美國
證券交易委員會
華盛頓特區20549
表格
（Mark One）
根據1934年證券交易法第13或15(d)節的季度報告 |
截至季度結束日期的財務報告
或者
根據1934年證券交易法第13或15(d)節的轉型報告書 |
過渡期從到
委員會文件號：
（註冊人章程中規定的確切名稱）
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（國家或其他管轄區的 公司成立或組織） |
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（IRS僱主 唯一識別號碼） |
（總部地址）（郵政編碼）
公司電話號碼，包括區號：（
（前名稱、地址及財政年度，如果自上次報告以來有更改）
在法案第12(b)條的規定下注冊的證券：
每一類的名稱 |
交易標誌 |
在其上註冊的交易所的名稱 |
請在以下方框內打勾，以指示註冊人是否（1）已在過去12個月內（或在註冊人需要提交此類報告的較短期間內）提交了交易所法案第13或15（d）條規定的所有要求提交的報告，並且（2）在過去90天內一直需要遵守提交要求。
☑ 否 ☐
請在勾選標誌處表示註冊人是否已經在過去12個月內（或者在註冊人要求提交這些文件的較短時期內）按照規則405 of協議S-T（本章節的§232.405）提交了每個交互式數據文件。 ☒ 沒有 ☐
請勾選標記以說明註冊人是大型快速申報人、加速申報人、非加速申報人、較小的報告公司還是新興成長型公司。請查看《交易所法》第120億.2條中「大型快速申報人」、「加速申報人」、「較小的報告公司」和「新興成長型公司」的定義。
大型加速報告人 |
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非加速文件提交人 |
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較小的報告公司 |
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新興成長公司 |
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如果公司無法符合證券交易法第13(a)條規定，使用延長過渡期來遵守任何新的或修訂的財務會計準則，請在複選框中指示。 ☐
請在檢查標記處說明申報人是否爲外殼公司 (見交易所法案 Rule 12b-2 定義)。 是☐ 沒有
截至2024年10月30日，普通股的流通股數量爲
ww international公司。
目錄
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頁碼。 |
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項目1。 |
2 |
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2 |
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3 |
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4 |
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事項二 |
29 |
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第3項。 |
52 |
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事項4。 |
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項目1。 |
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項目1A。 |
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事項二 |
54 |
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第3項。 |
54 |
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事項4。 |
54 |
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項目5。 |
54 |
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項目6。 |
55 |
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56 |
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第一部分—財政財務信息
第 1 項。 金融所有聲明
ww international，inc.及其子公司
未經審計的合併財務報表D資產負債表在
（以千爲單位）
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9月28日, |
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12月30日 |
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2024 |
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2023 |
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資產 |
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流動資產 |
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現金及現金等價物 |
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$ |
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$ |
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應收賬款（減去減值準備：2024年9月28日 - $ |
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預付所得稅 |
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預付的市場營銷和廣告 |
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預付費用和其他流動資產 |
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總流動資產 |
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資產和設備，淨值 |
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營業租賃資產 |
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購買特許權 |
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商譽 |
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其他無形資產，淨額 |
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延遲所得稅 |
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其他非流動資產 |
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資產總計 |
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$ |
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$ |
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負債和總赤字 |
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流動負債 |
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一年內應付營業租賃負債部分 |
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$ |
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$ |
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應付賬款 |
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應付薪資和工資 |
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應計的營銷和廣告費用 |
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應計利息 |
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待確認收購應付款項 |
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其他應計負債 |
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應付所得稅 |
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遞延收入 |
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流動負債合計 |
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長期負債淨額 |
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長期經營租賃負債 |
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延遲所得稅 |
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其他 |
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負債合計 |
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總赤字 |
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普通股，每股面值爲 $0.0001； |
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截至2024年3月31日和2023年12月31日，公司的庫藏股票分別有2,279,784股和2,693,653股。 |
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保留盈餘 |
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累計其他綜合損失 |
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總赤字 |
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總負債和總赤字 |
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$ |
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$ |
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附註是合併財務報表的組成部分。
2
ww international，inc.及其子公司
未經審計的合併財務報表損益表
（以千爲單位，每股金額除外）
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三個月結束 |
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九個月結束 |
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9月28日, |
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9月30日, |
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9月28日, |
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9月30日, |
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2024 |
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2023 |
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2024 |
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2023 |
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訂閱收入淨額 |
$ |
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$ |
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$ |
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$ |
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其他收益，淨額 |
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營業收入, 淨收入 |
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訂閱收入成本 |
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其他營業成本成本 |
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營收成本 |
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毛利潤 |
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營銷費用 |
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銷售，總務及管理費用 |
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收購特許經營權導致減值 |
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— |
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營業（虧損）收入 |
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利息費用 |
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% and |
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（虧損）所得稅前收入 |
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( |
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所得稅（收益）費用) |
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( |
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淨（虧損）利潤 |
$ |
( |
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$ |
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$ |
( |
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$ |
( |
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(淨虧損)每股收益 |
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基本 |
$ |
( |
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$ |
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$ |
( |
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$ |
( |
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攤薄 |
$ |
( |
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$ |
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$ |
( |
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$ |
( |
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加權平均流通股份 |
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基本 |
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攤薄 |
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附註是合併財務報表的組成部分。
3
ww international，inc.及其子公司
未經審計的綜合損益表損益綜合表
（以千爲單位）
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三個月結束 |
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九個月結束 |
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9月28日, |
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9月30日, |
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9月28日, |
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9月30日, |
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2024 |
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2023 |
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2024 |
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2023 |
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淨（虧損）利潤 |
$ |
( |
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$ |
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$ |
( |
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$ |
( |
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其他全面收益（損失）： |
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外幣翻譯收益（損失） |
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( |
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外匯翻譯收益（損失）的所得稅費用（收益） |
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外匯翻譯收益（損失），扣除稅款後淨額 |
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( |
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衍生工具損失 |
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— |
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( |
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衍生工具損失的所得稅益 |
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— |
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衍生工具損失，扣除稅款後淨額 |
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— |
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( |
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( |
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其他綜合收益（損失）總額 |
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( |
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( |
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( |
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綜合損益 |
$ |
( |
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$ |
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$ |
( |
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$ |
( |
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附註是合併財務報表的組成部分。
4
ww international，inc.及其子公司
未經審計 綜合經營業績報表總赤字變動情況
（以千爲單位）
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截至2024年9月28日的三個月 |
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累積的 |
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其他 |
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普通股 |
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庫存股 |
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綜合 |
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留存收益 |
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股份 |
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數量 |
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股份 |
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數量 |
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損失 |
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收益 |
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總計 |
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2024年6月29日餘額 |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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綜合損益 |
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— |
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— |
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— |
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— |
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( |
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( |
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根據股票計劃發行國庫股 |
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— |
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— |
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— |
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股份獎勵的補償費用 |
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— |
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— |
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— |
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2024年9月28日餘額 |
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$ |
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$ |
( |
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截至2024年9月28日的九個月 |
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累積 |
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其他 |
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普通股 |
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國庫股 |
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全面 |
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已保留 |
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股票 |
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金額 |
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股票 |
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金額 |
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損失 |
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收益 |
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總計 |
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2023 年 12 月 30 日的餘額 |
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$ |
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$ |
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$ |
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$ |
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綜合損失 |
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— |
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— |
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( |
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( |
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根據股票計劃發行庫存股 |
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— |
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— |
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( |
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— |
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( |
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基於股份的獎勵的薪酬支出 |
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— |
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— |
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— |
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— |
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— |
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2024 年 9 月 28 日的餘額 |
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$ |
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$ |
(3,039,309 |
) |
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$ |
( |
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$ |
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$ |
( |
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2023年9月30日結束的三個月 |
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累積的 |
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其他 |
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普通股 |
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庫存股 |
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綜合 |
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留存收益 |
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股份 |
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數量 |
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股份 |
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數量 |
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損失 |
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收益 |
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總計 |
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2023年7月1日的餘額 |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
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綜合收益（損失） |
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— |
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— |
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— |
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— |
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( |
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||
根據股票計劃發行國庫股 |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
股份獎勵的補償費用 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
2023年9月30日結餘 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
截至2023年9月30日的九個月 |
|
|
|
|
|
|
|
|
|
|
|
|
|
累積 |
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
其他 |
|
|
|
|
|
|
|
|||||||
|
|
普通股 |
|
|
國庫股 |
|
|
全面 |
|
|
已保留 |
|
|
|
|
|||||||||||||
|
|
股票 |
|
|
金額 |
|
|
股票 |
|
|
金額 |
|
|
損失 |
|
|
收益 |
|
|
總計 |
|
|||||||
截至2022年12月31日的餘額 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||||
綜合損失 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
根據股票計劃發行庫存股 |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
基於股份的獎勵的薪酬支出 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
普通股的發行 |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
截至 2023 年 9 月 30 日的餘額 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||||
附註是合併財務報表的組成部分。
5
ww international，inc.及其子公司
未經審計的合併現金流量表
（以千爲單位）
|
|
九個月已結束 |
|
|||||
|
|
9月28日 |
|
|
九月三十日 |
|
||
|
|
2024 |
|
|
2023 |
|
||
經營活動： |
|
|
|
|
|
|
||
淨虧損 |
|
$ |
( |
) |
|
$ |
( |
) |
爲調節淨虧損與用於經營活動的現金而進行的調整： |
|
|
|
|
|
|
||
折舊和攤銷 |
|
|
|
|
|
|
||
遞延融資成本和債務折扣的攤銷 |
|
|
|
|
|
|
||
對獲得的特許經營權的損害 |
|
|
|
|
|
— |
|
|
無形資產和長期資產減值 |
|
|
|
|
|
|
||
基於股份的薪酬支出 |
|
|
|
|
|
|
||
遞延所得稅優惠 |
|
|
( |
) |
|
|
( |
) |
可疑賬款備抵金 |
|
|
|
|
|
|
||
爲庫存過時儲備金 |
|
|
|
|
|
|
||
外幣匯率損失（收益） |
|
|
|
|
|
( |
) |
|
現金變動是由於： |
|
|
|
|
|
|
||
應收款 |
|
|
|
|
|
|
||
庫存 |
|
|
|
|
|
|
||
預付費用 |
|
|
|
|
|
( |
) |
|
應付賬款 |
|
|
( |
) |
|
|
|
|
應計負債 |
|
|
( |
) |
|
|
( |
) |
遞延收入 |
|
|
( |
) |
|
|
|
|
其他長期資產和負債，淨額 |
|
|
( |
) |
|
|
( |
) |
所得稅 |
|
|
|
|
|
( |
) |
|
用於經營活動的現金 |
|
|
( |
) |
|
|
( |
) |
投資活動： |
|
|
|
|
|
|
||
資本支出 |
|
|
( |
) |
|
|
( |
) |
資本化軟件和網站開發支出 |
|
|
( |
) |
|
|
( |
) |
爲收購支付的現金，扣除獲得的現金 |
|
|
— |
|
|
|
( |
) |
其他物品，淨額 |
|
|
( |
) |
|
|
( |
) |
用於投資活動的現金 |
|
|
( |
) |
|
|
( |
) |
籌資活動： |
|
|
|
|
|
|
||
與股權獎勵淨股結算相關的已繳稅款 |
|
|
( |
) |
|
|
( |
) |
行使股票期權的收益 |
|
|
— |
|
|
|
|
|
爲收購支付的現金 |
|
|
( |
) |
|
|
( |
) |
其他物品，淨額 |
|
|
( |
) |
|
|
( |
) |
用於融資活動的現金 |
|
|
( |
) |
|
|
( |
) |
匯率變動對現金和現金等價物的影響 |
|
|
( |
) |
|
|
( |
) |
現金和現金等價物的淨減少 |
|
|
( |
) |
|
|
( |
) |
現金和現金等價物，期初 |
|
|
|
|
|
|
||
現金和現金等價物，期末 |
|
$ |
|
|
$ |
|
||
附註是合併財務報表的組成部分。
6
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The accompanying consolidated financial statements include the accounts of WW International, Inc., all of its subsidiaries and the variable interest entities of which WW International, Inc. is the primary beneficiary. The terms “Company” and “WW” as used throughout these notes are used to indicate WW International, Inc. and all of its operations consolidated for purposes of its financial statements. The Company’s “Digital” business refers to providing subscriptions to the Company’s digital product offerings. The Company’s “Workshops + Digital” business refers to providing subscriptions for unlimited access to the Company’s workshops combined with the Company’s digital subscription product offerings. The Company’s “Clinical” business refers to providing subscriptions to the Company’s clinical product offerings provided by WeightWatchers Clinic (formerly referred to as Sequence) combined with the Company’s digital subscription product offerings.
As previously disclosed, effective the first day of fiscal 2024 (i.e., December 31, 2023), as a result of the continued evolution of the Company’s centralized organizational structure in fiscal 2023, and management’s 2024 strategic planning process, the Company’s reportable segments changed to one segment for the purpose of making operational and resource decisions and assessing financial performance. Since the Company operates in
In the second quarter of fiscal 2024, the Company identified and recorded an out-of-period adjustment related to an income tax error. The impact of correcting this error, which was immaterial to all current and prior period financial statements and corrected in the second quarter of fiscal 2024, resulted in an income tax expense of approximately $
These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal 2023 filed on February 28, 2024, which includes additional information about the Company, its results of operations, its financial position and its cash flows.
There were no new accounting standards adopted during the nine months ended September 28, 2024.
7
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
At September 28, 2024 and December 30, 2023, the Company’s lease assets and lease liabilities, primarily for its studios and corporate offices, were as follows:
|
|
September 28, 2024 |
|
|
December 30, 2023 |
|
||
Assets: |
|
|
|
|
|
|
||
Operating leases |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|||
Total lease assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Liabilities: |
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
||
Operating leases |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|||
Noncurrent |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Finance leases |
|
|
— |
|
|
|
— |
|
Total lease liabilities |
|
$ |
|
|
$ |
|
||
For the three and nine months ended September 28, 2024 and September 30, 2023, the components of the Company’s lease expense were as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
September 28, |
|
|
September 30, |
|
|
September 28, |
|
|
September 30, |
|
||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Operating lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fixed lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Lease termination cost (benefit) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Variable lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization of leased assets |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total finance lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
As previously disclosed, in conjunction with the continued rationalization of its real estate portfolio, the Company entered into subleases with commencement dates in the first quarter of fiscal 2023. The Company recorded $
At September 28, 2024 and December 30, 2023, the Company’s weighted average remaining lease term and weighted average discount rates were as follows:
|
|
September 28, 2024 |
|
|
December 30, 2023 |
|
||
Weighted Average Remaining Lease Term (years) |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Weighted Average Discount Rate |
|
|
|
|
|
|
||
Operating leases |
|
|
|
|
|
|
||
Finance leases |
|
|
|
|
|
|
||
The Company’s leases have remaining lease terms of
8
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
At September 28, 2024, the maturity of the Company’s lease liabilities in each of the next five fiscal years and thereafter were as follows:
|
Operating |
|
|
Finance |
|
|
Total |
|
|||
Remainder of fiscal 2024 |
$ |
|
|
$ |
|
|
$ |
|
|||
Fiscal 2025 |
|
|
|
|
— |
|
|
|
|
||
Fiscal 2026 |
|
|
|
|
— |
|
|
|
|
||
Fiscal 2027 |
|
|
|
|
— |
|
|
|
|
||
Fiscal 2028 |
|
|
|
|
— |
|
|
|
|
||
Fiscal 2029 |
|
|
|
|
— |
|
|
|
|
||
Thereafter |
|
|
|
|
— |
|
|
|
|
||
Total lease payments |
$ |
|
|
$ |
|
|
$ |
|
|||
Less imputed interest |
|
|
|
|
|
|
|
|
|||
Present value of lease liabilities |
$ |
|
|
$ |
|
|
$ |
|
|||
Supplemental cash flow information related to leases for the nine months ended September 28, 2024 and September 30, 2023 were as follows:
|
|
Nine Months Ended |
|
|||||
|
|
September 28, |
|
|
September 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
||
Operating cash flows from finance leases |
|
$ |
|
|
$ |
|
||
Financing cash flows from finance leases |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Lease assets obtained (modified) in exchange for new (modified) operating lease liabilities |
|
$ |
|
|
$ |
( |
) |
|
Lease assets (modified) obtained in exchange for (modified) new finance lease liabilities |
|
$ |
( |
) |
|
$ |
— |
|
Revenues are recognized when control of the promised services or goods is transferred to the Company’s customers in an amount that reflects the consideration it expects to be entitled to in exchange for those services or goods.
