WW INTERNATIONAL, INC. WW International, Inc. , formerly known asWeight Watchers International, Inc. , is aVirginia corporation with its principal executive offices inNew York, New York . In this Quarterly Report on Form 10-Q unless the context indicates otherwise: "we," "us," "our," the "Company" and "WW" refer toWW International, Inc. and all of its operations consolidated for purposes of its financial statements; "North America" refers to ourNorth American Company -owned operations; "Continental Europe" refers to ourContinental Europe Company -owned operations; "United Kingdom" refers to ourUnited Kingdom Company -owned operations; and "Other" refers toAustralia ,New Zealand and emerging markets operations and franchise revenues and related costs.Each of North America , Continental Europe,United Kingdom and Other is also a reportable segment. Our "Digital" business refers to providing subscriptions to our digital product offerings, including Digital 360 and Personal Coaching + Digital. Our "Workshops + Digital" (formerly known as "Studio + Digital") business refers to providing unlimited access to our workshops combined with our digital subscription product offerings to commitment plan subscribers. It also includes the provision of access to workshops for members who do not subscribe to commitment plans, including our "pay-as-you-go" members.
Our fiscal year ends on the Saturday closest to
• "fiscal 2018" refers to our fiscal year endedDecember 29, 2018 ; • "fiscal 2019" refers to our fiscal year endedDecember 28, 2019 ;
• "fiscal 2020" refers to our fiscal year ended
53rd week);
• "fiscal 2021" refers to our fiscal year ended January 1, 2022 ;
• "fiscal 2022" refers to our fiscal year ended December 31, 2022 ;
• "fiscal 2023" refers to our fiscal year ended December 30, 2023 ;
• "fiscal 2024" refers to our fiscal year ended December 28, 2024 ;
• "fiscal 2025" refers to our fiscal year ended
53rd week); and
• "fiscal 2026" refers to our fiscal year ended January 2, 2027 .
The following terms used in this Quarterly Report on Form 10-Q are our trademarks: Digital 360TM, myWW® and Weight Watchers®.
You should read the following discussion in conjunction with our Annual Report
on Form 10-K for fiscal 2020 as amended 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 inthe United States , or GAAP, we have disclosed non-GAAP financial measures of operating results that exclude or adjust certain items. Gross profit, gross profit margin, operating income and operating income margin 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 and first nine months of fiscal 2021 to exclude the net impact of (x) charges associated with our previously disclosed 2021 organizational restructuring plan and (y) the reversal of certain of the charges associated with our previously disclosed 2020 organizational restructuring plan; (ii) the third quarter of fiscal 2020 to exclude the impact of charges associated with our previously disclosed 2020 organizational restructuring plan (the "2020 restructuring charges"); and (iii) the first nine months of fiscal 2020 to exclude the impact of (x) the one-time stock compensation expense associated with the previously disclosed option granted to Ms.Oprah Winfrey in connection with the Company extending its partnership withMs. Winfrey (the "Winfrey Stock Compensation expense"), (y) the 2020 restructuring charges and (z) the impairment charge for our goodwill related to ourBrazil reporting unit. We generally refer to such non-GAAP measures as follows: (i) with respect to the adjustments for the third quarter and first nine months of fiscal 2021, as excluding or adjusting for the net impact of restructuring charges; and (ii) with respect to the adjustments for the third quarter and first nine months of fiscal 2020, as applicable, as excluding or adjusting for the impact of the Winfrey Stock Compensation expense, the restructuring charges and/or the goodwill impairment charge. 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, early extinguishment of debt, restructuring charges (including the net impact where applicable) and goodwill impairment ("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 entitled 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 POLICIES
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 on an annual basis for impairment.
In performing the impairment analysis for our indefinite-lived franchise rights acquired, the fair value for our franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for our franchise rights related to our Workshops + Digital business and a relief from royalty methodology for our franchise rights related to our Digital business. The aggregate estimated fair value for these rights is then compared to the carrying value of the unit of account for those franchise 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 values of these franchise rights inthe United States ,Canada ,United Kingdom ,Australia, and New Zealand as of theOctober 2, 2021 balance sheet date were$698.4 million ,$60.1 million ,$12.2 million ,$6.5 million and$4.9 million , respectively. 30 -------------------------------------------------------------------------------- In our hypothetical start-up approach analysis for fiscal 2021, 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. 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.
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 unit for purposes of assessing annual impairment to be the country for all reporting units. The net book values of goodwill inthe United States ,Canada and other countries as of theOctober 2, 2021 balance sheet date were$105.1 million ,$42.4 million and$10.0 million , respectively. For all of our reporting units tested as ofMay 9, 2021 , we estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operations less capital expenditures) attributable to that country and then applied expected future operating income growth rates for such country. 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 Annual Impairment Test
We review indefinite-lived intangible assets, including franchise rights
acquired with indefinite lives, and goodwill for potential impairment on at
least an annual basis or more often if events so require. We performed fair
value impairment testing as of
In performing our annual impairment analysis as ofMay 9, 2021 andMay 3, 2020 , we determined that the carrying amounts of our franchise rights acquired with indefinite lives units of account and goodwill reporting units did not exceed their respective fair values and, therefore, no impairment existed. When determining fair value, we utilize various assumptions, including projections of future cash flows, growth rates 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 amounts 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 amounts of the related assets on our balance sheet. We continue to evaluate these assumptions and believe that these assumptions are appropriate. In performing our annual impairment analysis, 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 current levels, 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 "Item 1A. Risk Factors" of our Annual Report on Form 10-K for fiscal 2020 as amended. Based on the results of ourMay 9, 2021 annual franchise rights acquired impairment analysis performed for all of our units of account as of theOctober 2, 2021 balance sheet date, all units, except forNew Zealand , had an estimated fair value at least 45% higher than the respective unit's carrying amount. Collectively, these units of account represent 99.4% of our total franchise rights acquired. Based on the results of our annual franchise rights acquired impairment test performed for ourNew Zealand unit of account, which holds 0.6% of our franchise rights acquired as of theOctober 2, 2021 balance sheet date, the estimated fair value of this unit of account exceeded its carrying value by approximately 10%. Accordingly, a change in the underlying assumptions forNew Zealand may change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related toNew Zealand , for which the net book value was$4.9 million as ofOctober 2, 2021 . In performing this impairment analysis for fiscal 2021, for the year of maturity, we assumed Workshops + Digital revenue (comprised of Workshops + Digital Fees and revenues from products sold to members in studios) growth of (41.5%) to 5.6% in the year of maturity from fiscal 2020, in each case, earned in the applicable country and assumed cumulative annual revenue growth rates for the years beyond the year of maturity of 1.8%. For the year of maturity and beyond, we assumed operating income margin rates of 7.1% to 11.7%. Based on the results of ourMay 9, 2021 annual goodwill impairment test performed for all of our reporting units as of theOctober 2, 2021 balance sheet date, there was significant headroom in the goodwill impairment analysis for those units, with the difference between the carrying value and the fair value exceeding 100%. 31
--------------------------------------------------------------------------------
The following are the more significant assumptions utilized in our annual impairment analyses for fiscal 2021 and fiscal 2020:
Fiscal Fiscal
2021 2020
Debt-Free Cumulative Annual Cash Flow Growth Rate 0.2% to 2.6% 4.0% to 13.9% Discount Rate 8.5% 9.5% Brazil Goodwill Impairment With respect to ourBrazil reporting unit, during the first quarter of fiscal 2020, we made a strategic decision to shift to an exclusively Digital business in that country. We determined that this decision, together with the negative impact of COVID-19, the ongoing challenging economic environment inBrazil and our reduced expectations regarding the reporting unit's future operating cash flows, required us to perform an interim goodwill impairment analysis. In performing this discounted cash flow analysis, we determined that the carrying amount of this reporting unit exceeded its fair value and as a result recorded an impairment charge of$3.7 million , which comprised the remaining balance of goodwill for this reporting unit. As it related to our goodwill impairment analysis forBrazil , we estimated future debt-free cash flows in contemplation of our growth strategies for that market. In developing these projections, we considered the growth strategies under the current market conditions inBrazil . 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.
