WW International Inc.(WW) - 2021 Q4 - Annual Report

PART I Item 1. Business WW International, Inc, a global wellness company, focuses on weight management and healthy habits through its digital and workshop subscription models - WW International, Inc is a global wellness company with nearly six decades of experience, evolving its focus to overall health and wellness, powered by a leading commercial weight management program and an award-winning digital subscription platform[17] - The company's primary revenue sources are subscriptions for its digital products (Digital 360, Personal Coaching + Digital) and workshops (Workshops + Digital), reflecting a significant shift to a digital subscription model[17] - The myWW+ program, launched in November 2020, offers customized content powered by machine learning and AI, providing three food plans (Green, Purple, Blue) grounded in the SmartPoints system, alongside tools for mindset, activity, community, hydration, and sleep[22] - The company's business is seasonal, with the highest level of member recruitment and advertising spending occurring in the first quarter of the year, typically followed by a decline in subscriber numbers over the remaining quarters[41] - WW is one of the most clinically-studied commercial weight management programs, with numerous peer-reviewed publications demonstrating its efficacy in weight loss and management of conditions like diabetes and prediabetes[36][37][38] - The strategic collaboration with Oprah Winfrey, initiated in October 2015 and extended through May 2025, involves her promoting the company's programs, products, and services through advertising, appearances, and virtual experiences[39][50] Fiscal 2020 Subscriber Breakdown | Subscriber Type | Count (millions) | | :-------------- | :--------------- | | Total Subscribers | 4.4 | | Digital Subscribers | 3.7 | | Workshops + Digital Subscribers | 0.7 | Item 1A. Risk Factors The company faces significant risks from the COVID-19 pandemic, intense competition, subscriber retention, substantial debt, and reliance on key personnel - The COVID-19 pandemic has significantly disrupted the business, causing decreased member recruitment (especially in Workshops + Digital), suspension of in-person workshops, and potential adverse impacts on liquidity and consumer demand[75][76][77] - The weight management and wellness market is highly competitive, with risks from new or more effective methods, fad diets, free apps, and the company's failure to continuously innovate or appeal to changing consumer demands[89][90][94] - As of January 2, 2021, the company had $1,509.0 million in total debt, with $1,209.0 million being variable-rate instruments, exposing it to interest rate risk and the restrictions of debt covenants[116][122] - The loss of key personnel, particularly Oprah Winfrey, or a change in the nature of her partnership, could significantly damage the company's brand image, operations, and financial results[103] - Data security breaches, privacy concerns (e.g, GDPR, CCPA compliance), and failures in technology systems could harm the company's reputation, expose it to liability, and disrupt services[128][131][133] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - The company has no unresolved staff comments[152] Item 2. Properties The company's operations are primarily located in leased office and retail spaces across its international markets - The company's headquarters, corporate offices, customer support, and technology operations are located in leased office spaces in New York, New York, and other locations in the United States and Canada[153] - In-person workshops are generally conducted in leased spaces within retail centers or in third-party locations, such as hotel meeting rooms[153] Item 3. Legal Proceedings Information regarding legal proceedings is incorporated by reference from the audited consolidated financial statements - Legal proceedings information is incorporated by reference to Note 16 'Commitments and Contingencies' of the notes to the audited consolidated financial statements[154] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to WW International, Inc[155] Information about our Executive Officers and Directors This section lists the company's executive officers and directors as of January 2, 2021, along with their biographical information - Mindy Grossman has served as President and CEO since July 2017, previously CEO of HSN, Inc and Global VP of Nike's apparel business[161] - Oprah Winfrey has been a director since October 2015, also serving as Chairman and CEO of OWN: Oprah Winfrey Network[180] Executive Officers and Directors (as of January 2, 2021) | Name | Age | Position | | :--- | :-: | :--- | | Mindy Grossman | 63 | President and Chief Executive Officer, Director | | Amy O'Keefe | 50 | Chief Financial Officer | | Nicholas P. Hotchkin | 55 | Chief Operating Officer | | Michael F. Colosi | 55 | General Counsel and Secretary | | Michael Lysaght | 47 | Chief Digital Officer | | Gail B. Tifford | 51 | Chief Brand Officer | | Raymond Debbane | 65 | Chairman of the Board of Directors | | Steven M. Altschuler, M.D. | 67 | Director | | Julie Bornstein | 50 | Director | | Tracey D. Brown | 53 | Director | | Jennifer Dulski | 49 | Director | | Jonas M. Fajgenbaum | 48 | Director | | Denis F. Kelly | 71 | Director | | Julie Rice | 50 | Director | | Thilo Semmelbauer | 55 | Director | | Christopher J. Sobecki | 62 | Director | | Oprah Winfrey | 66 | Director | PART II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's common stock is listed on Nasdaq under 'WW', with a share repurchase program in place but no dividends currently paid - The company's common stock trades on Nasdaq under the symbol 'WW'[182] - As of February 1, 2021, there were 214 holders of record for the company's common stock[183] - The company has a share repurchase program with $208.9 million remaining, but no shares were repurchased in fiscal 2020 or fiscal 2019[182][185] - The company does not currently pay dividends and has no current plans to pay dividends in the foreseeable future[184] Cumulative Total Return ($) (2015-2020) | Company/Index | 12.31.15 | 12.30.16 | 12.29.17 | 12.28.18 | 12.27.19 | 12.31.20 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | WW International, Inc | 100.00 | 50.22 | 194.21 | 181.09 | 165.00 | 107.02 | | S&P 500 Index | 100.00 | 111.96 | 136.40 | 129.31 | 171.94 | 203.04 | | S&P MidCap 400 Index | 100.00 | 120.74 | 140.35 | 123.52 | 157.39 | 179.00 | Item 6. Selected Financial Data This section provides a five-year summary of key financial data, highlighting events impacting comparability like restructuring and acquisitions - In fiscal 2020, the company recorded $33.1 million in restructuring charges and $24.5 million (after tax) in stock compensation expense related to the Winfrey Transaction, negatively impacting net income and EPS[191][193] - A $3.7 million goodwill impairment charge for the Brazil reporting unit was recorded in fiscal 2020[204] - The company acquired Kurbo Health, Inc in August 2018 for $3.1 million and several franchisees in Arizona/California (2020, $10.0M), Nevada/Utah (2019, $4.5M), and South Carolina (2018, $4.0M)[215][216][217][218] Selected Financial Data (Fiscal 2016-2020) | Metric (in millions, except per share) | Fiscal 2020 (53 weeks) | Fiscal 2019 (52 weeks) | Fiscal 2018 (52 weeks) | Fiscal 2017 (52 weeks) | Fiscal 2016 (52 weeks) | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $1,378.1 | $1,413.3 | $1,514.1 | $1,306.9 | $1,164.9 | | Net income attributable to WW Int, Inc | $75.1 | $119.6 | $223.7 | $163.5 | $67.7 | | Working capital (deficit) surplus | $(40.9) | $(98.7) | $25.1 | $(134.0) | $(57.2) | | Total assets | $1,481.2 | $1,498.3 | $1,414.5 | $1,246.0 | $1,271.0 | | Long-term debt | $1,408.8 | $1,479.9 | $1,669.7 | $1,740.6 | $1,981.3 | | Earnings per share: Basic | $1.11 | $1.78 | $3.38 | $2.54 | $1.06 | | Earnings per share: Diluted | $1.07 | $1.72 | $3.19 | $2.40 | $1.03 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial performance for fiscal years 2020, 2019, and 2018, detailing revenue, costs, and strategic shifts Overview The company is a global wellness firm leveraging its leading weight management program and digital platform to inspire healthy habits - WW International, Inc is a global wellness company focused on inspiring healthy habits through its commercial weight management program and digital subscription platform[221] - The business has undergone a significant shift to a digital subscription model, with primary revenue sources being subscriptions for digital products (Digital 360, Personal Coaching + Digital) and workshops (Workshops + Digital)[221] - The company's four reportable segments are North America, Continental Europe (CE), United Kingdom, and Other (Australia, New Zealand, Brazil, and franchises)[222] Components of our Results of Operations The company's revenues are primarily derived from subscription services, with total revenues decreasing from fiscal 2018 to 2020 - Subscription Revenues, comprising Digital Subscription Revenues and Workshops + Digital Fees, are the primary revenue source[223] - Other revenue streams include in-studio product sales and e-commerce, licensing, franchise royalties, and other activities[223][224] - From fiscal 2018 to fiscal 2020, total revenues decreased at a compound annual rate of 4.6%, primarily driven by a 