(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock outstanding as of ~~October~~July 27, ~~2022~~2023 was ~~70,526,717~~78,966,060.

The accompanying notes are an integral part of the consolidated financial statements.

Revenue

Revenues are recognized when control of the promised services or goods is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those services or goods.

The following table presents the Company’s revenues disaggregated by revenue source:


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	October 1,		October 2,		October 1,		October 2,		July 1,		July 2,		July 1,		July 2,
	2022		2021		2022		2021		2023		2022		2023		2022
Digital Subscription Revenues	$	155,881	$	195,288	$	521,582	$	606,687	$	147,381	$	174,219	$	296,725	$	365,701
Workshops + Digital Fees		64,865		67,113		196,540		208,405		57,167		66,172		118,855		131,675
Clinical Subscription Revenues										7,592		—		7,592		—
Subscription Revenues, net	$	220,746	$	262,401	$	718,122	$	815,092	$	212,140	$	240,391	$	423,172	$	497,376
Product sales and other, net		28,972		31,096		98,810		121,580		14,690		29,063		45,552		69,838
Revenues, net	$	249,718	$	293,497	$	816,932	$	936,672	$	226,830	$	269,454	$	468,724	$	567,214

Segment information for the three and six months ended July 2, 2022 presented below has been updated to reflect the new reportable segment structure. The following tables present the Company’s revenues disaggregated by revenue source and segment:


	Three Months Ended July 1, 2023
	North America		International		Total
Digital Subscription Revenues	$	95,446	$	51,935	$	147,381
Workshops + Digital Fees		46,290		10,877		57,167
Clinical Subscription Revenues		7,592		—		7,592
Subscription Revenues, net	$	149,328	$	62,812	$	212,140
Product sales and other, net		12,860		1,830		14,690
Revenues, net	$	162,188	$	64,642	$	226,830


	Three Months Ended July 2, 2022
	North America		International		Total
Digital Subscription Revenues	$	114,435	$	59,784	$	174,219
Workshops + Digital Fees		52,464		13,708		66,172
Subscription Revenues, net	$	166,899	$	73,492	$	240,391
Product sales and other, net		21,476		7,587		29,063
Revenues, net	$	188,375	$	81,079	$	269,454

910

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

~~The following tables present the Company’s revenues disaggregated by revenue source and segment:~~


	Three Months Ended October 1, 2022
	North		Continental		United						Six Months Ended July 1, 2023
	America		Europe		Kingdom		Other		Total		North America		International		Total
Digital Subscription Revenues	$	102,735	$	43,638	$	5,693	$	3,815	$	155,881	$	193,218	$	103,507	$	296,725
Workshops + Digital Fees		52,113		7,586		3,764		1,402		64,865		95,772		23,083		118,855
Clinical Subscription Revenues												7,592		—		7,592
Subscription Revenues, net	$	154,848	$	51,224	$	9,457	$	5,217	$	220,746	$	296,582	$	126,590	$	423,172
Product sales and other, net		21,234		5,272		1,441		1,025		28,972		36,631		8,921		45,552
Revenues, net	$	176,082	$	56,496	$	10,898	$	6,242	$	249,718	$	333,213	$	135,511	$	468,724

Three Months Ended October 2, 2021

North

Continental

United

America

Europe

Kingdom

Other

Total

Digital Subscription Revenues
$
125,077

$
56,542

$
9,007

$
4,662

$
195,288

Workshops + Digital Fees

51,661

8,727

4,528

2,197

67,113

Subscription Revenues, net
$
176,738

$
65,269

$
13,535

$
6,859

$
262,401

Product sales and other, net

21,059

6,664

2,131

1,242

31,096

Revenues, net
$
197,797

$
71,933

$
15,666

$
8,101

$
293,497

Nine Months Ended October 1, 2022

North

Continental

United

America

Europe

Kingdom

Other

Total

Digital Subscription Revenues
$
342,489

$
145,920

$
20,106

$
13,067

$
521,582

Workshops + Digital Fees

155,558

23,599

12,482

4,901

196,540

Subscription Revenues, net
$
498,047

$
169,519

$
32,588

$
17,968

$
718,122

Product sales and other, net

70,363

19,621

5,506

3,320

98,810

Revenues, net
$
568,410

$
189,140

$
38,094

$
21,288

$
816,932


	Nine Months Ended October 2, 2021
	North		Continental		United						Six Months Ended July 2, 2022
	America		Europe		Kingdom		Other		Total		North America		International		Total
Digital Subscription Revenues	$	387,422	$	176,059	$	28,410	$	14,796	$	606,687	$	239,754	$	125,947	$	365,701
Workshops + Digital Fees		158,265		28,397		14,304		7,439		208,405		103,444		28,231		131,675
Subscription Revenues, net	$	545,687	$	204,456	$	42,714	$	22,235	$	815,092	$	343,198	$	154,178	$	497,376
Product sales and other, net		81,055		27,308		9,021		4,196		121,580		49,857		19,981		69,838
Revenues, net	$	626,742	$	231,764	$	51,735	$	26,431	$	936,672	$	393,055	$	174,159	$	567,214

Information about Contract Balances

For Subscription Revenues, the Company can collect payment in advance of providing services. Any amounts collected in advance of services being provided are recorded in deferred revenue. In the case where amounts are not collected, but the service has been provided and the revenue has been recognized, the amounts are recorded in accounts receivable. The opening and ending balances of the Company’s deferred revenues were as follows:

Deferred

Deferred

Revenue

Revenue-Long Term

Balance as of January 1, 2022

$
45,855

$
28

Net (decrease) increase during the period

(6,083
)

11

Balance as of October 1, 2022

$
39,772

$
39

Balance as of January 2, 2021

$
50,475

$
44

Net decrease during the period

(244
)

(36
)
Balance as of October 2, 2021

$
50,231

$
8

~~WW INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)~~


	Deferred		Deferred
	Revenue		Revenue-Long Term
Balance as of December 31, 2022	$	32,156	$	360
Net increase (decrease) during the period		3,549		(110	)
Balance as of July 1, 2023	$	35,705	$	250

Balance as of January 1, 2022	$	45,855	$	28
Net increase during the period		1,782		28
Balance as of July 2, 2022	$	47,637	$	56

Revenue recognized from amounts included in current deferred revenue as of December 31, 2022 was $31,096 for the six months ended July 1, 2023. Revenue recognized from amounts included in current deferred revenue as of January 1, 2022 was $~~44,375~~43,372 for the ~~nine~~six months ended ~~October 1,~~July 2, 2022. ~~Revenue recognized from amounts included in current deferred revenue as of January 2, 2021 was $49,808~~ ~~for the nine months ended October 2, 2021.~~ The Company’s long-term deferred revenue, which is included in other liabilities on the Company’s consolidated balance sheet, represents revenue that will not be recognized during the next fiscal year and is generally related to upfront payments received as an inducement for entering into certain sales-based royalty agreements with third party licensees. This revenue is amortized on a straight-line basis over the term of the applicable agreement.

Acquisitions

Acquisition of Sequence

On April 10, 2023 (the “Closing Date”), the Company completed its previously announced acquisition of Weekend Health, Inc., doing business as Sequence, a Delaware corporation (“Sequence”), subject to the terms and conditions set forth in the Agreement and Plan of Merger, dated as of March 4, 2023, by and among the Company, Well Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company, Sequence, and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the Equityholders’ Representative (as defined therein) for Sequence (the “Merger Agreement”), pursuant to which Sequence continued as a wholly-owned subsidiary of the Company (the “Acquisition”). Sequence provides a technology powered care platform and mobile web application through its subscription based service, which includes a comprehensive weight management program, pharmacotherapy treatment, nutrition plans, health insurance coordination services, and access to clinicians, dietitians, fitness coaches and care coordinators.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

As consideration for the Acquisition, the Company agreed to pay an aggregate amount equal to $132,000, subject to the adjustments set forth in the Merger Agreement (the “Merger Consideration”). Subject to the terms and conditions of the Merger Agreement, the Merger Consideration has been paid, or is payable, as follows: (i) approximately $64,217 in cash (inclusive of approximately $25,800 of cash on the balance sheet of Sequence) and approximately $34,702 in the form of approximately 7,996 newly issued shares of Company common stock (valued at $4.34 per share), in each case, paid on or payable following the Closing Date, (ii) $16,000 in cash to be paid on April 10, 2024, and (iii) $16,000 in cash to be paid on April 10, 2025, in each case, subject to the adjustments and deductions set forth in the Merger Agreement.

The following table shows the purchase price allocation for Sequence to the acquired identifiable assets, liabilities assumed and goodwill:


Total consideration:
Cash paid at closing	$	64,217
Cash to be paid on April 10, 2024		16,000
Cash to be paid on April 10, 2025 (1)		12,420
Total cash payments			$	92,637
Less stock-based compensation expense attributable to post combination vesting				(3,882	)

Common shares issued		7,996
Stock price as of April 10, 2023 (2)	$	4.12
Total stock issuance purchase price				32,943
Aggregated merger consideration			$	121,698

Assets acquired:
Cash	$	25,776
Prepaid expenses and other current assets		2,220
Property, plant and equipment		34
Intangible assets		7,768
Total assets acquired				35,798

Liabilities assumed:
Accounts payable	$	70
Accrued liabilities		14
Deferred revenue		1,300
Deferred tax liability		1,906
Total liabilities assumed				3,290

Net assets acquired				32,508

Total goodwill			$	89,190

(1)

Reflects $16,000 of cash payable on April 10, 2025 as Merger Consideration discounted using the Company's weighted average cost of debt.

(2)

Represents the fair value of the shares transferred to the sellers, based on the number of shares to be issued, 7,996, multiplied by the closing price of the Company's ordinary shares on April 10, 2023 of $4.12 per share.

The acquisition has been accounted for under the purchase method of accounting. The acquisition resulted in goodwill related to, among other things, expected synergies in operations. The goodwill will not be deductible for tax purposes. The results of operations of Sequence have been included in the consolidated operating results of the Company from the Closing Date.

The Company incurred transaction-related costs of $4,886 and $8,605 for the three and six months ended July 1, 2023, respectively. These costs were associated with legal and professional services and were recognized as operating expenses on the consolidated statements of operations.