The following table presents the Company’s revenues disaggregated by revenue source:
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 28, |
|
|
September 30, |
|
|
September 28, |
|
|
September 30, |
|
||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Digital Subscription Revenues |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Workshops + Digital Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
|
||||
Clinical Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
|
||||
Subscription Revenues, net |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other Revenues, net |
|
|
|
|
|
|
|
|
|
|
|
||||
Revenues, net |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
9
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Information about Contract Balances
For Subscription Revenues, the Company can collect payment in advance of providing services. Any amounts collected in advance of services being provided are recorded in deferred revenue. In the case where amounts are not collected, but the service has been provided and the revenue has been recognized, the amounts are recorded in accounts receivable.
|
|
Deferred |
|
|
Deferred |
|
||
|
|
Revenue |
|
|
Revenue-Long Term |
|
||
Balance as of December 30, 2023 |
|
$ |
|
|
$ |
|
||
Net decrease during the period |
|
|
( |
) |
|
|
( |
) |
Balance as of September 28, 2024 |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Balance as of December 31, 2022 |
|
$ |
|
|
$ |
|
||
Net increase (decrease) during the period |
|
|
|
|
|
( |
) |
|
Balance as of September 30, 2023 |
|
$ |
|
|
$ |
|
||
Revenue recognized from amounts included in current deferred revenue as of December 30, 2023 was $
Acquisition of Sequence
On
As consideration for the Acquisition, the Company agreed to pay an aggregate amount equal to $
10
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The following table shows the purchase price allocation for Sequence to the acquired identifiable assets, liabilities assumed and goodwill:
Total consideration: |
|
|
|
|
|
||
Cash paid at closing |
|
$ |
|
|
|
||
Cash paid on April 10, 2024 |
|
|
|
|
|
||
Cash to be paid on April 10, 2025 (1) |
|
|
|
|
|
||
Total cash payments |
|
|
|
$ |
|
||
Less stock-based compensation expense attributable to post combination vesting |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
||
Common shares issued |
|
|
|
|
|
||
Stock price as of April 10, 2023 (2) |
|
$ |
|
|
|
||
Total stock issuance purchase price (2) |
|
|
|
|
|
||
Aggregated merger consideration |
|
|
|
$ |
|
||
|
|
|
|
|
|
||
Assets acquired: |
|
|
|
|
|
||
Cash |
|
$ |
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
||
Property, plant and equipment |
|
|
|
|
|
||
Intangible assets |
|
|
|
|
|
||
Total assets acquired |
|
|
|
|
|
||
|
|
|
|
|
|
||
Liabilities assumed: |
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
|
||
Accrued liabilities |
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
||
Deferred tax liability |
|
|
|
|
|
||
Total liabilities assumed |
|
|
|
|
|
||
|
|
|
|
|
|
||
Net assets acquired |
|
|
|
|
|
||
|
|
|
|
|
|
||
Total goodwill |
|
|
|
$ |
|
||
The Acquisition has been accounted for under the purchase method of accounting. The Acquisition resulted in goodwill related to, among other things, expected synergies in operations. The goodwill will not be deductible for tax purposes. The results of operations of Sequence (now operating as WeightWatchers Clinic) have been included in the consolidated operating results of the Company from the Closing Date.
The Company incurred transaction-related costs of $
Franchise rights acquired are due to acquisitions of the Company’s franchised territories as well as the acquisition of franchise promotion agreements and other factors associated with the acquired franchise territories. For the nine months ended September 28, 2024, the change in the carrying value of franchise rights acquired was due to the impairments of the United States, Australia, United Kingdom and New Zealand units of account as discussed below and the effect of exchange rate changes.
11
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Goodwill primarily relates to the acquisition of the Company by The Kraft Heinz Company (successor to H.J. Heinz Company) in 1978, and the Company’s acquisitions of WW.com, LLC (formerly known as WW.com, Inc. and WeightWatchers.com, Inc.) in 2005, Sequence in 2023 and the Company’s franchised territories. See Note 5 for additional information on the Company’s acquisitions.
Balance as of December 31, 2022 |
|
$ |
|
|
Goodwill acquired during the period |
|
|
|
|
Goodwill impairment |
|
|
( |
) |
Effect of exchange rate changes |
|
|
|
|
Balance as of December 30, 2023 |
|
$ |
|
|
Effect of exchange rate changes |
|
|
( |
) |
Balance as of September 28, 2024 |
|
$ |
|
Change in Goodwill Reporting Units
As discussed in Note 1, effective the first day of fiscal 2024 (i.e., December 31, 2023), as a result of the continued evolution of the Company’s centralized organizational structure in fiscal 2023, and management’s 2024 strategic planning process, the Company’s reportable segments changed to
In accordance with the Financial Accounting Standards Board’s Accounting Standards Codification 350, Intangibles—Goodwill and Other (“ASC 350”), the Company determines its reporting units based upon whether discrete financial information is available, if management regularly reviews the operating results of the component, the nature of the products offered to customers and the market characteristics of each reporting unit. A reporting unit is considered to be an operating segment or one level below an operating segment also known as a component. Prior to the change in operating segments, the Company’s reporting units for the evaluation of goodwill were determined by country. Component level financial information is reviewed by management across two business lines: Behavioral and Clinical. The Company’s “Behavioral” business line consists of the Company’s Workshops + Digital business and Digital business. Accordingly, these were determined to be the Company's new reporting units as of the first day of fiscal 2024.
This change in reporting units qualified as a triggering event and required goodwill to be tested for impairment. As required by ASC 350, the Company tested goodwill for impairment immediately before and after the change in reporting units. As a result of these impairment analyses, it was determined that goodwill was not impaired before or after the change in reporting units.
Franchise Rights Acquired
Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally less than
In performing the impairment analysis for indefinite-lived franchise rights acquired, the fair value for franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for franchise rights related to the Company’s Workshops + Digital business and a relief from royalty methodology for franchise rights related to the Company’s Digital business. The aggregate estimated fair value for these franchise rights is then compared to the carrying value of the unit of account for these rights. The Company has determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in both the Workshops + Digital business and the Digital business in the country in which the applicable acquisition occurred. The net book value of franchise rights acquired for the United States unit of account as of the September 28, 2024 balance sheet date was $
In its hypothetical start-up approach analysis for fiscal 2024, the Company assumed that the year of maturity was reached after
12
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Goodwill
In performing the impairment analysis for goodwill, the fair value for the Company’s reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting unit. The Company has determined the appropriate reporting units for purposes of assessing goodwill impairment to be the Behavioral and Clinical business lines. The net book values of goodwill for the Behavioral and Clinical reporting units as of the September 28, 2024 balance sheet date were $
In performing the impairment analysis for goodwill, for all of the Company’s reporting units, the Company estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operations less capital expenditures) attributable to each of the Behavioral and Clinical reporting units and then applied expected future operating income growth rates for the respective reporting unit. The Company utilized operating income as the basis for measuring its potential growth because it believes it is the best indicator of the performance of its business. The Company then discounted the estimated future cash flows utilizing a discount rate which was calculated using the weighted average cost of capital, which included the cost of equity and the cost of debt.
Third Quarter Fiscal 2024 Indefinite-Lived Franchise Rights Acquired and Goodwill Interim Impairment Tests
During the quarter ended September 28, 2024, the Company identified various qualitative and quantitative factors which collectively indicated a triggering event had occurred. These factors included the continued decline in the Company’s stock price and market capitalization, and actual business performance. As a result of this triggering event, the Company performed interim impairment tests for all of its franchise rights acquired units of account and goodwill reporting units in the third quarter of fiscal 2024.
In performing the interim franchise rights acquired impairment test as of September 28, 2024, the Company determined that the carrying values of its United States and United Kingdom franchise rights acquired with indefinite-lived units of account exceeded their respective fair values. Accordingly, the Company recorded for its United States and United Kingdom units of account of $
Based on the results of the interim franchise rights acquired impairment test as of September 28, 2024 performed for the Company’s United States unit of account, which held
Based on the results of the interim goodwill impairment test as of September 28, 2024 performed for the Company’s Behavioral reporting unit, which held
Indefinite-Lived Franchise Rights Acquired and Goodwill Annual Impairment Tests
The Company reviews indefinite-lived franchise rights acquired and goodwill for potential impairment on at least an annual basis or more often if events so require. The Company performed its annual fair value impairment testing as of May 5, 2024 and May 7, 2023, each the first day of fiscal May, on its indefinite-lived franchise rights acquired and goodwill.
In performing the annual impairment analyses as of May 5, 2024 and May 7, 2023, the Company determined that the carrying values of its franchise rights acquired with indefinite-lived units of account and goodwill reporting units did not exceed their respective fair values and, therefore,
Based on the results of the Company’s May 5, 2024 annual franchise rights acquired impairment test performed for its United States and United Kingdom units of account, each unit of account had an estimated fair value at least
13
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Based on the results of the Company’s May 5, 2024 annual goodwill impairment test performed for all of its reporting units, each unit had an estimated fair value at least
First Quarter Fiscal 2024 Indefinite-Lived Franchise Rights Acquired and Goodwill Interim Impairment Tests
During the quarter ended March 30, 2024, the Company identified various qualitative and quantitative factors which collectively indicated a triggering event had occurred. These factors included the continued decline in the Company’s stock price and market capitalization, and actual business performance. As a result of this triggering event, the Company performed interim impairment tests for all of its franchise rights acquired units of account and goodwill reporting units in the first quarter of fiscal 2024.
In performing the interim franchise rights acquired impairment test as of March 30, 2024, the Company determined that the carrying values of its United States, Australia, New Zealand and United Kingdom franchise rights acquired with indefinite-lived units of account exceeded their respective fair values. Accordingly, the Company recorded for its United States, Australia, New Zealand and United Kingdom units of account of $
Based on the results of the interim goodwill impairment test as of March 30, 2024 performed for all of the Company’s reporting units, each unit had an estimated fair value at least
Finite-lived Intangible Assets
The carrying values of finite-lived intangible assets as of September 28, 2024 and December 30, 2023 were as follows:
|
|
September 28, 2024 |
|
|
December 30, 2023 |
|
||||||||||
|
|
Gross |
|
|
|
|
|
Gross |
|
|
|
|
||||
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
||||
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
||||
Capitalized software and website development costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Trademarks |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trademarks and other intangible assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Franchise rights acquired |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total finite-lived intangible assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $
Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and thereafter is as follows:
Remainder of fiscal 2024 |
|
$ |
|
|
Fiscal 2025 |
|
$ |
|
|
Fiscal 2026 |
|
$ |
|
|
Fiscal 2027 |
|
$ |
|
|
Fiscal 2028 |
|
$ |
|
|
Fiscal 2029 |
|
$ |
|
|
Thereafter |
|
$ |
|
14
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The components of the Company’s long-term debt were as follows:
|
|
September 28, 2024 |
|
|
December 30, 2023 |
|
||||||||||||||||||||||||||
|
|
Principal |
|
|
Unamortized |
|
|
Unamortized |
|
|
Effective |
|
|
Principal |
|
|
Unamortized |
|
|
Unamortized |
|
|
Effective |
|
||||||||
Revolving Credit Facility due |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
% |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
% |
||
Term Loan Facility due |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
% |
||||||||
Senior Secured Notes due |
|
|
|
|
|
|
|
|
— |
|
|
|
% |
|
|
|
|
|
|
|
|
— |
|
|
|
% |
||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
||||||||
Less: Current portion |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||||
Unamortized deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Unamortized debt discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total long-term debt |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
||||||||
In the second quarter of fiscal 2021, in connection with its refinancing of its then-existing credit facilities, the Company incurred approximately $
Credit Facilities
The Credit Facilities were issued under a credit agreement, dated April 13, 2021 (as amended from time to time, the “Credit Agreement”), among the Company, as borrower, the lenders party thereto, and Bank of America, N.A. (“Bank of America”), as administrative agent and an issuing bank. The Credit Facilities consist of (1) $
As of September 28, 2024, the Company had $
All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of the Company’s current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:
The Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:
15
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. The Company may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to Term SOFR loans under the Credit Facilities.
In June 2023, in connection with the planned phase-out of LIBOR, the Company amended its Credit Facilities to replace LIBOR with Term SOFR as the benchmark rate under the Credit Agreement, which is calculated to include a credit spread adjustment of
Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a)
On a quarterly basis, the Company pays a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon the Company’s Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement).
The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default.
The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds
Senior Secured Notes
The Senior Secured Notes were issued pursuant to an Indenture, dated as of
16
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The Senior Secured Notes accrue interest at a rate per annum equal to
The Senior Secured Notes are guaranteed on a senior secured basis by the Company’s subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.
Outstanding Debt
At September 28, 2024, the Company had $
At September 28, 2024 and December 30, 2023, the Company’s debt consisted of both fixed and variable-rate instruments. The Company has historically entered into interest rate swaps to hedge a portion of the cash flow exposure associated with the Company’s variable-rate borrowings. At September 28, 2024, the Company did not have any interest rate swaps in effect. See Note 11 for further information on the Company’s use of interest rate swaps. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, exclusive of the impact of any applicable interest rate swaps, was approximately
Liquidity
The Company’s sources of liquidity are cash and cash equivalents, cash flows from operations and availability under its Revolving Credit Facility. The Company’s primary cash needs are funding its operations and global strategic initiatives, meeting debt service requirements and engaging in selective acquisitions.
The Company’s recent financial results have been, and its future financial results may be, negatively impacted by financial, business, economic, demographic and other factors, such as the increased popularity and acceptance of weight management medications, attitudes towards weight management and wellness programs and competition. The Company’s ability to continue to meet its obligations is dependent on its ability to generate positive cash flow. In the event that the Company is unable to generate and maintain sufficient liquidity to meet its obligations, the Company may need to refinance all or a portion of its indebtedness before maturity, seek waivers of or amendments to contractual obligations for payment, reduce or delay strategic investments and capital expenditures, sell material assets or seek other financing opportunities. If the Company is unable to generate sufficient liquidity, it could have a material adverse impact on the Company’s business, results of operation and financial condition.
Basic (net loss) earnings per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted (net loss) earnings per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented adjusted for the effect of dilutive common stock equivalents.
17
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The following table sets forth the computation of basic and diluted (net loss) earnings per share:
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 28, |
|
|
September 30, |
|
|
September 28, |
|
|
September 30, |
|
||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive common stock equivalents |
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Weighted average diluted common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
||||
(Net loss) earnings per share |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Diluted |
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted (net loss) earnings per share was
Income Taxes
The Company’s effective tax rates for the three and nine months ended September 28, 2024 were
For the nine months ended September 30, 2023, the difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to the valuation allowance noted above. In addition, the effective tax rate was impacted by tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to foreign-derived intangible income.
Non-Income Tax Matters
The Internal Revenue Service (the “IRS”) notified the Company of certain penalties assessed related to the annual disclosure and reporting requirements of the Affordable Care Act. The Company appealed this determination, and in the third quarter of fiscal 2024, the penalties were fully abated and the federal tax lien maintained by the IRS during the appeals process was lifted.
18
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Due to the nature of the Company’s activities, it is, at times, subject to pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected, individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.
In June 2023, the Company amended the terms of its then-effective interest rate swap agreements to implement a forward-looking interest rate based on Term SOFR in place of LIBOR. Since the interest rate swap agreements were affected by reference rate reform, the Company applied the expedients and exceptions provided to preserve the past presentation of its derivatives without de-designating the existing hedging relationships. All amendments to interest rate swap agreements were executed with the existing counterparties and did not change the notional amounts, maturity dates, or other critical terms of the hedging relationships.
As of September 28, 2024, due to the termination of the interest rate swaps on March 31, 2024 as discussed below, the Company did
On June 11, 2018, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2018 swap”) with an effective date of
As of September 28, 2024, there was
The following table presents the aggregate fair value of the Company’s derivative financial instruments by balance sheet classification and location:
|
|
|
|
|
|
Fair Value |
|
|||||
|
|
Balance Sheet Classification |
|
Balance Sheet |
|
September 28, 2024 |
|
|
December 30, 2023 |
|
||
Assets: |
|
|
|
|
|
|
|
|
|
|
||
Interest rate swaps |
|
Current asset |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
$ |
— |
|
|
$ |
|
||
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
19
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
When measuring fair value, the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs.
