WW INTERNATIONAL, INC. WW 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," "Weight Watchers" 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 Personal Coaching + Digital and Digital 360 as applicable. Our "Workshops + Digital" business refers to providing unlimited access to our workshops combined with our digital subscription product offerings to commitment plan subscribers, including former Digital 360 members as applicable. 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. In the second quarter of fiscal 2022, we ceased offering our Digital 360 product. More than a majority of associated members were transitioned from our Digital business to our Workshops + Digital business during the second quarter, with a de minimis number transitioning during the beginning of the third quarter of fiscal 2022. The cessation of this product offering and these transitions of former Digital 360 members at the then-current pricing for such product impacted the number of End of Period Subscribers in each business as well as the associated Paid Weeks and Revenues for each business.
Our fiscal year ends on the Saturday closest to
• "fiscal 2015" refers to our fiscal year ended
• "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);
• "fiscal 2026" refers to our fiscal year ended January 2, 2027 ; and
• "fiscal 2027" refers to our fiscal year ended January 1, 2028 .
The following terms used in this Quarterly Report on Form 10-Q are our trademarks: Digital 360®, PersonalPointsTM and Weight Watchers®.
You should read the following discussion in conjunction with our Annual Report
on Form 10-K for fiscal 2021 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").
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--------------------------------------------------------------------------------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, operating 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 second quarter of fiscal 2022 to exclude (a) the impact of impairment charges for our franchise rights acquired related to ourCanada andNew Zealand units of account and the impairment charge for our goodwill related to our wholly-owned subsidiaryKurbo, Inc. ("Kurbo") and (b) the net impact of (x) charges associated with our previously disclosed 2022 restructuring plan (the "2022 plan") and (y) the reversal of certain of the charges associated with our previously disclosed 2021 organizational restructuring plan (the "2021 plan"); (ii) the first six months of fiscal 2022 to exclude (a) the impact of impairment charges for our franchise rights acquired related to ourCanada andNew Zealand units of account and the impairment charge for our goodwill related to Kurbo, and (b) the net impact of (x) charges associated with the 2022 plan, (y) charges associated with the 2021 plan or the reversal of certain of the charges associated with the 2021 plan, as applicable, and (z) the reversal of certain of the charges associated with our previously disclosed 2020 organizational restructuring plan (the "2020 plan"); and (iii) the second quarter and first six months of fiscal 2021 to exclude the net impact of (x) charges associated with the 2021 plan and (y) the reversal of certain of the charges associated with the 2020 plan. We generally refer to such non-GAAP measures as follows: (i) with respect to the adjustments for the second quarter and first six months of fiscal 2022, as excluding or adjusting for the impact of franchise rights acquired and goodwill impairments and the net impact of restructuring charges; and (ii) with respect to the adjustments for the second quarter and first six months of fiscal 2021, as excluding or adjusting for the net impact of restructuring charges. 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, and early extinguishment of debt with respect to the Company's previously disclosedApril 2021 debt refinancing and voluntary debt prepayments ("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.
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--------------------------------------------------------------------------------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.
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 theJuly 2, 2022 balance sheet date were$698.4 million ,$34.6 million ,$10.9 million ,$6.1 million and$3.6 million , respectively. In our hypothetical start-up approach analysis for fiscal 2022, 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 2022, 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 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 theJuly 2, 2022 balance sheet date were$104.0 million ,$41.6 million and$14.3 million , respectively. For all of our reporting units tested as ofMay 8, 2022 , 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 8, 2022 , we determined that (i) the carrying amounts of ourCanada andNew Zealand franchise rights acquired with indefinite lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for ourCanada andNew Zealand units of account of$24.5 million and$0.8 million , respectively, in the second quarter of fiscal 2022; and (ii) the carrying amounts of all of our other franchise rights acquired with indefinite lived units of account did not exceed their respective fair values and, therefore, no impairment existed with respect thereto. In performing our annual impairment analysis as ofMay 9, 2021 , we determined that the carrying amounts of our franchise rights acquired with indefinite lived units of account did not exceed their respective fair values and, therefore, no impairment existed. In performing our annual impairment analysis as ofMay 8, 2022 andMay 9, 2021 , the Company determined that the carrying amounts of our 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. 30 -------------------------------------------------------------------------------- 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 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 "Item 1A. Risk Factors" of our Annual Report on Form 10-K for fiscal 2021. Based on the results of ourMay 8, 2022 annual franchise rights acquired impairment analysis performed for ourUnited States unit of account, which holds 92.7% of our franchise rights acquired as of theJuly 2, 2022 balance sheet date, the estimated fair value of this unit of account exceeded its carrying value by approximately 15%. Based on the results of ourMay 8, 2022 annual franchise rights acquired impairment analysis performed for ourCanada andNew Zealand units of account, which hold 4.6% and 0.5%, respectively, of our franchise rights acquired as of theJuly 2, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying values. Accordingly, a change in the underlying assumptions forthe United States ,Canada andNew Zealand may change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related tothe United States ,Canada andNew Zealand , for which the net book values were$698.4 million ,$34.6 million and$3.6 million , respectively, as ofJuly 2, 2022 . Based on the results of ourMay 8, 2022 annual franchise rights acquired impairment analysis performed for our remaining units of account, which collectively hold 2.2% of our franchise rights acquired as of theJuly 2, 2022 balance sheet date, the estimated fair values of these units of account exceeded their respective carrying values by over 100%. In performing this impairment analysis for fiscal 2022, in our hypothetical start-up approach analysis, 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 23.0% to 106.2% in the year of maturity from fiscal 2021, in each case, earned in the applicable country and assumed cumulative annual revenue growth rates for the years beyond the year of maturity of 2.4%. For the year of maturity and beyond, we assumed operating income margin rates of (3.0%) to 8.8%. In our relief from royalty approach, we assumed Digital revenue growth in each country of (25.6%) to 16.1% for fiscal 2022. Based on the results of ourMay 8, 2022 annual goodwill impairment analysis performed for all of our reporting units, all units, except for theRepublic of Ireland , had an estimated fair value at least 35% higher than the respective unit's carrying amount. Collectively, these reporting units represented 97.3% of our total goodwill as of theJuly 2, 2022 balance sheet date. Based on the results of ourMay 8, 2022 annual goodwill impairment analysis performed for ourRepublic of Ireland reporting unit, which holds 2.7% of our goodwill as of theJuly 2, 2022 balance sheet date, the estimated fair value of this reporting unit exceeded its carrying value by approximately 14%. Accordingly, a change in the underlying assumptions for theRepublic of Ireland may change the results of the impairment assessment and, as such, could result in an impairment of the goodwill related to theRepublic of Ireland , for which the net book value was$4.3 million as ofJuly 2, 2022 .