The Company’s consolidated statements of operations for both the three and six months ended July 1, 2023 included total revenue of $7,592 and net loss of $1,630 from Sequence.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Acquisitions of Franchisees

On February 18, 2022, the Company acquired the entire issued share capital of its Republic of Ireland franchisee, Denross Limited, and its Northern Ireland franchisee, Checkweight Limited, as follows:

(a)

The Company acquired the entire issued share capital of Denross Limited for a purchase price of $4,500. Payment was in the form of cash paid on December 21, 2021 ($650), cash paid on February 18, 2022 ($3,100) and cash in reserves ($750)., of which $375 was paid on February 17, 2023. The total purchase price was allocated to goodwill ($4,645), deferred tax asset ($496) fully offset by a tax valuation allowance ($496), assumed liabilities ($166), customer relationship value ($14), cash ($4) and other receivables ($3). The goodwill will not be deductible for tax purposes; and

(b)

The Company acquired the entire issued share capital of Checkweight Limited for a purchase price of $1,500. Payment was in the form of cash ($1,250) and cash in reserves ($250)., of which $125 was paid on February 17, 2023. The total purchase price was allocated to goodwill ($1,291), franchise rights acquired ($240), assumed liabilities ($56), customer relationship value ($17), deferred tax asset ($5) fully offset by a tax valuation allowance ($5), cash ($4) and other receivables ($4). The goodwill will not be deductible for tax purposes.

~~On August 16, 2021, the Company acquired substantially all of the assets of its franchisee for certain territories in Maine, Weight Watchers of Maine, Inc., for a purchase price of $2,250. Payment was in the form of cash ($1,999), cash in reserves ($225) and assumed net liabilities ($~~26~~). The total purchase price was allocated to goodwill ($2,153), customer relationship value ($~~56~~) and franchise rights acquired ($~~41~~). The goodwill will be deductible for tax purposes.~~

~~On March 22, 2021, the Company acquired substantially all of the assets of its Michigan franchisee, The WW Group, Inc., and its Ontario, Canada franchisee, The WW Group Co., as follows:~~

~~(a)~~

~~The Company acquired substantially all of the assets of The WW Group, Inc., which operated franchises in certain territories in Michigan, for an aggregate purchase price of $17,500. Payment was in the form of cash paid on March 22, 2021 ($8,255), cash paid on July 30, 2021 ($6,450), cash in reserves ($2,300) and assumed net liabilities ($495). The total purchase price was allocated to franchise rights acquired ($16,885), customer relationship value ($408), inventories ($162), property and equipment, net ($~~41~~) and other assets ($~~4~~); and~~

~~(b)~~

~~The Company acquired substantially all of the assets of The WW Group Co., which operated franchises in certain territories in Ontario, Canada, for an aggregate purchase price of $3,114. Payment was in the form of cash ($2,605), cash in reserves ($599) and assumed net assets ($~~90~~). The total purchase price was allocated to franchise rights acquired ($3,040), customer relationship value ($~~42~~), property and equipment, net ($~~25~~), inventories ($~~6~~) and other assets ($~~1).

These acquisitions have been accounted for under the purchase method of accounting and, accordingly, earnings of the acquired franchises have been included in the consolidated operating results of the Company since the date of acquisition.

Franchise Rights Acquired, Goodwill and Other Intangible Assets

Franchise rights acquired are due to acquisitions of the Company’s franchised territories as well as the acquisition of franchise promotion agreements and other factors associated with the acquired franchise territories. For the ~~nine~~six months ended ~~October~~July 1, ~~2022,~~2023, the change in the carrying value of franchise rights acquired was due to the ~~impairments of the United States, Canada and New Zealand units of account as discussed below, the~~ effect of exchange rate ~~changes and the Northern Ireland franchisee acquisition as described in Note 5.~~changes.

~~WW INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)~~

Goodwill primarily relates to the acquisition of the Company by The Kraft Heinz Company (successor to H.J. Heinz Company) in 1978, and the Company’s acquisitions of WW.com, LLC (formerly known as WW.com, Inc. and WeightWatchers.com, Inc.) in 2005, Sequence in 2023 and the Company’s franchised territories. See Note 5 for additional information about acquisitions by the Company. For the ~~nine~~six months ended ~~October~~July 1, ~~2022,~~2023, the change in the carrying amount of goodwill was due to the ~~Republic~~acquisition of ~~Ireland franchisee and Northern Ireland franchisee acquisitions as described in Note 5, the impairment of the~~ ~~Company's wholly-owned subsidiary Kurbo, Inc. (“Kurbo”)~~ ~~as discussed below~~Sequence and the effect of exchange rate changes as follows:


	North			Continental			United									North America			International			Total
	America			Europe			Kingdom			Other			Total
Balance as of January 2, 2021	$	145,071		$	7,792		$	1,268		$	1,486		$	155,617
Goodwill acquired during the period		2,153			—			—			—			2,153
Effect of exchange rate changes		306			(606	)		(14	)		(82	)		(396	)
Balance as of January 1, 2022	$	147,530		$	7,186		$	1,254		$	1,404		$	157,374		$	147,530		$	9,844		$	157,374
Goodwill acquired during the period		—			—			5,936			—			5,936			—			5,936			5,936
Goodwill impairment		(1,101	)		—			—			—			(1,101	)		(1,101	)		(2,023	)		(3,124	)
Effect of exchange rate changes		(3,651	)		(1,152	)		(1,084	)		(167	)		(6,054	)		(2,862	)		(1,326	)		(4,188	)
Balance as of October 1, 2022	$	142,778		$	6,034		$	6,106		$	1,237		$	156,155
Balance as of December 31, 2022																$	143,567		$	12,431		$	155,998
Goodwill acquired during the period																	89,190			—			89,190
Effect of exchange rate changes																	916			104			1,020
Balance as of July 1, 2023																$	233,673		$	12,535		$	246,208

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 indefinite-lived franchise rights acquired, the fair value for franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for franchise rights related to the Company’s Workshops + Digital business and a relief from royalty methodology for franchise rights related to the Company’s Digital business. The aggregate estimated fair value for these franchise rights is then compared to the carrying value of the unit of account for ~~those franchise~~these rights. The Company has determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in both the Workshops + Digital business and the Digital business in the country in which the applicable acquisition occurred. The net book values of these franchise rights in the United States, ~~Canada,~~Australia, United Kingdom ~~Australia~~ and New Zealand as of the ~~October~~July 1, ~~2022~~2023 balance sheet date were $~~400,092~~374,353, $~~19,342~~4,137, $~~10,061, $5,753~~2,799 and $~~2,141~~2,350, respectively.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

In its hypothetical start-up approach analysis for fiscal ~~2022,~~2023, the Company assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, the Company estimated future cash flows for the Workshops + Digital business in each country based on assumptions regarding revenue growth and operating income margins. In the Company’s relief from royalty approach analysis for fiscal ~~2022,~~2023, 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 the Company’s reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting unit. ~~The~~Excluding the goodwill associated with the acquisition of Sequence, the Company has 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, excluding the acquisition of Sequence, in the United States, Canada and other countries as of the ~~October~~July 1, ~~2022~~2023 balance sheet date were $~~104,019~~104,020, $~~38,759~~40,463 and $~~13,377~~12,535, respectively.

~~For~~In performing the impairment analysis for goodwill, for all of the Company’s reporting units, ~~tested as of May 8, 2022,~~ the Company 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. The Company utilized operating income as the basis for measuring its potential growth because it believes it is the best indicator of the performance of its business. The Company then discounted the estimated future cash flows utilizing a discount rate which was calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.

~~WW INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)~~

Indefinite-Lived Franchise Rights Acquired and Goodwill Annual Impairment Test

The Company reviews 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. The Company performed its annual fair value impairment testing as of May ~~8, 2022~~7, 2023 and May ~~9, 2021,~~8, 2022, each the first day of fiscal May, on its indefinite-lived intangible assets and goodwill.

In performing its annual impairment analysis as of May 7, 2023, the Company determined that the carrying amounts of its franchise rights acquired with indefinite-lived units of account and goodwill reporting units did not exceed their respective fair values and, therefore, no impairment existed. In performing its annual impairment analysis as of May 8, 2022, the Company determined that (i) the carrying amounts of its Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, the Company recorded impairment charges for its Canada and New Zealand units of account of $24,485 and $834, respectively, in the second quarter of fiscal 2022; and (ii) the carrying amounts of all of its 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 its annual impairment analysis as of May ~~9, 2021, the Company determined that the carrying amounts of its franchise rights acquired with indefinite-lived units of account did not exceed their respective fair values and, therefore,~~ no ~~impairment existed. In performing its annual impairment analysis as of May~~ 8, 2022, ~~and May 9, 2021,~~ the Company determined that the carrying amounts of its goodwill reporting units did not exceed their respective fair values and, therefore, no impairment existed.

When determining fair value, the Company utilizes 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, the Company would be required to record a corresponding charge, which would impact earnings. The Company would also be required to reduce the carrying amounts of the related assets on its balance sheet.

Based on the results of the Company’s May ~~8, 2022~~7, 2023 annual franchise rights acquired impairment ~~test~~analysis performed for all of its ~~United States unit~~units of account, ~~which held~~all units, except for New Zealand, had an estimated fair value at least ~~92.7~~70% higher than the respective unit’s carrying amount. Collectively, these units of account represented 99.4% of the Company’s franchise rights acquired as of the July ~~2, 2022~~1, 2023 balance sheet date. Based on the results of the Company’s May 7, 2023 annual franchise rights acquired impairment analysis performed for its New Zealand unit of account, which held 0.6% of the Company’s franchise rights acquired as of the July 1, 2023 balance sheet date, the estimated fair value of this unit of account exceeded its carrying value by approximately 1520%. ~~Based on the results of the Company’s May 8, 2022 annual franchise rights acquired impairment analysis performed for its Canada and New Zealand units of account, which held~~ ~~4.6~~ ~~% and~~ ~~0.5~~%, respectively, of the Company’s franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying values. The above difference or lack thereof between the estimated fair value of the applicable unit of account and its carrying value is referred to herein as the “Annual Impairment Headroom”. As previously disclosed,Accordingly, a change in the underlying assumptions for the ~~United States, Canada and~~ New Zealand ~~could~~unit of account may change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the ~~United States, Canada and~~ New Zealand, for which the net book ~~values were~~value was $~~698,383~~2,350~~, $34,556~~ ~~and $3,574, respectively,~~ as of July ~~2, 2022. Based on~~1, 2023.

In performing the ~~results of the Company’s May 8, 2022~~ annual franchise rights acquired impairment analysis ~~performed~~ for ~~its remaining units~~fiscal 2023, in the Company’s hypothetical start-up approach analysis, for the year of ~~account, which collectively held~~ maturity, it assumed Workshops + Digital revenue (comprised of Workshops + Digital Fees and revenues from products sold to members in studios) growth of (~~2.2~~37.1%) to (18.4%) in the year of maturity from fiscal 2022, in each case, earned in the applicable country and assumed cumulative annual revenue growth rates for the years beyond the year of maturity of 2.8%. For the year of maturity and beyond, the Company assumed operating income margin rates of (6.4%) to 12.7%. In the Company’s relief from royalty approach, it assumed Digital revenue growth in each country of (14.8%) to 7.5% ~~of the Company’s franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account exceeded their respective carrying values by over~~ for fiscal 2023.