47.9% compound annual decrease in in-studio product sales[227] - Subscription Revenues decreased at a compound annual rate of 3.5% from fiscal 2018 through fiscal 2020, due to a decrease in Workshops + Digital Fees, partially offset by an increase in Digital Subscription Revenues[227] Revenue Sources (in millions) | Revenue Category | Fiscal 2020 (53 weeks) | Fiscal 2019 (52 weeks) | Fiscal 2018 (52 weeks) | | :--- | :--- | :--- | :--- | | Subscription Revenues | $1,186.5 | $1,207.3 | $1,273.2 | | In-studio product sales | $40.4 | $118.5 | $148.9 | | E-commerce, licensing, franchise royalties and other | $151.3 | $87.6 | $92.1 | | Total | $1,378.1 | $1,413.3 | $1,514.1 | Gross Margin The company's gross margin improved in fiscal 2020 due to a favorable mix shift towards the higher-margin Digital business - In fiscal 2020, the adjusted gross margin increased primarily due to a mix shift towards the higher-margin Digital business, partially offset by margin contraction in Workshops + Digital and lower consumer product sales margins[232] - In fiscal 2019, the gross margin decreased from fiscal 2018 due to decreased operating leverage across businesses, partially offset by a mix shift to the higher-margin Digital business[233] Gross Profit and Gross Margin (in millions, except percentages) | Metric | 2020 (Reported) | 2020 (Adjusted) | 2019 | 2018 | | :--- | :--- | :--- | :--- | :--- | | Gross Profit | $777.8 | $801.1 | $786.7 | $866.4 | | Gross Margin % | 56.4% | 58.1% | 55.7% | 57.2% | Operating Income Margin Adjusted operating income margin slightly increased in fiscal 2020, driven by improved gross margin offset by higher marketing and SG&A expenses - In fiscal 2020, adjusted operating income margin slightly increased by 0.3% compared to fiscal 2019, driven by an increase in gross margin, almost fully offset by higher marketing and SG&A expenses as a percentage of revenue[237] - In fiscal 2019, operating income margin decreased from fiscal 2018 primarily due to increased marketing and SG&A expenses as a percentage of revenue, and a decrease in gross margin[238] Operating Income and Margin (in millions, except percentages) | Metric | 2020 (Reported) | 2020 (Adjusted) | 2019 | 2018 | | :--- | :--- | :--- | :--- | :--- | | Operating Income | $216.2 | $285.6 | $288.0 | $389.0 | | Operating Income Margin % | 15.7% | 20.7% | 20.4% | 25.7% | Material Trends Performance is influenced by subscriber metrics, with COVID-19 impacting fiscal 2020 by shifting recruitment towards Digital and prompting cost-saving initiatives - Key performance indicators include Total Paid Weeks, Incoming Subscribers, End of Period Subscribers, and gross profit/operating expenses as a percentage of revenue[242] - The COVID-19 pandemic caused a significant decline in Workshops + Digital recruitments in fiscal 2020, while Digital recruitments returned to growth, leading to a recruitment mix shift[240] - In response to COVID-19, the company implemented a $100.0 million cost-savings initiative in fiscal 2020 and amended its Credit Agreement to relax financial maintenance covenants[245] - Market trends such as increased competition from weight loss apps, consumer interest in fad diets, and the development of new weight management technologies could adversely impact the business[246][253] Segment Results In fiscal 2020, North America and Continental Europe saw growth in Total Paid Weeks driven by Digital recruitments, while the UK experienced a slight decrease - North America Total Paid Weeks increased 8.1% in fiscal 2020, driven by higher Digital recruitments and incoming subscribers, despite significant declines in Workshops + Digital due to COVID-19[249] - Continental Europe Total Paid Weeks increased 12.5% in fiscal 2020, similarly boosted by Digital recruitment growth and incoming subscribers, while Workshops + Digital declined[252] - UK Total Paid Weeks decreased 1.2% in fiscal 2020, primarily due to lower Workshops + Digital recruitments, partially offset by higher Digital recruitments[256] Fiscal 2020 Segment Performance (Total Paid Weeks, Incoming & EOP Subscribers) | Segment | Total Paid Weeks (% Change YoY) | Incoming Subscribers (% Change YoY) | EOP Subscribers (% Change YoY) | | :--- | :--- | :--- | :--- | | North America | 8.1% | 6.4% | 3.7% | | Continental Europe | 12.5% | 12.7% | 11.3% | | United Kingdom | (1.2%) | 8.3% | (10.5%) | | Other | 0.2% | 1.8% | (4.3%) | Non-GAAP Financial Measures The company uses non-GAAP measures like adjusted operating income and EBITDAS to provide a clearer view of business performance - Non-GAAP measures include adjusted gross profit, operating income, EBITDAS, Adjusted EBITDAS, net debt, and net debt/Adjusted EBITDAS[257] - These non-GAAP