The following are the more significant assumptions utilized in our annual impairment analyses for fiscal 2022 and fiscal 2021:
Fiscal 2022 Fiscal 2021
Debt-Free Cumulative Annual Cash Flow Growth Rate 1.2% to 20.6% 0.2% to 2.6%
Discount Rate 9.6% 8.5%
Kurbo Goodwill Impairment
On August 10, 2018 , we acquired substantially all of the assets of Kurbo Health,
Inc. , a family-based healthy lifestyle coaching program, for a net purchase
price of $3.1 million , of which $1.1 million was allocated to goodwill. The
goodwill was deductible annually for tax purposes. We determined in the second
quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal
2022 as part of our strategic plan. As a result of this determination,
we recorded an impairment charge of $1.1 million in the second quarter of fiscal
2022, which comprised the entire goodwill balance for Kurbo.
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
2021. Our critical accounting policies have not changed since the end of fiscal
2021.
31
--------------------------------------------------------------------------------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". "Digital Subscription Revenues"
consist of the fees associated with subscriptions for our Digital
offerings, including Personal Coaching + Digital and Digital 360 as
applicable. "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, and, in the case of the 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 Personal Coaching + Digital and Digital 360 as
applicable); (ii) "Workshops + 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 Personal Coaching + Digital and Digital 360 (asapplicable), subscribers; (ii) "Incoming Workshops + Digital Subscribers"
is the total number of 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.
• End of Period Subscribers-The "End of Period Subscribers" metric reports
WW 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 Personal Coaching + Digital and Digital 360 (as
applicable), subscribers; (ii) "End of Period Workshops + Digital
Subscribers" is the total 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 andEnd of Period Workshops + Digital Subscribers. Recruitment and retention
are key drivers for this metric.
• Gross profit and operating expenses as a percentage of revenue.
In the second quarter of fiscal 2022, we ceased offering our Digital 360
product. More than a majority of associated members were transitioned from our
Digital business to our Workshops + Digital business during the second quarter,
with a de minimis number transitioning during the beginning of the third quarter
of fiscal 2022. The cessation of this product offering and these transitions of
former Digital 360 members at the then-current pricing for such product impacted
the number of End of Period Subscribers in each business as well as the
associated Paid Weeks and Revenues for each business. For additional details on
the cessation of our Digital 360 offering and the impact of those former Digital
360 members who transitioned from our Digital business to our Workshops +
Digital business, see "-Segment Results."
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--------------------------------------------------------------------------------COVID-19 PANDEMIC
The novel coronavirus (including its variants, COVID-19) pandemic continues to
evolve and have unpredictable impacts on consumer sentiment and behavior and on
our business operations and the markets in which we operate. We have seen
significant shifts in consumer sentiment with respect to the weight loss and
wellness marketplace, which we believe in part is attributable to the evolution
of the pandemic. COVID-19 has had a significant effect on our recruitments since
its onset. Our Workshops + Digital recruitments were substantially negatively
impacted during the first year of the pandemic. While Digital recruitments were
strong in the beginning of the COVID-19 pandemic, a subsequent turn in consumer
sentiment drove a decline in Digital recruitments. Given the long-term
subscription model of our business, these declines in recruitment continued to
impact the number of our End of Period Subscribers in the second quarter of
fiscal 2022, which declined compared to the prior year period. Additionally, our
mix shift toward our Digital business, which was significant during the onset of
the pandemic, especially when amplified by the nature of our subscription
business, negatively impacted revenue. Over the longer term, it remains
uncertain how the COVID-19 pandemic will impact consumer demand for our products
and services and consumer preferences and behavior generally.
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, the severity of any variant or surges in COVID-19
cases, new information about health implications, vaccine availability and
hesitancy, and actions by government authorities to contain the outbreak or
treat its impact. This dynamic situation is driving uncertainty at the
macroeconomic, local and consumer levels. We continue to actively monitor the
ongoing global outbreak of COVID-19 and its impact and related developments.
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. We continue to serve our members virtually, both via our
Digital business and through virtual workshops, and to evolve our workshop
strategy as we evaluate our cost structure and respond to shifting consumer
sentiment. We consolidated certain of our studios and continue to close certain
other branded studio locations. We continually evaluate our studio locations,
and the decision to operate at any particular studio location is influenced by a
number of factors, including consumer confidence and preferences, changes in
consumer sentiment and behavior, the protection of the health and safety of our
employees and members and applicable legal restrictions, and is dependent on
cost efficiencies and alignment with our 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, including
shifts in consumer sentiment and behavior, 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 consumer, 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 2021. 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.
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--------------------------------------------------------------------------------RESULTS OF OPERATIONS
THREE MONTHS ENDED
The table below sets forth selected financial information for the second quarter of fiscal 2022 from our consolidated statements of net income for the three months endedJuly 2, 2022 versus selected financial information for the second quarter of fiscal 2021 from our consolidated statements of net income for the three months endedJuly 3, 2021 . Summary of Selected Financial Data (In millions, except per share amounts) For The Three Months Ended % Change Increase/ % Constant July 2, 2022 July 3, 2021 (Decrease) Change Currency Revenues, net$ 269.5 $ 311.4 $ (41.9 ) (13.5 %) (10.0 %) Cost of revenues 106.5 125.4 (18.9 ) (15.0 %) (12.6 %) Gross profit 163.0 186.0 (23.1 ) (12.4 %) (8.3 %) Gross Margin % 60.5 % 59.7 % Marketing expenses 51.9 57.2 (5.3 ) (9.3 %) (5.9 %) Selling, general & administrative expenses 71.3 69.2 2.1 3.1 % 5.3 % Franchise rights acquired and goodwill impairments 26.4 - 26.4 100.0 % 100.0 % Operating income 13.4 59.7 (46.3 ) (77.6 %) (72.6 %) Operating Income Margin % 5.0 % 19.2 % Interest expense 19.3 20.3 (1.0 ) (5.1 %) (5.1 %) Other expense, net 1.6 0.4 1.2 100.0 % * 100.0 % * Early extinguishment of debt - 29.2 (29.2 ) (100.0 %) (100.0 %) (Loss) income before income taxes (7.5 ) 9.8
(17.3 ) (100.0 %) * (100.0 %) *
(Benefit from) provision for income taxes (2.9 ) 1.0 (3.8 ) (100.0 %) * (100.0 %) * Net (loss) income$ (4.6 ) $ 8.9 $
(13.5 ) (100.0 %) * (100.0 %) *
Weighted average diluted shares outstanding 70.3 71.2 (0.9 ) (1.2 %) (1.2 %) Diluted (net loss) earnings per share$ (0.07 ) $ 0.12 $ (0.19 ) (100.0 %) * (100.0 %) *
Note: Totals may not sum due to rounding.
*Note: Percentage in excess of 100.0%.
34
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Certain results for the second quarter of fiscal 2022 are adjusted to exclude
the impact of the $26.4 million of franchise rights acquired and goodwill
impairments and the net impact of the $19.1 million of 2022 plan restructuring
charges and the reversal of $0.6 million of 2021 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 July 2, 2022 which have been adjusted.