WW INTERNATIONAL, INC. AND SUBSIDIARIES~~100~~

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS%.

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Based on the results of the Company’s May ~~8, 2022~~7, 2023 annual goodwill impairment analysis performed for all of its reporting units, all units, except for the Republic of Ireland, had an estimated fair value at least 35120% higher than the respective unit’s carrying amount. Collectively, these reporting units represented ~~97.4~~99.0% of the Company’s ~~total~~ goodwill as of the ~~October~~July 1, ~~2022~~2023 balance sheet date. Based on the results of the Company’s May ~~8, 2022~~7, 2023 annual goodwill impairment analysis performed for its Republic of Ireland reporting unit, which ~~holds~~held ~~2.6~~1.0% of the Company’s goodwill as of the ~~October~~July 1, ~~2022~~2023 balance sheet date, the estimated fair value of this reporting unit exceeded its carrying value by approximately 1455%. Accordingly, a change in the underlying assumptions for the Republic of Ireland may change the results of the impairment assessment and, as such, could result in an impairment of the goodwill related to the Republic of Ireland, for which the net book value was $~~4,009~~2,381 as of ~~October~~July 1, ~~2022.~~2023.

The following are the more significant assumptions utilized in the Company's annual goodwill impairment analyses for fiscal 2023 and fiscal 2022:

~~Indefinite-Lived Franchise Rights Acquired Interim Impairment Test~~

During the quarter ended October 1, 2022, the Company identified various qualitative and quantitative factors which collectively, when combined with the Annual Impairment Headroom discussed above for the United States, Canada and New Zealand units of account, indicated a triggering event had occurred within these units of account. These factors included actual business performance as compared to the assumptions used in its annual impairment test, the continued decline in the Company’s market capitalization and market factors, including the increase in interest rates. As a result of this triggering event, the Company performed an interim impairment test of these units of account. In performing this interim impairment test as of October 1, 2022, the Company determined that the carrying amounts of its United States, Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values. Accordingly, the Company recorded impairment charges for its United States, Canada and New Zealand units of account of $~~298,291, $13,312~~ ~~and $1,138~~, respectively, in the third quarter of fiscal 2022. The preponderance of these impairments was driven by the increased weighted-average cost of capital used in this interim impairment test as compared to the weighted-average cost of capital used in the May 8, 2022 annual impairment test of its indefinite-lived franchise rights acquired, reflecting market factors including higher interest rates and the trading values of the Company's equity and debt.

~~WW INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)~~

~~Based on the results of the Company’s October 1, 2022 interim franchise rights acquired impairment test performed for its United States, Canada and New Zealand units of account, which hold~~ ~~91.5~~%, ~~4.4% and~~ ~~0.5~~%, respectively, of the Company’s franchise rights acquired as of the October 1, 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 for the United States, Canada and New Zealand may change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the United States, Canada and New Zealand, for which the net book values were $~~400,092, $19,342~~ ~~and $2,141, respectively, as of October 1, 2022.~~


	Fiscal 2023	Fiscal 2022
Debt-Free Cumulative Annual Cash Flow Growth Rate	3.9% to 24.9%	1.2% to 20.6%
Discount Rate	10.8%	9.6%

Kurbo Goodwill Impairment

On August 10, 2018, the Company acquired substantially all of the assets of Kurbo Health, Inc., a family-based healthy lifestyle coaching program, for a net purchase price of $3,063, of which $1,101 was allocated to goodwill. The goodwill was deductible annually for tax purposes. The Company determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of its strategic plan. As a result of this determination, the Company recorded an impairment charge of $1,101 in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo.

Finite-lived Intangible Assets

The carrying values of finite-lived intangible assets as of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022 were as follows:


	October 1, 2022				January 1, 2022				July 1, 2023				December 31, 2022
	Gross				Gross				Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated		Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization		Amount		Amortization		Amount		Amortization
Capitalized software costs	$	115,746	$	101,017	$	115,065	$	94,771	$	109,044	$	99,369	$	107,229	$	94,375
Website development costs		130,738		90,790		110,678		78,629		157,812		104,186		133,818		91,482
Trademarks		12,145		11,833		12,116		11,677		12,175		11,968		12,162		11,882
Other		13,880		5,917		14,021		5,677		13,980		6,397		13,961		6,125
Trademarks and other intangible assets	$	272,509	$	209,557	$	251,880	$	190,754	$	293,011	$	221,920	$	267,170	$	203,864
Franchise rights acquired		8,126		5,001		7,905		4,766		8,266		5,350		8,164		5,101
Total finite-lived intangible assets	$	280,635	$	214,558	$	259,785	$	195,520	$	301,277	$	227,270	$	275,334	$	208,965

Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $~~8,347~~10,443 and $~~25,282~~18,962 for the three and ~~nine~~six months ended ~~October~~July 1, ~~2022,~~2023, respectively. Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $~~8,032~~8,761 and $~~24,066~~16,935 for the three and ~~nine~~six months ended ~~October~~July 2, ~~2021,~~2022, respectively.

Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and thereafter is as follows:


Remainder of fiscal 2022	$	8,223
Fiscal 2023	$	27,053
Remainder of fiscal 2023			$	20,896
Fiscal 2024	$	16,687	$	26,108
Fiscal 2025	$	5,378	$	15,626
Fiscal 2026	$	845	$	3,481
Fiscal 2027	$	720	$	725
Fiscal 2028			$	357
Thereafter	$	7,171	$	6,814

1415

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Long-Term Debt

The components of the Company’s long-term debt were as follows:


	October 1, 2022									January 1, 2022									July 1, 2023									December 31, 2022
	Principal Balance		Unamortized Deferred Financing Costs		Unamortized Debt Discount		Effective Rate (1)			Principal Balance		Unamortized Deferred Financing Costs		Unamortized Debt Discount		Effective Rate (1)			Principal Balance		Unamortized Deferred Financing Costs		Unamortized Debt Discount		Effective Rate (1)			Principal Balance		Unamortized Deferred Financing Costs		Unamortized Debt Discount		Effective Rate (1)
Revolving Credit Facility due April 13, 2026	$	—	$	—	$	—		0.00	%	$	—	$	—	$	—		2.61	%	$	—	$	—	$	—		0.00	%	$	—	$	—	$	—		0.00	%
Term Loan Facility due April 13, 2028		945,000		6,098		12,638		5.15	%		945,000		6,930		14,362		4.48	%		945,000		5,266		10,915		8.80	%		945,000		5,821		12,064		5.85	%
Senior Secured Notes due April 15, 2029		500,000		5,025		—		4.65	%		500,000		5,604		—		4.70	%		500,000		4,445		—		4.65	%		500,000		4,831		—		4.70	%
Total	$	1,445,000	$	11,123	$	12,638		4.98	%	$	1,445,000	$	12,534	$	14,362		5.15	%	$	1,445,000	$	9,711	$	10,915		7.35	%	$	1,445,000	$	10,652	$	12,064		5.45	%
Less: Current portion		—									—									—									—
Unamortized deferred financing costs		11,123									12,534									9,711									10,652
Unamortized debt discount		12,638									14,362									10,915									12,064
Total long-term debt	$	1,421,239								$	1,418,104								$	1,424,374								$	1,422,284

(1)

Includes amortization of deferred financing costs and debt discount.

On April 13, 2021, the Company (1) repaid in full approximately $1,189,750 in aggregate principal amount of senior secured tranche B term loans due in 2024 under its then-existing credit facilities and (2) redeemed all of the $300,000 in aggregate principal amount of its then-outstanding 8.625% Senior Notes due in 2025 (the “Discharged Senior Notes”). On April 13, 2021, the Company’s then-existing credit facilities included a senior secured revolving credit facility (which included borrowing capacity available for letters of credit) due in 2022 with $175,000 in an aggregate principal amount of commitments. There were no outstanding borrowings under such revolving credit facility on that date. The Company funded such repayment of loans and redemption of notes with cash on hand as well as with proceeds received from approximately $1,000,000 in an aggregate principal amount of borrowings under its new credit facilities (as amended from time to time, the “Credit Facilities”) and proceeds received from the issuance of $500,000 in aggregate principal amount of 4.500% Senior Secured Notes due 2029 (the “Senior Secured Notes”), each as described below. These transactions are collectively referred to herein as the “April 2021 debt refinancing”. During the second quarter of fiscal 2021, the Company incurred fees of $37,910 (which included $12,939 of a prepayment penalty on the Discharged Senior Notes and $5,000 of a debt discount on its Term Loan Facility (as defined below)) in connection with the April 2021 debt refinancing. In addition, the Company recorded a loss on early extinguishment of debt of $29,169 in connection thereto. This early extinguishment of debt charge was comprised of $12,939 of a prepayment penalty on the Discharged Senior Notes, $9,017 of financing fees paid in connection with the April 2021 debt refinancing and the write-off of $7,213 of pre-existing deferred financing fees and debt discount.

Credit Facilities

The Credit Facilities were issued under a credit agreement, dated April 13, 2021 (as amended from time to time, the “Credit Agreement”), among the Company, as borrower, the lenders party thereto, and Bank of America, N.A. (“Bank of America”), as administrative agent and an issuing bank. The Credit Facilities consist of (1) $1,000,000 in aggregate principal amount of senior secured tranche B term loans due in 2028 (the “Term Loan Facility”) and (2) $175,000 in an aggregate principal amount of commitments under a senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2026 (the “Revolving Credit Facility”).

In December 2021, the Company made voluntary prepayments at par in an aggregate amount of $52,500 in respect of its outstanding term loans under the Term Loan Facility. As a result of these prepayments, the Company wrote off a debt discount and deferred financing fees of $1,183 in the aggregate in the fourth quarter of fiscal 2021.

As of ~~October~~July 1, ~~2022,~~2023, the Company had $945,000 in an aggregate principal amount of loans outstanding under the Credit Facilities, with $~~173,911~~173,921 of availability and $~~1,089~~1,079 in issued but undrawn letters of credit outstanding under the Revolving Credit ~~Facility.~~Facility subject to its terms and conditions as discussed below. There were no outstanding borrowings under the Revolving Credit Facility as of ~~October~~July 1, ~~2022.~~2023.

1516

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of the Company’s current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:

•

a pledge of 100% of the equity interests directly held by the Company and each guarantor in any wholly-owned material subsidiary of the Company or any guarantor (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, will not include more than 65% of the voting stock of such first-tier non-U.S. subsidiary), subject to certain exceptions; and

•

a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions.

The Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:

•

50% (which percentage will be reduced to 25% and 0% if the Company attains certain first lien secured net leverage ratios) of the Company’s annual excess cash flow;

•

100% of the net cash proceeds of certain non-ordinary course asset sales by the Company and its restricted subsidiaries (including casualty and condemnation events, subject to de minimis thresholds), and subject to the right to reinvest 100% of such proceeds, subject to certain qualifications; and

•

100% of the net proceeds of any issuance or incurrence of debt by the Company or any of its restricted subsidiaries, other than certain debt permitted under the Credit Agreement.

The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. The Company may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to ~~LIBOR~~Term SOFR loans under the Credit Facilities.

In June 2023, in connection with the planned phase-out of LIBOR, the Company amended its Credit Facilities to replace LIBOR with Term SOFR as the benchmark rate under the Credit Agreement, which will be calculated to include a credit spread adjustment of 0.11448%, 0.26161%, 0.42826%, or 0.71513% for 1, 3, 6, or 12 months period, respectively, in addition to the Term SOFR Screen Rate (as defined in the Credit Agreement) and the margin (which was not amended).

Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the ~~LIBOR~~Term SOFR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.50% or (2) an applicable margin plus a ~~LIBOR~~Term SOFR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided that ~~LIBOR~~Term SOFR is not lower than a floor of 0.50%. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at the Company’s option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the ~~LIBOR~~Term SOFR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.00% or (2) a ~~LIBOR~~Term SOFR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided such rate is not lower than a floor of zero. As of ~~October~~July 1, ~~2022,~~2023, the applicable margins for the ~~LIBOR~~Term SOFR rate borrowings under the Term Loan Facility and the Revolving Credit Facility were 3.50% and 2.75%, respectively. In the event that LIBOR is phased out as is currently expected, the Credit Agreement provides that the Company and the administrative agent may amend the Credit Agreement to replace the LIBOR definition therein with a successor rate subject to notifying the lending syndicate of such change and not receiving within five business days of such notification objections to such replacement rate from lenders holding at least a majority of the aggregate principal amount of loans and commitments then outstanding under the Credit Agreement; provided that such lending syndicate may not object to a SOFR-based successor rate contained in any such amendment. If the Company fails to do so, its borrowings will be based off of the alternative base rate plus a margin.

On a quarterly basis, the Company pays a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon the Company’s Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement).

The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default.

1617

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, the Company must be in compliance with a Consolidated First Lien Leverage Ratio of ~~5.75:1.00 for the period ending after the first fiscal quarter of 2022 through and including with the first fiscal quarter of 2023, with a step down to~~ 5.50:1.00 for the period ending after the first fiscal quarter of 2023 through and including ~~with~~ the first fiscal quarter of 2024, with ~~an additional~~a step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including ~~with~~ the first fiscal quarter of 2025, and ~~again~~an additional step down to 5.00:1.00 for the period following the first fiscal quarter of 2025. As of ~~October~~July 1, ~~2022,~~2023, the Company’s actual Consolidated First Lien Leverage Ratio was ~~4.99~~7.48:1.00 and there were no borrowings under its Revolving Credit Facility and total letters of credit issued were $~~1,089~~1,079. The Company ~~expects it may~~was not ~~be able to satisfy~~in compliance with the Consolidated First Lien Leverage Ratio ~~in the near future,~~as of July 1, 2023, and as a result, the Company is limited to borrowing no more than 35%, or $61,250, of the amount of ~~funds~~ the ~~Company is able to borrow~~aggregate commitments under the Revolving Credit Facility ~~would be effectively limited.~~as of each fiscal quarter end until the Company complies with the applicable ratio.

Senior Secured Notes

The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 13, 2021 (as amended, supplemented or modified from time to time, the “Indenture”), among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions.

The Senior Secured Notes accrue interest at a rate per annum equal to 4.500% and will mature on April 15, 2029. Interest on the Senior Secured Notes is payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021. On or after April 15, 2024, the Company may on any one or more occasions redeem some or all of the Senior Secured Notes at a purchase price equal to 102.250% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date, such optional redemption price decreasing to 101.125% on or after April 15, 2025 and to 100.000% on or after April 15, 2026. Prior to April 15, 2024, the Company may on any one or more occasions redeem up to 40% of the aggregate principal amount of the Senior Secured Notes with an amount not to exceed the net proceeds of certain equity offerings at 104.500% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Prior to April 15, 2024, the Company may redeem some or all of the Senior Secured Notes at a make-whole price plus accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, during any twelve-month period ending prior to April 15, 2024, the Company may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes at a purchase price equal to 103.000% of the principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If a change of control occurs, the Company must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. Following the sale of certain assets and subject to certain conditions, the Company must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

The Senior Secured Notes are guaranteed on a senior secured basis by the Company’s subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.

Outstanding Debt

At ~~October~~July 1, ~~2022,~~2023, the Company had $1,445,000 outstanding under the Credit Facilities and the Senior Secured Notes, consisting of borrowings under the Term Loan Facility of $945,000, $0 drawn down on the Revolving Credit Facility and $500,000 in aggregate principal amount of Senior Secured Notes issued and outstanding.

At ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, the Company’s debt consisted of both fixed and variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with the Company’s variable-rate borrowings. See Note 11 for information on the Company’s interest rate swaps. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, exclusive of the impact of the swaps then in effect, was approximately ~~4.98~~7.35% and ~~5.11~~5.45% per annum at ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, respectively, based on interest rates on these dates. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, including the impact of the swaps then in effect, was approximately ~~5.28~~6.37% and ~~5.62~~5.50% per annum at ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, respectively, based on interest rates on these dates.

1718

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Per Share Data

Basic earnings (net loss) ~~earnings~~ per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted earnings (net loss) ~~earnings~~ per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented adjusted for the effect of dilutive common stock equivalents.

The following table sets forth the computation of basic and diluted earnings (net loss) ~~earnings~~ per ~~share data:~~share:


	Three Months Ended					Nine Months Ended					Three Months Ended					Six Months Ended
	October 1,			October 2,		October 1,			October 2,		July 1,		July 2,			July 1,			July 2,
	2022			2021		2022			2021		2023		2022			2023			2022
Numerator:
Net (loss) income	$	(206,036	)	$	46,330	$	(218,902	)	$	36,963
Net income (loss)											$	50,828	$	(4,623	)	$	(67,851	)	$	(12,866	)
Denominator:
Weighted average shares of common stock outstanding		70,383			69,875		70,258			69,516		78,007		70,305			74,302			70,195
Effect of dilutive common stock equivalents		—			985		—			1,350		584		—			—			—
Weighted average diluted common shares outstanding		70,383			70,860		70,258			70,866		78,591		70,305			74,302			70,195
(Net loss) earnings per share
Earnings (net loss) per share
Basic	$	(2.93	)	$	0.66	$	(3.12	)	$	0.53	$	0.65	$	(0.07	)	$	(0.91	)	$	(0.18	)
Diluted	$	(2.93	)	$	0.65	$	(3.12	)	$	0.52	$	0.65	$	(0.07	)	$	(0.91	)	$	(0.18	)

The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted earnings (net loss) ~~earnings~~ per share was ~~9,229~~9,068 and ~~5,426~~8,732 for the three months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, respectively. The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted ~~(net loss) earnings~~net loss per share was ~~8,307~~9,485 and ~~5,270~~7,848 for the ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, respectively.

Taxes

Income Taxes

The Company’s effective tax rates for the three and ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 were (~~25.6~~1,740.0%) and (40.4%), respectively, compared to 38.4% and ~~25.6~~26.7% for the three and six months ended July 2, 2022, respectively. The effective tax rate for interim periods is determined using an annual effective tax rate, adjusted for discrete items. In fiscal 2023, the Company was required to increase the valuation allowance recorded against U.S. deferred tax assets as a result of the limitation on interest deductions in the U.S. The forecasted full-year tax expense, which included the increase in valuation allowance, in relation to the Company’s forecasted full-year pretax loss (albeit minimal), ~~respectively.~~ drove an unusually high negative annual effective tax rate. Applying this negative annual effective tax rate to the pretax loss for the six months ended July 1, 2023 resulted in an income tax expense of $19,515. This tax charge resulted in an income tax benefit of $48,066 for the three months ended July 1, 2023, since an income tax expense of $67,580 was recorded for the three months ended April 1, 2023.

For the ~~nine~~six months ended ~~October~~July 1, 2023, the difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to the valuation allowance noted above. In addition, the effective tax rate was impacted by tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to foreign-derived intangible income (“FDII”). For the six months ended July 2, 2022, the tax benefit was ~~impacted~~primarily driven by a tax benefit recorded for out-of-period income tax adjustments, ~~and a U.S. state tax rate change,~~which was partially offset by tax expense related to tax shortfalls from stock compensation. For the ~~nine~~six months ended ~~October 1,~~July 2, 2022, the difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to tax benefits related to FDII and out-of-period income tax adjustments, partially offset by state income tax expense, ~~and~~ tax expense from income earned in foreign jurisdictions ~~partially offset by a~~and tax ~~benefit related to foreign-derived intangible income (“FDII”).~~

~~The effective tax rates for the three and nine months ended October 2, 2021 were~~ ~~22.4% and~~ ~~14.9%, respectively. For the nine months ended October 2, 2021, the tax~~ expense ~~was impacted by tax windfalls from stock compensation and the reversal of a valuation allowance~~ related to tax benefits for foreign losses that are now expected to be realized. For the nine months ended October 2, 2021, the difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to state income tax expense and tax expenseshortfalls from ~~income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII.~~

The U.S. federal government has recently signed into law the Inflation Reduction Act of 2022 (the “IRA”) which, among other things, imposes a minimum “book” tax on certain large corporations and creates a new excise tax on stock repurchases made by certain publicly traded corporations after December 31, 2022. Although the Company is continuing to evaluate the impact of the IRA on its consolidated financial statements as it awaits further guidance, the Company does not currently expect a material impact.compensation.

Non-Income Tax Matters

The Internal Revenue Service (the “IRS”) notified the Company of certain penalties assessed related to the annual disclosure and reporting requirements of the Affordable Care Act. The Company is in the process of appealing this determination and does not believe it has any liability with respect to this matter. Until the appeals process is complete, the IRS will maintain a federal tax lien which is currently limited to certain IRS refunds due to the Company.

1819

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

10.

Legal

Due to the nature of the Company’s activities, it is, at times, subject to pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected, individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.

11.