measures adjust for items such as 2020 restructuring charges, Winfrey Stock Compensation expense, and goodwill impairment to provide useful supplemental information for investors[257] - Constant currency presentation helps evaluate operating results by comparing periods as if exchange rates remained constant, improving understanding of underlying business performance[259] Critical Accounting Policies Financial statements rely on significant estimates, particularly for goodwill and intangible asset impairment, revenue recognition, and share-based compensation - Critical accounting policies involve significant estimates and judgments for inventories, impairment analysis of goodwill and indefinite-lived intangible assets, share-based compensation, income taxes, tax contingencies, and litigation[260] - Impairment analysis for indefinite-lived franchise rights acquired uses a discounted cash flow approach (hypothetical start-up for Workshops + Digital, relief from royalty for Digital)[268] - Goodwill impairment analysis uses a discounted cash flow approach, projecting future cash flows and discounting them with an appropriate rate[270] - Revenue from commitment plans and prepaid workshop fees is recognized on a straight-line basis over time, while product sales and 'pay-as-you-go' workshop fees are recognized at the point of transfer of control[265] RESULTS OF OPERATIONS FOR FISCAL 2020 (53 weeks) COMPARED TO FISCAL 2019 (52 weeks) Fiscal 2020 revenues decreased 2.5% due to COVID-19's impact on in-studio sales, leading to a 24.9% drop in operating income - Fiscal 2020, a 53-week period, contributed $20.9 million (1.5%) to revenues and had a negative $0.03 per share impact on EPS due to additional marketing and interest expense[286] - Revenues decreased primarily due to lower Workshops + Digital Fees and in-studio product sales, driven by COVID-19 related studio closures and shifts in consumer sentiment[294] - Marketing expenses increased by 6.9% ($16.7 million) in fiscal 2020, largely due to the 53rd week's high concentration of advertising spending[296] - Selling, general and administrative expenses increased by 16.7% ($42.6 million), primarily due to the $32.7 million Winfrey Stock Compensation expense and $9.8 million in restructuring charges[298] - The effective tax rate for fiscal 2020 was 18.9%, down from 20.9% in fiscal 2019, influenced by tax benefits related to GILTI reversal, stock compensation windfalls, and FDII, partially offset by foreign income tax expenses[304][306] Consolidated Financial Performance (FY2020 vs FY2019) | Metric (in millions, except per share) | Fiscal 2020 | Fiscal 2019 | Increase/(Decrease) | % Change (GAAP) | % Change (Constant Currency) | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $1,378.1 | $1,413.3 | $(35.2) | (2.5%) | (2.8%) | | Gross profit | $777.8 | $786.7 | $(8.8) | (1.1%) | (1.6%) | | Operating income | $216.2 | $288.0 | $(71.8) | (24.9%) | (26.1%) | | Net income attributable to WW Int, Inc | $75.1 | $119.6 | $(44.5) | (37.2%) | (39.4%) | | Diluted earnings per share | $1.07 | $1.72 | $(0.65) | (37.7%) | (39.8%) | RESULTS OF OPERATIONS FOR FISCAL 2019 (52 weeks) COMPARED TO FISCAL 2018 (52 weeks) Fiscal 2019 revenues decreased 6.7% due to declines in North America, resulting in a 26.0% drop in operating income - Revenues decreased by $100.8 million (6.7%) in fiscal 2019, primarily due to declines in North America, with foreign currency having a negative impact[327] - Gross margin decreased by 1.6% to 55.7% in fiscal 2019, driven by decreased operating leverage across all businesses, partially offset by a mix shift to the higher-margin Digital business[328] - Marketing expenses increased by 7.8% ($17.7 million) in fiscal 2019, mainly due to increased TV media, production costs, online media, and agency/celebrity fees globally[329] - Operating income decreased by $101.0 million (26.0%), with operating income margin falling to 20.4%, primarily due to increased marketing and SG&A expenses as a percentage of revenue and decreased gross margin[331] - The effective tax rate for fiscal 2019 was 20.9%, significantly higher than 8.4% in fiscal 2018, due to tax expenses related to foreign income and GILTI, partially offset by FDII benefits[335] Consolidated Financial Performance (FY2019 vs FY2018) | Metric (in millions, except per share) | Fiscal 2019 | Fiscal 2018 | Increase/(Decrease) | % Change (GAAP) | % Change (Constant Currency) | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues, net | $1,413.3 | $1,514.1 | $(100.8) | (6.7%) | (5.0%) | | Gross profit | $786.7 | $866.4 | $(79.7) | (9.2%) | (7.4%) | | Operating income | $288.0 | $389.0 | $(101.0) | (26.0%) | (24.4%) | | Net income attributable to