Other Critical Accounting Policies
For a discussion of the other critical accounting policies affecting us, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies" of our Annual Report on Form 10-K for fiscal 2020 as amended. Our critical accounting policies have not changed since the end of fiscal 2020.
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.
• Revenues-Our "Subscription Revenues" consist of "Digital Subscription
Revenues" and "Workshops + Digital Fees" (formerly known as "Studio +
Digital Fees"). "Digital Subscription Revenues" consist of the fees
associated with subscriptions for our Digital offerings, including Digital
360 and Personal Coaching + Digital. "Workshops + Digital Fees" consist of
the fees associated with our subscription plans for combined workshops and
digital offerings and other payment arrangements for access to workshops.
In addition, "product sales and other" consists of sales of consumer
products via e-commerce, in studios and through our trusted partners,
revenues from licensing and publishing, other revenues (including revenues
from the WW Presents:
consolidated financial results and Other reportable segment, franchise
fees with respect to commitment plans and royalties.
• Paid Weeks-The "Paid Weeks" metric reports paid weeks by WW customers in
Company-owned operations for a given period as follows: (i) "Digital Paid
Weeks" is the total paid subscription weeks for our digital subscription
products (including Digital 360 and Personal Coaching + Digital);
(ii) "Workshops + Digital Paid Weeks" (formerly known as "Studio + Digital
Paid Weeks") is the sum of total paid commitment plan weeks which include
workshops and digital offerings and total "pay-as-you-go" weeks; and
(iii) "Total Paid Weeks" is the sum of Digital Paid Weeks and Workshops +
Digital Paid Weeks.
• Incoming Subscribers-"Subscribers" refer to Digital subscribers and
Workshops + Digital subscribers who participate in recur bill programs in
Company-owned operations. The "Incoming Subscribers" metric reports WW
subscribers in Company-owned operations at a given period start as
follows: (i) "Incoming Digital Subscribers" is the total number of
Digital, including Digital 360 and Personal Coaching + Digital,subscribers; (ii) "Incoming Workshops + Digital Subscribers" (formerly
known as "
commitment plan subscribers that have access to combined workshops and
digital offerings; and (iii) "Incoming Subscribers" is the sum of Incoming
Digital Subscribers and Incoming Workshops + Digital Subscribers.
Recruitment and retention are key drivers for this metric.
32
--------------------------------------------------------------------------------
• End of Period Subscribers-The "End of Period Subscribers" metric reportsWW subscribers in Company-owned operations at a given period end as
follows: (i) "End of Period Digital Subscribers" is the total number of
Digital, including Digital 360 and Personal Coaching + Digital,
subscribers; (ii) "End of Period Workshops + Digital Subscribers"
(formerly known as "End of Period Studio + Digital Subscribers") is thetotal number of commitment plan subscribers that have access to combined
workshops and digital offerings; and (iii) "End of Period Subscribers" is
the sum of End of Period Digital Subscribers and End of Period Workshops +
Digital Subscribers. Recruitment and retention are key drivers for this
metric.
• Gross profit and operating expenses as a percentage of revenue.
COVID-19 PANDEMIC
The novel coronavirus (including its variants, COVID-19) pandemic continues to impact our business operations and the markets in which we operate. While the outbreak of COVID-19 did not have a significant effect on our reported results for the first quarter of fiscal 2020, it did have a significant effect on our reported results for the remainder of fiscal 2020 and the first nine months of fiscal 2021. The number of End of Period Subscribers for the third quarter of fiscal 2021 decreased 4.3% versus the prior year period. The challenging COVID-19 environment for our Workshops + Digital business drove a significant decrease in End of Period Workshops + Digital Subscribers for the third quarter of fiscal 2021 versus the prior year period. Additionally, the impact of COVID-19 on consumer sentiment and prioritization of discretionary spending was reflected in the decrease in End of Period Digital Subscribers. The negative impact of COVID-19 is expected to continue to impact the business in the fourth quarter of fiscal 2021 and potentially in subsequent periods. The extent to which our operations and business trends will continue in future periods to be impacted by, and any unforeseen costs will result from, the ongoing outbreak of COVID-19 will depend largely on future developments, which are highly uncertain and cannot be accurately predicted. These developments include, among other things, new information that may emerge concerning the severity of the outbreak, health implications and vaccine availability, actions by government authorities to contain the outbreak or treat its impact, and changes in consumer behavior resulting from the outbreak and such government actions. We continue to actively monitor the ongoing global outbreak of COVID-19 and its impact and related developments. In response to the public health crisis posed by COVID-19, inMarch 2020 , we suspended our in-person workshops and moved quickly to transition these workshops to an entirely virtual experience. InJune 2020 , we began a phased re-opening with reduced operations of a limited number of our studio locations. We continue to evolve our workshop strategy as we evaluate our cost structure and respond to shifting consumer sentiment. We are selectively resuming in-person workshops where we can in a cost-efficient manner that promotes the health and safety of our employees and members. However, during these uncertain times, we will continue to adhere to the requirements in local jurisdictions to close re-opened studios as necessary, and we may not be able to open studios as planned or may need to further reduce operations. We continue to serve our members virtually, both via our Digital business and through virtual workshops now available to our Workshops + Digital subscribers. Nevertheless, our Workshops + Digital business, including its business operations, number of subscribers and in-studio product sales, remain substantially affected by the evolving COVID-19 environment. We expect that applicable regulatory restrictions, including stay-at-home requirements and restrictions on in-person group gatherings, may continue to impact our studio operations, including how we conduct our in-person workshops. As we continue to address the impact of the pandemic, and the related evolving legal and consumer landscape, we are focused on how to best meet our members' and consumers' needs as restrictions are lifted or reinstated. We consolidated certain of our studios into branded studio locations and continue to close certain other branded studio locations. The decision to re-open a studio location, if at all, or further consolidate studio locations, will be influenced by a number of factors, including applicable legal restrictions, consumer confidence and preferences, changes in consumer behavior, and the protection of the health and safety of our employees and members, and will be dependent on cost efficiencies and alignment with our digital and brand strategy. The current number of our studio locations is significantly lower than that prior to the pandemic, and we expect it to remain below pre-COVID-19 levels. As a result, we have incurred and may continue to incur significant costs associated with our real estate realignment. While we expect the effects of the pandemic and the related responses to negatively impact our results of operations, cash flows and financial position, the uncertainty of the full extent of the duration and severity of the economic and operational impacts of COVID-19 means we cannot reasonably estimate the related financial impact at this time. For more information, see "Item 1A. Risk Factors" in Part I of our Annual Report on Form 10-K for fiscal 2020 as amended. We continue to believe that our powerful communities and our ability to inspire people to adopt healthy habits will be invaluable to people across the globe as they continue to acclimate to new social and economic environments, and that they uniquely position us in the markets in which we operate. 33 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
THREE MONTHS ENDED
The table below sets forth selected financial information for the third quarter of fiscal 2021 from our consolidated statements of net income for the three months endedOctober 2, 2021 versus selected financial information for the third quarter of fiscal 2020 from our consolidated statements of net income for the three months endedSeptember 26, 2020 . Summary of Selected Financial Data (In millions, except per share amounts) For The Three Months Ended % Change Increase/ % Constant October 2, 2021 September 26, 2020 (Decrease) Change Currency Revenues, net $ 293.5 $ 320.7$ (27.2 ) (8.5 %) (9.3 %) Cost of revenues 115.5 130.6 (15.1 ) (11.6 %) (12.3 %) Gross profit 178.0 190.1 (12.1 ) (6.3 %) (7.3 %) Gross Margin % 60.7 % 59.3 % Marketing expenses 34.6 38.3 (3.7 ) (9.7 %) (10.5 %)
Selling, general & administrative
expenses 63.7 59.2 4.6 7.7 % 6.9 % Operating income 79.7 92.6 (12.9 ) (13.9 %) (15.1 %) Operating Income Margin % 27.2 % 28.9 % Interest expense 19.3 29.7 (10.5 ) (35.1 %) (35.1 %) Other expense (income), net 0.8 (0.2 ) 1.0 100.0 % * 100.0 % * Income before income taxes 59.7 63.1 (3.4 ) (5.5 %) (7.1 %) Provision for income taxes 13.3 8.6 4.7 55.1 % 51.6 % Net income 46.3 54.5 (8.2 ) (15.0 %) (16.4 %) Net loss attributable to the noncontrolling interest - 0.0 (0.0 ) (100.0 %) (100.0 %) Net income attributable to WW International, Inc. $ 46.3 $ 54.5$ (8.2 ) (15.0 %) (16.4 %)
Weighted average diluted shares
outstanding 70.9 70.0 0.9 1.2 % 1.2 % Diluted earnings per share $ 0.65 $ 0.78$ (0.13 ) (16.1 %) (17.4 %)
Note: Totals may not sum due to rounding.