Fair Value of Financial Instruments
The Company’s significant financial instruments include long-term debt agreements as of September 28, 2024. The Company’s significant financial instruments included long-term debt and interest rate swap agreements as of December 30, 2023. Since there were
The fair value of the Company’s Credit Facilities is determined by utilizing average bid prices on or near the end of each fiscal quarter (Level 2 input). As of September 28, 2024 and December 30, 2023, the fair value of the Company’s long-term debt was approximately $
Derivative Financial Instruments
The fair values for the Company’s derivative financial instruments were determined using observable current market information such as the prevailing Term SOFR interest rate and Term SOFR yield curve rates and included consideration of counterparty credit risk. See Note 11 for disclosures related to the Company’s use of derivative financial instruments.
The following table presents the aggregate fair value of the Company’s derivative financial instruments:
|
|
|
|
|
|
Fair Value Measurements Using: |
|
||||||||||
|
|
Total |
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
Significant |
|
||||
Interest rate swaps current asset at September 28, 2024 |
|
$ |
— |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Interest rate swaps current asset at December 30, 2023 |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
||
The Company did
Amounts reclassified out of accumulated other comprehensive loss were as follows:
Changes in Accumulated Other Comprehensive Loss by Component (1)
|
|
Nine Months Ended September 28, 2024 |
|
|||||||||
|
|
Gain on |
|
|
Loss on |
|
|
Total |
|
|||
Beginning balance at December 30, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive loss before reclassifications, net of tax |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Amounts reclassified from accumulated other comprehensive loss, net of tax (2) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net current period other comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Ending balance at September 28, 2024 |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
20
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||
|
|
Gain on |
|
|
Loss on |
|
|
Total |
|
|||
Beginning balance at December 31, 2022 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications, net of tax |
|
|
|
|
|
( |
) |
|
|
|
||
Amounts reclassified from accumulated other comprehensive loss, net of tax (2) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net current period other comprehensive loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Ending balance at September 30, 2023 |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Reclassifications out of Accumulated Other Comprehensive Loss (1)
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
||||||||||
|
September 28, |
|
|
September 30, |
|
|
September 28, |
|
|
September 30, |
|
|
|
||||
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
|
|
||||
Details about Other Comprehensive |
Amounts Reclassified from |
|
|
Amounts Reclassified from |
|
|
Affected Line Item in the |
||||||||||
Gain on Qualifying Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate contracts |
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Interest expense |
|||
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|||
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
(Benefit from) provision for income taxes |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Net (loss) income |
|||
As previously disclosed, on October 18, 2015, the Company entered into the Strategic Collaboration Agreement with Oprah Winfrey, under which she consulted with the Company and participated in developing, planning, executing and enhancing the WW program and related initiatives, and provided it with services in her discretion to promote the Company and its programs, products and services for an initial term of
As previously disclosed, on December 15, 2019, the Company entered into an amendment of the Strategic Collaboration Agreement with Ms. Winfrey, pursuant to which, among other things, the Initial Term of the Strategic Collaboration Agreement was extended until April 17, 2023 (with no additional successive renewal terms), after which a second term commenced that will continue through the earlier of the date of the Company’s 2025 annual meeting of shareholders or May 31, 2025. Ms. Winfrey will continue to provide certain consulting and other services to the Company during the second term.
In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to the Company totaling $
The Company’s outstanding payables to parties related to Ms. Winfrey at September 28, 2024 and December 30, 2023 were $
21
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
2024 Plan
As previously disclosed, in the third quarter of fiscal 2024, in connection with the strategic streamlining of its operational structure to optimize its clinical and behavioral product portfolio and its cost-savings initiative, the Company committed to a plan of reduction in force that has resulted and will further result in the elimination of certain positions and the termination of employment for certain employees worldwide (the “2024 Plan”). Refer to the tables below for the total restructuring charges under the 2024 Plan recorded for the three and nine months ended September 28, 2024. The cumulative amount incurred as of September 28, 2024 related to the aggregate 2024 Plan is $
For the three and nine months ended September 28, 2024, the components of the Company’s restructuring charges for the 2024 Plan were as follows:
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
September 28, 2024 |
|
|
September 28, 2024 |
|
||
Cash restructuring charges: |
|
|
|
|
|
||
Employee termination benefit costs |
$ |
|
|
$ |
|
||
Other cash restructuring charges |
|
|
|
|
|
||
Total restructuring charges |
$ |
|
|
$ |
|
||
For the three and nine months ended September 28, 2024, restructuring charges for the 2024 Plan were recorded in the Company’s consolidated statements of operations as follows:
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
September 28, 2024 |
|
|
September 28, 2024 |
|
||
Cost of revenues |
$ |
|
|
$ |
|
||
Selling, general and administrative expenses |
|
|
|
|
|
||
Total restructuring charges |
$ |
|
|
$ |
|
||
All expenses were recorded to general corporate expenses.
The following table presents a roll-forward of cash restructuring-related liabilities, which is included within accrued expenses in the Company’s consolidated balance sheets:
|
Employee termination benefit costs |
|
|
Other cash restructuring charges |
|
|
Total |
|
|||
Balance as of December 30, 2023 |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Charges |
|
|
|
|
|
|
|
|
|||
Payments |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance as of September 28, 2024 |
$ |
|
|
$ |
— |
|
|
$ |
|
||
As of September 28, 2024, the Company expects the remaining employee termination benefit liability to be paid in full by the end of fiscal 2027.
2023 Plan
As previously disclosed, in the fourth quarter of fiscal 2022, management reviewed the then-current global business operations of the Company as well as the different functions and systems supporting those operations and contrasted them with the Company's strategic priorities and requirements for fiscal 2023 and beyond. Based on that review, in December 2022, the Company's management resolved to centralize its global management of certain functions and systems, deprioritize and in some cases cease operations for certain non-strategic business lines, and continue the rationalization of its real estate portfolio to align with its future needs. Throughout December 2022 and January 2023, management developed and continued refining a detailed plan to achieve these goals.
22
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The Company committed to a restructuring plan consisting of (i) an organizational restructuring and rationalization of certain functions and systems to centralize the Company’s management, align resources with strategic business lines and reduce costs associated with certain functions and systems (the “Organizational Restructuring”) and (ii) the continued rationalization of its real estate portfolio and resulting operating lease termination charges and the associated employment termination costs (the “Real Estate Restructuring,” and together with the Organizational Restructuring, the “2023 Plan”). Refer to the tables below for the total restructuring charges under the 2023 Plan recorded for the three and nine months ended September 28, 2024 and for the fiscal years ended December 30, 2023 and December 31, 2022. The cumulative amount incurred as of September 28, 2024 related to the aggregate 2023 Plan is $
The Organizational Restructuring has resulted and will further result in the elimination of certain positions and the termination of employment for certain employees worldwide. Refer to the tables below for the employee termination benefit costs related to the Organizational Restructuring under the 2023 Plan recorded for the three and nine months ended September 28, 2024 and for the fiscal years ended December 30, 2023 and December 31, 2022. The cumulative amount incurred as of September 28, 2024 related to the aggregate employee termination benefit costs related to the Organizational Restructuring under the 2023 Plan is $
Refer to the tables below for the lease termination costs and employee termination benefit costs related to the Real Estate Restructuring under the 2023 Plan recorded for the three and nine months ended September 28, 2024 and for the fiscal years ended December 30, 2023 and December 31, 2022, as applicable. The cumulative amount incurred as of September 28, 2024 related to the aggregate lease termination costs and employee termination benefit costs related to the Real Estate Restructuring under the 2023 Plan is $
Refer to the tables below for the other cash restructuring charges and other non-cash restructuring charges under the 2023 Plan recorded for the three and nine months ended September 28, 2024 and for the fiscal year ended December 30, 2023. The cumulative amount incurred as of September 28, 2024 related to the aggregate other cash restructuring charges and total non-cash restructuring charges under the 2023 Plan is $
For the three and nine months ended September 28, 2024, the components of the Company’s restructuring charges for the 2023 Plan were as follows:
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
September 28, 2024 |
|
|
September 28, 2024 |
|
||
Cash restructuring charges: |
|
|
|
|
|
||
Real Estate Restructuring - Lease termination costs |
$ |
|
|
$ |
( |
) |
|
Real Estate Restructuring - Employee termination benefit costs |
|
|
|
|
|
||
Organizational Restructuring - Employee termination benefit costs |
|
( |
) |
|
|
|
|
Other cash restructuring charges |
|
— |
|
|
|
|
|
Total cash restructuring charges |
$ |
( |
) |
|
$ |
|
|
Non-cash restructuring charges |
|
— |
|
|
|
|
|
Total restructuring charges |
$ |
( |
) |
|
$ |
|
|
For the three and nine months ended September 28, 2024, restructuring charges for the 2023 Plan were recorded in the Company’s consolidated statements of operations as follows:
|
Three Months Ended |
|
|
Nine Months Ended |
|
||
|
September 28, 2024 |
|
|
September 28, 2024 |
|
||
Cost of revenues |
$ |
|
|
$ |
|
||
Selling, general and administrative expenses |
|
( |
) |
|
|
|
|
Total restructuring charges |
$ |
( |
) |
|
$ |
|
|
23
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
For the fiscal year ended December 30, 2023, the components of the Company’s restructuring charges for the 2023 Plan were as follows:
|
Fiscal Year Ended |
|
|
|
December 30, 2023 |
|
|
Cash restructuring charges: |
|
|
|
Real Estate Restructuring - Lease termination costs |
$ |
|
|
Real Estate Restructuring - Employee termination benefit costs |
|
|
|
Organizational Restructuring - Employee termination benefit costs |
|
|
|
Other cash restructuring charges |
|
|
|
Total cash restructuring charges |
$ |
|
|
Non-cash restructuring charges: |
|
|
|
Accelerated depreciation and amortization charges |
$ |
|
|
Other non-cash restructuring charges |
|
( |
) |
Total non-cash restructuring charges |
$ |
|
|
Total restructuring charges |
$ |
|
|
For the fiscal year ended December 30, 2023, restructuring charges for the 2023 Plan were recorded in the Company’s consolidated statements of operations as follows:
|
Fiscal Year Ended |
|
|
|
December 30, 2023 |
|
|
Cost of revenues |
$ |
|
|
Selling, general and administrative expenses |
|
|
|
Total restructuring charges |
$ |
|
|
For the fiscal year ended December 31, 2022, the components of the Company’s restructuring charges for the 2023 Plan were as follows:
|
Fiscal Year Ended |
|
|
|
December 31, 2022 |
|
|
Cash restructuring charges: |
|
|
|
Real Estate Restructuring - Employee termination benefit costs |
$ |
|
|
Organizational Restructuring - Employee termination benefit costs |
|
|
|
Total restructuring charges |
$ |
|
|
For the fiscal year ended December 31, 2022, restructuring charges for the 2023 Plan were recorded in the Company’s consolidated statements of operations as follows:
|
Fiscal Year Ended |
|
|
|
December 31, 2022 |
|
|
Cost of revenues |
$ |
|
|
Selling, general and administrative expenses |
|
|
|
Total restructuring charges |
$ |
|
|
All expenses were recorded to general corporate expenses.
24
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The following table presents a roll-forward of cash restructuring-related liabilities, which is included within accrued expenses in the Company’s consolidated balance sheets:
|
Real Estate Restructuring - |
|
|
Real Estate Restructuring - |
|
|
Organizational Restructuring - |
|
|
|
|
|
|
|
|||||
|
Lease termination costs |
|
|
Employee termination benefit costs |
|
|
Employee termination benefit costs |
|
|
Other cash restructuring charges |
|
|
Total |
|
|||||
Balance as of December 31, 2022 |
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Payments |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance as of December 30, 2023 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Charges |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Payments |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Change in estimate |
|
( |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Balance as of September 28, 2024 |
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
As of September 28, 2024, the Company expects the remaining employee termination benefit liability related to the Real Estate Restructuring and the remaining employee termination benefit liability related to the Organizational Restructuring to be paid in full by the end of fiscal 2026.
2022 Plan
As previously disclosed, in the second quarter of fiscal 2022, the Company committed to a restructuring plan consisting of (i) an organizational realignment to simplify the Company’s corporate structure and reduce associated costs (the “Organizational Realignment”) and (ii) a continued rationalization of its real estate portfolio resulting in the termination of certain of the Company’s operating leases (together with the Organizational Realignment, the “2022 Plan”). The Organizational Realignment has resulted in the elimination of certain positions and termination of employment for certain employees worldwide. Refer to the tables below for the total restructuring charges under the 2022 Plan recorded for the fiscal year ended December 31, 2022. The cumulative amount incurred as of September 28, 2024 related to the aggregate 2022 Plan is $
For the fiscal year ended December 31, 2022, the components of the Company’s restructuring charges for the 2022 Plan were as follows:
|
Fiscal Year Ended |
|
|
|
December 31, 2022 |
|
|
Cash restructuring charges: |
|
|
|
Lease termination costs |
$ |
|
|
Employee termination benefit costs |
|
|
|
Other cash restructuring charges |
|
|
|
Total cash restructuring charges |
$ |
|
|
Non-cash restructuring charges: |
|
|
|
Lease impairments |
$ |
|
|
Accelerated depreciation and amortization charges |
|
|
|
Other non-cash restructuring charges |
|
|
|
Total non-cash restructuring charges |
$ |
|
|
Total restructuring charges |
$ |
|
|
25
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
For the fiscal year ended December 31, 2022, restructuring charges for the 2022 Plan were recorded in the Company’s consolidated statements of operations as follows:
|
Fiscal Year Ended |
|
|
|
December 31, 2022 |
|
|
Cost of revenues |
$ |
|
|
Selling, general and administrative expenses |
|
|
|
Total restructuring charges |
$ |
|
|
All expenses were recorded to general corporate expenses.
The following table presents a roll-forward of cash restructuring-related liabilities, which is included within accrued expenses in the Company’s consolidated balance sheets:
|
Lease termination costs |
|
|
Employee termination benefit costs |
|
|
Other cash restructuring charges |
|
|
Total |
|
||||
Balance as of January 1, 2022 |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Charges |
|
|
|
|
|
|
|
|
|
|
|
||||
Payments |
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Balance as of December 31, 2022 |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Payments |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Change in estimate |
|
( |
) |
|
|
|
|
|
— |
|
|
|
|
||
Balance as of December 30, 2023 |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
Payments |
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Change in estimate |
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Balance as of September 28, 2024 |
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||
As of September 28, 2024, the Company expects the remaining employee termination benefit liability to be paid in full by the end of fiscal 2024.
26
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Quarterly Report on Form 10-Q includes “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including, in particular, the statements about our plans, strategies, objectives and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have generally used the words “may,” “will,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “aim” and similar expressions in this Quarterly Report on Form 10-Q to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. Actual results could differ materially from those projected in these forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things:
27
You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause our results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, we do not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events or otherwise.
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
WW International, Inc. is a Virginia corporation with its principal executive offices in New York, New York. In this Quarterly Report on Form 10-Q unless the context indicates otherwise, “we,” “us,” “our,” the “Company,” “Weight Watchers” and “WW” refer to WW International, Inc. and all of its operations consolidated for purposes of its financial statements. Effective the first day of fiscal 2024 (i.e., December 31, 2023), as a result of the continued evolution of our centralized organizational structure in fiscal 2023, and management’s 2024 strategic planning process, our reportable segments changed to one segment for the purpose of making operational and resource decisions and assessing financial performance. Our “Digital” business refers to providing subscriptions to our digital product offerings. Our “Workshops + Digital” business refers to providing subscriptions for unlimited access to our workshops combined with our digital subscription product offerings. Our “Clinical” business refers to providing subscriptions to our clinical product offerings provided by WeightWatchers Clinic (formerly referred to as Sequence) combined with our digital subscription product offerings.
Our fiscal year ends on the Saturday closest to December 31st and consists of either 52- or 53-week periods. In this Quarterly Report on Form 10-Q:
The following terms used in this Quarterly Report on Form 10-Q are our trademarks: Weekend HealthTM, Weight Watchers®, and the Weight Watchers logo.
You should read the following discussion in conjunction with our Annual Report on Form 10-K for fiscal 2023 that includes additional information about us, our results of operations, our financial position and our cash flows, and with our unaudited consolidated financial statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q (collectively referred to as the “Consolidated Financial Statements”).