Derivative Instruments and Hedging

In June 2023, the Company amended the terms of its interest rate swap agreements to implement a forward-looking interest rate based on Term SOFR in place of LIBOR. Since the interest rate swap agreements were affected by reference rate reform, the Company applied the expedients and exceptions provided to preserve the past presentation of its derivatives without de-designating the existing hedging relationships. All amendments to interest rate swap agreements were executed with the existing counterparties and did not change the notional amounts, maturity dates, or other critical terms of the hedging relationships.

As of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, the Company had in effect interest rate swaps with an aggregate notional amount totaling $500,000.

On June 11, 2018, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2018 swap”) with an effective date of April 2, 2020 and a termination date of March 31, 2024. The initial notional amount of this swap was $500,000. During the term of this swap, the notional amount decreased from $500,000 effective April 2, 2020 to $250,000 on March 31, 2021. This interest rate swap effectively fixed the variable interest rate on the notional amount of this swap at ~~3.1005~~3.1513%. On June 7, 2019, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2019 swap”, and together with the 2018 swap, the “current swaps”) with an effective date of April 2, 2020 and a termination date of March 31, 2024. The notional amount of this swap is $250,000. This interest rate swap effectively fixed the variable interest rate on the notional amount of this swap at ~~1.901~~1.9645%. The current swaps qualify for hedge accounting and, therefore, changes in the fair value of the current swaps have been recorded in accumulated other comprehensive loss.

As of ~~October~~July 1, 2023, the cumulative unrealized gain for qualifying hedges was reported as a component of accumulated other comprehensive loss in the amount of $7,967 ($10,472 before taxes). As of December 31, 2022, the cumulative unrealized gain for qualifying hedges was reported as a component of accumulated other comprehensive loss in the amount of $~~9,932~~10,723 ($~~13,127~~14,146 before taxes). ~~As of January 1, 2022, the cumulative unrealized loss for qualifying hedges was reported as a component of accumulated other comprehensive loss in the amount of $10,843~~ ($~~14,622~~ ~~before taxes).~~

The following table presents the aggregate fair value of the Company’s derivative financial instruments by balance sheet classification and location:


			Fair Value						Fair Value
	Balance Sheet Classification	Balance Sheet Location	October 1, 2022		January 1, 2022		Balance Sheet Classification	Balance Sheet Location	July 1, 2023		December 31, 2022
Assets:
Interest rate swaps - current swaps	Current asset	Prepaid expenses and other current assets	$	8,631	$	—	Current asset	Prepaid expenses and other current assets	$	10,546	$	11,748
Interest rate swaps - current swaps	Noncurrent asset	Other noncurrent assets		4,513		—	Noncurrent asset	Other noncurrent assets		—		2,450
Total assets			$	13,144	$	—			$	10,546	$	14,198

Liabilities:
Interest rate swaps - current swaps	Current liability	Derivative payable	$	—	$	14,670
Total liabilities			$	—	$	14,670

The Company is hedging forecasted transactions for periods not exceeding the next ~~two years~~year. The Company expects approximately $~~6,287~~10,006 ($~~8,397~~13,343 before taxes) of net derivative gains included in accumulated other comprehensive loss at ~~October~~July 1, ~~2022,~~2023, based on current market rates, will be reclassified into earnings within the next 12 months.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

12.

Fair Value Measurements

Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

•

Level 1 – Quoted prices in active markets for identical assets or liabilities.

•

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

~~WW INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)~~

•

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

When measuring fair value, the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs.

Fair Value of Financial Instruments

The Company’s significant financial instruments include long-term debt and interest rate swap agreements as of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022. Since there were no outstanding borrowings under the Revolving Credit Facility as of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, the fair value approximated a carrying value of $0 at both ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022.

The fair value of the Company’s Credit Facilities is determined by utilizing average bid prices on or near the end of each fiscal quarter (Level 2 input). As of ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, the fair value of the Company’s long-term debt was approximately $~~922,092~~906,567 and $~~1,389,306~~782,384, respectively, as compared to the carrying value (net of deferred financing costs and debt discount) of $~~1,421,239~~1,424,374 and $~~1,418,104~~1,422,284, respectively.

Derivative Financial Instruments

The fair values for the Company’s derivative financial instruments are determined using observable current market information such as the prevailing ~~LIBOR~~Term SOFR interest rate and ~~LIBOR~~Term SOFR yield curve rates and include consideration of counterparty credit risk. See Note 11 for disclosures related to derivative financial instruments.

The following table presents the aggregate fair value of the Company’s derivative financial instruments:

Fair Value Measurements Using:

Total
Fair
Value

Quoted Prices in
Active Markets
for Identical Assets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Interest rate swap current asset at October 1, 2022

$
8,631

$
—

$
8,631

$
—

Interest rate swap noncurrent asset at October 1, 2022

$
4,513

$
—

$
4,513

$
—

Interest rate swap current liability at January 1, 2022

$
14,670

$
—

$
14,670

$
—


			Fair Value Measurements Using:
	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest rate swap current asset at July 1, 2023	$	10,546	$	—	$	10,546	$	—
Interest rate swap current asset at December 31, 2022	$	11,748	$	—	$	11,748	$	—
Interest rate swap noncurrent asset at December 31, 2022	$	2,450	$	—	$	2,450	$	—

The Company did not have any transfers into or out of Levels 1 and 2 and did not maintain any assets or liabilities classified as Level 3 during the ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and the fiscal year ended ~~January 1,~~December 31, 2022.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

13.

Accumulated Other Comprehensive Loss

Amounts reclassified out of accumulated other comprehensive loss were as follows:

Changes in Accumulated Other Comprehensive Loss by Component (1)

Nine Months Ended October 1, 2022

(Loss) Gain on
Qualifying
Hedges

Loss on
Foreign
Currency
Translation

Total

Beginning balance at January 1, 2022

$
(10,843
)

$
(7,761
)

$
(18,604
)
Other comprehensive income (loss) before
reclassifications, net of tax

17,350

(13,488
)

3,862

Amounts reclassified from accumulated other
comprehensive loss, net of tax (2)

3,425

—

3,425

Net current period other comprehensive income (loss)

20,775

(13,488
)

7,287

Ending balance at October 1, 2022

$
9,932

$
(21,249
)

$
(11,317
)


	Six Months Ended July 1, 2023
	Gain on Qualifying Hedges			Loss on Foreign Currency Translation			Total
Beginning balance at December 31, 2022	$	10,723		$	(16,193	)	$	(5,470	)
Other comprehensive income before reclassifications, net of tax		1,569			697			2,266
Amounts reclassified from accumulated other comprehensive loss, net of tax (2)		(4,325	)		—			(4,325	)
Net current period other comprehensive (loss) income	$	(2,756	)	$	697		$	(2,059	)
Ending balance at July 1, 2023	$	7,967		$	(15,496	)	$	(7,529	)

(1)

Amounts in parentheses indicate debits

(2)

See separate table below for details about these reclassifications


	Six Months Ended July 2, 2022
	(Loss) Gain on Qualifying Hedges			Loss on Foreign Currency Translation			Total
Beginning balance at January 1, 2022	$	(10,843	)	$	(7,761	)	$	(18,604	)
Other comprehensive income (loss) before reclassifications, net of tax		11,162			(6,341	)		4,821
Amounts reclassified from accumulated other comprehensive loss, net of tax (2)		3,181			—			3,181
Net current period other comprehensive income (loss)	$	14,343		$	(6,341	)	$	8,002
Ending balance at July 2, 2022	$	3,500		$	(14,102	)	$	(10,602	)

~~WW INTERNATIONAL, INC. AND SUBSIDIARIES~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)~~

Nine Months Ended October 2, 2021

Loss on
Qualifying
Hedges

Loss on
Foreign
Currency
Translation

Total

Beginning balance at January 2, 2021

$
(20,979
)

$
(4,170
)

$
(25,149
)
Other comprehensive income (loss) before
reclassifications, net of tax

418

(2,349
)

(1,931
)
Amounts reclassified from accumulated other
comprehensive loss, net of tax (2)

6,028

—

6,028

Net current period other comprehensive income (loss)

6,446

(2,349
)

4,097

Ending balance at October 2, 2021

$
(14,533
)

$
(6,519
)

$
(21,052
)

(1)

Amounts in parentheses indicate debits

(2)

See separate table below for details about these reclassifications

Reclassifications out of Accumulated Other Comprehensive Loss (1)


	Three Months Ended						Nine Months Ended							Three Months Ended						Six Months Ended
	October 1,			October 2,			October 1,			October 2,				July 1,			July 2,			July 1,			July 2,
	2022			2021			2022			2021				2023			2022			2023			2022
Details about Other Comprehensive Loss Components	Amounts Reclassified from Accumulated Other Comprehensive Loss						Amounts Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item in the Statement Where Net Income is Presented	Amounts Reclassified from Accumulated Other Comprehensive Loss						Amounts Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item in the Statement Where Net Income is Presented
Loss on Qualifying Hedges
Gain (Loss) on Qualifying Hedges
Interest rate contracts	$	(326	)	$	(2,213	)	$	(4,575	)	$	(8,058	)	Interest expense	$	3,190		$	(2,036	)	$	5,768		$	(4,249	)	Interest expense
		(326	)		(2,213	)		(4,575	)		(8,058	)	(Loss) income before income taxes		3,190			(2,036	)		5,768			(4,249	)	Income (loss) before income taxes
		82			557			1,150			2,030		(Benefit from) provision for income taxes		(798	)		512			(1,443	)		1,068		Provision for (benefit from) income taxes
	$	(244	)	$	(1,656	)	$	(3,425	)	$	(6,028	)	Net (loss) income	$	2,392		$	(1,524	)	$	4,325		$	(3,181	)	Net income (loss)

(1)

Amounts in parentheses indicate debits to profit/loss

~~14.~~

~~Segment Data~~

~~The Company has~~ ~~four~~ reportable segments based on an integrated geographical structure as follows: North America, Continental Europe (CE), United Kingdom and Other. Other consists of Australia, New Zealand and emerging markets operations and franchise revenues and related costs, all of which have been grouped together as if they were a single reportable segment because they do not meet any of the quantitative thresholds and are immaterial for separate disclosure. To be consistent with the information that is presented to the chief operating decision maker, the Company does not include intercompany activity in the segment results.