Gross Operating
Gross Profit Operating Income
(in millions except percentages) Profit Margin Income Margin
Second Quarter of Fiscal 2022 $ 163.0 60.5 % $ 13.4 5.0 %
Adjustments to reported amounts (1)
Franchise rights acquired and goodwill
impairments - 26.4
2022 plan restructuring charges 4.5
19.1
2021 plan restructuring charges (0.6 ) (0.6 ) Total adjustments (1) 3.9
45.0
Second Quarter of Fiscal 2022, as adjusted (1)$ 166.9 61.9 %$ 58.3 21.7 %
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 second quarter of fiscal 2022
to exclude the impact of the
franchise rights acquired and goodwill impairments and the net impact of the
and the reversal of $0.6 million ($0.4 million after tax) of 2021 plan
restructuring charges. See "Non-GAAP Financial Measures" above for an
explanation of our use of non-GAAP financial measures.
Certain results for the second quarter of fiscal 2021 are adjusted to exclude
the net impact of the $6.0 million of 2021 plan restructuring charges and the
reversal of $0.8 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 July 3, 2021 which have been adjusted.
Gross Operating
Gross Profit Operating Income
(in millions except percentages) Profit Margin Income Margin
Second Quarter of Fiscal 2021 $ 186.0 59.7 % $ 59.7 19.2 %
Adjustments to reported amounts (1)
2021 plan restructuring charges 5.6 6.0
2020 plan restructuring charges (0.6 ) (0.8 ) Total adjustments (1) 5.0
5.2
Second Quarter of Fiscal 2021, as adjusted (1)
20.8 %
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 second quarter of fiscal 2021
to exclude the net impact of the $6.0 million ($4.5 million after tax) of
2021 plan restructuring charges and the reversal of $0.8 million ($0.6
million after tax) of 2020 plan restructuring charges. See "Non-GAAPFinancial Measures" above for an explanation of our use of non-GAAP financial
measures.
Consolidated Results
Revenues
Revenues for the second quarter of fiscal 2022 were $269.5 million , a decrease
of $41.9 million , or 13.5%, versus the second quarter of fiscal 2021. Excluding
the impact of foreign currency, which negatively impacted our revenues in the
second quarter of fiscal 2022 by $10.7 million , revenues for the second quarter
of fiscal 2022 would have decreased 10.0% versus the prior year period. This
decrease was driven primarily by lower Subscription Revenues reflecting lower
sign-ups primarily due to worsened consumer sentiment and our PersonalPoints
program not resonating with consumers to the extent anticipated. This worsened
consumer sentiment was due in part to the evolution of the COVID-19 pandemic as
well as the likely impact of certain macro factors including increasing
inflation, social and political unrest and challenged economic growth.
See "-Segment Results" for additional details on revenues.
35
--------------------------------------------------------------------------------Cost of Revenues
Total cost of revenues for the second quarter of fiscal 2022 decreased$18.9 million , or 15.0%, versus the second quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased cost of revenues in the second quarter of fiscal 2022 by$3.0 million , cost of revenues for the second quarter of fiscal 2022 would have decreased 12.6% versus the prior year period. Excluding the net impact of the$3.9 million of restructuring charges in the second quarter of fiscal 2022 and the net impact of the$5.0 million of restructuring charges in the second quarter of fiscal 2021, total cost of revenues for the second quarter of fiscal 2022 would have decreased by 14.8%, or 12.3% on a constant currency basis, versus the prior year period.
Gross Profit
Gross profit for the second quarter of fiscal 2022 decreased$23.1 million , or 12.4%, versus the second quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted gross profit in the second quarter of fiscal 2022 by$7.7 million , gross profit for the second quarter of fiscal 2022 would have decreased 8.3% versus the prior year period. Excluding the net impact of the$3.9 million of restructuring charges in the second quarter of fiscal 2022 and the net impact of the$5.0 million of restructuring charges in the second quarter of fiscal 2021, gross profit for the second quarter of fiscal 2022 would have decreased by 12.6%, or 8.6% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin for the second quarter of fiscal 2022 increased to 60.5% versus 59.7% for the second quarter of fiscal 2021. Excluding the impact of foreign currency, gross margin in the second quarter of fiscal 2022 would have increased 1.2% to 60.9% versus the prior year period. Excluding the net impact of restructuring charges in the second quarter of fiscal 2022 and the net impact of restructuring charges in the second quarter of fiscal 2021, gross margin for the second quarter of fiscal 2022 would have increased 0.6% to 61.9% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the second quarter of fiscal 2022 and the net impact of restructuring charges in the second quarter of fiscal 2021, gross margin for the second quarter of fiscal 2022 would have increased 1.0% to 62.3% versus the prior year period. The gross margin increase was driven primarily by margin expansion in the Workshops + Digital business resulting from a more efficient studio footprint and a reduction in labor costs.
Marketing
Marketing expenses for the second quarter of fiscal 2022 decreased$5.3 million , or 9.3%, versus the second quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased marketing expenses in the second quarter of fiscal 2022 by$1.9 million , marketing expenses for the second quarter of fiscal 2022 would have decreased 5.9% versus the prior year period. This decrease in marketing expenses was primarily due to a decline in TV media. Marketing expenses as a percentage of revenue for the second quarter of fiscal 2022 increased to 19.2% from 18.4% for the second quarter of fiscal 2021.