29
NON-GAAP FINANCIAL MEASURES
To supplement our consolidated results presented in accordance with accounting principles generally accepted in the United States (“GAAP”), we have disclosed non-GAAP financial measures of operating results that exclude or adjust certain items. Gross profit, gross margin, operating (loss) income, operating (loss) income margin and components thereof are discussed in this Quarterly Report on Form 10-Q both as reported (on a GAAP basis) and as adjusted (on a non-GAAP basis), as applicable, with respect to (i) the third quarter of fiscal 2024 to exclude (x) the impact of impairment charges for our franchise rights acquired related to our United States and United Kingdom units of account, (y) the net impact of (a) charges associated with our previously disclosed 2024 restructuring plan (the “2024 plan”), (b) charges associated with our previously disclosed 2023 restructuring plan (the “2023 plan”) or the reversal of certain of the charges associated with the 2023 plan, as applicable and (c) the reversal of certain of the charges associated with our previously disclosed 2022 restructuring plan (the “2022 plan”), and (z) the impact of certain non-recurring expenses in connection with the separation from the Company of our former Chief Executive Officer (“CEO”); (ii) the first nine months of fiscal 2024 to exclude (x) the impact of impairment charges for our franchise rights acquired related to our United States, Australia, United Kingdom and New Zealand units of account, (y) the net impact of charges associated with the 2024 plan, the 2023 plan and the 2022 plan, and (z) the impact of certain non-recurring expenses in connection with the separation from the Company of our former CEO; (iii) the third quarter of fiscal 2023 to exclude the net impact of charges associated with the 2023 plan and the reversal of certain of the charges associated with the 2022 plan; and (iv) the first nine months of fiscal 2023 to exclude (x) the net impact of (a) charges associated with the 2023 plan, (b) charges associated with the 2022 plan or the reversal of certain of the charges associated with the 2022 plan, as applicable, (c) charges associated with our previously disclosed 2021 organizational restructuring plan (the “2021 plan”) or the reversal of certain of the charges associated with the 2021 plan, as applicable, and (d) the reversal of certain of the charges associated with our previously disclosed 2020 organizational restructuring plan (the “2020 plan”), and (y) the impact of certain non-recurring transaction costs in connection with the acquisition of Sequence. We generally refer to such non-GAAP measures as excluding or adjusting for the impact of franchise rights acquired impairments, the net impact of restructuring charges, the impact of acquisition transaction costs, and the impact of former CEO separation expenses, as applicable. We also present within this Quarterly Report on Form 10-Q the non-GAAP financial measures: earnings before interest, taxes, depreciation, amortization and stock-based compensation (“EBITDAS”); earnings before interest, taxes, depreciation, amortization, stock-based compensation, franchise rights acquired and goodwill impairments, net restructuring charges, acquisition transaction costs, and former CEO separation expenses (“Adjusted EBITDAS”); total debt less unamortized deferred financing costs, unamortized debt discount and cash on hand (i.e., net debt); and a net debt/Adjusted EBITDAS ratio. See “—Liquidity and Capital Resources—EBITDAS, Adjusted EBITDAS and Net Debt” for the reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measure in each case. Our management believes these non-GAAP financial measures provide useful supplemental information to investors regarding the performance of our business and are useful for period-over-period comparisons of the performance of our business. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly titled measures reported by other companies.
USE OF CONSTANT CURRENCY
As exchange rates are an important factor in understanding period-to-period comparisons, we believe in certain cases the presentation of results on a constant currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this Quarterly Report on Form 10-Q, we calculate constant currency by calculating current-year results using prior-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant currency basis as excluding or adjusting for the impact of foreign currency or being on a constant currency basis. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP and are not meant to be considered in isolation. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP.
CRITICAL ACCOUNTING ESTIMATES
Franchise Rights Acquired
Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally less than one year. Indefinite-lived franchise rights acquired are tested for potential impairment on at least an annual basis or more often if events so require.
30
In performing the impairment analysis for indefinite-lived franchise rights acquired, the fair value for franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for franchise rights related to our Workshops + Digital business and a relief from royalty methodology for franchise rights related to our Digital business. The aggregate estimated fair value for these franchise rights is then compared to the carrying value of the unit of account for these rights. We have determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in both the Workshops + Digital business and the Digital business in the country in which the applicable acquisition occurred. The net book value of franchise rights acquired for the United States unit of account as of the September 28, 2024 balance sheet date was $68.6 million.
In our hypothetical start-up approach analysis for fiscal 2024, we assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, we estimated future cash flows for the Workshops + Digital business in each country based on assumptions regarding revenue growth and operating income margins. In our relief from royalty approach analysis for fiscal 2024, the cash flows associated with the Digital business in each country were based on the expected Digital revenue for such country and the application of a royalty rate based on current market terms. The cash flows for the Workshops + Digital and the Digital businesses were discounted utilizing rates which were calculated using the weighted average cost of capital, which included the cost of equity and the cost of debt.
Goodwill
In performing the impairment analysis for goodwill, the fair value for our reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting unit. We have determined the appropriate reporting units for purposes of assessing goodwill impairment to be the Behavioral and Clinical business lines. Our “Behavioral” business line consists of our Workshops + Digital business and Digital business. The net book values of goodwill for the Behavioral and Clinical reporting units as of the September 28, 2024 balance sheet date were $153.0 million and $89.7 million, respectively.
In performing the impairment analysis for goodwill, for all of our reporting units, we estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operations less capital expenditures) attributable to each of the Behavioral and Clinical reporting units and then applied expected future operating income growth rates for the respective reporting unit. We utilized operating income as the basis for measuring our potential growth because we believe it is the best indicator of the performance of our business. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the weighted average cost of capital, which included the cost of equity and the cost of debt.
Indefinite-Lived Franchise Rights Acquired and Goodwill Impairment Tests
We review indefinite-lived franchise rights acquired and goodwill for potential impairment on at least an annual basis or more often if events so require. We performed our annual fair value impairment testing as of May 5, 2024 and May 7, 2023, each the first day of fiscal May, on our indefinite-lived franchise rights acquired and goodwill. In addition, based on triggering events, we performed interim impairment tests as of March 30, 2024 and September 28, 2024 on our indefinite-lived franchise rights acquired and goodwill for the first and third quarters of fiscal 2024, respectively.
When determining fair value, we utilize various assumptions, including projections of future cash flows, revenue growth rates, operating income margins and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying values and result in an impairment of those assets. In the event such a result occurred, we would be required to record a corresponding charge, which would impact earnings. We would also be required to reduce the carrying values of the related assets on our balance sheet. We continue to evaluate these assumptions and believe that these assumptions are appropriate.
In performing our impairment analyses, we also considered the trading value of both our equity and debt. If the trading values of both our equity and debt were to significantly decline from their levels at the time of testing, we may have to take an impairment charge at the appropriate time, which could be material. For additional information on risks associated with our recognizing asset impairment charges, see the risk factor titled “We have in the past and may in the future be required to recognize asset impairment charges for indefinite- and definite-lived assets” found in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for fiscal 2023.
Further information regarding the results of our franchise rights acquired and goodwill annual impairment tests and our franchise rights acquired and goodwill interim impairment tests for the first and third quarters of fiscal 2024 can be found in Note 6 “Franchise Rights Acquired, Goodwill and Other Intangible Assets” in the notes to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
31
Critical Accounting Policies
Information concerning our critical accounting policies is set forth in “Note 2. Summary of Significant Accounting Policies” of our audited consolidated financial statements contained in our Annual Report on Form 10-K for fiscal 2023. Our critical accounting policies have not changed since the end of fiscal 2023.
PERFORMANCE INDICATORS
Our management team regularly reviews and analyzes a number of financial and operating metrics, including the key performance indicators listed below, in order to manage our business, measure our performance, identify trends affecting our business, determine the allocation of resources, make decisions regarding corporate strategies and assess the quality and potential variability of our cash flows and earnings. We also believe that these key performance indicators are useful to both management and investors for forecasting purposes and to facilitate comparisons to our historical operating results. These metrics are supplemental to our GAAP results and include operational measures.
32
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 28, 2024 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2023
The table below sets forth selected financial information for the third quarter of fiscal 2024 from our consolidated statements of operations for the three months ended September 28, 2024 versus selected financial information for the third quarter of fiscal 2023 from our consolidated statements of operations for the three months ended September 30, 2023.
Summary of Selected Financial Data
|
|
(In millions, except per share amounts) |
|
|
|
|
|
|
|
|
|||||||||||
|
|
For The Three Months Ended |
|
|
|
|
|
|
|
|
|||||||||||
|
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
Increase/ |
|
|
% |
|
|
% Change |
|
|
|||||
Revenues, net |
|
$ |
192.9 |
|
|
$ |
214.9 |
|
|
$ |
(22.0 |
) |
|
|
(10.2 |
%) |
|
|
(10.6 |
%) |
|
Cost of revenues |
|
|
63.4 |
|
|
|
73.1 |
|
|
|
(9.7 |
) |
|
|
(13.3 |
%) |
|
|
(13.5 |
%) |
|
Gross profit |
|
|
129.5 |
|
|
|
141.8 |
|
|
|
(12.3 |
) |
|
|
(8.6 |
%) |
|
|
(9.1 |
%) |
|
Gross Margin % |
|
|
67.1 |
% |
|
|
66.0 |
% |
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Marketing expenses |
|
|
44.4 |
|
|
|
48.1 |
|
|
|
(3.7 |
) |
|
|
(7.7 |
%) |
|
|
(7.5 |
%) |
|
Selling, general & administrative expenses |
|
|
67.1 |
|
|
|
63.0 |
|
|
|
4.1 |
|
|
|
6.4 |
% |
|
|
6.3 |
% |
|
Franchise rights acquired impairments |
|
|
57.0 |
|
|
|
— |
|
|
|
57.0 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Operating (loss) income |
|
|
(39.0 |
) |
|
|
30.6 |
|
|
|
69.7 |
|
|
|
100.0 |
% |
* |
|
100.0 |
% |
* |
Operating (Loss) Income Margin % |
|
|
(20.2 |
%) |
|
|
14.2 |
% |
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense |
|
|
28.6 |
|
|
|
24.5 |
|
|
|
4.1 |
|
|
|
16.8 |
% |
|
|
16.8 |
% |
|
Other expense, net |
|
|
5.9 |
|
|
|
0.8 |
|
|
|
5.1 |
|
|
|
100.0 |
% |
* |
|
100.0 |
% |
* |
(Loss) income before income taxes |
|
|
(73.5 |
) |
|
|
5.3 |
|
|
|
78.8 |
|
|
|
100.0 |
% |
* |
|
100.0 |
% |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Benefit from income taxes |
|
|
(27.3 |
) |
|
|
(38.4 |
) |
|
|
(11.1 |
) |
|
|
(28.9 |
%) |
|
|
(28.6 |
%) |
|
Net (loss) income |
|
$ |
(46.2 |
) |
|
$ |
43.7 |
|
|
$ |
89.9 |
|
|
|
100.0 |
% |
* |
|
100.0 |
% |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Weighted average diluted shares outstanding |
|
|
79.7 |
|
|
|
80.6 |
|
|
|
(0.9 |
) |
|
|
(1.1 |
%) |
|
|
(1.1 |
%) |
|
Diluted (net loss) earnings per share |
|
$ |
(0.58 |
) |
|
$ |
0.54 |
|
|
$ |
1.12 |
|
|
|
100.0 |
% |
* |
|
100.0 |
% |
* |
Note: Totals may not sum due to rounding.
* Note: Percentage in excess of 100.0% and not meaningful.
33
Certain results for the third quarter of fiscal 2024 are adjusted to exclude the impact of franchise rights acquired impairments, the net impact of restructuring charges and the impact of former CEO separation expenses. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended September 28, 2024 which have been adjusted.
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
||||
|
|
|
|
|
|
|
|
Operating |
|
|
(Loss) |
|
||||
|
|
Gross |
|
|
Gross |
|
|
(Loss) |
|
|
Income |
|
||||
(in millions except percentages) |
|
Profit |
|
|
Margin |
|
|
Income |
|
|
Margin |
|
||||
Third Quarter of Fiscal 2024 |
|
$ |
129.5 |
|
|
|
67.1 |
% |
|
$ |
(39.0 |
) |
|
|
(20.2 |
%) |
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Franchise rights acquired impairments |
|
|
— |
|
|
|
|
|
|
57.0 |
|
|
|
|
||
2024 plan restructuring charges |
|
|
2.4 |
|
|
|
|
|
|
14.8 |
|
|
|
|
||
2023 plan restructuring charges |
|
|
1.4 |
|
|
|
|
|
|
(0.7 |
) |
|
|
|
||
2022 plan restructuring charges |
|
|
— |
|
|
|
|
|
|
(0.3 |
) |
|
|
|
||
Former CEO separation expenses |
|
|
— |
|
|
|
|
|
|
3.9 |
|
|
|
|
||
Total adjustments (1) |
|
|
3.8 |
|
|
|
|
|
|
74.7 |
|
|
|
|
||
Third Quarter of Fiscal 2024, as adjusted (1) |
|
$ |
133.3 |
|
|
|
69.1 |
% |
|
$ |
35.7 |
|
|
|
18.5 |
% |
Note: Totals may not sum due to rounding.
Certain results for the third quarter of fiscal 2023 are adjusted to exclude the net impact of restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended September 30, 2023 which have been adjusted.
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
||||
|
|
Gross |
|
|
Gross |
|
|
Operating |
|
|
Income |
|
||||
(in millions except percentages) |
|
Profit |
|
|
Margin |
|
|
Income |
|
|
Margin |
|
||||
Third Quarter of Fiscal 2023 |
|
$ |
141.8 |
|
|
|
66.0 |
% |
|
$ |
30.6 |
|
|
|
14.2 |
% |
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
2023 plan restructuring charges |
|
|
0.4 |
|
|
|
|
|
|
6.2 |
|
|
|
|
||
2022 plan restructuring charges |
|
|
(0.0 |
) |
|
|
|
|
|
(0.2 |
) |
|
|
|
||
Total adjustments (1) |
|
|
0.4 |
|
|
|
|
|
|
6.0 |
|
|
|
|
||
Third Quarter of Fiscal 2023, as adjusted (1) |
|
$ |
142.2 |
|
|
|
66.2 |
% |
|
$ |
36.6 |
|
|
|
17.0 |
% |
Note: Totals may not sum due to rounding.
Consolidated Results
Revenues
Revenues for the third quarter of fiscal 2024 were $192.9 million, a decrease of $22.0 million, or 10.2%, versus the third quarter of fiscal 2023. Excluding the impact of foreign currency, which positively impacted our revenues in the third quarter of fiscal 2024 by $0.7 million, revenues for the third quarter of fiscal 2024 would have decreased 10.6% versus the prior year period. This decrease was driven by both the decline in Subscription Revenues and the decline in Other Revenues. The decline in Subscription Revenues was primarily due to recruitment declines during the third quarter of fiscal 2024 versus the prior year period and the lower number of non-Clinical Incoming Subscribers at the beginning of the third quarter of fiscal 2024 versus the beginning of the third quarter of fiscal 2023. Additionally, Subscription Revenues were negatively impacted by the continued mix shift from our Workshops + Digital business to our Digital business and a higher mix of Digital subscribers within their initial, lower-priced commitment periods. Subscription Revenues benefited from an increase in Clinical Subscription Revenues for the third quarter of fiscal 2024 versus the prior year period. The decline in Other Revenues was primarily due to the discontinuation of our consumer products business at the end of fiscal 2023. See “—Operating Results” for additional details on revenues.
34
Cost of Revenues
Cost of revenues for the third quarter of fiscal 2024 decreased $9.7 million, or 13.3%, versus the third quarter of fiscal 2023. Excluding the impact of foreign currency, which increased cost of revenues in the third quarter of fiscal 2024 by $0.1 million, cost of revenues for the third quarter of fiscal 2024 would have decreased 13.5% versus the prior year period. Excluding the net impact of the $3.8 million of restructuring charges in the third quarter of fiscal 2024 and the net impact of the $0.4 million of restructuring charges in the third quarter of fiscal 2023, cost of revenues for the third quarter of fiscal 2024 would have decreased by 18.1%, or 18.2% on a constant currency basis, versus the prior year period.
Gross Profit
Gross profit for the third quarter of fiscal 2024 decreased $12.3 million, or 8.6%, versus the third quarter of fiscal 2023. Excluding the impact of foreign currency, which positively impacted gross profit in the third quarter of fiscal 2024 by $0.6 million, gross profit for the third quarter of fiscal 2024 would have decreased 9.1% versus the prior year period. Excluding the net impact of the $3.8 million of restructuring charges in the third quarter of fiscal 2024 and the net impact of the $0.4 million of restructuring charges in the third quarter of fiscal 2023, gross profit for the third quarter of fiscal 2024 would have decreased by 6.2%, or 6.6% on a constant currency basis, versus the prior year period. Gross margin for the third quarter of fiscal 2024 increased to 67.1%, both as reported and on a constant currency basis, versus 66.0% for the third quarter of fiscal 2023. Excluding the net impact of restructuring charges in the third quarter of fiscal 2024 and the net impact of restructuring charges in the third quarter of fiscal 2023, gross margin for the third quarter of fiscal 2024 would have increased to 69.1%, both as adjusted and as adjusted on a constant currency basis, versus the prior year period. This gross margin increase was driven primarily by actions to reduce the fixed cost base within our business and the discontinuation of our lower margin consumer products business at the end of fiscal 2023.