*Note: Percentage in excess of 100.0%.
34
-------------------------------------------------------------------------------- Certain results for the third quarter of fiscal 2021 are adjusted to exclude the impact of the$9.3 million of 2021 plan restructuring charges and the reversal of$0.7 million of 2020 plan restructuring charges. See "Non-GAAP Financial Measures" above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months endedOctober 2, 2021 which have been adjusted. Gross Operating Gross Profit Operating Income (in millions except percentages) Profit Margin Income Margin Third Quarter of Fiscal 2021$ 178.0 60.7 %$ 79.7 27.2 % Adjustments to reported amounts (1) 2021 plan restructuring charges 5.6
9.3
2020 plan restructuring charges (0.7 ) (0.7 ) Total adjustments (1) 4.9
8.6
Third Quarter of Fiscal 2021, as adjusted (1)
30.1 %
Note: Totals may not sum due to rounding.
(1) The "As adjusted" measure is a non-GAAP financial measure that adjusts the
consolidated statements of net income for the third quarter of fiscal 2021 to
exclude the impact of the
restructuring charges and the reversal of
tax) of 2020 plan restructuring charges. See "Non-GAAP Financial Measures"
above for an explanation of our use of non-GAAP financial measures.
Certain results for the third quarter of fiscal 2020 are adjusted to exclude the
impact of the $2.3 million of 2020 plan 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 26, 2020 which have been adjusted.
Gross Operating
Gross Profit Operating Income
(in millions except percentages) Profit Margin Income Margin
Third Quarter of Fiscal 2020 $ 190.1 59.3 % $ 92.6 28.9 %
Adjustments to reported amounts (1)
2020 plan restructuring charges 1.1 2.3
Total adjustments (1) 1.1
2.3
Third Quarter of Fiscal 2020, as adjusted (1)
29.6 %
Note: Totals may not sum due to rounding.
(1) The "As adjusted" measure is a non-GAAP financial measure that adjusts the
consolidated statements of net income for the third quarter of fiscal 2020 to
exclude the impact of the
restructuring charges. See "Non-GAAP Financial Measures" above for an
explanation of our use of non-GAAP financial measures.
Consolidated Results Revenues Revenues in the third quarter of fiscal 2021 were$293.5 million , a decrease of$27.2 million , or 8.5%, versus the third quarter of fiscal 2020. Excluding the impact of foreign currency, which positively impacted our revenues for the third quarter of fiscal 2021 by$2.7 million , revenues in the third quarter of fiscal 2021 would have decreased 9.3% versus the prior year period. This decrease was driven primarily by lower revenues related to Workshops + Digital Fees due to the impact of the COVID-19 environment. See "-Segment Results" for additional details on revenues. 35
--------------------------------------------------------------------------------
Cost of Revenues and Gross Profit
Total cost of revenues in the third quarter of fiscal 2021 decreased$15.1 million , or 11.6%, versus the prior year period. Excluding the net impact of the$4.9 million of restructuring charges in the third quarter of fiscal 2021 and the impact of the$1.1 million of restructuring charges in the third quarter of fiscal 2020, total cost of revenues in the third quarter of fiscal 2021 would have decreased by 14.7%, or 15.4% on a constant currency basis, versus the prior year period. Gross profit decreased$12.1 million , or 6.3%, in the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020. Excluding the impact of foreign currency, which positively impacted gross profit for the third quarter of fiscal 2021 by$1.8 million , gross profit in the third quarter of fiscal 2021 would have decreased 7.3% versus the prior year period. Excluding the net impact of the$4.9 million of restructuring charges in the third quarter of fiscal 2021 and the impact of the$1.1 million of restructuring charges in the third quarter of fiscal 2020, gross profit in the third quarter of fiscal 2021 would have decreased by 4.3%, or 5.2% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin in the third quarter of fiscal 2021 increased 1.4% to 60.7% versus 59.3% in the third quarter of fiscal 2020. Excluding the impact of foreign currency, gross margin in the third quarter of fiscal 2021 would have increased 1.3% to 60.6% versus the prior year period. Excluding the net impact of restructuring charges in the third quarter of fiscal 2021 and the impact of restructuring charges in the third quarter of fiscal 2020, gross margin in the third quarter of fiscal 2021 would have increased 2.7% to 62.3% versus the prior year period, both as reported and on a constant currency basis. Gross margin increase was driven primarily by a revenue mix shift to our higher margin Digital business, partially offset by an increase in fixed costs related to Digital 360.
Marketing
Marketing expenses in the third quarter of fiscal 2021 decreased$3.7 million , or 9.7%, versus the third quarter of fiscal 2020. Excluding the impact of foreign currency, which increased marketing expenses for the third quarter of fiscal 2021 by$0.3 million , marketing expenses in the third quarter of fiscal 2021 would have decreased 10.5% versus the third quarter of fiscal 2020. This decrease in marketing expenses was primarily due to a decline in TV media spending, partially offset by higher spending in online and social media. Marketing expenses as a percentage of revenue for the third quarter of fiscal 2021 decreased to 11.8% from 11.9% for the third quarter of fiscal 2020.