~~Information about the Company’s reportable segments is as follows:~~

Total Revenues, net

Total Revenues, net

Three Months Ended

Nine Months Ended

October 1,

October 2,

October 1,

October 2,

2022

2021

2022

2021

North America
$
176,082

$
197,797

$
568,410

$
626,742

Continental Europe

56,496

71,933

189,140

231,764

United Kingdom

10,898

15,666

38,094

51,735

Other

6,242

8,101

21,288

26,431

Total revenues, net
$
249,718

$
293,497

$
816,932

$
936,672

2122

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Net (Loss) Income

Net (Loss) Income

Three Months Ended

Nine Months Ended

October 1,

October 2,

October 1,

October 2,

2022

2021

2022

2021

Segment operating (loss) income:

North America
$
(255,269
)

$
74,310

$
(207,241
)

$
163,287

Continental Europe

27,013

36,116

75,477

89,620

United Kingdom

2,462

3,502

1,363
��

6,085

Other

(234
)

1,746

578

3,834

Total segment operating (loss) income

(226,028
)

115,674

(129,823
)

262,826

General corporate expenses

28,501

35,951

102,370

120,599

Interest expense

20,912

19,283

58,837

68,699

Other expense, net

1,344

764

3,303

908

Early extinguishment of debt

—

—

—

29,169

(Benefit from) provision for income taxes

(70,749
)

13,346

(75,431
)

6,488

Net (loss) income
$
(206,036
)

$
46,330

$
(218,902
)

$
36,963

14.

Depreciation and Amortization

Depreciation and Amortization

Three Months Ended

Nine Months Ended

October 1,

October 2,

October 1,

October 2,

2022

2021

2022

2021

North America
$
7,939

$
9,635

$
24,738

$
29,752

Continental Europe

166

340

599

1,171

United Kingdom

109

160

475

639

Other

87

96

273

312

Total segment depreciation and amortization

8,301

10,231

26,085

31,874

General corporate depreciation and amortization

3,532

2,200

11,049

10,183

Depreciation and amortization
$
11,833

$
12,431

$
37,134

$
42,057

Segment Data

As previously disclosed, effective the first day of fiscal 2023 (i.e., January 1, 2023), the Company realigned its organizational structure and resources to more closely align with its strategic priorities and centralized the global management of certain functions and systems. As a result of the change in its organizational structure, the Company now has two reportable segments, consisting of North America and International, for the purpose of making operational and resource decisions and assessing financial performance. “North America” refers to the Company’s North American Company-owned operations and franchise revenues and related costs; and “International” refers to the Company’s Continental Europe Company-owned operations, United Kingdom Company-owned operations, and Australia, New Zealand and emerging markets operations. The new reportable segments will continue to provide similar services and products. To be consistent with the information that is presented to the chief operating decision maker, the Company does not include intercompany activity in the segment results. Segment information for the three and six months ended July 2, 2022 presented below has been updated to reflect the new reportable segment structure.

Information about the Company’s reportable segments is as follows:


	Total Revenues, net				Total Revenues, net
	Three Months Ended				Six Months Ended
	July 1,		July 2,		July 1,		July 2,
	2023		2022		2023		2022
North America	$	162,188	$	188,375	$	333,213	$	393,055
International		64,642		81,079		135,511		174,159
Total revenues, net	$	226,830	$	269,454	$	468,724	$	567,214


	Net Income (Loss)						Net Loss
	Three Months Ended						Six Months Ended
	July 1,			July 2,			July 1,			July 2,
	2023			2022			2023			2022
Segment operating income:
North America	$	35,100		$	26,654		$	45,786		$	48,063
International		22,943			29,873			32,122			48,141
Total segment operating income		58,043			56,527			77,908			96,204
General corporate expenses		31,726			43,161			80,174			73,869
Interest expense		24,075			19,255			46,921			37,926
Other (income) expense, net		(520	)		1,613			(851	)		1,956
(Benefit from) provision for income taxes		(48,066	)		(2,879	)		19,515			(4,681	)
Net income (loss)	$	50,828		$	(4,623	)	$	(67,851	)	$	(12,866	)


	Depreciation and Amortization				Depreciation and Amortization
	Three Months Ended				Six Months Ended
	July 1,		July 2,		July 1,		July 2,
	2023		2022		2023		2022
North America	$	8,728	$	8,345	$	16,196	$	16,798
International		262		481		551		986
Total segment depreciation and amortization		8,990		8,826		16,747		17,784
General corporate depreciation and amortization		5,144		4,462		10,631		7,517
Depreciation and amortization	$	14,134	$	13,288	$	27,378	$	25,301

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

15.

Related Party

As previously disclosed, on October 18, 2015, the Company entered into the Strategic Collaboration Agreement with Oprah Winfrey, under which she ~~would consult~~consulted with the Company and ~~participate~~participated in developing, planning, executing and enhancing the WW program and related initiatives, and ~~provide~~provided it with services in her discretion to promote the Company and its programs, products and services for an initial term of five years (the “Initial Term”).

As previously disclosed, on December 15, 2019, the Company entered into an amendment of the Strategic Collaboration Agreement with Ms. Winfrey, pursuant to which, among other things, the Initial Term of the Strategic Collaboration Agreement was extended until April 17, 2023 (with no additional successive renewal terms), after which a second term commenced that will ~~commence and~~ continue through the earlier of the date of the Company’s 2025 annual meeting of shareholders or May 31, 2025. Ms. Winfrey will continue to provide ~~the above-described services during the remainder of the Initial Term and, during the second term, will provide~~ certain consulting and other services to the ~~Company.~~Company during the second term.

In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to the Company totaling $~~284~~87 and $~~860~~322 for the three and ~~nine~~six months ended ~~October~~July 1, ~~2022,~~2023, respectively, and $80144 and $~~746~~576 for the three and ~~nine~~six months ended ~~October~~July 2, ~~2021,~~2022, respectively, which services included advertising, production and related fees.

The Company’s accounts payable to parties related to Ms. Winfrey at ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022 was $8035 and $~~120~~0, respectively.

16.

Restructuring

~~During~~2023 Plan

As previously disclosed, in the ~~nine~~fourth quarter of fiscal 2022, management reviewed the then-current global business operations of the Company as well as the different functions and systems supporting those operations and contrasted them with the Company's strategic priorities and requirements for fiscal 2023 and beyond. Based on that review, in December 2022, the Company's management resolved to centralize its global management of certain functions and systems, deprioritize and in some cases cease operations for certain non-strategic business lines, and continue the rationalization of its real estate portfolio to align with its future needs. Throughout December 2022 and January 2023, management developed and continued refining a detailed plan to achieve these goals.

The Company has committed to a restructuring plan consisting of (i) an organizational restructuring and rationalization of certain functions and systems to centralize the Company’s management, align resources with strategic business lines and reduce costs associated with certain functions and systems (the “Organizational Restructuring”) and (ii) the continued rationalization of its real estate portfolio and resulting operating lease termination charges and the associated employment termination costs (the “Real Estate Restructuring,” and together with the Organizational Restructuring, the “2023 Plan”). In connection with the 2023 Plan, the Company continues to expect to record restructuring charges of approximately $39,000 to $46,000 in the aggregate. For the fiscal year ended December 31, 2022, the Company recorded restructuring charges totaling $13,608 ($10,201 after tax) in connection with the 2023 Plan. For the three and six months ended ~~October 2, 2021, as permitted by~~July 1, 2023, the ~~transfer provisions set forth~~Company recorded restructuring charges totaling $1,784 ($1,338 after tax) and $24,416 ($18,310 after tax), respectively, in connection with the 2023 Plan.

The Organizational Restructuring has resulted and will further result in the ~~previously disclosed Share Purchase Agreement, dated October 18, 2015, between~~elimination of certain positions and the termination of employment for certain employees worldwide. In connection with the Organizational Restructuring, the Company previously expected to record restructuring charges of approximately $15,000 to $18,000 in the aggregate, consisting primarily of general and ~~Ms. Winfrey, as amended,~~administrative expenses. The Company revised its estimate and currently expects to record restructuring charges in connection with the ~~previously disclosed Winfrey Option Agreement, dated October 18, 2015, between~~Organizational Restructuring of approximately $16,000 to $19,000 in the aggregate. The majority of these charges were recorded in the fourth quarter of fiscal 2022 at the time management resolved to undertake the Organizational Restructuring. For the fiscal year ended December 31, 2022, the Company ~~and Ms. Winfrey, Ms. Winfrey sold~~ recorded employee termination benefit costs related to the Organizational Restructuring totaling $~~1,542~~11,810 ($8,853 after tax). For the three and six months ended July 1, 2023, the Company recorded employee termination benefit costs related to the Organizational Restructuring totaling $1,137 ($853 after tax) and $4,876 ($3,657 after tax), respectively.

In connection with the Real Estate Restructuring, the Company previously expected to record restructuring charges of ~~the shares she purchased under such purchase agreement and exercised a portion of her stock options granted in fiscal 2015 resulting~~approximately $24,000 to $28,000 in the ~~sale~~aggregate, the majority of which was recorded in the first quarter of fiscal 2023. The Company revised its estimate and currently expects to record restructuring charges in connection with the Real Estate Restructuring of approximately $~~581~~20,000 ~~shares issuable under such options,~~to $24,000 in the aggregate. For the fiscal year ended December 31, 2022, the Company recorded employee termination benefit costs related to the Real Estate Restructuring totaling $1,798 ($1,348 after tax). For the three and six months ended July 1, 2023, in connection with the Real Estate Restructuring, the Company recorded lease termination and other related costs totaling $565 ($424 after tax) and $14,894 ($11,169 after tax), respectively, and employee termination benefit costs totaling $(101) ($(76) after tax) and $4,263 ($3,197 after tax), respectively.

2224

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

Additionally, the Company expects to record other restructuring costs of approximately $3,000 in the aggregate in fiscal 2023.

Substantially all of the costs arising from the 2023 Plan are expected to result in cash expenditures related to separation payments, other employee termination expenses and lease termination payments. The Company expects the 2023 Plan to be fully executed by the end of fiscal 2023.

~~16.~~For the three and six months ended July 1, 2023, the components of the Company’s restructuring charges for the 2023 Plan were as follows:


	Three Months Ended			Six Months Ended
	July 1, 2023			July 1, 2023
Real Estate Restructuring - Lease termination and other related costs	$	565		$	14,894
Real Estate Restructuring - Employee termination benefit costs		(101	)		4,263
Organizational Restructuring - Employee termination benefit costs		1,137			4,876
Other costs		183			383
Total restructuring charges	$	1,784		$	24,416

For the three and six months ended July 1, 2023, restructuring charges for the 2023 Plan were recorded in the Company’s consolidated statements of operations as follows:


	Three Months Ended		Six Months Ended
	July 1, 2023		July 1, 2023
Cost of revenues	$	532	$	19,425
Selling, general and administrative expenses		1,252		4,991
Total restructuring charges	$	1,784	$	24,416

For the fiscal year ended December 31, 2022, the components of the Company’s restructuring charges for the 2023 Plan were as follows:


	Fiscal Year Ended
	December 31, 2022
Real Estate Restructuring - Employee termination benefit costs	$	1,798
Organizational Restructuring - Employee termination benefit costs		11,810
Total restructuring charges	$	13,608

For the fiscal year ended December 31, 2022, restructuring charges for the 2023 Plan were recorded in the Company’s consolidated statements of operations as follows:


	Fiscal Year Ended
	December 31, 2022
Cost of revenues	$	1,798
Selling, general and administrative expenses		11,810
Total restructuring charges	$	13,608

All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.