Marketing
Marketing expenses for the third quarter of fiscal 2024 decreased $3.7 million, or 7.7%, versus the third quarter of fiscal 2023. Excluding the impact of foreign currency, which decreased marketing expenses in the third quarter of fiscal 2024 by $0.1 million, marketing expenses for the third quarter of fiscal 2024 would have decreased 7.5% versus the prior year period. This decrease in marketing expenses was primarily due to the strategic decision to reduce investment in the quarter given the rise in customer acquisition costs. Marketing expenses as a percentage of revenue for the third quarter of fiscal 2024 increased to 23.0% from 22.4% for the third quarter of fiscal 2023.
Selling, General and Administrative
Selling, general and administrative expenses for the third quarter of fiscal 2024 increased $4.1 million, or 6.4%, versus the third quarter of fiscal 2023. Excluding the impact of foreign currency, which increased selling, general and administrative expenses in the third quarter of fiscal 2024 by $0.1 million, selling, general and administrative expenses for the third quarter of fiscal 2024 would have increased 6.3% versus the prior year period. Excluding the net impact of the $10.0 million of restructuring charges in the third quarter of fiscal 2024, the impact of the $3.9 million of former CEO separation expenses in the third quarter of fiscal 2024 and the net impact of the $5.6 million of restructuring charges in the third quarter of fiscal 2023, selling, general and administrative expenses for the third quarter of fiscal 2024 would have decreased by 7.3%, or 7.4% on a constant currency basis, versus the prior year period. This decrease in selling, general and administrative expenses was primarily due to a decline in employee compensation and related costs. Selling, general and administrative expenses as a percentage of revenue for the third quarter of fiscal 2024 increased to 34.8% from 29.3% for the third quarter of fiscal 2023. Excluding the net impact of restructuring charges in the third quarter of fiscal 2024, the impact of former CEO separation expenses in the third quarter of fiscal 2024 and the net impact of restructuring charges in the third quarter of fiscal 2023, selling, general and administrative expenses as a percentage of revenue for the third quarter of fiscal 2024 would have increased by 0.9%, both as adjusted and as adjusted on a constant currency basis, versus the prior year period.
Impairments
In performing our interim impairment analysis as of September 28, 2024, we determined that the carrying values of our United States and United Kingdom franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our United States and United Kingdom units of account of $54.3 million and $2.8 million, respectively, in the third quarter of fiscal 2024.
35
Operating (Loss) Income
Operating loss for the third quarter of fiscal 2024 was $39.0 million compared to operating income for the third quarter of fiscal 2023 of $30.6 million. Operating loss for the third quarter of fiscal 2024 was positively impacted by $0.5 million of foreign currency. Excluding the impact of the $57.0 million of franchise rights acquired impairments in the third quarter of fiscal 2024, the net impact of the $13.8 million of restructuring charges in the third quarter of fiscal 2024, the impact of the $3.9 million of former CEO separation expenses in the third quarter of fiscal 2024 and the net impact of the $6.0 million of restructuring charges in the third quarter of fiscal 2023, operating income would have been $35.7 million for the third quarter of fiscal 2024 versus operating income of $36.6 million for the third quarter of fiscal 2023, a decrease of 2.5%, or 4.2% on a constant currency basis. Operating loss margin for the third quarter of fiscal 2024 was 20.2% compared to operating income margin for the third quarter of fiscal 2023 of 14.2%. Excluding the impact of franchise rights acquired impairments in the third quarter of fiscal 2024, the net impact of restructuring charges in the third quarter of fiscal 2024, the impact of former CEO separation expenses in the third quarter of fiscal 2024 and the net impact of restructuring charges in the third quarter of fiscal 2023, operating income margin would have been 18.5%, or 18.2% on a constant currency basis, for the third quarter of fiscal 2024 versus operating income margin of 17.0% for the third quarter of fiscal 2023. This increase in operating income margin was driven primarily by an increase in gross margin, partially offset by an increase in selling, general and administrative expenses as a percentage of revenue and an increase in marketing expenses as a percentage of revenue, versus the prior year period.
Interest Expense
Interest expense for the third quarter of fiscal 2024 increased $4.1 million, or 16.8%, versus the third quarter of fiscal 2023. The increase in interest expense was driven primarily by an increase in the base rate of our Term Loan Facility (as defined below). The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the third quarter of fiscal 2024 and the third quarter of fiscal 2023 and excluding the impact of any applicable interest rate swaps, increased to 7.75% per annum for the third quarter of fiscal 2024 from 7.73% per annum for the third quarter of fiscal 2023. Interest expense was impacted by the termination of our interest rate swaps on March 31, 2024. Including the impact of any applicable interest rate swaps, the effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the third quarter of fiscal 2024 and the third quarter of fiscal 2023, increased to 7.75% per annum for the third quarter of fiscal 2024 from 6.75% per annum for the third quarter of fiscal 2023. See “—Liquidity and Capital Resources—Long-Term Debt” for additional details regarding our debt, including interest rates and payments thereon. Further information regarding our use of interest rate swaps can be found in Note 11 “Derivative Instruments and Hedging” in the notes to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Other Expense, Net
Other expense, net, which consists primarily of the negative impact of foreign currency on intercompany transactions, increased by $5.1 million for the third quarter of fiscal 2024 to $5.9 million of expense as compared to $0.8 million of expense for the third quarter of fiscal 2023.
Tax
Our effective tax rate for the third quarter of fiscal 2024 was 37.2% compared to (727.7%) for the third quarter of fiscal 2023. The effective tax rate for interim periods is determined using an annual effective tax rate, adjusted for discrete items. The forecasted full-year fiscal 2024 tax expense, which included an increase in valuation allowance against U.S. deferred tax assets, in relation to our forecasted full-year pretax loss (albeit minimal), drove the unusually high negative annual effective tax rate. Applying this negative annual effective tax rate to pretax loss for the third quarter of fiscal 2024 resulted in an income tax benefit. The adoption of the Organization for Economic Cooperation and Development’s global tax reform initiative, which introduces a global minimum tax of 15% applicable to large multinational corporations, did not have an impact on our effective tax rate for the third quarter of fiscal 2024.
For the third quarter of fiscal 2023, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to the valuation allowance noted above. In addition, the effective tax rate was impacted by tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to foreign-derived intangible income (“FDII”).
Net (Loss) Income and Diluted (Net Loss) Earnings Per Share
Net loss for the third quarter of fiscal 2024 was $46.2 million compared to net income for the third quarter of fiscal 2023 of $43.7 million. Net loss for the third quarter of fiscal 2024 was positively impacted by $0.3 million of foreign currency. Net loss for the third quarter of fiscal 2024 included a $51.8 million impact from franchise rights acquired impairments, a $10.4 million net impact from restructuring charges and a $2.9 million impact from former CEO separation expenses. Net income for the third quarter of fiscal 2023 included a $4.5 million net impact from restructuring charges.
36
Diluted net loss per share for the third quarter of fiscal 2024 was $0.58 compared to earnings per fully diluted share (“EPS”) for the third quarter of fiscal 2023 of $0.54. Diluted net loss per share for the third quarter of fiscal 2024 included a $0.65 impact from franchise rights acquired impairments, a $0.13 net impact from restructuring charges and a $0.04 impact from former CEO separation expenses. EPS for the third quarter of fiscal 2023 included a $0.06 net impact from restructuring charges.
Operating Results
As previously disclosed, effective the first day of fiscal 2024 (i.e., December 31, 2023), as a result of the continued evolution of our centralized organizational structure in fiscal 2023, and management’s 2024 strategic planning process, our reportable segments changed to one segment for the purpose of making operational and resource decisions and assessing financial performance.
Metrics and Business Trends
The following tables set forth key metrics for the third quarter of fiscal 2024 and the percentage change in those metrics versus the prior year period:
(in millions except percentages and as noted)
Q3 2024 |
|
|||||||||||||||||||||||||||||||||
GAAP |
|
|
Constant Currency |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Subscription |
|
|
Other |
|
|
Total |
|
|
Subscription |
|
|
Other |
|
|
Total |
|
|
Total |
|
|
Incoming |
|
|
EOP |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
||||||||||||
$ |
191.2 |
|
|
$ |
1.6 |
|
|
$ |
192.9 |
|
|
$ |
190.6 |
|
|
$ |
1.6 |
|
|
$ |
192.2 |
|
|
|
48.6 |
|
|
|
3,836.5 |
|
|
|
3,666.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
% Change Q3 2024 vs. Q3 2023 |
|
|||||||||||||||||||||||||||||||||
|
(6.0 |
%) |
|
|
(85.6 |
%) |
|
|
(10.2 |
%) |
|
|
(6.4 |
%) |
|
|
(85.7 |
%) |
|
|
(10.6 |
%) |
|
|
(7.4 |
%) |
|
|
(6.1 |
%) |
|
|
(8.8 |
%) |
(in millions except percentages and as noted)
Q3 2024 |
|
|||||||||||||||||||||||||||||||||||||
Digital Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
|
Workshops + Digital Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
GAAP |
|
|
Constant |
|
|
Digital |
|
|
Incoming |
|
|
EOP |
|
|
GAAP |
|
|
Constant |
|
|
Workshops |
|
|
Incoming |
|
|
EOP |
|
||||||||||
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
||||||||||||||||
$ |
127.2 |
|
|
$ |
126.6 |
|
|
|
40.4 |
|
|
|
3,189.6 |
|
|
|
3,042.9 |
|
|
$ |
45.0 |
|
|
$ |
44.9 |
|
|
|
7.2 |
|
|
|
566.0 |
|
|
|
546.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
% Change Q3 2024 vs. Q3 2023 |
|
|||||||||||||||||||||||||||||||||||||
|
(9.7 |
%) |
|
|
(10.1 |
%) |
|
|
(5.6 |
%) |
|
|
(4.2 |
%) |
|
|
(7.3 |
%) |
|
|
(14.4 |
%) |
|
|
(14.7 |
%) |
|
|
(21.2 |
%) |
|
|
(21.4 |
%) |
|
|
(21.2 |
%) |
(in millions except percentages and as noted)
Q3 2024 |
|
|
|||||||||||||
Clinical Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP |
|
|
Clinical |
|
|
Incoming |
|
|
EOP |
|
|
||||
|
|
|
|
|
|
(in thousands) |
|
|
|||||||
$ |
19.1 |
|
|
|
1.0 |
|
|
|
81.0 |
|
|
|
77.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
% Change Q3 2024 vs. Q3 2023 |
|
|
|||||||||||||
|
90.7 |
% |
|
|
91.3 |
% |
|
100.0% |
|
* |
|
71.5 |
% |
|
|
* Note: Percentage in excess of 100.0% and not meaningful.
37
Operating Performance
The decrease in revenues for the third quarter of fiscal 2024 versus the prior year period was driven by both a decrease in Subscription Revenues and a decrease in Other Revenues. The decrease in Subscription Revenues for the third quarter of fiscal 2024 versus the prior year period was driven by a decrease in Digital Subscription Revenues and, to a lesser extent, a decrease in Workshops + Digital Subscription Revenues primarily due to recruitment declines during the third quarter of fiscal 2024 as compared to the prior year period and the lower number of Incoming Digital Subscribers and Incoming Workshops + Digital Subscribers at the beginning of the third quarter of fiscal 2024 versus the beginning of the third quarter of fiscal 2023. In addition, the continued mix shift from our Workshops + Digital business to our Digital business and a higher mix of Digital subscribers within their initial, lower-priced commitment periods contributed to the decrease in Digital and Workshops + Digital Subscription Revenues in the quarter. Subscription Revenues benefited from an increase in Clinical Subscription Revenues for the third quarter of fiscal 2024 versus the prior year period, despite the recruitment challenges in the third quarter of fiscal 2024 arising from the increasingly competitive environment.
The decrease in Other Revenues for the third quarter of fiscal 2024 versus the prior year period was driven primarily by the discontinuation of our consumer products business at the end of fiscal 2023.
The decrease in Total Paid Weeks for the third quarter of fiscal 2024 versus the prior year period was driven primarily by recruitment declines during the third quarter of fiscal 2024 as compared to the prior year period and the lower number of Incoming Subscribers at the beginning of the third quarter of fiscal 2024 versus the beginning of the third quarter of fiscal 2023.
38
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 28, 2024 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2023
The table below sets forth selected financial information for the first nine months of fiscal 2024 from our consolidated statements of operations for the nine months ended September 28, 2024 versus selected financial information for the first nine months of fiscal 2023 from our consolidated statements of operations for the nine months ended September 30, 2023.
Summary of Selected Financial Data
|
|
(In millions, except per share amounts) |
|
|
|
|
|
|
|
|
|||||||||||
|
|
For The Nine Months Ended |
|
|
|
|
|
|
|||||||||||||
|
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
Increase/ |
|
|
% |
|
|
% Change |
|
|
|||||
Revenues, net |
|
$ |
601.5 |
|
|
$ |
683.6 |
|
|
$ |
(82.1 |
) |
|
|
(12.0 |
%) |
|
|
(12.1 |
%) |
|
Cost of revenues |
|
|
196.9 |
|
|
|
279.1 |
|
|
|
(82.2 |
) |
|
|
(29.5 |
%) |
|
|
(29.5 |
%) |
|
Gross profit |
|
|
404.6 |
|
|
|
404.4 |
|
|
|
0.1 |
|
|
|
0.0 |
% |
|
|
(0.1 |
%) |
|
Gross Margin % |
|
|
67.3 |
% |
|
|
59.2 |
% |
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Marketing expenses |
|
|
188.3 |
|
|
|
187.5 |
|
|
|
0.8 |
|
|
|
0.4 |
% |
|
|
0.4 |
% |
|
Selling, general & administrative expenses |
|
|
173.7 |
|
|
|
188.6 |
|
|
|
(14.9 |
) |
|
|
(7.9 |
%) |
|
|
(8.0 |
%) |
|
Franchise rights acquired impairments |
|
|
315.0 |
|
|
|
— |
|
|
|
315.0 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Operating (loss) income |
|
|
(272.4 |
) |
|
|
28.3 |
|
|
|
300.8 |
|
|
|
100.0 |
% |
* |
|
100.0 |
% |
* |
Operating (Loss) Income Margin % |
|
|
(45.3 |
%) |
|
|
4.1 |
% |
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest expense |
|
|
81.9 |
|
|
|
71.4 |
|
|
|
10.5 |
|
|
|
14.7 |
% |
|
|
14.7 |
% |
|
Other expense (income), net |
|
|
4.2 |
|
|
|
(0.0 |
) |
|
|
4.2 |
|
|
|
100.0 |
% |
* |
|
100.0 |
% |
* |
Loss before income taxes |
|
|
(358.6 |
) |
|
|
(43.1 |
) |
|
|
315.5 |
|
|
|
100.0 |
% |
* |
|
100.0 |
% |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Provision for (benefit from) income taxes |
|
|
12.3 |
|
|
|
(18.9 |
) |
|
|
31.2 |
|
|
|
100.0 |
% |
* |
|
100.0 |
% |
* |
Net loss |
|
$ |
(370.8 |
) |
|
$ |
(24.1 |
) |
|
$ |
346.7 |
|
|
|
100.0 |
% |
* |
|
100.0 |
% |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Weighted average diluted shares outstanding |
|
|
79.5 |
|
|
|
75.9 |
|
|
|
3.6 |
|
|
|
4.8 |
% |
|
|
4.8 |
% |
|
Diluted net loss per share |
|
$ |
(4.67 |
) |
|
$ |
(0.32 |
) |
|
$ |
4.35 |
|
|
|
100.0 |
% |
* |
|
100.0 |
% |
* |
Note: Totals may not sum due to rounding.
* Note: Percentage in excess of 100.0% and not meaningful.
39
Certain results for the first nine months of fiscal 2024 are adjusted to exclude the impact of franchise rights acquired impairments, the net impact of restructuring charges and the impact of former CEO separation expenses. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the nine months ended September 28, 2024 which have been adjusted.