Selling, General and Administrative
Selling, general and administrative expenses in the third quarter of fiscal 2021 increased$4.6 million , or 7.7%, versus the third quarter of fiscal 2020. Excluding the impact of foreign currency, which increased selling, general and administrative expenses for the third quarter of fiscal 2021 by$0.4 million , selling, general and administrative expenses in the third quarter of fiscal 2021 would have increased 6.9% versus the prior year period. Excluding the impact of the$3.7 million of restructuring charges in the third quarter of fiscal 2021 and the impact of the$1.2 million of restructuring charges in the third quarter of fiscal 2020, selling, general and administrative expenses in the third quarter of fiscal 2021 would have increased by 3.5%, or 2.7% on a constant currency basis, versus the prior year period. Selling, general and administrative expenses as a percentage of revenue for the third quarter of fiscal 2021 increased to 21.7% from 18.5% for the third quarter of fiscal 2020.
Operating Income
Operating income in the third quarter of fiscal 2021 decreased$12.9 million , or 13.9%, versus the prior year period. Excluding the impact of foreign currency, which positively impacted operating income for the third quarter of fiscal 2021 by$1.0 million , operating income in the third quarter of fiscal 2021 would have decreased 15.1% versus the prior year period. Excluding the net impact of the$8.6 million of restructuring charges in the third quarter of fiscal 2021 and the impact of the$2.3 million of restructuring charges in the third quarter of fiscal 2020, operating income in the third quarter of fiscal 2021 would have decreased by 6.9%, or 8.0% on a constant currency basis, versus the prior year period. Operating income margin in the third quarter of fiscal 2021 decreased 1.7% to 27.2% versus 28.9% in the third quarter of fiscal 2020. Excluding the net impact of restructuring charges in the third quarter of fiscal 2021 and the impact of restructuring charges in the third quarter of fiscal 2020, operating income margin in the third quarter of fiscal 2021 would have increased by 0.5%, or 0.4% on a constant currency basis, versus the prior year period. This increase in operating income margin was driven primarily by an increase in gross margin, largely offset by an increase in selling, general and administrative expenses as a percentage of revenue, versus the prior year period. 36 --------------------------------------------------------------------------------
Interest Expense Interest expense in the third quarter of fiscal 2021 decreased$10.5 million , or 35.1%, versus the third quarter of fiscal 2020. The decrease in interest expense was driven primarily by lower interest rates under our New Term Loan Facility (as defined below) and on our Senior Secured Notes (as defined below) as a result of ourApril 2021 debt refinancing (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 2021 and the third quarter of fiscal 2020 and excluding the impact of our interest rate swaps then in effect, decreased to 4.69% per annum at the end of the third quarter of fiscal 2021 from 6.57% per annum at the end of the third quarter of fiscal 2020. Including the impact of our interest rate swaps then in effect, 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 2021 and the third quarter of fiscal 2020, decreased to 5.29% per annum at the end of the third quarter of fiscal 2021 from 7.53% per annum at the end of the third quarter of fiscal 2020. See "-Liquidity and Capital Resources-Long-Term Debt" for additional details regarding our debt, including interest rates and payments thereon. For additional details on our interest rate swaps, see "Item 3. Quantitative and Qualitative Disclosures about Market Risk" in Part I of this Quarterly Report on Form 10-Q.
Other Expense (Income), Net
Other expense (income), net, which consists primarily of the impact of foreign currency on intercompany transactions, changed by$1.0 million in the third quarter of fiscal 2021 to$0.8 million of expense as compared to$0.2 million of income in the prior year period.
Tax
Our effective tax rate for the third quarter of fiscal 2021 was 22.4% as compared to 13.6% for the third quarter of fiscal 2020. The tax expense in the third quarter of fiscal 2021 was impacted by the reversal of a valuation allowance related to tax benefits for foreign losses that are now expected to be realized. For the third quarter of fiscal 2021, the difference between theU.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to foreign-derived intangible income, or FDII. The tax expense in the third quarter of fiscal 2020 was impacted by a tax benefit related to the reversal of the fiscal 2018, fiscal 2019 and fiscal 2020 tax impact of global intangible low-taxed income, or GILTI. For the third quarter of fiscal 2020, the difference between theU.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to tax expense from income earned in foreign jurisdictions and state income tax expense, partially offset by a tax benefit related to FDII.
Net Income Attributable to the Company and Earnings Per Share
Net income attributable to the Company in the third quarter of fiscal 2021 was$46.3 million , which reflected an$8.2 million , or 15.0%, decrease from the third quarter of fiscal 2020. Excluding the impact of foreign currency, which positively impacted net income attributable to the Company in the third quarter of fiscal 2021 by$0.7 million , net income attributable to the Company in the third quarter of fiscal 2021 would have decreased 16.4% from the third quarter of fiscal 2020. Net income attributable to the Company in the third quarter of fiscal 2021 included a$6.5 million net impact from restructuring charges. Net income attributable to the Company in the third quarter of fiscal 2020 included a$1.7 million impact from restructuring charges. Earnings per fully diluted share, or EPS, in the third quarter of fiscal 2021 was$0.65 compared to$0.78 in the third quarter of fiscal 2020. EPS in the third quarter of fiscal 2021 included a$0.09 net impact from restructuring charges. Additionally, EPS in the third quarter of fiscal 2021 included a$0.02 tax benefit due to the reversal of a valuation allowance related to foreign losses that are now expected to be realized. EPS in the third quarter of fiscal 2020 included a$0.02 impact from restructuring charges. Additionally, EPS in the third quarter of fiscal 2020 included an$0.11 tax benefit related to the reversal of the fiscal 2018 and fiscal 2019 tax impact of GILTI. 37 --------------------------------------------------------------------------------
Segment Results Metrics and Business Trends The following tables set forth key metrics by reportable segment for the third quarter of fiscal 2021 and the percentage change in those metrics versus the prior year period:
(in millions except percentages and as noted)
Q3 2021
GAAP Constant Currency
Product Product Total
Subscription Sales & Total Subscription Sales & Total Paid Incoming EOP
Revenues Other Revenues Revenues Other Revenues Weeks Subscribers Subscribers
(in thousands)
North America $ 176.7 $ 21.1 $ 197.8 $ 176.1 $ 21.0 $ 197.1 39.3 3,158.4 2,919.1
CE 65.3 6.7 71.9 64.5 6.6 71.1 15.5 1,273.9 1,155.3
UK 13.5 2.1 15.7 12.7 2.0 14.7 4.0 337.3 292.6
Other (1) 6.9 1.2 8.1 6.7 1.2 7.9 1.2 98.2 96.7
Total $ 262.4 $ 31.1 $ 293.5 $ 260.0 $ 30.8 $ 290.8 60.1 4,867.7 4,463.7
% Change Q3 2021 vs. Q3 2020
North America (7.6 %) (12.1 %) (8.1 %) (7.9 %) (12.5 %) (8.4 %) (2.0 %) (1.6 %) (2.4 %)
CE (3.3 %) (25.9 %) (6.0 %) (4.4 %) (26.3 %) (7.0 %) (1.7 %) 0.1 % (4.2 %)
UK (19.2 %) (42.9 %) (23.5 %) (24.3 %) (46.5 %) (28.3 %) (19.0 %) (12.1 %)
(20.5 %)
Other (1) 0.6 % (27.0 %) (4.9 %) (2.2 %) (28.7 %) (7.5 %) 0.4 % 0.6 % (1.2 %)
Total (7.1 %) (19.0 %) (8.5 %) (7.9 %) (19.8 %) (9.3 %) (3.2 %) (1.9 %) (4.3 %)
Note: Totals may not sum due to rounding.
(1) Represents Australia,
franchise revenues.
