WW International, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended April 2, 2022; comparisons are with the three months ended April 3, 2021. Unaudited consolidated results. Unless stated otherwise, dollar amounts below are in millions.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $297.8 | $331.8 | Down 10.3% reported; down 8.4% constant currency |
| Subscription revenue | $257.0 | $279.8 | Down 8.2% |
| Gross profit / margin | $180.1 / 60.5% | $193.4 / 58.3% | Profit down 6.9%; margin up 2.2 percentage points |
| Operating income / margin | $9.0 / 3.0% | $2.8 / 0.9% | Operating income increased |
| Net loss | $(8.2) | $(18.2) | Loss narrowed by $10.0 |
| Diluted loss per share | $(0.12) | $(0.26) | Improved by $0.14 |
| Cash used in operating activities | $(10.5) | $(11.9) | Use of cash narrowed by $1.4 |
Marketing expense was $107.6, down 8.0%; SG&A was $63.6, down 13.7%. Marketing rose to 36.1% of revenue from 35.2%, while SG&A declined to 21.3% from 22.2%. Gross margin benefited mainly from the higher-margin Digital revenue mix. GAAP figures include a net restructuring impact of approximately $0.1 in Q1 2022 versus $5.5 of restructuring charges in Q1 2021; reported operating-income improvement therefore reflects both lower expenses and the prior-year comparison.
Customers and segments
Company-owned end-of-period subscribers totaled 4.545 million, down 8.3% year over year; total paid weeks declined 6.6%. Digital end-of-period subscribers fell 9.3%, while Workshops + Digital subscribers fell 2.8%. Revenue declined across all four reported segments: North America 7.7%, Continental Europe 13.4%, United Kingdom 24.3%, and Other 14.8% (reported currency).
Cash, debt and liquidity
- Cash and cash equivalents were $127.6 at April 2, down from $153.8 at January 1, 2022. Q1 net cash decreased $26.2.
- Investing activities used $13.6, including $8.9 of capitalized software spending and $4.4 of acquisition payments. Financing activities used $0.4.
- Principal debt outstanding was $1,445.0: $945.0 term loans and $500.0 senior secured notes; no revolving-credit borrowings. Reported long-term debt, net of financing costs and discount, was $1,419.1.
- The revolving facility had $173.9 of availability, with $1.1 of issued but undrawn letters of credit. Net debt was $1,291.5; management reported net debt / Adjusted EBITDAS of 4.6x.
- Management estimates an excess-cash-flow prepayment offer of approximately $30.6 in Q2 fiscal 2023. It said operating cash generation, cash on hand, revolving availability and cost controls should provide sufficient liquidity, while noting demand uncertainty.
Outlook, commentary and material items
- The filing provides no specific revenue or earnings guidance. Management cited weaker consumer sentiment, inflation, social and political unrest, and challenged economic growth as factors affecting recruitment and subscription revenue. COVID-19 effects and consumer demand remain uncertain.
- A restructuring plan committed to in Q2 2022, after the reported quarter, is expected to incur $18–$22 in charges: approximately $12–$16 for employee termination benefits and approximately $6 for lease termination and related costs. Most charges were expected in Q2; substantially all costs are expected to require cash, with payment expected by the end of fiscal 2023.
- The FTC settlement concerning Kurbo’s children’s app became final March 3, 2022. It requires privacy-consent and data-destruction measures and a $1.5 civil penalty. WW and Kurbo denied wrongdoing and said they settled to avoid litigation expense.
- Interest expense fell 35.9% to $18.7, primarily following the April 2021 debt refinancing. The company has variable-rate debt partly hedged by $500 of interest-rate swaps; management estimated a hypothetical 90-basis-point rate increase would raise annual interest expense by about $4.0.
- Other cited risks include subscriber retention and recruitment, competition, execution of strategic initiatives, leverage and debt covenants, foreign-exchange and international risks, privacy and data security, litigation, and the CEO transition. The company reported disclosure controls effective at the reasonable-assurance level and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether subscriber recruitment and retention stabilize, particularly given the 8.3% decline in end-of-period subscribers.
- Whether revenue trends, margins and cash generation improve, and how much reported operating-income growth is attributable to restructuring comparisons.
- Ability to service and reduce $1.445 billion of principal debt, meet the expected $30.6 million prepayment, and maintain revolving-credit access and covenant compliance.
- Actual restructuring charges, cash payments and savings versus the $18–$22 million estimate, and implementation of the FTC settlement requirements.
- Effects of inflation, consumer sentiment, COVID-19 developments, interest rates and foreign exchange on demand, liquidity and results.