WW International, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter ended July 3, 2021; comparisons are with the quarter ended June 27, 2020. Financial statement amounts below are in millions unless stated otherwise. The company provides digital and Workshops + Digital weight-management subscriptions, products and related services.
Financial results and position
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $311.4 | $333.6 | $643.2 | $734.0 |
| Gross profit / margin | $186.0 / 59.7% | $194.7 / 58.3% | $379.5 / 59.0% | $405.7 / 55.3% |
| Operating income / margin | $59.7 / 19.2% | $51.0 / 15.3% | $62.5 / 9.7% | $75.9 / 10.3% |
| Net income (loss) attributable to WW | $8.9 | $14.0 | $(9.4) | $7.9 |
| Diluted earnings (loss) per share | $0.12 | $0.20 | $(0.14) | $0.11 |
- Revenue mix: Q2 subscription revenue was $272.9 million, including digital subscriptions of $205.3 million, up 15.4%, and Workshops + Digital fees of $67.5 million, down 41.3%. Total Q2 revenue declined 6.7% reported and 10.2% at constant currency. Digital growth was offset by steep declines in Workshops + Digital and product sales.
- Profitability: Q2 gross margin increased, primarily from a greater mix of higher-margin digital business. Marketing expense rose 36.4% to $57.2 million; SG&A was $69.2 million versus $101.8 million, with the prior-year period including a $32.7 million Oprah Winfrey stock-compensation charge. After adjusting for disclosed unusual items and restructuring, management said Q2 operating income declined 31.6% (36.0% constant currency) and operating margin declined versus the prior year. First-half adjusted operating income was $73.2 million versus $123.4 million.
- Cash flow: First-half operating cash flow was $38.3 million, down from $47.5 million; investing cash outflow was $30.8 million and financing cash outflow was $46.1 million. Cash decreased $40.3 million to $125.6 million. Investing included $17.4 million of capitalized software spending and $10.8 million for acquisitions.
- Debt and liquidity: At July 3, total principal debt was $1.50 billion; net debt, as defined by the company, was $1.344 billion and net debt/Adjusted EBITDAS was 4.3x. Cash was $125.6 million and the revolving facility had $173.8 million available, with no borrowings. Current assets were $259.4 million and current liabilities $246.7 million; excluding cash and current debt, working capital remained a $102.8 million deficit. Total deficit was $537.9 million.
Material changes and unusual items
- In April 2021, WW refinanced debt: it repaid about $1.2 billion of existing term loans and redeemed $300 million of 8.625% notes, issuing a new $1.0 billion term loan due 2028 and $500 million of 4.5% secured notes due 2029. The new revolver is $175 million, due 2026. The refinancing reduced the disclosed weighted-average borrowing rate, including swaps, to 6.17% from 7.41% at January 2, 2021.
- The refinancing generated a $29.2 million early-extinguishment charge in Q2, including a $12.9 million prepayment penalty. The company also incurred $37.9 million in refinancing-related fees and discount, some of which were accounted for separately from the charge.
- The 2021 restructuring plan is now expected to cost approximately $22 million for the year, revised from the prior estimate of $11 million. First-half restructuring expense was $11.6 million.
- Q2 end-of-period subscribers declined 1.9% year over year. Digital subscribers increased 5.6%, while Workshops + Digital subscribers fell 29.6%.
Outlook, risks and contingencies
- Management expects COVID-19 to continue significantly affecting Workshops + Digital in Q3 2021 and potentially later periods. Studio closures or limited operations, consumer behavior, and the timing of reopening remain uncertain; the company says the financial impact cannot currently be reasonably estimated. Studio locations are expected to remain below pre-pandemic levels.
- Management believes cash on hand, operating cash generation, revolving-credit availability and continued cost discipline will provide sufficient liquidity for the next 12 months. It may defer investments or reduce marketing spending if needed. The company identifies substantial debt, debt service, covenants, variable interest rates, subscriber retention and recruitment, competition, technology and privacy, and pandemic-related disruption as risks.
- Annual impairment testing found no impairment of goodwill or indefinite-lived franchise rights. New Zealand franchise rights had estimated fair value only about 10% above carrying value; the balance was approximately $5.0 million, making this unit more sensitive to changes in assumptions. The company reported significant headroom for goodwill.
- A securities class action was dismissed in November 2020 without appeal. The company disclosed an agreement-in-principle to resolve derivative actions, subject to settlement approval. A separate member class action was dismissed with prejudice in May 2021. Management says other ordinary-course legal matters are not expected to have a material adverse effect, while noting outcomes remain uncertain.
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. The company does not currently plan to pay dividends.
Investor verification points
- Track subscriber recruitment and retention—especially whether digital growth offsets continued weakness in Workshops + Digital—and the resulting revenue trend.
- Assess the company’s reported and adjusted profitability separately, including marketing investment, restructuring costs and the refinancing charge.
- Monitor operating cash generation, cash balance, debt service and covenant headroom; verify the assumptions behind the 4.3x net debt/Adjusted EBITDAS ratio.
- Evaluate whether the $22 million restructuring plan and studio realignment deliver expected savings without impairing service or subscriber growth.
- Watch COVID-19 developments and studio operations, foreign-currency effects, variable-rate exposure, and assumptions underlying the New Zealand franchise-rights valuation.