(in millions except percentages and as noted)
Q3 2021
Workshops Incoming EOP
Digital Subscription Revenues Digital Incoming EOP Workshops + Digital Fees + Digital Workshops Workshops
Constant Paid Digital Digital Constant Paid + Digital + Digital
GAAP Currency Weeks Subscribers Subscribers GAAP Currency Weeks Subscribers Subscribers
(in thousands) (in thousands)
North America $ 125.1 $ 124.6 32.0 2,604.5 2,342.2 $ 51.7 $ 51.5 7.3 554.0 576.8
CE 56.5 55.9 14.3 1,179.6 1,063.0 8.7 8.6 1.2 94.3 92.2
UK 9.0 8.4 3.0 260.7 219.0 4.5 4.2 1.0 76.5 73.6
Other (1) 4.7 4.5 1.0 74.8 76.6 2.2 2.1 0.3 23.4 20.1
Total $ 195.3 $ 193.4 50.3 4,119.5 3,700.9 $ 67.1 $ 66.6 9.8 748.2 762.8
% Change Q3 2021 vs. Q3 2020
North America 2.4 % 2.0 % 0.6 % 5.2 % (3.1 %) (25.3 %) (25.4 %) (12.0 %) (24.5 %) 0.5 %
CE 6.2 % 5.0 % 3.5 % 6.8 % (0.2 %) (38.9 %) (39.5 %) (39.1 %) (43.8 %) (34.8 %)
UK (2.4 %) (8.6 %) (10.4 %) 4.3 % (14.4 %) (39.7 %) (43.5 %) (37.4 %) (42.8 %) (34.4 %)
Other (1) 12.2 % 9.4 % 6.1 % 7.3 % 5.7 % (17.6 %) (20.3 %) (15.3 %) (16.1 %) (21.1 %)
Total 3.5 % 2.5 % 0.8 % 5.6 % (2.8 %) (28.3 %) (28.9 %) (19.7 %) (29.6 %) (10.6 %)
Note: Totals may not sum due to rounding.
(1) Represents Australia,
franchise revenues.
38
--------------------------------------------------------------------------------
North America Performance The decrease inNorth America revenues in the third quarter of fiscal 2021 versus the prior year period was driven primarily by a decrease in Subscription Revenues. The decrease in Subscription Revenues in the third quarter of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by the significant decline in the number of Incoming Workshops + Digital Subscribers at the beginning of the third quarter of fiscal 2021 versus the beginning of the third quarter of fiscal 2020 due to the impact of the COVID-19 environment. The decrease in North America Total Paid Weeks in the third quarter of fiscal 2021 versus the prior year period was driven primarily by the lower number of Incoming Workshops + Digital Subscribers at the beginning of the third quarter of fiscal 2021 versus the beginning of the third quarter of fiscal 2020 and lower Digital recruitments in the third quarter of fiscal 2021 versus the prior year period. The decrease inNorth America product sales and other in the third quarter of fiscal 2021 versus the prior year period was driven primarily by a decrease in product sales and licensing.
Continental Europe Performance
The decrease in Continental Europe revenues in the third quarter of fiscal 2021 versus the prior year period was driven by both a decrease in Subscription Revenues and a decrease in product sales and other. The decrease in Subscription Revenues in the third quarter of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by the significant decline in the number of Incoming Workshops + Digital Subscribers at the beginning of the third quarter of fiscal 2021 versus the beginning of the third quarter of fiscal 2020 due to the impact of the COVID-19 environment. The decrease in Continental Europe Total Paid Weeks in the third quarter of fiscal 2021 versus the prior year period was driven primarily by the lower number of Incoming Workshops + Digital Subscribers at the beginning of the third quarter of fiscal 2021 versus the beginning of the third quarter of fiscal 2020 and lower Digital recruitments in the third quarter of fiscal 2021 versus the prior year period. The decrease in Continental Europe product sales and other in the third quarter of fiscal 2021 versus the prior year period was driven primarily by a decrease in product sales. United Kingdom Performance The decrease inUK revenues in the third quarter of fiscal 2021 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues in the third quarter of fiscal 2021 versus the prior year period was driven primarily by a decrease in Workshops + Digital Fees. Workshops + Digital Fees were negatively impacted by the significant decline in the number of Incoming Workshops + Digital Subscribers at the beginning of the third quarter of fiscal 2021 versus the beginning of the third quarter of fiscal 2020 due to the impact of the COVID-19 environment. The decrease inUK Total Paid Weeks in the third quarter of fiscal 2021 versus the prior year period was driven primarily by the lower number of Incoming Workshops + Digital Subscribers at the beginning of the third quarter of fiscal 2021 versus the beginning of the third quarter of fiscal 2020 and lower Digital recruitments in the third quarter of fiscal 2021 versus the prior year period.
The decrease in
Other Performance
The decrease in Other revenues in the third quarter of fiscal 2021 versus the
prior year period was driven primarily by a decrease in product sales and other.
The slight increase in Subscription Revenues in the third quarter of fiscal 2021
versus the prior year period was driven by the impact of foreign currency.
Excluding foreign currency, Other Subscription Revenues in the third quarter of
fiscal 2021 would have decreased versus the prior year period driven by a
decrease in Workshops + Digital Fees, partially offset by an increase in Digital
Subscription Revenues. Workshops + Digital Fees were negatively impacted by the
significant decline in the number of Incoming Workshops + Digital Subscribers at
the beginning of the third quarter of fiscal 2021 versus the beginning of the
third quarter of fiscal 2020 due to the impact of the COVID-19 environment.
The decrease in Other product sales and other in the third quarter of fiscal
2021 versus the prior year period was driven primarily by decreases in franchise
commissions and product sales.
39
--------------------------------------------------------------------------------RESULTS OF OPERATIONS
NINE MONTHS ENDED
The table below sets forth selected financial information for the first nine months of fiscal 2021 from our consolidated statements of net income for the nine months endedOctober 2, 2021 versus selected financial information for the first nine months of fiscal 2020 from our consolidated statements of net income for the nine months endedSeptember 26, 2020 . Summary of Selected Financial Data (In millions, except per share amounts) For The Nine Months Ended % Change Increase/ % Constant October 2, 2021 September 26, 2020 (Decrease) Change Currency Revenues, net $ 936.7 $ 1,054.7$ (118.0 ) (11.2 %) (13.6 %) Cost of revenues 379.2 458.9 (79.8 ) (17.4 %) (19.1 %) Gross profit 557.5 595.8 (38.3 ) (6.4 %) (9.3 %) Gross Margin % 59.5 % 56.5 % Marketing expenses 208.7 198.1 10.6 5.3 % 2.0 % Selling, general & administrative expenses 206.6 225.5 (18.9 ) (8.4 %) (9.9 %) Goodwill impairment - 3.7 (3.7 ) (100.0 %) (100.0 %) Operating income 142.2 168.5 (26.3 ) (15.6 %) (20.0 %) Operating Income Margin % 15.2 % 16.0 % Interest expense 68.7 92.3 (23.6 ) (25.6 %) (25.6 %) Other expense, net 0.9 0.2 0.7 100.0 % * 100.0 % * Early extinguishment of debt 29.2 0.0 29.2 100.0 % 100.0 % Income before income taxes 43.5 76.0 (32.5 ) (42.8 %) (52.5 %) Provision for income taxes 6.5 13.5 (7.1 ) (52.1 %) (67.6 %) Net income 37.0 62.4 (25.5 ) (40.8 %) (49.3 %) Net loss attributable to the noncontrolling interest - 0.0 (0.0 ) (100.0 %) (100.0 %)
Net income attributable to
WW International, Inc. $ 37.0 $ 62.5$ (25.5 ) (40.8 %) (49.3 %) Weighted average diluted shares outstanding 70.9 69.9 0.9 1.3 % 1.3 % Diluted earnings per share $ 0.52 $ 0.89$ (0.37 ) (41.6 %) (50.0 %)
Note: Totals may not sum due to rounding.