Selling, General and Administrative
Selling, general and administrative expenses for the second quarter of fiscal 2022 increased$2.1 million , or 3.1%, versus the second quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses in the second quarter of fiscal 2022 by$1.5 million , selling, general and administrative expenses for the second quarter of fiscal 2022 would have increased 5.3% versus the prior year period. Excluding the net impact of the$14.6 million of restructuring charges in the second quarter of fiscal 2022 and the net impact of the$0.2 million of restructuring charges in the second quarter of fiscal 2021, selling, general and administrative expenses for the second quarter of fiscal 2022 would have decreased by 17.8%, or 15.6% on a constant currency basis, versus the prior year period. This decrease in selling, general and administrative expenses was primarily due to lower stock compensation expense. Selling, general and administrative expenses as a percentage of revenue for the second quarter of fiscal 2022 increased to 26.5% from 22.2% for the second quarter of fiscal 2021. Excluding the net impact of restructuring charges in the second quarter of fiscal 2022 and the net impact of restructuring charges in the second quarter of fiscal 2021, selling, general and administrative expenses as a percentage of revenue for the second quarter of fiscal 2022 would have decreased by 1.1%, or 1.4% on a constant currency basis, versus the prior year period. Impairments In performing our annual impairment analysis as ofMay 8, 2022 , we determined that the carrying amounts of ourCanada andNew Zealand franchise rights acquired with indefinite lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for ourCanada andNew Zealand units of account of$24.5 million and$0.8 million , respectively, in the second quarter of fiscal 2022. In addition, we determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of our strategic plan. As a result of this determination, we recorded an impairment charge of$1.1 million in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo. 36 --------------------------------------------------------------------------------
Operating Income
Operating income for the second quarter of fiscal 2022 decreased$46.3 million , or 77.6%, versus the second quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted operating income in the second quarter of fiscal 2022 by$3.0 million , operating income for the second quarter of fiscal 2022 would have decreased 72.6% versus the prior year period. Excluding the impact of the$26.4 million of franchise rights acquired and goodwill impairments in the second quarter of fiscal 2022, the net impact of the$18.6 million of restructuring charges in the second quarter of fiscal 2022 and the net impact of the$5.2 million of restructuring charges in the second quarter of fiscal 2021, operating income for the second quarter of fiscal 2022 would have decreased by 10.1%, or 3.5% on a constant currency basis, versus the prior year period. Operating income margin for the second quarter of fiscal 2022 decreased to 5.0% versus 19.2% for the second quarter of fiscal 2021. Excluding the impact of the franchise rights acquired and goodwill impairments in the second quarter of fiscal 2022, the net impact of restructuring charges in the second quarter of fiscal 2022 and the net impact of restructuring charges in the second quarter of fiscal 2021, operating income margin for the second quarter of fiscal 2022 would have increased by 0.8%, or 1.5% on a constant currency basis, versus the prior year period. This increase in operating income margin was driven primarily by a decrease in selling, general and administrative expenses as a percentage of revenue and an increase in gross margin, partially offset by an increase in marketing expenses as a percentage of revenue, versus the prior year period. Interest Expense Interest expense for the second quarter of fiscal 2022 decreased$1.0 million , or 5.1%, versus the second quarter of fiscal 2021. The decrease in interest expense was driven primarily by lower interest rates under our 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 second quarter of fiscal 2022 and the second quarter of fiscal 2021 and excluding the impact of our interest rate swaps then in effect, remained flat at 4.73% per annum at the end of the second quarter of fiscal 2022 compared to the end of the second quarter of fiscal 2021. 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 second quarter of fiscal 2022 and the second quarter of fiscal 2021, decreased to 5.30% per annum at the end of the second quarter of fiscal 2022 from 5.32% per annum at the end of the second quarter of fiscal 2021. 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$1.2 million for the second quarter of fiscal 2022 to$1.6 million of expense as compared to$0.4 million of expense for the second quarter of fiscal 2021.
Early Extinguishment of Debt
In the second quarter 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 for the second quarter of fiscal 2022 was 38.4% as compared to 9.9% for the second quarter of fiscal 2021. The tax benefit for the second quarter of fiscal 2022 was primarily driven by a tax benefit recorded for out-of-period income tax adjustments, which was partially offset by tax expense related to tax shortfalls from stock compensation. For the second quarter of fiscal 2022, the difference between theU.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to tax benefits related to foreign-derived intangible income, or FDII, and out-of-period income tax adjustments, partially offset by state income tax expense, tax expense from income earned in foreign jurisdictions and tax expense related to tax shortfalls from stock compensation. The tax expense for the second quarter of fiscal 2021 was impacted by tax windfalls from stock compensation. For the second 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 FDII. 37 --------------------------------------------------------------------------------
Net (Loss) Income and Diluted (Net Loss) Earnings Per Share
Net loss for the second quarter of fiscal 2022 was$4.6 million compared to net income for the second quarter of fiscal 2021 of$8.9 million . Net loss for the second quarter of fiscal 2022 was negatively impacted by$1.7 million of foreign currency. Net loss for the second quarter of fiscal 2022 included a$21.3 million impact from franchise rights acquired and goodwill impairments and a$13.9 million net impact from restructuring charges. Net income for the second quarter of fiscal 2021 included a$21.8 million impact from the write-off of fees related to ourApril 2021 debt refinancing and a$3.9 million net impact from restructuring charges. Diluted net loss per share for the second quarter of fiscal 2022 was$0.07 compared to earnings per fully diluted share, or EPS, of$0.12 for the second quarter of fiscal 2021. Diluted net loss per share for the second quarter of fiscal 2022 included a$0.30 impact from franchise rights acquired and goodwill impairments and a$0.20 net impact from restructuring charges. EPS for the second quarter of fiscal 2021 included a$0.31 impact from the write-off of fees related to ourApril 2021 debt refinancing and a$0.05 net impact from restructuring charges. 38 --------------------------------------------------------------------------------
Segment Results Metrics and Business Trends The following tables set forth key metrics by reportable segment for the second quarter of fiscal 2022 and the percentage change in those metrics versus the prior year period:
(in millions except percentages and as noted)
Q2 2022
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 $ 166.9 $ 21.1 $ 188.0 $ 167.3 $ 21.2 $ 188.5 37.8 2,986.2 2,805.1
CE 56.6 5.1 61.7 64.2 5.8 70.1 15.1 1,189.5 1,118.9
UK 10.9 1.9 12.8 12.1 2.1 14.2 3.4 270.1 254.8
Other (1) 6.0 0.9 6.9 6.4 1.0 7.4 1.2 99.6 88.7
Total $ 240.4 $ 29.1 $ 269.5 $ 250.1 $ 30.1 $ 280.2 57.5 4,545.4 4,267.5
% Change Q2 2022 vs. Q2 2021
North America (8.3 %) (17.8 %) (9.4 %) (8.1 %) (17.5 %) (9.2 %) (8.7 %) (5.5 %) (11.2 %)
CE (18.4 %) (40.2 %) (20.8 %) (7.3 %) (32.2 %) (10.1 %) (12.4 %) (11.8 %)
(12.2 %)
UK (23.2 %) (33.9 %) (25.0 %) (14.5 %) (26.5 %) (16.5 %) (23.4 %) (20.6 %)
(24.4 %)
Other (1) (18.9 %) (33.5 %) (21.2 %) (13.0 %) (30.1 %) (15.8 %) (8.3 %) (6.9 %) (9.6 %)
Total (11.9 %) (24.5 %) (13.5 %) (8.3 %) (21.9 %) (10.0 %) (10.7 %) (8.3 %) (12.3 %) Note: Totals may not sum due to rounding. (1) Represents Australia,New Zealand and emerging markets operations and franchise revenues.
(in millions except percentages and as noted)
Q2 2022
Workshops Incoming EOP
Digital Subscription Revenues (2) Digital Incoming EOP Workshops + Digital Fees (2) + Digital Workshops Workshops
Constant Paid Digital Digital Constant Paid + Digital + Digital
GAAP Currency Weeks (2) Subscribers Subscribers (2) GAAP Currency Weeks (2) Subscribers Subscribers (2)
(in thousands) (in thousands)
North America $ 114.4 $ 114.7 30.1 2,450.7 2,174.6 $ 52.5 $ 52.6 7.7 535.4 630.5
CE 48.8 55.4 13.7 1,088.3 1,009.8 7.8 8.9 1.4 101.1 109.1
UK 6.6 7.4 2.5 206.0 182.8 4.3 4.8 0.9 64.1 72.0
Other (1) 4.4 4.7 1.0 81.4 72.8 1.6 1.7 0.2 18.2 15.9
Total $ 174.2 $ 182.2 47.3 3,826.6 3,440.0 $ 66.2 $ 67.9 10.2 718.8 827.6
% Change Q2 2022 vs. Q2 2021
North America (12.1 %) (11.9 %) (12.1 %) (6.8 %) (16.5 %) 1.5 % 1.7 % 7.7 % 1.1 % 13.8 %
CE (19.5 %) (8.6 %) (13.8 %) (12.1 %) (14.4 %) (10.8 %) 1.4 % 4.7 % (9.1 %) 15.7 %
UK (31.1 %) (23.3 %) (27.5 %) (22.9 %) (29.9 %) (6.7 %) 3.9 % (9.4 %) (12.3 %) (5.9 %)
Other (1) (10.6 %) (4.1 %) (1.3 %) (0.3 %) (2.6 %) (35.1 %) (30.4 %) (30.7 %) (28.2 %) (32.0 %)
Total (15.2 %) (11.3 %) (13.4 %) (9.3 %) (16.5 %) (2.0 %) 0.6 % 4.3 % (2.8 %) 10.6 %
Note: Totals may not sum due to rounding.