WW Int, Inc | $119.6 | $223.7 | $(104.1) | (46.5%) | (44.7%) | | Diluted earnings per share | $1.72 | $3.19 | $(1.47) | (46.1%) | (44.2%) | Liquidity and Capital Resources The company's primary liquidity source is cash from operations, supplemented by debt, with a net debt/Adjusted EBITDAS ratio of 3.7x - Cash flows from operating activities are the primary source of liquidity, supplemented by long-term debt and short-term borrowings[352] - As of January 2, 2021, the company had $165.9 million in cash and cash equivalents and $173.8 million available under its Revolving Credit Facility[352] - A $100.0 million cost-savings initiative was implemented in fiscal 2020, and the Credit Agreement was amended to relax financial maintenance covenants until Q2 fiscal 2022, providing liquidity flexibility[354] - Total long-term debt was $1,509.0 million as of January 2, 2021, with a net debt/Adjusted EBITDAS ratio of 3.7x[371][394] - The company does not currently pay dividends and has no current plans to do so, with future decisions subject to financial condition, capital requirements, and debt covenants[390] Summary of Cash Flows (in millions) | Activity | January 2, 2021 | December 28, 2019 | December 29, 2018 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $135.9 | $182.4 | $295.6 | | Net cash used for investing activities | $(65.6) | $(52.6) | $(64.0) | | Net cash used for financing activities | $(95.5) | $(183.0) | $(74.4) | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rate changes on its variable-rate debt and foreign currency fluctuations - The company is exposed to interest rate risk from variable rate debt (Credit Facilities) and foreign currency risk from international operations[409][415] - As of fiscal 2020, the company had interest rate swaps with an aggregate notional amount of $750.0 million to hedge variable rate debt, with $459.0 million remaining unhedged[412] - A hypothetical 90 basis point increase in interest rates would increase annual interest expense by approximately $4.1 million, primarily due to the Term Loan Facility[413] - Foreign currency fluctuations, especially with the euro, Canadian dollar, and pound sterling, negatively affect reported revenues and gross margins when expressed in US dollars[415][416] Item 8. Financial Statements and Supplementary Data This item incorporates by reference the company's consolidated financial statements and supplementary data from this Annual Report - The consolidated financial statements and supplementary data are incorporated by reference from pages F-1 through F-44 and schedule S-1 of this Annual Report on Form 10-K[417] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[418] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and procedures, as well as internal control over financial reporting, were effective - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of January 2, 2021[420] - Management assessed the effectiveness of internal control over financial reporting as of January 2, 2021, based on COSO criteria, and concluded it was effective[422] - There were no material changes in internal control over financial reporting during the most recent fiscal quarter[424] Item 9B. Other Information There is no other information required to be disclosed in this item - No other information is reported under this item[425] PART III Items 10, 11, 12, 13 and 14. Directors, Executive Officers and Corporate Governance; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters; Certain Relationships and Related Transactions, and Director Independence; Principal Accountant Fees and Services Information for these items is incorporated by reference from the company's 2021 definitive Proxy Statement - Information for Items 10-14 is incorporated by reference from the company's definitive Proxy Statement for its 2021 annual meeting of shareholders[428] - The company has adopted an Amended and Restated Code of Business Conduct and Ethics, available on corporate.ww.com, with provisions for disclosing amendments or waivers[429][430] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of this Annual Report - The financial statements listed in the Index to Financial Statements and Financial Statement Schedule on page F-1 are filed as part of this Annual Report on Form 10-K[433] - The consolidated financial statements include Balance Sheets, Statements of Net Income, Comprehensive Income, Changes in Total Deficit, and Cash Flows for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018[436] - The report also includes Schedule II—Valuation and Qualifying Accounts and Reserves and a comprehensive Exhibit Index[436][676] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided in this report[683]