*Note: Percentage in excess of 100.0%.
40
--------------------------------------------------------------------------------
Certain results for the first nine months of fiscal 2021 are adjusted to exclude
the impact of the $20.9 million of 2021 plan restructuring charges and the
reversal of $1.5 million of 2020 plan 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 first nine
months ended October 2, 2021 which have been adjusted.
Gross Operating
Gross Profit Operating Income
(in millions except percentages) Profit Margin Income Margin
First Nine Months of Fiscal 2021 $ 557.5 59.5 % $ 142.2 15.2 %
Adjustments to reported amounts (1)
2021 plan restructuring charges 16.4 20.9
2020 plan restructuring charges (1.3 ) (1.5 ) Total adjustments (1) 15.1
19.4
First Nine Months of Fiscal 2021, as adjusted (1)$ 572.6 61.1 %$ 161.6 17.3 %
Note: Totals may not sum due to rounding.
(1) The "As adjusted" measure is a non-GAAP financial measure that adjusts the
consolidated statements of net income for the first nine months of fiscal
2021 to exclude the impact of the
2021 plan restructuring charges and the reversal of
million after tax) of 2020 plan restructuring charges. See "Non-GAAP
Financial Measures" above for an explanation of our use of non-GAAP financial
measures.
Certain results for the first nine months of fiscal 2020 are adjusted to exclude
the impact of the $32.7 million Winfrey Stock Compensation expense, the $13.5
million of 2020 plan restructuring charges and the $3.7 million goodwill
impairment charge related to our Brazil reporting unit. 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 first nine months
ended September 26, 2020 which have been adjusted.
Gross Operating
Gross Profit Operating Income
(in millions except percentages) Profit Margin Income Margin
First Nine Months of Fiscal 2020 $ 595.8 56.5 % $ 168.5 16.0 %
Adjustments to reported amounts (1)
Winfrey Stock Compensation expense - 32.7
2020 plan restructuring charges 7.6 13.5 Goodwill impairment - 3.7 Total adjustments (1) 7.6 49.8 First Nine Months of Fiscal 2020, as adjusted (1)$ 603.3 57.2 %$ 218.3 20.7 %
Note: Totals may not sum due to rounding.
(1) The "As adjusted" measure is a non-GAAP financial measure that adjusts the
consolidated statements of net income for the first nine months of fiscal
2020 to exclude the impact of the
Winfrey Stock Compensation expense, the
tax) of 2020 plan restructuring charges and the
after tax) goodwill impairment charge. See "Non-GAAP Financial Measures"
above for an explanation of our use of non-GAAP financial measures.
Consolidated Results Revenues Revenues in the first nine months of fiscal 2021 were$936.7 million , a decrease of$118.0 million , or 11.2%, versus the first nine months of fiscal 2020. Excluding the impact of foreign currency, which positively impacted our revenues for the first nine months of fiscal 2021 by$25.0 million , revenues in the first nine months of fiscal 2021 would have decreased 13.6% versus the prior year period. This decrease was driven primarily by lower revenues related to Workshops + Digital Fees and in-studio product sales as a result of the closure of our studios and reduced operations related to the COVID-19 pandemic. See "-Segment Results" for additional details on revenues. 41 --------------------------------------------------------------------------------
Cost of Revenues and Gross Profit
Total cost of revenues in the first nine months of fiscal 2021 decreased$79.8 million , or 17.4%, versus the prior year period. Excluding the net impact of the$15.1 million of restructuring charges in the first nine months of fiscal 2021 and the impact of the$7.6 million of restructuring charges in the first nine months of fiscal 2020, total cost of revenues in the first nine months of fiscal 2021 would have decreased by 19.3%, or 21.0% on a constant currency basis, versus the prior year period. Gross profit decreased$38.3 million , or 6.4%, in the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020. Excluding the impact of foreign currency, which positively impacted gross profit for the first nine months of fiscal 2021 by$17.3 million , gross profit in the first nine months of fiscal 2021 would have decreased 9.3% versus the prior year period. Excluding the net impact of the$15.1 million of restructuring charges in the first nine months of fiscal 2021 and the impact of the$7.6 million of restructuring charges in the first nine months of fiscal 2020, gross profit in the first nine months of fiscal 2021 would have decreased by 5.1%, or 8.0% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin increased to 59.5% in the first nine months of fiscal 2021 as compared to 56.5% in the prior year period. Excluding the impact of foreign currency, gross margin in the first nine months of fiscal 2021 would have increased 2.8% to 59.3% versus the prior year period. Excluding the net impact of restructuring charges in the first nine months of fiscal 2021 and the impact of restructuring charges in the first nine months of fiscal 2020, gross margin in the first nine months of fiscal 2021 would have increased 3.9% to 61.1% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the first nine months of fiscal 2021 and the impact of restructuring charges in the first nine months of fiscal 2020, gross margin in the first nine months of fiscal 2021 would have increased 3.7% to 60.9% versus the prior year period. Gross margin increase was driven primarily by a revenue mix shift to our higher margin Digital business and cycling against the net profit from the WW Presents:Oprah 's 2020 Vision tour as a percentage of revenue, partially offset by an increase in fixed costs related to Digital 360, lower margins related to consumer product sales and a contraction of margins in the Workshops + Digital business. Marketing Marketing expenses in the first nine months of fiscal 2021 increased$10.6 million , or 5.3%, versus the first nine months of fiscal 2020. Excluding the impact of foreign currency, which increased marketing expenses for the first nine months of fiscal 2021 by$6.6 million , marketing expenses in the first nine months of fiscal 2021 would have increased 2.0% versus the first nine months of fiscal 2020. This increase in marketing expenses was primarily due to higher spending in online and social media, partially offset by a decline in TV media spending. Marketing expenses as a percentage of revenue increased to 22.3% in the first nine months of fiscal 2021 as compared to 18.8% in the prior year period.
Selling, General and Administrative
Selling, general and administrative expenses in the first nine months of fiscal 2021 decreased$18.9 million , or 8.4%, versus the first nine months of fiscal 2020. Excluding the impact of foreign currency, which increased selling, general and administrative expenses for the first nine months of fiscal 2021 by$3.3 million , selling, general and administrative expenses in the first nine months of fiscal 2021 would have decreased 9.9% versus the prior year period. Excluding the net impact of the$4.3 million of restructuring charges in the first nine months of fiscal 2021 and the impact of both the$32.7 million Winfrey Stock Compensation expense and the$5.9 million of restructuring charges in the first nine months of fiscal 2020, selling, general and administrative expenses in the first nine months of fiscal 2021 would have increased by 8.2%, or 6.5% on a constant currency basis, versus the prior year period. This increase in selling, general and administrative expenses in the first nine months of fiscal 2021 was driven primarily by higher employee compensation and related expenses. Selling, general and administrative expenses as a percentage of revenue increased to 22.1% in the first nine months of fiscal 2021 as compared to 21.4% in the prior year period. Impairment In performing our interim impairment analysis for ourBrazil reporting unit during the first quarter of fiscal 2020, we determined that, based on the fair values calculated, the carrying amount of goodwill related to ourBrazil reporting unit exceeded our fair value and recorded an impairment charge of$3.7 million for the first nine months of fiscal 2020. 42 --------------------------------------------------------------------------------
Operating Income Operating income in the first nine months of fiscal 2021 decreased$26.3 million , or 15.6%, versus the prior year period. Excluding the impact of foreign currency, which positively impacted operating income for the first nine months of fiscal 2021 by$7.4 million , operating income in the first nine months of fiscal 2021 would have decreased 20.0% versus the prior year period. Excluding the net impact of the$19.4 million of restructuring charges in the first nine months of fiscal 2021 and the impact of the$32.7 million Winfrey Stock Compensation expense, the$13.5 million of restructuring charges and the$3.7 million goodwill impairment charge related to ourBrazil reporting unit in the first nine months of fiscal 2020, operating income in the first nine months of fiscal 2021 would have decreased by 26.0%, or 29.4% on a constant currency basis, versus the prior year period. Operating income margin in the first nine months of fiscal 2021 decreased 0.8% to 15.2% versus 16.0% in the first nine months of fiscal 2020. Excluding the net impact of restructuring charges in the first nine months of fiscal 2021 and the impact of the Winfrey Stock Compensation expense, restructuring charges and the goodwill impairment charge in the first nine months of fiscal 2020, operating income margin in the first nine months of fiscal 2021 would have decreased by 3.4%, or 3.8% on a constant currency basis, versus the prior year period. This decrease in operating income margin was driven primarily 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, partially offset by an increase in gross margin, versus the prior year period.