(1) Represents Australia, New Zealand and emerging markets operations and
franchise revenues.
(2) The table below sets forth Workshops + Digital Fees, Workshops + Digital Paid
Weeks and End of Period Workshops + Digital Subscribers attributable to
former Digital 360 members who transitioned from our Digital business to our
Workshops + Digital business during the second quarter of fiscal 2022.
39
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(in millions except as noted)
Q2 2022
Workshops EOP
Workshops + Digital Fees + Digital Workshops
Constant Paid + Digital
GAAP Currency Weeks Subscribers
(in thousands)
North America $ 3.7 $ 3.7 0.7 113.0
CE 0.2 0.2 0.0 6.9
UK 0.2 0.3 0.1 7.3
Other - - - -Total Attributable to Former
Digital 360 Members $ 4.1 $ 4.2 0.8 127.2
In connection with such transition, the Digital business experienced declines
in Subscription Revenues, Paid Weeks and End of Period Subscribers. For the
second quarter of fiscal 2022, adjusting Revenues for both our businesses to
exclude
Revenues attributable to former Digital 360 members who transitioned from our
Digital business to our Workshops + Digital business, (i) Digital
Subscription Revenues would have decreased 13.2%, or 9.3% on a constant
currency basis, and (ii) Workshops + Digital Fees would have decreased 8.1%,
or 5.6% on a constant currency basis, both versus the prior year period. For
the second quarter of fiscal 2022, adjusting Paid Weeks for both our
businesses to exclude 0.8 million of Paid Weeks attributable to such former
Digital 360 members, (i) Digital Paid Weeks would have decreased 11.8% and
(ii) Workshops + Digital Paid Weeks would have decreased 4.3%, both versus
the prior year period. For the second quarter of fiscal 2022, adjusting End
of Period Subscribers for both our businesses to exclude 127.2 thousand
former Digital 360 members who transitioned from our Digital business to our
Workshops + Digital business, (i) End of Period Digital Subscribers would
have decreased 13.4% and (ii) End of Period Workshops + Digital Subscribers
would have decreased 6.4%, both versus the prior year period.
North America Performance
The decrease inNorth America revenues for the second quarter of fiscal 2022 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 for the second quarter of fiscal 2022 versus the prior year period was driven by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the recruitment decline during the second quarter of fiscal 2022 as compared to the prior year period and the lower number of Incoming Digital Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. Additionally, the transition of our former Digital 360 members to our Workshops + Digital business negatively impacted Digital Subscription Revenues in the second quarter of fiscal 2022. The decrease in North America Total Paid Weeks for the second quarter of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the second quarter of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021. The decrease inNorth America product sales and other for the second quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
Continental Europe Performance
The decrease in Continental Europe revenues for the second quarter of fiscal 2022 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 for the second quarter of fiscal 2022 versus the prior year period was driven by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the recruitment decline during the second quarter of fiscal 2022 as compared to the prior year period and the lower number of Incoming Digital Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in Continental Europe Total Paid Weeks for the second quarter of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the second quarter of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021.
The decrease in Continental Europe product sales and other for the second quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
40
--------------------------------------------------------------------------------United Kingdom Performance
The decrease inUK revenues for the second quarter of fiscal 2022 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 for the second quarter of fiscal 2022 versus the prior year period was driven by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021 and the recruitment decline during the second quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease inUK Total Paid Weeks for the second quarter of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the second quarter of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021. The decrease inUK product sales and other for the second quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales. Other Performance The decrease in Other revenues for the second quarter of fiscal 2022 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 for the second quarter of fiscal 2022 versus the prior year period was driven by both a decrease in Workshops + Digital Fees and a decrease in Digital Subscription Revenues. Subscription Revenues were negatively impacted by both the recruitment decline during the second quarter of fiscal 2022 as compared to the prior year period and the lower number of Total Incoming Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in Other product sales and other for the second quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in product sales. 41 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
SIX MONTHS ENDED
The table below sets forth selected financial information for the first six months of fiscal 2022 from our consolidated statements of net income for the six months endedJuly 2, 2022 versus selected financial information for the first six months of fiscal 2021 from our consolidated statements of net income for the six months endedJuly 3, 2021 . Summary of Selected Financial Data (In millions, except per share amounts) For The Six Months Ended % Change Increase/ % Constant July 2, 2022 July 3, 2021 (Decrease) Change Currency Revenues, net$ 567.2 $ 643.2 $ (76.0 ) (11.8 %) (9.2 %) Cost of revenues 224.2 263.7 (39.6 ) (15.0 %) (13.2 %) Gross profit 343.1 379.5 (36.4 ) (9.6 %) (6.4 %) Gross Margin % 60.5 % 59.0 % Marketing expenses 159.4 174.1 (14.7 ) (8.4 %) (6.1 %) Selling, general & administrative expenses 134.9 142.9 (8.0 ) (5.6 %) (4.0 %) Franchise rights acquired and goodwill impairments 26.4 - 26.4 100.0 % 100.0 % Operating income 22.3 62.5 (40.2 ) (64.3 %) (56.8 %) Operating Income Margin % 3.9 % 9.7 % Interest expense 37.9 49.4 (11.5 ) (23.3 %) (23.3 %) Other expense, net 2.0 0.1 1.8 100.0 % * 100.0 % * Early extinguishment of debt - 29.2 (29.2 ) (100.0 %) (100.0 %) Loss before income taxes (17.5 ) (16.2 ) (1.3 ) (8.1 %) (20.6 %) Benefit from income taxes (4.7 ) (6.9 ) 2.2 31.7 % 57.0 % Net loss$ (12.9 ) $ (9.4 ) $ (3.5 ) (37.4 %) (6.1 %) Weighted average diluted shares outstanding 70.2 69.3 0.9 1.2 % 1.2 % Diluted net loss per share$ (0.18 ) $ (0.14 ) $ (0.05 ) (35.7 %) (4.8 %)
Note: Totals may not sum due to rounding.
*Note: Percentage in excess of 100.0%.