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
||||
|
|
|
|
|
|
|
|
Operating |
|
|
(Loss) |
|
||||
|
|
Gross |
|
|
Gross |
|
|
(Loss) |
|
|
Income |
|
||||
(in millions except percentages) |
|
Profit |
|
|
Margin |
|
|
Income |
|
|
Margin |
|
||||
First Nine Months of Fiscal 2024 |
|
$ |
404.6 |
|
|
|
67.3 |
% |
|
$ |
(272.4 |
) |
|
|
(45.3 |
%) |
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Franchise rights acquired impairments |
|
|
— |
|
|
|
|
|
|
315.0 |
|
|
|
|
||
2024 plan restructuring charges |
|
|
2.4 |
|
|
|
|
|
|
14.8 |
|
|
|
|
||
2023 plan restructuring charges |
|
|
3.7 |
|
|
|
|
|
|
6.7 |
|
|
|
|
||
2022 plan restructuring charges |
|
|
0.0 |
|
|
|
|
|
|
0.1 |
|
|
|
|
||
Former CEO separation expenses |
|
|
— |
|
|
|
|
|
|
3.9 |
|
|
|
|
||
Total adjustments (1) |
|
|
6.2 |
|
|
|
|
|
|
340.4 |
|
|
|
|
||
First Nine Months of Fiscal 2024, as adjusted (1) |
|
$ |
410.8 |
|
|
|
68.3 |
% |
|
$ |
68.0 |
|
|
|
11.3 |
% |
Note: Totals may not sum due to rounding.
Certain results for the first nine months of fiscal 2023 are adjusted to exclude the net impact of restructuring charges and the impact of acquisition transaction costs. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the nine months ended September 30, 2023 which have been adjusted.
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
||||
|
|
Gross |
|
|
Gross |
|
|
Operating |
|
|
Income |
|
||||
(in millions except percentages) |
|
Profit |
|
|
Margin |
|
|
Income |
|
|
Margin |
|
||||
First Nine Months of Fiscal 2023 |
|
$ |
404.4 |
|
|
|
59.2 |
% |
|
$ |
28.3 |
|
|
|
4.1 |
% |
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
2023 plan restructuring charges |
|
|
19.9 |
|
|
|
|
|
|
30.6 |
|
|
|
|
||
2022 plan restructuring charges |
|
|
(0.3 |
) |
|
|
|
|
|
0.6 |
|
|
|
|
||
2021 plan restructuring charges |
|
|
0.1 |
|
|
|
|
|
|
0.1 |
|
|
|
|
||
2020 plan restructuring charges |
|
|
(0.0 |
) |
|
|
|
|
|
(0.0 |
) |
|
|
|
||
Acquisition transaction costs |
|
|
— |
|
|
|
|
|
|
8.6 |
|
|
|
|
||
Total adjustments (1) |
|
|
19.7 |
|
|
|
|
|
|
39.9 |
|
|
|
|
||
First Nine Months of Fiscal 2023, as adjusted (1) |
|
$ |
424.1 |
|
|
|
62.0 |
% |
|
$ |
68.2 |
|
|
|
10.0 |
% |
Note: Totals may not sum due to rounding.
40
Consolidated Results
Revenues
Revenues for the first nine months of fiscal 2024 were $601.5 million, a decrease of $82.1 million, or 12.0%, versus the first nine months of fiscal 2023. Excluding the impact of foreign currency, which positively impacted our revenues in the first nine months of fiscal 2024 by $0.8 million, revenues for the first nine months of fiscal 2024 would have decreased 12.1% versus the prior year period. This decrease was driven primarily by the decline in Other Revenues from the discontinuation of our consumer products business at the end of fiscal 2023. Lower Subscription Revenues, primarily due to a higher mix of Digital subscribers within their initial, lower-priced commitment periods and non-Clinical recruitment declines during the first nine months of fiscal 2024 versus the prior year period, also contributed to the decrease in revenues in the period. Additionally, Subscription Revenues were negatively impacted by the continued mix shift from our Workshops + Digital business to our Digital business. Subscription Revenues included $57.5 million of Clinical Subscription Revenues for the first nine months of fiscal 2024 versus $17.6 million of Clinical Subscription Revenues for the first nine months of fiscal 2023 as a result of our acquisition of Sequence closing during the second quarter of fiscal 2023. See “—Operating Results” for additional details on revenues.
Cost of Revenues
Cost of revenues for the first nine months of fiscal 2024 decreased $82.2 million, or 29.5%, versus the first nine months of fiscal 2023. Excluding the impact of foreign currency, which increased cost of revenues in the first nine months of fiscal 2024 by $0.2 million, cost of revenues for the first nine months of fiscal 2024 would have decreased 29.5% versus the prior year period. Excluding the net impact of the $6.2 million of restructuring charges in the first nine months of fiscal 2024 and the net impact of the $19.7 million of restructuring charges in the first nine months of fiscal 2023, cost of revenues for the first nine months of fiscal 2024 would have decreased by 26.5%, or 26.6% on a constant currency basis, versus the prior year period.
Gross Profit
Gross profit for the first nine months of fiscal 2024 increased $0.1 million, or 0.0%, versus the first nine months of fiscal 2023. Excluding the impact of foreign currency, which positively impacted gross profit in the first nine months of fiscal 2024 by $0.7 million, gross profit for the first nine months of fiscal 2024 would have decreased 0.1% versus the prior year period. Excluding the net impact of the $6.2 million of restructuring charges in the first nine months of fiscal 2024 and the net impact of the $19.7 million of restructuring charges in the first nine months of fiscal 2023, gross profit for the first nine months of fiscal 2024 would have decreased by 3.1%, or 3.3% on a constant currency basis, versus the prior year period. Gross margin for the first nine months of fiscal 2024 increased to 67.3%, or 67.2% on a constant currency basis, versus 59.2% for the first nine months of fiscal 2023. Excluding the net impact of restructuring charges in the first nine months of fiscal 2024 and the net impact of restructuring charges in the first nine months of fiscal 2023, gross margin for the first nine months of fiscal 2024 would have increased 6.2% to 68.3%, both as adjusted and as adjusted on a constant currency basis, versus the prior year period. This gross margin increase was driven primarily by actions to reduce the fixed cost base within our business and the discontinuation of our lower margin consumer products business at the end of fiscal 2023.
Marketing
Marketing expenses for the first nine months of fiscal 2024 increased $0.8 million, or 0.4%, versus the first nine months of fiscal 2023. Foreign currency had a de minimis impact on marketing expenses for the first nine months of fiscal 2024. This increase in marketing expenses was primarily due to higher spend on online advertising, partially offset by lower spend on TV advertising and production fees and agency fees. Marketing expenses as a percentage of revenue for the first nine months of fiscal 2024 increased to 31.3% from 27.4% for the first nine months of fiscal 2023.
41
Selling, General and Administrative
Selling, general and administrative expenses for the first nine months of fiscal 2024 decreased $14.9 million, or 7.9%, versus the first nine months of fiscal 2023. Excluding the impact of foreign currency, which increased selling, general and administrative expenses in the first nine months of fiscal 2024 by $0.1 million, selling, general and administrative expenses for the first nine months of fiscal 2024 would have decreased 8.0% versus the prior year period. Excluding the net impact of the $15.3 million of restructuring charges in the first nine months of fiscal 2024, the $3.9 million of former CEO separation expenses in the first nine months of fiscal 2024, the net impact of the $11.6 million of restructuring charges in the first nine months of fiscal 2023 and the impact of the $8.6 million of acquisition transaction costs in the first nine months of fiscal 2023, selling, general and administrative expenses for the first nine months of fiscal 2024 would have decreased by 8.2%, or 8.3% on a constant currency basis, versus the prior year period. This decrease in selling, general and administrative expenses was primarily due to a decline in employee compensation and related costs. Selling, general and administrative expenses as a percentage of revenue for the first nine months of fiscal 2024 increased to 28.9% from 27.6% for the first nine months of fiscal 2023. Excluding the net impact of restructuring charges in the first nine months of fiscal 2024, the impact of former CEO separation expenses in the first nine months of fiscal 2024, the net impact of restructuring charges in the first nine months of fiscal 2023 and the impact of acquisition transaction costs in the first nine months of fiscal 2023, selling, general and administrative expenses as a percentage of revenue for the first nine months of fiscal 2024 would have increased by 1.1%, both as adjusted and as adjusted on a constant currency basis, versus the prior year period.
Impairments
In performing our interim impairment analysis as of September 28, 2024, we determined that the carrying values of our United States and United Kingdom franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our United States and United Kingdom units of account of $54.3 million and $2.8 million, respectively, in the third quarter of fiscal 2024.
In performing our interim impairment analysis as of March 30, 2024, we determined that the carrying values of our United States, Australia, New Zealand and United Kingdom franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our United States, Australia, New Zealand and United Kingdom units of account of $251.4 million, $4.1 million, $2.3 million and $0.2 million, respectively, in the first quarter of fiscal 2024.
Operating (Loss) Income
Operating loss for the first nine months of fiscal 2024 was $272.4 million compared to operating income for the first nine months of fiscal 2023 of $28.3 million. Operating loss for the first nine months of fiscal 2024 was positively impacted by $0.4 million of foreign currency. Excluding the impact of the $315.0 million of franchise rights acquired impairments in the first nine months of fiscal 2024, the net impact of the $21.5 million of restructuring charges in the first nine months of fiscal 2024, the impact of the $3.9 million of former CEO separation expenses in the first nine months of fiscal 2024, the net impact of the $31.3 million of restructuring charges in the first nine months of fiscal 2023 and the impact of the $8.6 million of acquisition transaction costs in the first nine months of fiscal 2023, operating income would have been $68.0 million for the first nine months of fiscal 2024 versus operating income of $68.2 million for the first nine months of fiscal 2023, a decrease of 0.4%, or 1.1% on a constant currency basis. Operating loss margin for the first nine months of fiscal 2024 was 45.3% compared to operating income margin for the first nine months of fiscal 2023 of 4.1%. Excluding the impact of franchise rights acquired impairments in the first nine months of fiscal 2024, the net impact of restructuring charges in the first nine months of fiscal 2024, the impact of former CEO separation expenses in the first nine months of fiscal 2024, the net impact of restructuring charges in the first nine months of fiscal 2023 and the impact of acquisition transaction costs in the first nine months of fiscal 2023, operating income margin would have been 11.3%, or 11.2% on a constant currency basis, for the first nine months of fiscal 2024 versus operating income margin of 10.0% for the first nine months of fiscal 2023. This increase in operating income margin was driven primarily by an increase in gross margin, partially offset by an increase in marketing expenses as a percentage of revenue and an increase in selling, general and administrative expenses as a percentage of revenue, versus the prior year period.
42
Interest Expense
Interest expense for the first nine months of fiscal 2024 increased $10.5 million, or 14.7%, versus the first nine months of fiscal 2023. The increase in interest expense was driven primarily by an increase in the base rate of our Term Loan Facility (as defined below). The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the first nine months of fiscal 2024 and the first nine months of fiscal 2023 and excluding the impact of any applicable interest rate swaps, increased to 7.76% per annum for the first nine months of fiscal 2024 from 7.48% per annum for the first nine months of fiscal 2023. Interest expense was impacted by the termination of our interest rate swaps on March 31, 2024. Including the impact of any applicable interest rate swaps, the effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the first nine months of fiscal 2024 and the first nine months of fiscal 2023, increased to 7.44% per annum for the first nine months of fiscal 2024 from 6.62% per annum for the first nine months of fiscal 2023. See “—Liquidity and Capital Resources—Long-Term Debt” for additional details regarding our debt, including interest rates and payments thereon. Further information regarding our use of interest rate swaps can be found in Note 11 “Derivative Instruments and Hedging” in the notes to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Other Expense (Income), Net
Other expense (income), net, which consists primarily of the negative impact of foreign currency on intercompany transactions, changed by $4.2 million for the first nine months of fiscal 2024 to $4.2 million of expense as compared to $36 thousand of income for the first nine months of fiscal 2023.
Tax
Our effective tax rate for the first nine months of fiscal 2024 was (3.4%) compared to 44.0% for the first nine months of fiscal 2023. The effective tax rate for interim periods is determined using an annual effective tax rate, adjusted for discrete items. The forecasted full-year fiscal 2024 tax expense, which included an increase in valuation allowance against U.S. deferred tax assets, in relation to our forecasted full-year pretax loss (albeit minimal), drove the unusually high negative annual effective tax rate. Applying this negative annual effective tax rate to the pretax loss for the first nine months of fiscal 2024 resulted in an income tax expense. In addition, for the first nine months of fiscal 2024, the effective tax rate was impacted by tax expense recorded for an out-of-period income tax adjustment and tax expense from a valuation allowance established to offset certain non-U.S. deferred tax assets due to the uncertainty of realizing future tax benefits. The adoption of the Organization for Economic Cooperation and Development’s global tax reform initiative, which introduces a global minimum tax of 15% applicable to large multinational corporations, did not have an impact on our effective tax rate for the first nine months of fiscal 2024.
For the first nine months of fiscal 2023, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to the valuation allowance noted above. In addition, the effective tax rate was impacted by tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII.
Net Loss and Diluted Net Loss Per Share
Net loss for the first nine months of fiscal 2024 was $370.8 million compared to the net loss for the first nine months of fiscal 2023 of $24.1 million. Net loss for the first nine months of fiscal 2024 was positively impacted by $0.3 million of foreign currency. Net loss for the first nine months of fiscal 2024 included a $293.2 million impact from franchise rights acquired impairments, a $16.1 million net impact from restructuring charges and a $2.9 million impact from former CEO separation expenses. Net loss for the first nine months of fiscal 2023 included a $23.5 million net impact from restructuring charges and a $7.5 million impact from acquisition transaction costs.
Diluted net loss per share for the first nine months of fiscal 2024 was $4.67 compared to diluted net loss per share for the first nine months of fiscal 2023 of $0.32. Diluted net loss per share for the first nine months of fiscal 2024 included a $3.69 impact from franchise rights acquired impairments, a $0.20 net impact from restructuring charges and a $0.04 impact from former CEO separation expenses. Diluted net loss per share for the first nine months of fiscal 2023 included a $0.31 net impact from restructuring charges and a $0.10 impact from acquisition transaction costs.
Operating Results
As previously disclosed, effective the first day of fiscal 2024 (i.e., December 31, 2023), as a result of the continued evolution of our centralized organizational structure in fiscal 2023, and management’s 2024 strategic planning process, our reportable segments changed to one segment for the purpose of making operational and resource decisions and assessing financial performance.
43
Metrics and Business Trends
The following tables set forth key metrics for the first nine months of fiscal 2024 and the percentage change in those metrics versus the prior year period, as applicable:
(in millions except percentages and as noted)
First Nine Months of Fiscal 2024 |
|
|||||||||||||||||||||||||||||||||
GAAP |
|
|
Constant Currency |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Subscription |
|
|
Other |
|
|
Total |
|
|
Subscription |
|
|
Other |
|
|
Total |
|
|
Total |
|
|
Incoming |
|
|
EOP |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
||||||||||||
$ |
595.3 |
|
|
$ |
6.2 |
|
|
$ |
601.5 |
|
|
$ |
594.4 |
|
|
$ |
6.2 |
|
|
$ |
600.7 |
|
|
|
151.1 |
|
|
|
3,797.5 |
|
|
|
3,666.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
% Change First Nine Months of Fiscal 2024 vs. First Nine Months of Fiscal 2023 |
|
|||||||||||||||||||||||||||||||||
|
(5.0 |
%) |
|
|
(89.0 |
%) |
|
|
(12.0 |
%) |
|
|
(5.1 |
%) |
|
|
(89.1 |
%) |
|
|
(12.1 |
%) |
|
|
(3.6 |
%) |
|
|
7.1 |
% |
|
|
(8.8 |
%) |
(in millions except percentages and as noted)
First Nine Months of Fiscal 2024 |
|
|||||||||||||||||||||||||||||||||||||
Digital Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
|
Workshops + Digital Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
GAAP |
|
|
Constant |
|
|
Digital |
|
|
Incoming |
|
|
EOP |
|
|
GAAP |
|
|
Constant |
|
|
Workshops |
|
|
Incoming |
|
|
EOP |
|
||||||||||
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
||||||||||||||||
$ |
399.4 |
|
|
$ |
398.8 |
|
|
|
124.7 |
|
|
|
3,079.4 |
|
|
|
3,042.9 |
|
|
$ |
138.4 |
|
|
$ |
138.2 |
|
|
|
23.3 |
|
|
|
651.5 |
|
|
|
546.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
% Change First Nine Months of Fiscal 2024 vs. First Nine Months of Fiscal 2023 |
|
|||||||||||||||||||||||||||||||||||||
|
(8.7 |
%) |
|
|
(8.9 |
%) |
|
|
(1.7 |
%) |
|
|
8.6 |
% |
|
|
(7.3 |
%) |
|
|
(19.3 |
%) |
|
|
(19.4 |
%) |
|
|
(19.7 |
%) |
|
|
(8.3 |
%) |
|
|
(21.2 |
%) |
(in millions except percentages and as noted)
First Nine Months of Fiscal 2024 |
|
|
|||||||||||||
Clinical Subscription Revenues |
|
|
|
|
|
|
|
|
|
|
|
||||
GAAP |
|
|
Clinical |
|
|
Incoming |
|
|
EOP |
|
|
||||
|
|
|
|
|
|
(in thousands) |
|
|
|||||||
$ |
57.5 |
|
|
|
3.1 |
|
|
|
66.6 |
|
|
|
77.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
% Change First Nine Months of Fiscal 2024 vs. First Nine Months of Fiscal 2023 |
|
|
|||||||||||||
100.0% |
|
* |
100.0% |
|
* |
N/A |
|
** |
|
71.5 |
% |
|
|||
* Note: Percentage in excess of 100.0% and not meaningful.