Interest Expense
Interest expense in the first nine months of fiscal 2021 decreased$23.6 million , or 25.6%, versus the first nine months of fiscal 2020. The decrease in interest expense was driven primarily by lower interest rates under our New Term Loan Facility and on our Senior Secured Notes as a result of ourApril 2021 debt refinancing. 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 2021 and the first nine months of fiscal 2020 and excluding the impact of our interest rate swaps then in effect, decreased to 5.28% per annum at the end of the first nine months of fiscal 2021 from 6.84% per annum at the end of the first nine months of fiscal 2020. Including the impact of our interest rate swaps then in effect, 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 2021 and the first nine months of fiscal 2020, decreased to 6.00% per annum at the end of the first nine months of fiscal 2021 from 7.53% per annum at the end of the first nine months of fiscal 2020. See "-Liquidity and Capital Resources-Long-Term Debt" for additional details regarding our debt, including interest rates and payments thereon. For additional details on our interest rate swaps, see "Item 3. Quantitative and Qualitative Disclosures about Market Risk" in Part I of this Quarterly Report on Form 10-Q.
Other Expense, Net
Other expense, net, which consists primarily of the impact of foreign currency on intercompany transactions, increased by$0.7 million in the first nine months of fiscal 2021 to$0.9 million of expense as compared to$0.2 million of expense in the prior year period. Early Extinguishment of Debt In the first nine months of fiscal 2021, we wrote-off$29.2 million of fees in connection with ourApril 2021 debt refinancing that we recorded as an early extinguishment of debt charge, comprised of$12.9 million of a prepayment penalty on the Discharged Senior Notes (as defined below),$9.0 million of financing fees and$7.2 million of pre-existing deferred financing fees and debt discount. For additional details on this refinancing, see "-Liquidity and Capital Resources-Long-Term Debt".
Tax
Our effective tax rate in the first nine months of fiscal 2021 was 14.9% as compared to 17.8% in the first nine months of fiscal 2020. The tax expense for the first nine months of fiscal 2021 was impacted by tax windfalls from stock compensation and the reversal of a valuation allowance related to tax benefits for foreign losses that are now expected to be realized. For the first nine months of fiscal 2021, the difference between theU.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII. The tax expense for the first nine months of fiscal 2020 was impacted by a tax benefit related to the reversal of the fiscal 2018, fiscal 2019 and fiscal 2020 tax impact of GILTI and tax windfalls from stock compensation, partially offset by an impairment of ourBrazil reporting unit which had a full valuation allowance and an increase to tax reserves related to a foreign income tax audit. For the first nine months of fiscal 2020, the difference between theU.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to tax expense from income earned in foreign jurisdictions and state income tax expense, partially offset by a tax benefit related to FDII. 43 --------------------------------------------------------------------------------
Net Income Attributable to the Company and Earnings Per Share
Net income attributable to the Company in the first nine months of fiscal 2021 was$37.0 million , which reflected a$25.5 million , or 40.8%, decrease from the first nine months of fiscal 2020. Excluding the impact of foreign currency, which positively impacted net income attributable to the Company in the first nine months of fiscal 2021 by$5.3 million , net income attributable to the Company in the first nine months of fiscal 2021 would have decreased 49.3% from the first nine months of fiscal 2020. Net income attributable to the Company in the first nine months of fiscal 2021 included a$21.8 million impact from the write-off of fees related to ourApril 2021 debt refinancing and a$14.5 million net impact from restructuring charges. Net income attributable to the Company in the first nine months of fiscal 2020 included a$24.4 million impact from the Winfrey Stock Compensation expense, a$10.0 million impact from restructuring charges and a$2.7 million impact from the goodwill impairment charge related to ourBrazil reporting unit. EPS in the first nine months of fiscal 2021 was$0.52 compared to$0.89 in the first nine months of fiscal 2020. EPS in the first nine months of fiscal 2021 included a$0.31 impact from the write-off of fees related to ourApril 2021 debt refinancing and a$0.20 net impact from restructuring charges. Additionally, EPS in the first nine months of fiscal 2021 included a$0.02 tax benefit due to the reversal of a valuation allowance related to foreign losses that are now expected to be realized. EPS in the first nine months of fiscal 2020 included a$0.35 impact from the Winfrey Stock Compensation expense, a$0.14 impact from restructuring charges and a$0.04 impact from the goodwill impairment charge related to ourBrazil reporting unit. Additionally, EPS in the first nine months of fiscal 2020 included a$0.11 tax benefit related to the reversal of the fiscal 2018 and fiscal 2019 tax impact of GILTI. 44 --------------------------------------------------------------------------------
Segment Results Metrics and Business Trends The following tables set forth key metrics by reportable segment for the first nine months of fiscal 2021 and the percentage change in those metrics versus the prior year period:
(in millions except percentages and as noted)
First Nine Months of Fiscal 2021
GAAP Constant Currency
Product Product Total
Subscription Sales & Total Subscription Sales & Total Paid Incoming EOP
Revenues Other Revenues Revenues Other Revenues Weeks Subscribers Subscribers
(in thousands)
North America $ 545.7 $ 81.1 $ 626.7 $ 542.9 $ 80.6 $ 623.5 120.8 2,822.3 2,919.1
CE 204.5 27.3 231.8 191.3 25.4 216.7 49.8 1,179.6 1,155.3
UK 42.7 9.0 51.7 39.2 8.3 47.5 12.9 323.5 292.6
Other (1) 22.2 4.2 26.4 20.1 3.9 24.0 4.0 97.7 96.7
Total $ 815.1 $ 121.6 $ 936.7 $ 793.5 $ 118.2 $ 911.7 187.5 4,423.0 4,463.7
% Change First
Nine Months of Fiscal 2021 vs. First Nine Months of Fiscal 2020
(12.3 %) (22.0 %) (13.7 %) (12.8 %) (22.5 %) (14.2 %) (2.3 %) 3.7 % (2.4 %)
CE 0.1 % (9.2 %) (1.1 %) (6.4 %) (15.4 %) (7.5 %) 3.2 % 11.3 % (4.2 %)
UK (16.3 %) (36.6 %) (20.7 %) (23.2 %) (41.7 %) (27.2 %) (16.2 %) (10.5 %) (20.5 %)
Other (1) 0.0 % (35.3 %) (7.9 %) (9.7 %) (40.1 %) (16.5 %) (3.2 %) (4.3 %) (1.2 %)
Total (9.4 %) (21.4 %) (11.2 %) (11.8 %) (23.6 %) (13.6 %) (2.0 %) 4.2 % (4.3 %)
Note: Totals may not sum due to rounding.