42
--------------------------------------------------------------------------------
Certain results for the first six months of fiscal 2022 are adjusted to exclude
the impact of the $26.4 million of franchise rights acquired and goodwill
impairments and the net impact of the $19.1 million of 2022 plan restructuring
charges, the reversal of $0.3 million of 2021 plan restructuring charges and the
reversal of $0.1 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 six
months ended July 2, 2022 which have been adjusted.
Gross Operating
Gross Profit Operating Income
(in millions except percentages) Profit Margin Income Margin
First Six Months of Fiscal 2022 $ 343.1 60.5 % $ 22.3 3.9 %
Adjustments to reported amounts (1)
Franchise rights acquired and goodwill impairments -
26.4
2022 plan restructuring charges 4.5
19.1
2021 plan restructuring charges (0.5 ) (0.3 ) 2020 plan restructuring charges (0.1 ) (0.1 ) Total adjustments (1) 3.8
45.1
First Six Months of Fiscal 2022, as adjusted (1)$ 346.9 61.2 %$ 67.5 11.9 %
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 six months of fiscal 2022
to exclude the impact of the
franchise rights acquired and goodwill impairments and the net impact of the
the reversal of
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 first six months of fiscal 2021 are adjusted to exclude the net impact of the$11.6 million of 2021 plan restructuring charges and the reversal of$0.8 million of 2020 plan restructuring charges. See "Non-GAAP Financial Measures" above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the first six months endedJuly 3, 2021 which have been adjusted. Gross Operating Gross Profit Operating Income (in millions except percentages) Profit Margin Income Margin First Six Months of Fiscal 2021$ 379.5 59.0 %$ 62.5 9.7 % Adjustments to reported amounts (1) 2021 plan restructuring charges 10.8
11.6
2020 plan restructuring charges (0.6 ) (0.8 ) Total adjustments (1) 10.2
10.7
First Six Months of Fiscal 2021, as adjusted (1)$ 389.6 60.6 %$ 73.2 11.4 %
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 six months of fiscal 2021
to exclude the net impact of the $11.6 million ($8.7 million after tax) of
2021 plan restructuring charges and the reversal of $0.8 million ($0.6
million after tax) of 2020 plan restructuring charges. See "Non-GAAPFinancial Measures" above for an explanation of our use of non-GAAP financial
measures.
Consolidated Results
Revenues
Revenues for the first six months of fiscal 2022 were $567.2 million , a decrease
of $76.0 million , or 11.8%, versus the first six months of fiscal 2021.
Excluding the impact of foreign currency, which negatively impacted our revenues
in the first six months of fiscal 2022 by $17.0 million , revenues for the first
six months of fiscal 2022 would have decreased 9.2% versus the prior year
period. This decrease was driven primarily by lower Subscription Revenues
reflecting lower sign-ups primarily due to worsened consumer sentiment and our
PersonalPoints program not resonating with consumers to the extent anticipated.
This worsened consumer sentiment was due in part to the evolution of the
COVID-19 pandemic as well as the likely impact of certain macro factors
including increasing inflation, social and political unrest and challenged
economic growth. See "-Segment Results" for additional details on revenues.
43
--------------------------------------------------------------------------------Cost of Revenues
Total cost of revenues for the first six months of fiscal 2022 decreased$39.6 million , or 15.0%, versus the first six months of fiscal 2021. Excluding the impact of foreign currency, which decreased cost of revenues in the first six months of fiscal 2022 by$4.9 million , cost of revenues for the first six months of fiscal 2022 would have decreased 13.2% versus the prior year period. Excluding the net impact of the$3.8 million of restructuring charges in the first six months of fiscal 2022 and the net impact of the$10.2 million of restructuring charges in the first six months of fiscal 2021, total cost of revenues for the first six months of fiscal 2022 would have decreased by 13.1%, or 11.2% on a constant currency basis, versus the prior year period.
Gross Profit
Gross profit for the first six months of fiscal 2022 decreased$36.4 million , or 9.6%, versus the first six months of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted gross profit in the first six months of fiscal 2022 by$12.2 million , gross profit for the first six months of fiscal 2022 would have decreased 6.4% versus the prior year period. Excluding the net impact of the$3.8 million of restructuring charges in the first six months of fiscal 2022 and the net impact of the$10.2 million of restructuring charges in the first six months of fiscal 2021, gross profit for the first six months of fiscal 2022 would have decreased by 11.0%, or 7.8% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin for the first six months of fiscal 2022 increased to 60.5% versus 59.0% for the first six months of fiscal 2021. Excluding the impact of foreign currency, gross margin in the first six months of fiscal 2022 would have increased 1.8% to 60.8% versus the prior year period. Excluding the net impact of restructuring charges in the first six months of fiscal 2022 and the net impact of restructuring charges in the first six months of fiscal 2021, gross margin for the first six months of fiscal 2022 would have increased 0.6% to 61.2% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the first six months of fiscal 2022 and the net impact of restructuring charges in the first six months of fiscal 2021, gross margin for the first six months of fiscal 2022 would have increased 0.9% to 61.5% versus the prior year period. The gross margin increase was driven primarily by margin expansion in the Workshops + Digital business resulting from a more efficient studio footprint and a reduction in labor costs.
Marketing
Marketing expenses for the first six months of fiscal 2022 decreased$14.7 million , or 8.4%, versus the first six months of fiscal 2021. Excluding the impact of foreign currency, which decreased marketing expenses in the first six months of fiscal 2022 by$4.0 million , marketing expenses for the first six months of fiscal 2022 would have decreased 6.1% versus the prior year period. This decrease in marketing expenses was primarily due to a decline in TV media. Marketing expenses as a percentage of revenue for the first six months of fiscal 2022 increased to 28.1% from 27.1% for the first six months of fiscal 2021.