** N/A - There were no Incoming Clinical Subscribers in the prior year period since our acquisition of Sequence closed during the second quarter of fiscal 2023.
Operating Performance
The decrease in revenues for the first nine months of fiscal 2024 versus the prior year period was driven by a decrease in Other Revenues and, to a lesser extent, a decrease in Subscription Revenues. The decrease in Other Revenues for the first nine months of fiscal 2024 versus the prior year period was driven primarily by the discontinuation of our consumer products business at the end of fiscal 2023.
The decrease in Subscription Revenues for the first nine months of fiscal 2024 versus the prior year period was driven primarily by both a decrease in Digital Subscription Revenues and a decrease in Workshops + Digital Subscription Revenues due to a higher mix of Digital subscribers within their initial, lower-priced commitment periods and recruitment declines during the first nine months of fiscal 2024 as compared to the prior year period. Digital Subscription Revenues and Workshops + Digital Subscription Revenues were also negatively impacted by the continued mix shift from our Workshops + Digital business to our Digital business. In addition, the lower number of Incoming Workshops + Digital Subscribers at the beginning of fiscal 2024 versus the beginning of fiscal 2023 contributed to the decrease in Workshops + Digital Subscription Revenues in the period. Subscription Revenues for the first nine months of fiscal 2024 benefited from Clinical Subscription Revenues following our acquisition of Sequence during the second quarter of fiscal 2023, despite the recruitment challenges in the second and third quarters of fiscal 2024 arising from the increasingly competitive environment.
44
The decrease in Total Paid Weeks for the first nine months of fiscal 2024 versus the prior year period was driven primarily by non-Clinical recruitment declines during the first nine months of fiscal 2024 as compared to the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities have historically supplied us with our primary source of liquidity. We have used these cash flows, supplemented with long-term debt and short-term borrowings, to fund our operations and global strategic initiatives, pay down debt and engage in selective acquisitions. Upon the completion of our acquisition of Sequence (the “Acquisition”), in the second quarter of fiscal 2023, we had a net cash outlay of $40.3 million on April 10, 2023 with respect to the payment of the purchase price and certain transaction costs. For additional details on the purchase price consideration for the Acquisition and related terms, including with respect to the first anniversary payment, see Note 5 “Acquisitions” in the notes to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. These cash outlays have reduced the liquidity available to us in the future. See “Risk Factors—Risks Related to Our Acquisition of Weekend Health, Inc. (d/b/a Sequence)—The Acquisition may not achieve its intended results.” and “Risk Factors—Risks Related to Our Liquidity—We may not be able to generate sufficient cash to service all of our debt and satisfy our other liquidity requirements.” contained in our Annual Report on Form 10-K for fiscal 2023 for additional details. We currently believe that cash generated by operations, our cash on hand of approximately $57.2 million at September 28, 2024, our availability under our Revolving Credit Facility (as defined and described below) at September 28, 2024 and our continued cost focus will provide us with sufficient liquidity to meet our obligations for the short- and long-term. See Note 7 “Long-Term Debt—Liquidity” in the notes to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details on our liquidity. In addition, if necessary, we have the flexibility to delay investments or reduce marketing spend.
We continue to proactively manage our liquidity so we can maintain flexibility to fund investments in our business, honor our long-term debt obligations, and respond to evolving business and consumer conditions. To increase our flexibility and reduce our cash interest payments, we refinanced our then-existing credit facilities and then-existing senior notes in April 2021. Additionally, we instituted a number of measures throughout our operations to mitigate expenses and reduce costs as well as ensure liquidity. For example, restructuring plans instituted in recent fiscal years, and most recently in July 2024, have resulted in aggregate cash outlays of approximately $24.9 million in the first nine months of fiscal 2024 and are expected to result in an additional $3.3 million for the remainder of fiscal 2024. For additional details, see Note 15 “Restructuring” in the notes to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. The evolving nature, and uncertain economic impact, of the current demand environment may impact our liquidity going forward. To the extent that we do not successfully manage our costs, our liquidity and financial results, as well as our ability to fully access our Revolving Credit Facility, may be adversely affected. Pursuant to their respective terms, our interest rate swaps were terminated on March 31, 2024. Given subsequent market conditions, management determined to not enter into any new swap arrangement since March 31, 2024. Management continues to evaluate its exposure to interest rates and, from time to time, may opportunistically hedge any interest rate exposure by entering into new swap arrangements.
As market conditions warrant, we may, from time to time, seek to purchase our outstanding debt securities or loans, including the Senior Secured Notes and borrowings under the Credit Facilities (each as defined below). Such transactions could be privately negotiated or open market transactions, pursuant to tender offers or otherwise. Subject to any applicable limitations contained in the agreements governing, or terms of, our indebtedness, any such purchases made by us may be funded by the use of cash on our balance sheet, the incurrence of new secured or unsecured debt, the issuance of our equity or the sale of assets. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may equate to a substantial amount of a particular class or series of debt, which may reduce the trading liquidity of such class or series.
Balance Sheet Working Capital
The following table sets forth certain relevant measures of our balance sheet working capital deficit, excluding cash and cash equivalents at:
|
|
September 28, |
|
|
December 30, |
|
|
Increase/ |
|
|||
|
|
2024 |
|
|
2023 |
|
|
(Decrease) |
|
|||
|
|
(in millions) |
|
|||||||||
Total current assets |
|
$ |
101.2 |
|
|
$ |
179.5 |
|
|
$ |
(78.2 |
) |
Total current liabilities |
|
|
189.5 |
|
|
|
205.5 |
|
|
|
(16.0 |
) |
Working capital deficit |
|
|
(88.2 |
) |
|
|
(26.0 |
) |
|
|
62.2 |
|
Cash and cash equivalents |
|
|
57.2 |
|
|
|
109.4 |
|
|
|
(52.2 |
) |
Working capital deficit, excluding cash and cash equivalents |
|
$ |
(145.4 |
) |
|
$ |
(135.4 |
) |
|
$ |
10.1 |
|
Note: Totals may not sum due to rounding.
45
The following table sets forth a summary of the primary factors contributing to the $10.1 million increase in our working capital deficit, excluding cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
Impact to |
|
||||
|
|
September 28, |
|
|
December 30, |
|
|
Increase/ |
|
|
Working |
|
||||
|
|
2024 |
|
|
2023 |
|
|
(Decrease) |
|
|
Capital Deficit |
|
||||
|
|
(in millions) |
|
|||||||||||||
Operational liabilities and other, net of assets |
|
$ |
92.0 |
|
|
$ |
113.7 |
|
|
$ |
(21.7 |
) |
|
$ |
(21.7 |
) |
Deferred revenue |
|
$ |
31.4 |
|
|
$ |
34.0 |
|
|
$ |
(2.5 |
) |
|
$ |
(2.5 |
) |
Portion of operating lease liabilities due within one year |
|
$ |
9.0 |
|
|
$ |
9.6 |
|
|
$ |
(0.6 |
) |
|
$ |
(0.6 |
) |
Derivative receivable |
|
$ |
— |
|
|
$ |
3.6 |
|
|
$ |
(3.6 |
) |
|
$ |
3.6 |
|
Income taxes payable |
|
$ |
6.7 |
|
|
$ |
1.6 |
|
|
$ |
5.1 |
|
|
$ |
5.1 |
|
Accrued interest |
|
$ |
17.5 |
|
|
$ |
5.3 |
|
|
$ |
12.1 |
|
|
$ |
12.1 |
|
Prepaid income taxes |
|
$ |
11.2 |
|
|
$ |
25.4 |
|
|
$ |
(14.1 |
) |
|
$ |
14.1 |
|
Working capital deficit change, excluding cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
$ |
10.1 |
|
|||
Note: Totals may not sum due to rounding.
The decrease in operational liabilities and other, net of assets, which includes accrued salaries and wages, was driven primarily by a decrease in accrued liabilities due to a decline in employee compensation and related costs and a decline in accrued marketing costs. The increase in accrued interest was due to the timing of payments. The decrease in prepaid income taxes was primarily due to the outsized impact of a significant, largely non-cash, income tax expense resulting from the valuation allowance recorded to reflect the uncertainty of the realization of U.S. deferred tax assets.
Cash Flows
The following table sets forth a summary of our cash flows for the nine months ended:
|
|
September 28, |
|
|
September 30, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in millions) |
|
|||||
Net cash used for operating activities |
|
$ |
(21.4 |
) |
|
$ |
(1.2 |
) |
Net cash used for investing activities |
|
$ |
(13.2 |
) |
|
$ |
(66.7 |
) |
Net cash used for financing activities |
|
$ |
(17.1 |
) |
|
$ |
(1.9 |
) |
Operating Activities
Cash flows used for operating activities of $21.4 million for the first nine months of fiscal 2024 reflected an increase of $20.3 million from $1.2 million of cash flows used for operating activities for the first nine months of fiscal 2023. This increase in cash flows used for operating activities was primarily attributable to an increase in net loss, partially offset by an increase in non-cash add-back adjustments driven by the franchise rights acquired impairments and an increase in cash provided by operating assets and liabilities in the first nine months of fiscal 2024 as compared to the prior year period.
Investing Activities
Net cash used for investing activities totaled $13.2 million for the first nine months of fiscal 2024, a decrease of $53.5 million as compared to the first nine months of fiscal 2023. This decrease was primarily attributable to a decrease in cash paid for acquisitions, net of cash acquired, and a decrease in capitalized software and website development expenditures in the first nine months of fiscal 2024 as compared to the prior year period.
Financing Activities
Net cash used for financing activities totaled $17.1 million for the first nine months of fiscal 2024, an increase of $15.2 million as compared to the first nine months of fiscal 2023. This increase was primarily attributable to an increase in cash paid for acquisitions in the first nine months of fiscal 2024 as compared to the prior year period.
46
Long-Term Debt
We currently plan to meet our long-term debt obligations by using cash flows provided by operating activities and opportunistically using other means to repay or refinance our obligations as we determine appropriate.
The following schedule sets forth our long-term debt obligations at September 28, 2024:
Long-Term Debt
At September 28, 2024
(in millions)
|
|
September 28, 2024 |
|
|
Term Loan Facility due April 13, 2028 |
|
$ |
945.0 |
|
Senior Secured Notes due April 15, 2029 |
|
|
500.0 |
|
Total |
|
|
1,445.0 |
|
Less: Current portion |
|
|
— |
|
Unamortized deferred financing costs |
|
|
7.4 |
|
Unamortized debt discount |
|
|
8.0 |
|
Total long-term debt |
|
$ |
1,429.6 |
|
Note: Totals may not sum due to rounding.
In the second quarter of fiscal 2021, in connection with our refinancing of our then-existing credit facilities, we incurred approximately $1,000.0 million in an aggregate principal amount of borrowings under our new credit facilities (as amended from time to time, the “Credit Facilities”) and issued $500.0 million in aggregate principal amount of 4.500% Senior Secured Notes due 2029 (the “Senior Secured Notes”), each as described in further detail below.
Credit Facilities
The Credit Facilities were issued under a credit agreement, dated April 13, 2021 (as amended from time to time, the “Credit Agreement”), among the Company, as borrower, the lenders party thereto, and Bank of America, N.A. (“Bank of America”), as administrative agent and an issuing bank. The Credit Facilities consist of (1) $1,000.0 million in aggregate principal amount of senior secured tranche B term loans due in 2028 (the “Term Loan Facility”) and (2) $175.0 million in an aggregate principal amount of commitments under a senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2026 (the “Revolving Credit Facility”).
As of September 28, 2024, we had $945.0 million in an aggregate principal amount of loans outstanding under our Credit Facilities, with $173.8 million of availability and $1.2 million in issued but undrawn letters of credit outstanding under the Revolving Credit Facility subject to its terms and conditions as discussed below. There were no outstanding borrowings under the Revolving Credit Facility as of September 28, 2024.
All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of our current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:
The Credit Facilities require us to prepay outstanding term loans, subject to certain exceptions, with:
47
The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. We may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to Term SOFR loans under the Credit Facilities.
In June 2023, in connection with the planned phase-out of LIBOR, we amended our Credit Facilities to replace LIBOR with Term SOFR as the benchmark rate under the Credit Agreement, which is calculated to include a credit spread adjustment of 0.11448%, 0.26161%, 0.42826%, or 0.71513% for 1, 3, 6, or 12 months period, respectively, in addition to the Term SOFR Screen Rate (as defined in the Credit Agreement) and the margin (which was not amended).
Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at our option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the Term SOFR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.50% or (2) an applicable margin plus a Term SOFR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided that Term SOFR is not lower than a floor of 0.50%. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at our option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the Term SOFR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.00% or (2) a Term SOFR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided such rate is not lower than a floor of zero. As of September 28, 2024, the applicable margins for the Term SOFR rate borrowings under the Term Loan Facility and the Revolving Credit Facility were 3.50% and 2.75%, respectively.
On a quarterly basis, we pay a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon our Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement).
The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default. As of September 28, 2024, we were in compliance with the covenants under the Credit Agreement that were in effect on such date.
The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, we must be in compliance with a Consolidated First Lien Leverage Ratio of 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including the first fiscal quarter of 2025, with a step down to 5.00:1.00, for the period following the first fiscal quarter of 2025. As of September 28, 2024, our actual Consolidated First Lien Leverage Ratio was 8.88:1.00 and there were no borrowings under our Revolving Credit Facility and total letters of credit issued were $1.2 million. We were not in compliance with the Consolidated First Lien Leverage Ratio as of September 28, 2024, and as a result, we are limited to borrowing no more than 35%, or $61.3 million, of the amount of the aggregate commitments under the Revolving Credit Facility as of each fiscal quarter end until we comply with the applicable ratio.
Senior Secured Notes
The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 13, 2021 (as amended, supplemented or modified from time to time, the “Indenture”), among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions. As of September 28, 2024, we were in compliance with the covenants under the Indenture that were in effect on such date.
48
The Senior Secured Notes accrue interest at a rate per annum equal to 4.500% and will mature on April 15, 2029. Interest on the Senior Secured Notes is payable semi-annually on April 15 and October 15 of each year. Commencing April 15, 2024, we may on any one or more occasions redeem some or all of the Senior Secured Notes at a purchase price equal to 102.250% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date, such optional redemption price decreasing to 101.125% on or after April 15, 2025 and to 100.000% on or after April 15, 2026. If a change of control occurs, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. Following the sale of certain assets and subject to certain conditions, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date.
The Senior Secured Notes are guaranteed on a senior secured basis by our subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with our and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.
Outstanding Debt
At September 28, 2024, we had $1,445.0 million outstanding under the Credit Facilities and the Senior Secured Notes, consisting of borrowings under the Term Loan Facility of $945.0 million, $0.0 drawn down on the Revolving Credit Facility and $500.0 million in aggregate principal amount of Senior Secured Notes issued and outstanding.
At September 28, 2024 and December 30, 2023, our debt consisted of both fixed and variable-rate instruments. We have historically entered into interest rate swaps to hedge a portion of the cash flow exposure associated with our variable-rate borrowings. At September 28, 2024, the Company did not have any interest rate swaps in effect. Further information regarding our use of interest rate swaps can be found in Note 11 “Derivative Instruments and Hedging” in the notes to the consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on our outstanding debt, exclusive of the impact of any applicable interest rate swaps, was approximately 7.77% and 7.64% per annum at September 28, 2024 and December 30, 2023, respectively, based on interest rates on these dates. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on our outstanding debt, including the impact of any applicable interest rate swaps, was approximately 7.39% and 6.53% per annum at September 28, 2024 and December 30, 2023, respectively, based on interest rates on these dates.