(1) Represents Australia,
franchise revenues.
(in millions except percentages and as noted)
First Nine Months of Fiscal 2021
Workshops Incoming EOP
Digital Subscription Revenues Digital Incoming EOP Workshops + Digital Fees + Digital Workshops Workshops
Constant Paid Digital Digital Constant Paid + Digital + Digital
GAAP Currency Weeks Subscribers Subscribers GAAP Currency Weeks Subscribers Subscribers
(in thousands) (in thousands)
North America $ 387.4 $ 385.2 99.6 2,334.1 2,342.2 $ 158.3 $ 157.7 21.2 488.2 576.8
CE 176.1 164.7 45.8 1,059.9 1,063.0 28.4 26.5 4.0 119.7 92.2
UK 28.4 26.1 9.9 235.0 219.0 14.3 13.1 3.0 88.5 73.6
Other (1) 14.8 13.4 3.0 74.0 76.6 7.4 6.7 0.9 23.7 20.1
Total $ 606.7 $ 589.4 158.4 3,703.0 3,700.9 $ 208.4 $ 204.1 29.2 720.0 762.8
% Change First Nine Months of Fiscal 2021 vs. First Nine Months of Fiscal 2020
North America 9.3 % 8.7 % 8.7 % 24.8 % (3.1 %) (41.0 %) (41.2 %) (33.8 %) (42.7 %) 0.5 %
CE 16.9 % 9.4 % 12.4 % 22.8 % (0.2 %) (47.1 %) (50.6 %) (46.5 %) (39.1 %) (34.8 %)
UK 16.6 % 6.9 % 6.7 % 23.9 % (14.4 %) (46.3 %) (50.7 %) (50.6 %) (48.5 %) (34.4 %)
Other (1) 24.8 % 12.6 % 10.8 % 20.1 % 5.7 % (28.3 %) (35.1 %) (31.5 %) (41.5 %) (21.1 %)
Total 12.1 % 8.9 % 9.7 % 24.0 % (2.8 %) (41.9 %) (43.1 %) (38.0 %) (42.9 %) (10.6 %)
Note: Totals may not sum due to rounding.
(1) Represents Australia,
franchise revenues.
45
--------------------------------------------------------------------------------
North America Performance The decrease inNorth America revenues in the first nine months of fiscal 2021 versus the prior year period was driven primarily by a decrease in Subscription Revenues. The decrease in Subscription Revenues in the first nine months of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by both the lower number of Incoming Workshops + Digital Subscribers at the beginning of fiscal 2021 versus the beginning of fiscal 2020 and the significant recruitment decline in the first nine months of fiscal 2021 driven by the closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment. The decrease in North America Total Paid Weeks in the first nine months of fiscal 2021 was driven primarily by lower recruitments versus the prior year period due to the COVID-19 environment and cycling against the successful launch of the myWW program in the first nine months of fiscal 2020. The decrease inNorth America product sales and other in the first nine months of fiscal 2021 versus the prior year period was driven primarily by cycling against the revenue received in connection with the WW Presents:Oprah 's 2020 Vision tour in the first nine months of fiscal 2020.
Continental Europe Performance
The decrease in Continental Europe revenues in the first nine months of fiscal 2021 versus the prior year period was driven by a decrease in product sales and other. The slight increase in Subscription Revenues in the first nine months of fiscal 2021 versus the prior year period was driven by the impact of foreign currency. Excluding foreign currency, Continental Europe Subscription Revenues in the first nine months of fiscal 2021 would have decreased versus the prior year period driven by a decrease in Workshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by both the lower number of Incoming Workshops + Digital Subscribers at the beginning of fiscal 2021 versus the beginning of fiscal 2020 and the significant recruitment decline in the first nine months of fiscal 2021 driven by the closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment. The increase in Continental Europe Total Paid Weeks in the first nine months of fiscal 2021 versus the prior year period was driven primarily by the higher number of Incoming Digital Subscribers at the beginning of fiscal 2021 versus the beginning of fiscal 2020. The decrease in Continental Europe product sales and other in the first nine months of fiscal 2021 versus the prior year period was driven primarily by a decrease in in-studio product sales.
United Kingdom Performance
The decrease inUK revenues in the first nine months of fiscal 2021 versus the prior year period was driven by both a decrease in Subscription Revenues and a decrease in product sales and other. The decrease in Subscription Revenues in the first nine months of fiscal 2021 versus the prior year period was driven by a decrease in Workshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by both the lower number of Incoming Workshops + Digital Subscribers at the beginning of fiscal 2021 versus the beginning of fiscal 2020 and the significant recruitment decline in the first nine months of fiscal 2021 driven by the closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment. The decrease inUK Total Paid Weeks in the first nine months of fiscal 2021 was driven primarily by lower recruitments versus the prior year period due to the COVID-19 environment and cycling against the successful launch of the myWW program in the first nine months of fiscal 2020. The decrease inUK product sales and other in the first nine months of fiscal 2021 versus the prior year period was driven primarily by a decrease in product sales. Other Performance The decrease in Other revenues in the first nine months of fiscal 2021 versus the prior year period was driven by a decrease in product sales and other. The slight increase in Subscription Revenues in the first nine months of fiscal 2021 versus the prior year period was driven by the impact of foreign currency. Excluding foreign currency, Other Subscription Revenues in the first nine months of fiscal 2021 would have decreased versus the prior year period driven by a decrease in Workshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues. Workshops + Digital Fees were negatively impacted by both the lower number of Incoming Workshops + Digital Subscribers at the beginning of fiscal 2021 versus the beginning of fiscal 2020 and the recruitment decline in the first nine months of fiscal 2021 driven by the closure of certain of our studios and the limited reopening of others primarily related to the COVID-19 environment.
The decrease in Other product sales and other in the first nine months of fiscal 2021 versus the prior year period was driven primarily by a decrease in franchise commissions and product sales.
46
--------------------------------------------------------------------------------LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities have historically supplied, and are expected to continue to supply, us with our primary source of liquidity. We use 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. We currently believe that cash generated by operations, our cash on hand of approximately$188.2 million atOctober 2, 2021 , our$173.9 million of availability under our New Revolving Credit Facility (as defined below) atOctober 2, 2021 and our continued cost focus will provide us with sufficient liquidity to meet our obligations for the next twelve months. 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 arising from the COVID-19 pandemic. To increase our flexibility and reduce our cash interest payments, we refinanced our then-existing credit facilities and then-existing senior notes inApril 2021 . See "-Long-Term Debt" for additional details on this refinancing. Additionally, we instituted a number of measures throughout our operations to mitigate expenses and reduce costs as well as ensure liquidity and the availability of our New Revolving Credit Facility. As previously disclosed, in connection with our continued focus on maintaining flexibility and exercising cost discipline, we estimate our fiscal 2021 restructuring plan will cost approximately$22.0 million in fiscal 2021. The evolving nature, and uncertain economic impact, of COVID-19 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 access our New Revolving Credit Facility, may be adversely affected. 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 New 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.
© Edgar Online, source
