 million during the quarter. Operating cash use increased year over year, principally due to the larger net loss and lower cash contribution from operating assets and liabilities.
- Total deficit was $1.112 billion. Franchise rights acquired fell to $128.2 million from $386.5 million, primarily due to the impairment described below.
Material changes, outlook and risks
- Impairment: WW recorded a $258.0 million noncash impairment of indefinite-lived franchise rights, principally $251.4 million for the U.S.; Australia, New Zealand and U.K. charges were $4.1 million, $2.3 million and $0.2 million, respectively. The filing cites market capitalization, business performance, and discount rates reflecting market conditions, including higher interest rates. U.S. and U.K. estimated fair values equaled carrying values after testing, leaving sensitivity to changed assumptions. Goodwill testing found no impairment.
- Taxes: A $55.4 million income-tax provision on a pretax loss reflected an unusually high negative effective tax rate, including a valuation allowance against U.S. deferred tax assets. Income taxes payable rose to $62.1 million. Management expects much of the tax expense/payable impact to reverse in Q3 and Q4, when it expects pretax income.
- Management outlook: No quantified revenue or earnings guidance is provided in the supplied filing text. Management says cash from operations, cash on hand, revolver availability and continued cost focus are expected to provide sufficient short- and long-term liquidity; it may defer investment or reduce marketing if needed. The company identifies seasonal recruitment patterns and ongoing cost and demand uncertainty.
- Interest-rate exposure: The $500 million notional swaps terminated March 31, 2024; management did not enter replacement swaps during the quarter and continues to evaluate hedging. Variable-rate exposure therefore warrants attention.
- Restructuring: Q1 charges under the 2023 and 2022 plans were $5.5 million and $0.2 million. Management expects approximately $12.9 million of additional restructuring cash outlays for the remainder of fiscal 2024.
- Contingencies: The IRS assessed ACA reporting-related penalties; WW is appealing and says it does not believe it is liable. A federal tax lien is limited to certain IRS refunds while the appeal proceeds. Management does not expect ordinary-course legal matters to have a material adverse effect, while noting outcomes remain uncertain.
- Key stated risks include subscriber retention and recruitment, competition and execution in clinical weight management, acquisition integration and healthcare regulation, substantial debt and debt service, liquidity, impairment estimates, consumer demand, technology and data security, and litigation or regulatory outcomes. Management reported disclosure controls effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether subscriber recruitment, retention and subscription revenue trends improve, particularly in Workshops + Digital and Digital.
- Actual revolver borrowing capacity under the leverage restriction, covenant status and progress on reducing leverage.
- Cash generation, liquidity needs and debt-service capacity relative to $1.445 billion of principal debt and $66.6 million of cash.
- Assumptions behind the U.S. and U.K. franchise-right valuations and the potential for further impairment.
- Whether the expected Q3–Q4 tax reversal and pretax income occur, and the resolution of the IRS appeal.
- Clinical business growth and costs, and whether the company can sustain adjusted operating performance without relying on non-GAAP exclusions.