Selling, General and Administrative
Selling, general and administrative expenses for the first six months of fiscal 2022 decreased$8.0 million , or 5.6%, versus the first six months of fiscal 2021. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses in the first six months of fiscal 2022 by$2.3 million , selling, general and administrative expenses for the first six months of fiscal 2022 would have decreased 4.0% versus the prior year period. Excluding the net impact of the$14.9 million of restructuring charges in the first six months of fiscal 2022 and the net impact of the$0.6 million of restructuring charges in the first six months of fiscal 2021, selling, general and administrative expenses for the first six months of fiscal 2022 would have decreased by 15.7%, or 14.1% on a constant currency basis, versus the prior year period. This decrease in selling, general and administrative expenses was primarily due to lower stock compensation expense and lower bonus expense driven by a change in timing of payment and a reduction in headcount. Selling, general and administrative expenses as a percentage of revenue for the first six months of fiscal 2022 increased to 23.8% from 22.2% for the first six months of fiscal 2021. Excluding the net impact of restructuring charges in the first six months of fiscal 2022 and the net impact of restructuring charges in the first six months of fiscal 2021, selling, general and administrative expenses as a percentage of revenue for the first six months of fiscal 2022 would have decreased by 1.0%, or 1.2% on a constant currency basis, versus the prior year period. Impairments In performing our annual impairment analysis as ofMay 8, 2022 , we determined that the carrying amounts of ourCanada andNew Zealand franchise rights acquired with indefinite lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for ourCanada andNew Zealand units of account of$24.5 million and$0.8 million , respectively, in the second quarter of fiscal 2022. In addition, we determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of our strategic plan. As a result of this determination, we recorded an impairment charge of$1.1 million in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo. 44 --------------------------------------------------------------------------------
Operating Income
Operating income for the first six months of fiscal 2022 decreased$40.2 million , or 64.3%, versus the first six months of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted operating income in the first six months of fiscal 2022 by$4.7 million , operating income for the first six months of fiscal 2022 would have decreased 56.8% versus the prior year period. Excluding the impact of the$26.4 million of franchise rights acquired and goodwill impairments in the first six months of fiscal 2022, the net impact of the$18.7 million of restructuring charges in the first six months of fiscal 2022 and the net impact of the$10.7 million of restructuring charges in the first six months of fiscal 2021, operating income for the first six months of fiscal 2022 would have decreased by 7.9%, or increased by 0.2% on a constant currency basis, versus the prior year period. Operating income margin for the first six months of fiscal 2022 decreased to 3.9% versus 9.7% for the first six months of fiscal 2021. Excluding the impact of the franchise rights acquired and goodwill impairments in the first six months of fiscal 2022, the net impact of restructuring charges in the first six months of fiscal 2022 and the net impact of restructuring charges in the first six months of fiscal 2021, operating income margin for the first six months of fiscal 2022 would have increased by 0.5%, or 1.2% on a constant currency basis, versus the prior year period. This increase in operating income margin was driven primarily by a decrease in selling, general and administrative expenses as a percentage of revenue and an increase in gross margin, partially offset by an increase in marketing expenses as a percentage of revenue, versus the prior year period.
Interest Expense
Interest expense for the first six months of fiscal 2022 decreased$11.5 million , or 23.3%, versus the first six months of fiscal 2021. The decrease in interest expense was driven primarily by lower interest rates under our 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 six months of fiscal 2022 and the first six months of fiscal 2021 and excluding the impact of our interest rate swaps then in effect, decreased to 4.63% per annum at the end of the first six months of fiscal 2022 from 5.66% per annum at the end of the first six months of fiscal 2021. 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 six months of fiscal 2022 and the first six months of fiscal 2021, decreased to 5.22% per annum at the end of the first six months of fiscal 2022 from 6.43% per annum at the end of the first six months of fiscal 2021. 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$1.8 million for the first six months of fiscal 2022 to$2.0 million of expense as compared to$0.1 million of expense for the first six months of fiscal 2021.
Early Extinguishment of Debt
In the second quarter 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,$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 for the first six months of fiscal 2022 was 26.7% as compared to 42.3% for the first six months of fiscal 2021. The tax benefit for the first six months of fiscal 2022 was primarily driven by a tax benefit recorded for out-of-period income tax adjustments, which was partially offset by tax expense related to tax shortfalls from stock compensation. For the first six months of fiscal 2022, the difference between theU.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to tax benefits related to FDII and to out-of-period income tax adjustments, partially offset by state income tax expense, tax expense from income earned in foreign jurisdictions and tax expense related to tax shortfalls from stock compensation. The tax expense for the first six months of fiscal 2021 was impacted by tax windfalls from stock compensation. For the first six 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. 45 --------------------------------------------------------------------------------
Net Loss and Diluted Net Loss Per Share
Net loss for the first six months of fiscal 2022 was$12.9 million , which increased$3.5 million , or 37.4%, from the net loss for the first six months of fiscal 2021 of$9.4 million . Excluding the impact of foreign currency, which negatively impacted net loss in the first six months of fiscal 2022 by$2.9 million , net loss for the first six months of fiscal 2022 would have increased 6.1% from the prior year period. Net loss for the first six months of fiscal 2022 included a$21.3 million impact from franchise rights acquired and goodwill impairments and a$14.0 million net impact from restructuring charges. Net loss for the first six months of fiscal 2021 included a$21.8 million impact from the write-off of fees related to ourApril 2021 debt refinancing and an$8.0 million net impact from restructuring charges. Diluted net loss per share for the first six months of fiscal 2022 was$0.18 compared to diluted net loss per share of$0.14 for the first six months of fiscal 2021. Diluted net loss per share for the first six months of fiscal 2022 included a$0.30 impact from franchise rights acquired and goodwill impairments and a$0.20 net impact from restructuring charges. Diluted net loss per share for the first six months of fiscal 2021 included a$0.31 impact from the write-off of fees related to ourApril 2021 debt refinancing and a$0.12 net impact from restructuring charges. 46 --------------------------------------------------------------------------------
Segment Results Metrics and Business Trends The following tables set forth key metrics by reportable segment for the first six months of fiscal 2022 and the percentage change in those metrics versus the prior year period:
(in millions except percentages and as noted)
First Half of Fiscal 2022
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 $ 343.2 $ 49.1 $ 392.3 $ 343.6 $ 49.2 $ 392.8 76.4 2,734.9 2,805.1
CE 118.3 14.3 132.6 130.6 15.7 146.4 30.5 1,094.1 1,118.9
UK 23.1 4.1 27.2 24.7 4.3 29.1 6.9 245.0 254.8
Other (1) 12.8 2.3 15.0 13.6 2.4 16.0 2.5 94.5 88.7
Total $ 497.4 $ 69.8 $ 567.2 $ 512.6 $ 71.7 $ 584.2 116.4 4,168.6 4,267.5
% Change
First Half of Fiscal 2022 vs. First Half of Fiscal 2021
(7.0 %) (18.1 %) (8.5 %) (6.9 %) (18.0 %) (8.4 %) (6.2 %) (3.1 %) (11.2 %)
CE (15.0 %) (30.5 %) (17.0 %) (6.1 %) (23.8 %) (8.4 %) (11.1 %) (7.2 %) (12.2 %)
UK (20.7 %) (41.0 %) (24.6 %) (15.2 %) (37.2 %) (19.4 %) (22.4 %) (24.3 %) (24.4 %)
Other (1) (17.1 %) (22.3 %) (17.9 %) (11.7 %) (18.4 %) (12.8 %) (7.4 %) (3.2 %) (9.6 %)
Total (10.0 %) (22.8 %) (11.8 %) (7.3 %) (20.8 %) (9.2 %) (8.7 %) (5.8 %) (12.3 %)
Note: Totals may not sum due to rounding.
(1) Represents Australia, New Zealand and emerging markets operations and
franchise revenues.