The following schedule sets forth our year-by-year debt obligations at September 28, 2024:
Total Debt Obligation
(Including Current Portion)
At September 28, 2024
(in millions)
Remainder of fiscal 2024 |
|
$ |
— |
|
Fiscal 2025 |
|
|
— |
|
Fiscal 2026 |
|
|
— |
|
Fiscal 2027 |
|
|
10.0 |
|
Fiscal 2028 |
|
|
935.0 |
|
Fiscal 2029 |
|
|
500.0 |
|
Thereafter |
|
|
— |
|
Total |
|
$ |
1,445.0 |
|
Note: Totals may not sum due to rounding.
Accumulated Other Comprehensive Loss
Our accumulated other comprehensive loss includes changes in the effects of foreign currency translations and the fair value of derivative instruments. At September 28, 2024 and September 30, 2023, the cumulative balance of the effects of foreign currency translations, net of taxes, was a loss of $14.6 million and a loss of $17.5 million, respectively. At September 28, 2024 and September 30, 2023, the cumulative balance of changes in the fair value of derivative instruments, net of taxes, was $0.0 million and a gain of $5.5 million, respectively.
49
Dividends and Stock Transactions
We do not currently pay a dividend and we have no current plans to pay dividends in the foreseeable future. Any future determination to declare and pay dividends will be made at the sole discretion of our Board of Directors, after taking into account our financial condition and results of operations, capital requirements, contractual, legal, tax and regulatory restrictions, the provisions of Virginia law affecting the payment of distributions to shareholders and such other factors our Board of Directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants in our existing indebtedness, including the Credit Agreement governing the Credit Facilities and the Indenture governing the Senior Secured Notes, and may be limited by the agreements governing other indebtedness we or our subsidiaries incur in the future.
On October 9, 2003, our Board of Directors authorized, and we announced, a program to repurchase up to $250.0 million of our outstanding common stock. On each of June 13, 2005, May 25, 2006 and October 21, 2010, our Board of Directors authorized, and we announced, the addition of $250.0 million to this program. The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions. The repurchase program currently has no expiration date. During the nine months ended September 28, 2024 and September 30, 2023, we did not repurchase any shares of our common stock under this program.
EBITDAS, Adjusted EBITDAS and Net Debt
We define EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation, amortization and stock-based compensation and Adjusted EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation, amortization, stock-based compensation, franchise rights acquired and goodwill impairments, net restructuring charges, acquisition transaction costs and former CEO separation expenses.
The table below sets forth the reconciliations for EBITDAS and Adjusted EBITDAS, each a non-GAAP financial measure, to net (loss) income, the most comparable GAAP financial measure, for the three and nine months ended September 28, 2024 and September 30, 2023, and EBITDAS and Adjusted EBITDAS to net loss for the trailing twelve months ended September 28, 2024:
(in millions)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
|
|
|||||||||||
|
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
September 28, 2024 |
|
|
September 30, 2023 |
|
|
Trailing Twelve |
|
|
|||||
Net (loss) income |
|
$ |
(46.2 |
) |
|
$ |
43.7 |
|
|
$ |
(370.8 |
) |
|
$ |
(24.1 |
) |
|
$ |
(459.0 |
) |
|
Interest |
|
|
28.6 |
|
|
|
24.5 |
|
|
|
81.9 |
|
|
|
71.4 |
|
|
|
106.4 |
|
|
Taxes |
|
|
(27.3 |
) |
|
|
(38.4 |
) |
|
|
12.3 |
|
|
|
(18.9 |
) |
|
|
69.8 |
|
|
Depreciation and amortization |
|
|
9.2 |
|
|
|
13.4 |
|
|
|
29.1 |
|
|
|
35.6 |
|
|
|
39.1 |
|
|
Stock-based compensation |
|
|
0.8 |
|
|
|
3.2 |
|
|
|
6.0 |
|
|
|
9.0 |
|
|
|
8.3 |
|
|
EBITDAS |
|
$ |
(34.9 |
) |
|
$ |
46.4 |
|
|
$ |
(241.6 |
) |
|
$ |
73.0 |
|
|
$ |
(235.3 |
) |
|
Franchise rights acquired and goodwill impairments |
|
|
57.0 |
|
|
|
— |
|
|
|
315.0 |
|
|
|
— |
|
|
|
318.7 |
|
|
2024 plan restructuring charges |
|
|
14.8 |
|
|
|
— |
|
|
|
14.8 |
|
|
|
— |
|
|
|
14.8 |
|
|
2023 plan restructuring charges |
|
|
(0.7 |
) |
|
|
6.2 |
|
|
|
6.7 |
|
|
|
30.6 |
|
|
|
29.8 |
|
|
2022 plan restructuring charges |
|
|
(0.3 |
) |
|
|
(0.2 |
) |
|
|
0.1 |
|
|
|
0.6 |
|
|
|
0.5 |
|
|
2021 plan restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0.1 |
|
|
|
— |
|
|
2020 plan restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(0.0 |
) |
|
|
— |
|
|
Acquisition transaction costs (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8.6 |
|
|
|
— |
|
|
Former CEO separation expenses |
|
|
3.9 |
|
|
|
— |
|
|
|
3.9 |
|
|
|
— |
|
|
|
3.9 |
|
|
Adjusted EBITDAS (2) |
|
$ |
39.8 |
|
|
$ |
52.4 |
|
|
$ |
98.9 |
|
|
$ |
112.9 |
|
|
$ |
132.4 |
|
|
50
Note: Totals may not sum due to rounding.
Reducing leverage is a capital structure priority for the Company. As of September 28, 2024, our total debt less unamortized deferred financing costs and unamortized debt discount/net loss ratio was (3.1)x. As of September 28, 2024, our net debt/Adjusted EBITDAS ratio was 10.4x.
The table below sets forth the reconciliation for net debt, a non-GAAP financial measure, to total debt, the most comparable GAAP financial measure, for the nine months ended:
(in millions)
|
|
September 28, 2024 |
|
|
Total debt |
|
$ |
1,445.0 |
|
Less: Unamortized deferred financing costs |
|
|
7.4 |
|
Less: Unamortized debt discount |
|
|
8.0 |
|
Less: Cash on hand |
|
|
57.2 |
|
Net debt |
|
$ |
1,372.4 |
|
Note: Totals may not sum due to rounding.
We present EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS because we consider them to be useful supplemental measures of our performance. In addition, we believe EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS are useful to investors, analysts and rating agencies in measuring the ability of a company to meet its debt service obligations. See “—Non-GAAP Financial Measures” herein for an explanation of our use of these non-GAAP financial measures.
OFF-BALANCE SHEET ARRANGEMENTS
As part of our ongoing business, we do not participate in arrangements that generate relationships with unconsolidated entities or financial partnerships established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, such as entities often referred to as structured finance or special purpose entities.
SEASONALITY
Our business is seasonal due to the importance of the winter season to our overall member recruitment environment. Historically, we experience our highest level of recruitment during the first quarter of the year, which is supported with the highest concentration of advertising spending. Therefore, our number of End of Period Subscribers in the first quarter of the year has been typically higher than the number in other quarters of the year, historically reflecting a decline over the course of the year.
AVAILABLE INFORMATION
Corporate information and our press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments thereto, are available free of charge on our corporate website at corporate.ww.com as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. We also make available at that site the Section 16 reports filed electronically by our officers, directors and 10 percent shareholders.
51
We use our corporate website at corporate.ww.com and certain social media channels such as our Instagram account (Instagram.com/weightwatchers), corporate Facebook page (www.facebook.com/weightwatchers), X (formerly Twitter) account (@ww_us) and LinkedIn page (www.linkedin.com/company/weightwatchers) as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website and social media channels shall not be deemed to be incorporated herein by reference.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to their respective terms, our interest rate swaps in effect as of the end of the first quarter of fiscal 2024 terminated on March 31, 2024. Given subsequent market conditions, management determined to not enter into any new swap arrangements following such termination. Except for the impact from the termination of such swap arrangements discussed below, as of September 28, 2024, the market risk disclosures appearing in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for fiscal 2023 have not materially changed from December 30, 2023.
At the end of the third quarter of fiscal 2024, borrowings under the Credit Facilities bore interest at Term SOFR plus an applicable margin of 3.50%. For the Term Loan Facility, the minimum interest rate for Term SOFR applicable to such facility pursuant to the terms of the Credit Agreement was set at 0.50%, referred to herein as the Term SOFR Floor. Accordingly, as of September 28, 2024, based on the amount of variable rate debt outstanding and the then-current Term SOFR rate, after giving consideration to the Term SOFR Floor, a hypothetical 125 basis point increase in interest rates would have increased annual interest expense by approximately $11.8 million and a hypothetical 125 basis point decrease in interest rates would have decreased annual interest expense by approximately $11.8 million. This change in market risk exposure from the end of fiscal 2023 was primarily due to the termination of our interest rate swaps on March 31, 2024 discussed above.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 28, 2024, the end of the third quarter of fiscal 2024. Based upon that evaluation and subject to the foregoing, our principal executive officer and our principal financial officer concluded that, as of the end of the third quarter of fiscal 2024, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
52
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information called for by this item is incorporated herein by reference to Note 10 “Legal” of the Notes to the Consolidated Financial Statements.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors from those detailed in our Annual Report on Form 10-K for fiscal 2023 other than as set forth below.
Risks Related to Our Business and Operations
Our new compounded GLP-1 offering exposes us to a variety of risks that could result in an adverse impact on our reputation, business and ability to effectively compete.
In October 2024, we began offering to our eligible Clinical members access to compounded semaglutide, a GLP-1 prescription medication, sourced via a 503B outsourcing facility (the “Manufacturing Supplier”) and dispensed by a licensed 503A pharmacy (“Dispensing Pharmacy”). A 503B outsourcing facility must meet certain conditions under Section 503B of the Federal Food, Drug and Cosmetic Act (the “FDCA”), including registration with the U.S. Food and Drug Administration (the “FDA”). The facility must also operate in compliance with the FDA’s Current Good Manufacturing Practice (cGMP) regulations and guidance and is subject to FDA inspection relating to compliance with cGMPs. If the Manufacturing Supplier or any of its compounded products are found by the FDA not to satisfy the criteria set forth in Section 503B, it may not be able to fulfill the prescriptions prescribed by our clinicians, which could have an adverse effect on our business. Compounding pharmacies and 503B outsourcing facilities have been subject to increased scrutiny of their compounding activities by the FDA and state governmental agencies, and a governmental inquiry or action or litigation could be brought against us, the Dispensing Pharmacy or the Manufacturing Supplier relating to GLP-1 compounding activities. In such a case, we may experience negative publicity and reputational harm. Manufacturers of the branded GLP-1 medications also have brought private actions against compounders and outsourcing facilities, as well as prescribers of compounded medications, including against med-spas, medical practices and telehealth providers, and such action or litigation could be brought against us. The Manufacturing Supplier is legally permitted to produce the sourced version of compounded semaglutide while the equivalent branded GLP-1 active ingredient appears on the FDA drug shortage list, and we cannot predict when such shortage will be resolved. All doses of semaglutide branded under Ozempic and Wegovy became listed as available on the FDA’s shortage list as of October 30, 2024. As of November 4, 2024, the FDA considers semaglutide injection to continue to be in shortage, but it may determine to resolve the shortage in the future, which could constrain our ability to continue providing access to compounded semaglutide on our platform once inventory is no longer available. Additionally, on October 22, 2024, Novo Nordisk filed a Petition with the FDA, requesting that semaglutide products be added to the lists of drug products that present demonstrable difficulties for compounding pursuant to the FDCA Sections 503A(b)(3) and 503B(a)(6) (the “Demonstrable Difficulties for Compounding Lists” or “DDC Lists”). If added to the DDC Lists, 503A pharmacies and 503B facilities would be prohibited from producing compounded semaglutide, even if it is taken off the shortage list. The regulatory landscape applicable to GLP-1s continues to rapidly evolve. Additionally, many branded GLP-1 medications are protected under intellectual property laws that limit the formulations that other parties may use, and our promotion of compounded formulations may result in our being subject to infringement claims and other litigation, which could adversely affect our ability to effectively compete. While the FDA does not limit compounding to drug shortages, we cannot guarantee that we will be able to continue this offering in the same manner, to the same extent, or at all, due to a variety of factors outside our control, including intellectual property, regulatory and resource allocation matters, which could adversely impact our business and results of operations.
Achieving and maintaining market acceptance of this new offering could be negatively impacted by perceived risks associated with compounded medications. Certain compounding pharmacies and 503B outsourcing facilities have experienced both facility and product quality issues and been the subject of negative media coverage. We or the Manufacturing Supplier or Dispensing Pharmacy may also face allegations, litigation, and regulatory investigations under federal or state laws related to the marketing, fulfillment, distribution, and/or sale of these products. Litigation and regulatory proceedings, and particularly the healthcare, pharmaceutical-related, consumer protection, data privacy and/or class action matters we could face, may be protracted and expensive, and the results are difficult to predict. Such litigation or regulatory proceedings and investigations, FDA shortage list implications, unexpected side effects or safety or efficacy concerns with our compounded semaglutide offering (or GLP-1s as a class) or related negative publicity could have an adverse effect on our reputation, business and ability to effectively compete.
53
We are undergoing a chief executive officer transition, which could cause disruption to our business, and our failure to appoint a permanent chief executive officer with the required level of experience and expertise could have an adverse impact on our operations and business strategy as well as the public or market perception of our business.
In September 2024, the Company and Sima Sistani, the Company’s then-President and Chief Executive Officer, mutually agreed that Ms. Sistani would cease serving as the Company’s President and Chief Executive Officer, effective September 27, 2024. The Board of Directors appointed Tara Comonte, a director of the Company, as Interim President and Chief Executive Officer, effective September 27, 2024, to serve until a permanent President and Chief Executive Officer is identified. If we are unsuccessful in appointing a permanent chief executive officer with the required level of experience and expertise, our operations and business strategy could be materially and adversely affected. Any significant leadership change or executive management transition involves inherent risk and can be difficult to manage. It may involve a diversion of resources and management attention, be disruptive to our daily operations, make it more difficult to hire and retain key employees, impact public or market perception or hinder progress on key strategic initiatives, any of which could have a negative impact on our business or stock price.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Nothing to report under this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nothing to report under this item.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
From time to time, our directors and officers may engage in open-market transactions with respect to their Company equity holdings for diversification or other personal reasons. All such transactions by directors and officers must comply with the Company’s Amended and Restated Securities Trading Policy, which requires that such transactions be in accordance with applicable U.S. federal securities laws that prohibit trading while in possession of material nonpublic information. Rule 10b5-1 under the Exchange Act provides an affirmative defense that enables directors and officers to prearrange transactions in the Company’s securities in a manner that avoids concerns about initiating transactions while in possession of material nonpublic information.
No contracts, instructions or written plans for the purchase or sale of Company securities were
54
ITEM 6. EXHIBITS
Exhibit Number |
|
Description |
|
|
|
**Exhibit 2.1 |
|
|
|
|
|
†*Exhibit 10.1 |
|
|
|
|
|
†*Exhibit 10.2 |
|
|
|
|
|
†*Exhibit 10.3 |
|
Letter Agreement, dated September 27, 2024, by and between WW International, Inc. and Tara Comonte. |
|
|
|
†*Exhibit 10.4 |
|
|
|
|
|
*Exhibit 31.1 |
|
Rule 13a-14(a) Certification by Tara Comonte, Interim Chief Executive Officer. |
|
|
|
*Exhibit 31.2 |
|
Rule 13a-14(a) Certification by Heather Stark, Chief Financial Officer. |
|
|
|
*Exhibit 32.1 |
|
|
|
|
|
*Exhibit 101 |
|
|
|
|
|
*EX-101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
*EX-101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents. |
|
|
|
*Exhibit 104 |
|
The cover page from WW International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2024, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
* Filed herewith.
** Previously filed.
† Represents a management arrangement or compensatory plan.
55
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
WW INTERNATIONAL, INC. |
|
|
|
|
Date: November 6, 2024 |
By: |
/s/ Tara Comonte |
|
|
Tara Comonte |
|
|
Interim President and Chief Executive Officer and Director (Principal Executive Officer) |
Date: November 6, 2024 |
By: |
/s/ Heather Stark |
|
|
Heather Stark |
|
|
Chief Financial Officer (Principal Financial Officer) |
56