In connection with the Real Estate Restructuring,

for the six months ended July 1, 2023, the Company made payments of $8,038 towards the liability for the lease termination costs and $3,996 towards the liability for the employee termination benefit costs. In connection with the Organizational Restructuring, for the six months ended July 1, 2023, the Company made payments of $6,849 towards the liability for the employee termination benefit costs.

The Company expects the remaining lease termination liability related to the Real Estate Restructuring of $4,237, the remaining employee termination benefit liability related to the Real Estate Restructuring of $2,065 and the remaining employee termination benefit liability related to the Organizational Restructuring of $9,837 to be paid in full by the end of fiscal 2025.

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

2022 Plan

As previously disclosed, in the second quarter of fiscal 2022, the Company committed to a restructuring plan consisting of (i) an organizational realignment to simplify the Company’s corporate structure and reduce associated costs (the “Organizational Realignment”) and (ii) a continued rationalization of its real estate portfolio resulting in the termination of certain of the Company’s operating leases (together with the Organizational Realignment, the “2022 Plan”). ~~In connection with the 2022 Plan, the Company previously expected to record restructuring charges of approximately $27,000~~ ~~in the aggregate in fiscal 2022. The Company revised its estimate and currently expects to record restructuring expenses of approximately $33,000~~ ~~in the aggregate in fiscal 2022 related to this plan. For the three and nine months ended October 1, 2022, the Company recorded restructuring expenses totaling $3,557~~ ($~~2,663~~ ~~after tax) and $22,674~~ ($~~16,976~~ ~~after tax), respectively.~~

The Organizational Realignment has resulted ~~and will result~~ in the elimination of certain positions and termination of employment for certain employees worldwide. ~~In connection with its Organizational Realignment,~~For the fiscal year ended December 31, 2022, the Company ~~continues to expect to record~~recorded restructuring charges ~~of approximately~~totaling $~~20,000~~27,181 in the aggregate with respect to employee termination benefit costs (consisting primarily of general and administrative expenses), the majority of which were recorded in the second quarter of fiscal 2022.

~~In connection with the rationalization of its real estate portfolio, the Company previously expected to record charges of approximately $~~($~~6,000~~20,375 in the aggregate consisting of lease termination and other related costs in fiscal 2022. The Company revised its estimate and currently expects to record restructuring expenses with respect to lease termination and other related costs of approximately $~~12,000~~ ~~in the aggregate in fiscal 2022.~~

~~Additionally, the Company expects to record other restructuring costs of approximately $1,000~~ ~~in the aggregate in fiscal 2022.~~after tax).

Costs arising from the 2022 Plan related to separation payments, other employee termination expenses and lease termination and other related costs, except for lease impairment and accelerated depreciation and amortization related to leased locations, are expected to result in cash expenditures.

For the ~~three and nine months~~fiscal year ended ~~October 1,~~December 31, 2022, the components of the Company’s restructuring ~~expenses~~charges for the 2022 Plan were as follows:

Three Months Ended

Nine Months Ended

October 1, 2022

October 1, 2022

Lease termination and other related costs
$
(334
)

$
3,332

Employee termination benefit costs

1,882

16,789

Lease impairment

1,828

1,828

Other costs

181

725

Total restructuring expenses
$
3,557

$
22,674

~~See Note 3 for additional information in regard to the Company's lease impairment for the three and nine months ended October 1, 2022.~~


	Fiscal Year Ended
	December 31, 2022
Lease termination and other related costs	$	3,791
Employee termination benefit costs		19,170
Lease impairments		2,680
Other costs		1,540
Total restructuring charges	$	27,181

For the ~~three and nine months~~fiscal year ended ~~October 1,~~December 31, 2022, restructuring ~~expenses~~charges for the 2022 Plan were recorded in the Company’s consolidated statements of ~~net income~~operations as follows:


	Three Months Ended			Nine Months Ended		Fiscal Year Ended
	October 1, 2022			October 1, 2022		December 31, 2022
Cost of revenues	$	(98	)	$	4,401	$	6,476
Selling, general and administrative expenses		3,655			18,273		20,705
Total restructuring expenses	$	3,557		$	22,674
Total restructuring charges						$	27,181

All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.

For the ~~nine months~~fiscal year ended ~~October 1,~~December 31, 2022, the Company made payments of $1,877 towards the liability for the lease termination costs. For the ~~nine months~~fiscal year ended ~~October 1,~~December 31, 2022, the Company made payments of $~~7,505~~10,909 towards the liability for the employee termination benefit costs.

For the six months ended July 1, 2023, the Company made payments of $122 towards the liability for the lease termination costs and decreased provision estimates by $425. For the six months ended July 1, 2023, the Company made payments of $5,529 towards the liability for the employee termination benefit costs and increased provision estimates by $1,283.

As of July 1, 2023, there was no outstanding lease termination liability. The Company expects ~~the remaining lease termination liability of $547~~ ~~and~~ the remaining employee termination benefit liability of $~~9,284~~4,015 to be paid in full by the end of fiscal 2024.

2326

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

2021 Plan

As previously disclosed, in the first quarter of fiscal 2021, as the Company continued to evaluate its cost structure, anticipate consumer demand and focus on costs, the Company committed to a plan which has resulted in the termination of operating leases and elimination of certain positions worldwide. For the fiscal year ended January 1, 2022, the Company recorded restructuring ~~expenses~~charges totaling $21,534 ($16,109 after tax).

For the fiscal year ended January 1, 2022, the components of the Company’s restructuring ~~expenses~~charges were as follows:


	Fiscal Year Ended		Fiscal Year Ended
	January 1, 2022		January 1, 2022
Lease termination and other related costs	$	12,688	$	12,688
Employee termination benefit costs		8,846		8,846
Total restructuring expenses	$	21,534
Total restructuring charges			$	21,534

For the fiscal year ended January 1, 2022, restructuring ~~expenses~~charges were recorded in the Company’s consolidated statements of ~~net income~~operations as follows:


	Fiscal Year Ended		Fiscal Year Ended
	January 1, 2022		January 1, 2022
Cost of revenues	$	16,727	$	16,727
Selling, general and administrative expenses		4,807		4,807
Total restructuring expenses	$	21,534
Total restructuring charges			$	21,534

All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.

For the fiscal year ended January 1, 2022, the Company made payments of $7,640 towards the liability for the lease termination costs and decreased provision estimates by $3. For the fiscal year ended January 1, 2022, the Company made payments of $4,802 towards the liability for the employee termination benefit costs.

For the ~~nine months~~fiscal year ended ~~October 1,~~December 31, 2022, the Company made payments of $777 towards the liability for the lease termination costs, decreased provision estimates by $681 and incurred additional lease termination and other related costs of $119. For the ~~nine months~~fiscal year ended ~~October 1,~~December 31, 2022, the Company made payments of $~~3,407~~3,814 towards the liability for the employee termination benefit costs, increased provision estimates by $~~215~~72 and incurred additional employee termination benefit costs of $148.

For the six months ended July 1, 2023, the Company made payments of $507 towards the liability for the employee termination benefit costs and increased provision estimates by $57.

As of ~~October~~July 1, ~~2022,~~2023, there was no outstanding lease termination ~~liability. The Company expects the remaining~~liability and no outstanding employee termination benefit ~~liability of $1,000~~ ~~to be paid in full by the end of fiscal 2023.~~liability.

2020 Plan

As previously disclosed, in the second quarter of fiscal 2020, in connection with its cost-savings initiative, and its continued response to the COVID-19 pandemic and the related shift in market conditions, the Company committed to a plan of reduction in force which has resulted in the elimination of certain positions and termination of employment for certain employees worldwide. To adjust to anticipated consumer demand, the Company evolved its workshop strategy and expanded its restructuring plan to include lease termination and other related costs. For the fiscal year ended January 2, 2021, the Company recorded restructuring ~~expenses~~charges totaling $33,092 ($24,756 after tax).

For the fiscal year ended January 2, 2021, the components of the Company’s restructuring ~~expenses~~charges were as follows:


	Fiscal Year Ended		Fiscal Year Ended
	January 2, 2021		January 2, 2021
Lease termination and other related costs	$	7,989	$	7,989
Employee termination benefit costs		25,103		25,103
Total restructuring expenses	$	33,092
Total restructuring charges			$	33,092

2427

WW INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)

For the fiscal year ended January 2, 2021, restructuring ~~expenses~~charges were recorded in the Company’s consolidated statements of ~~net income~~operations as follows:


	Fiscal Year Ended		Fiscal Year Ended
	January 2, 2021		January 2, 2021
Cost of revenues	$	23,300	$	23,300
Selling, general and administrative expenses		9,792		9,792
Total restructuring expenses	$	33,092
Total restructuring charges			$	33,092

All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.

For the fiscal year ended January 2, 2021, the Company made payments of $645 towards the liability for the lease termination costs. For the fiscal year ended January 2, 2021, the Company made payments of $15,434 towards the liability for the employee termination benefit costs and increased provision estimates by $180.

For the fiscal year ended January 1, 2022, the Company made payments of $4,649 towards the liability for the lease termination costs and decreased provision estimates by $470. For the fiscal year ended January 1, 2022, the Company made payments of $6,773 towards the liability for the employee termination benefit costs and decreased provision estimates by $1,136.

For the ~~nine months~~fiscal year ended ~~October 1,~~December 31, 2022, the Company made payments of $86 towards the liability for the lease termination costs and decreased provision estimates by $116. For the ~~nine months~~fiscal year ended ~~October 1,~~December 31, 2022, the Company made payments of $~~1,164~~1,202 towards the liability for the employee termination benefit ~~costs.~~costs and decreased provision estimates by $621.

For the six months ended July 1, 2023, the Company made payments of $97 towards the liability for the employee termination benefit costs and decreased provision estimates by $20.

As of ~~October~~July 1, ~~2022,~~2023, there was no outstanding lease termination ~~liability. The Company expects the remaining~~liability and no outstanding employee termination benefit ~~liability of $776~~ ~~to be paid in full by the end of fiscal 2023.~~liability.