(in millions except percentages and as noted)
First Half of Fiscal 2022
Workshops Incoming EOP
Digital Subscription Revenues (2) Digital Incoming EOP Workshops + Digital Fees (2) + Digital Workshops Workshops
Constant Paid Digital Digital Constant Paid + Digital + Digital
GAAP Currency Weeks (2) Subscribers Subscribers (2) GAAP Currency Weeks (2) Subscribers Subscribers (2)
(in thousands) (in thousands)
North America $ 239.8 $ 240.1 61.5 2,186.9 2,174.6 $ 103.4 $ 103.5 15.0 548.0 630.5
CE 102.3 112.9 27.8 998.5 1,009.8 16.0 17.7 2.7 95.7 109.1
UK 14.4 15.4 5.1 179.7 182.8 8.7 9.3 1.8 65.3 72.0
Other (1) 9.3 9.9 2.1 76.0 72.8 3.5 3.7 0.5 18.5 15.9
Total $ 365.7 $ 378.3 96.5 3,441.1 3,440.0 $ 131.7 $ 134.3 19.9 727.4 827.6
% Change First Half of Fiscal 2022 vs. First Half of Fiscal 2021
North America (8.6 %) (8.5 %) (9.1 %) (6.3 %) (16.5 %) (3.0 %) (2.9 %) 8.3 % 12.3 % 13.8 %
CE (14.4 %) (5.5 %) (11.6 %) (5.8 %) (14.4 %) (18.6 %) (10.0 %) (4.9 %) (20.1 %) 15.7 %
UK (25.7 %) (20.7 %) (25.3 %) (23.5 %) (29.9 %) (10.8 %) (4.4 %) (12.4 %) (26.2 %) (5.9 %)
Other (1) (8.7 %) (2.7 %) (0.7 %) 2.8 % (2.6 %) (33.2 %) (29.0 %) (28.7 %) (21.9 %) (32.0 %)
Total (11.1 %) (8.1 %) (10.7 %) (7.1 %) (16.5 %) (6.8 %) (4.9 %) 2.9 % 1.0 % 10.6 %
Note: Totals may not sum due to rounding.
(1) Represents Australia, New Zealand and emerging markets operations and
franchise revenues.
(2) The table below sets forth Workshops + Digital Fees, Workshops + Digital Paid
Weeks and End of Period Workshops + Digital Subscribers attributable to
former Digital 360 members who transitioned from our Digital business to our
Workshops + Digital business during the first half of fiscal 2022.
47
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(in millions except as noted)
First Half of Fiscal 2022
Workshops EOP
Workshops + Digital Fees + Digital Workshops
Constant Paid + Digital
GAAP Currency Weeks Subscribers
(in thousands)
North America $ 3.7 $ 3.7 0.7 113.0
CE 0.2 0.2 0.0 6.9
UK 0.2 0.3 0.1 7.3
Other - - - -
Total Attributable to Former
Digital 360 Members $ 4.1 $ 4.2 0.8 127.2
In connection with such transition, the Digital business experienced declines
in Subscription Revenues, Paid Weeks and End of Period Subscribers. For the
first half of fiscal 2022, adjusting Revenues for both our businesses to
exclude
Revenues attributable to former Digital 360 members who transitioned from our
Digital business to our Workshops + Digital business, (i) Digital
Subscription Revenues would have decreased 10.1%, or 7.0% on a constant
currency basis, and (ii) Workshops + Digital Fees would have decreased 9.7%,
or 7.9% on a constant currency basis, both versus the prior year period. For
the first half of fiscal 2022, adjusting Paid Weeks for both our businesses
to exclude 0.8 million of Paid Weeks attributable to such former Digital 360
members, (i) Digital Paid Weeks would have decreased 9.9% and (ii) Workshops
+ Digital Paid Weeks would have decreased 1.4%, both versus the prior year
period. For the first half of fiscal 2022, adjusting End of Period
Subscribers for both our businesses to exclude 127.2 thousand former Digital
360 members who transitioned from our Digital business to our Workshops +
Digital business, (i) End of Period Digital Subscribers would have decreased
13.4% and (ii) End of Period Workshops + Digital Subscribers would have
decreased 6.4%, both versus the prior year period.
North America Performance
The decrease inNorth America revenues for the first six months of fiscal 2022 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 for the first six months of fiscal 2022 versus the prior year period was driven primarily by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the recruitment decline during the first six months of fiscal 2022 as compared to the prior year period and the lower number of Incoming Digital Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. Additionally, the transition of our former Digital 360 members to our Workshops + Digital business negatively impacted Digital Subscription Revenues in the first six months of fiscal 2022. The decrease inNorth America Total Paid Weeks for the first six months of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the first six months of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. The decrease inNorth America product sales and other for the first six months of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
Continental Europe Performance
The decrease in Continental Europe revenues for the first six months of fiscal
2022 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 for the first six months of fiscal 2022 versus
the prior year period was driven primarily by a decrease in Digital Subscription
Revenues. Digital Subscription Revenues were negatively impacted by both the
recruitment decline during the first six months of fiscal 2022 as compared to
the prior year period and the lower number of Incoming Digital Subscribers at
the beginning of fiscal 2022 versus the beginning of fiscal 2021. This decline
in recruitments was driven primarily by worsened consumer sentiment in the
current environment and our PersonalPoints program not resonating with consumers
to the extent anticipated. The decrease in Continental Europe Total Paid Weeks
for the first six months of fiscal 2022 versus the prior year period was driven
primarily by both lower recruitments for the first six months of fiscal 2022
versus the prior year period and the lower number of Total Incoming Subscribers
at the beginning of fiscal 2022 versus the beginning of fiscal 2021.
The decrease in Continental Europe product sales and other for the first six
months of fiscal 2022 versus the prior year period was driven primarily by a
decrease in e-commerce product sales.
48
--------------------------------------------------------------------------------United Kingdom Performance
The decrease inUK revenues for the first six months of fiscal 2022 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 for the first six months of fiscal 2022 versus the prior year period was driven primarily by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021 and the recruitment decline during the first six months of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease inUK Total Paid Weeks for the first six months of fiscal 2022 versus the prior year period was driven primarily by both the lower number of Total Incoming Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021 and lower recruitments for the first six months of fiscal 2022 versus the prior year period.
The decrease in
Other Performance
The decrease in Other revenues for the first six months of fiscal 2022 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 for the first six months of fiscal 2022 versus the prior
year period was driven primarily by a decrease in Workshops + Digital Fees.
Workshops + Digital Fees were negatively impacted by both the recruitment
decline during the first six months of fiscal 2022 as compared to the prior year
period and the lower number of Incoming Workshops + Digital Subscribers at the
beginning of fiscal 2022 versus the beginning of fiscal 2021. This decline in
recruitments was driven primarily by worsened consumer sentiment in the current
environment and our PersonalPoints program not resonating with consumers to the
extent anticipated.
The decrease in Other product sales and other for the first six months of fiscal
2022 versus the prior year period was driven primarily by a decrease in product
sales and franchise commissions.
49
--------------------------------------------------------------------------------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$148.6 million atJuly 2, 2022 , our$173.9 million of availability under our Revolving Credit Facility (as defined below) atJuly 2, 2022 and our continued cost focus will provide us with sufficient liquidity to meet our obligations for the short- and long-term. 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 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 Revolving Credit Facility. 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 access our 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 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.
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