2528

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Except for historical information contained herein, this Quarterly Report on Form 10-Q includes “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended ~~or the Exchange Act,~~(the “Exchange Act”), including, in particular, the statements about our plans, strategies, objectives and prospects ~~and the impact of the COVID-19 virus~~ under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have generally used the words “may,” “will,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “aim” and similar expressions in this Quarterly Report on Form 10-Q to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. Actual results could differ materially from those projected in these forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things:

•

the impact of the ~~ongoing global outbreak of the~~ COVID-19 ~~virus~~pandemic on our business and ~~liquidity and on~~ the ~~business and~~ consumer environment and markets in which we operate;

•

competition from other weight management and wellness industry participants or the development of more effective or more favorably perceived weight management methods;

•

our failure to continue to retain and grow our subscriber base;

•

our ability to continue to develop new, innovative services and products and enhance our existing services and products or the failure of our services, products or brands to continue to appeal to the market, or our ability to successfully expand into new channels of distribution or respond to consumer trends or sentiment;

•

the ability to successfully implement strategic initiatives;

•

our ability to transform our Workshops + Digital business strategy to meet the evolving needs of our members;

•

the effectiveness and efficiency of our advertising and marketing programs, including the strength of our social media presence;

•

the impact on our reputation of actions taken by our franchisees, licensees, suppliers and other ~~partners;~~partners, including as a result of our acquisition of Weekend Health, Inc., doing business as Sequence (“Sequence”) (the “Acquisition”);

•

the recognition of asset impairment charges;

•

the loss of key personnel, strategic partners or consultants or failure to effectively manage and motivate our workforce;

•

our chief executive officer transition;

•

the inability to renew certain of our licenses, or the inability to do so on terms that are favorable to us;

•

the ~~expiration or~~ early termination by us of leases;

•

uncertainties related to a downturn in general economic conditions or consumer confidence, including as a result of the existing inflationary environment, the potential impact of political and social unrest and instability in the ~~existing inflationary environment;~~banking system as a result of several recent bank failures;

•

our ability to successfully make acquisitions or enter into joint ventures or collaborations, including our ability to successfully integrate, operate or realize the anticipated benefits of such ~~businesses;~~businesses, including with respect to Sequence;

•

the seasonal nature of our principal business;

•

the impact of events that discourage or impede people from gathering with others or impede accessing resources;

•

our failure to maintain effective internal control over financial reporting;

•

the impact of our substantial amount of debt, debt service obligations and debt covenants, and our exposure to variable rate indebtedness;

•

the ability to generate sufficient cash to service our debt and satisfy our other liquidity requirements;

•

uncertainties regarding the satisfactory operation of our technology or systems;

•

the impact of data security breaches and other malicious acts or privacy concerns, including the costs of compliance with evolving privacy laws and regulations;

•

our ability to enforce our intellectual property rights both domestically and internationally, as well as the impact of our involvement in any claims related to intellectual property rights;

•

risks and uncertainties associated with our international operations, including regulatory, economic, political, social, intellectual property, and foreign currency risks, which risks may be exacerbated as a result of the war in Ukraine;

•

the outcomes of litigation or regulatory actions;

•

the impact of existing and future laws and regulations;

•

~~the possibility~~risks related to our Acquisition, including risks that the ~~interests~~Acquisition may not achieve its intended results;

•

risks related to our exposure to extensive and complex healthcare laws and regulations as a result of ~~Artal Group S.A., or Artal,~~ the ~~largest holder of our common stock and a shareholder with significant influence over us, will conflict with our interests or the interests of other holders of our common stock;~~Acquisition;

•

the impact that the sale of substantial amounts of our common stock by existing large shareholders, or the perception that such sales could occur, could have on the market price of our common stock; and

•

other risks and uncertainties, including those detailed from time to time in our periodic reports filed with the Securities and Exchange ~~Commission.~~Commission (the “SEC”).

You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause our results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, we do not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events or otherwise.

2730

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

WW International, Inc. is a Virginia corporation with its principal executive offices in New York, New York. In this Quarterly Report on Form 10-Q unless the context indicates otherwise: “we,” “us,” “our,” the “Company,” “Weight Watchers” and “WW” refer to WW International, Inc. and all of its operations consolidated for purposes of its financial statements; “North America” refers to our North American Company-owned ~~operations; “Continental Europe”~~operations and franchise revenues and related costs; and “International” refers to our Continental Europe Company-owned ~~operations; “United Kingdom” refers to our~~operations, United Kingdom Company-owned ~~operations;~~operations, and ~~“Other” refers to~~ Australia, New Zealand and emerging markets ~~operations~~operations. Effective the first day of fiscal 2023 (i.e., January 1, 2023), we realigned our organizational structure and ~~franchise revenues~~resources to more closely align with our strategic priorities and ~~related costs. Each~~centralized the global management of certain functions and systems, resulting in each of North America ~~Continental Europe, United Kingdom~~ and ~~Other is also a~~International being our sole reportable ~~segment.~~ segments as of such date.Our “Digital” business refers to providing subscriptions to our digital product offerings, ~~including Personal Coaching + Digital and~~which formerly included Digital 360 ~~as applicable.~~(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.~~(as applicable). It also ~~includes~~formerly included the provision of access to workshops for members who dodid not subscribe to commitment plans, ~~including~~which included our “pay-as-you-go” members. Our “Clinical” business refers to providing subscriptions to our clinical product offerings included in our Sequence program. 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 of fiscal 2022, with a de minimis number transitioning during the beginning of the third quarter of fiscal 2022. For additional details on the cessation of this product offering and how these transitions of former Digital 360 members at the then-current pricing for such product impacted the fiscal 2022 second quarter and first half number of End of Period Subscribers in each business as well as the associated Paid Weeks and Revenues for each business, see our Quarterly Report on Form 10-Q for the second quarter of fiscal 2022.

Our fiscal year ends on the Saturday closest to December 31st and consists of either 52- or 53-week periods. In this Quarterly Report on Form 10-Q:

•

~~“fiscal 2015” refers to our fiscal year ended January 2, 2016;~~

•

“fiscal 2020” refers to our fiscal year ended January 2, 2021 (included a 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 January 3, 2026 (includes a 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; and

•

“fiscal 2028” refers to our fiscal year ended December 30, 2028.

The following terms used in this Quarterly Report on Form 10-Q are our trademarks: Digital 360®, ~~PersonalPoints~~Weekend HealthTM ~~and~~, Weight Watchers®. and the WW logo.

You should read the following discussion in conjunction with our Annual Report on Form 10-K for fiscal ~~2021~~2022 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”).

2831

NON-GAAP FINANCIAL MEASURES

To supplement our consolidated results presented in accordance with accounting principles generally accepted in the United States ~~or GAAP,~~(“GAAP”), we have disclosed non-GAAP financial measures of operating results that exclude or adjust certain items. Gross profit, gross ~~profit~~ margin, operating ~~(loss)~~ income (loss), operating income (loss) ~~income~~ margin and components thereof are discussed in this Quarterly Report on Form 10-Q both as reported (on a GAAP basis) and as adjusted (on a non-GAAP basis), as applicable, with respect to (i) the ~~third~~second quarter and first six months of fiscal ~~2022~~2023 to exclude (a) the ~~impact of the impairment charges for our franchise rights acquired related to our United States, Canada and New Zealand units of account~~ ~~and~~ ~~(b) the~~ net impact of (w) charges associated with our previously disclosed 2023 restructuring plan (the “2023 plan”), (x) charges associated with our previously disclosed 2022 restructuring plan (the “2022 plan”) ~~and~~or the reversal of certain of the charges associated with the 2022 plan, as applicable, (y) charges associated with our previously disclosed 2021 organizational restructuring plan (the “2021 plan”) or the reversal of certain of the charges associated with the 2021 plan, as applicable, and (z) the reversal of certain of the charges associated with our previously disclosed 2020 organizational restructuring plan (the “2020 plan”) and (b) the impact of certain non-recurring transaction costs in connection with the acquisition of Sequence (as defined below); (ii) the ~~first nine months~~second quarter of fiscal 2022 to exclude (a) the impact of impairment charges for our franchise rights acquired related to our ~~United States,~~ Canada and New Zealand units of account and the impairment charge for our goodwill related to our wholly-owned subsidiary Kurbo, Inc. (“Kurbo”) and (b) the net impact of (x) charges associated with the 2022 plan and (y) the reversal of certain of the charges associated with the 2021 plan; and (iii) the first six months of fiscal 2022 to exclude (a) the impact of impairment charges for our franchise rights acquired related to our Canada and New 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 third quarter and first nine 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 ~~third~~second quarter and first six months of fiscal ~~2022,~~2023, as excluding or adjusting for the ~~impact of the franchise rights acquired impairments and the~~ net impact of restructuring ~~charges;~~charges and the impact of acquisition transaction costs; and (ii) with respect to the adjustments for the second quarter and first ~~nine~~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 (iii) with respect to the adjustments for the third quarter and first nine months of fiscal 2021, as excluding or adjusting for~~ the net impact of restructuring charges. 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~~certain non-recurring transaction costs in connection with the acquisition of ~~debt with respect to the Company’s previously disclosed April 2021 debt refinancing and voluntary debt prepayments~~Sequence (“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. Adjusted EBITDAS for the first quarter of fiscal 2023 as presented herein was recast to reflect certain non-recurring transaction costs in connection with the acquisition of Sequence. See “—Liquidity and Capital Resources—EBITDAS, Adjusted EBITDAS and Net Debt” for the reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measure in each case. Our management believes these non-GAAP financial measures provide useful supplemental information to investors regarding the performance of our business and are useful for period-over-period comparisons of the performance of our business. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies.

USE OF CONSTANT CURRENCY

As exchange rates are an important factor in understanding period-to-period comparisons, we believe in certain cases the presentation of results on a constant currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this Quarterly Report on Form 10-Q, we calculate constant currency by calculating current-year results using prior-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant currency basis as excluding or adjusting for the impact of foreign currency or being on a constant currency basis. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP and are not meant to be considered in isolation. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP.

CRITICAL ACCOUNTING ESTIMATES

Franchise Rights Acquired

2932

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 franchise rights is then compared to the carrying value of the unit of account for ~~those franchise~~these rights. We have determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in both the Workshops + Digital business and the Digital business in the country in which the applicable acquisition occurred. The net book values of these franchise rights in the United States, ~~Canada,~~Australia, United Kingdom ~~Australia~~ and New Zealand as of the ~~October~~July 1, ~~2022~~2023 balance sheet date were ~~$400.1~~$374.4 million, ~~$19.3~~$4.1 million, ~~$10.1 million, $5.8~~$2.8 million and ~~$2.1~~$2.3 million, respectively.

In our hypothetical start-up approach analysis for fiscal ~~2022,~~2023, 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,~~2023, 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. WeExcluding the goodwill associated with the acquisition of Sequence, 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, excluding the acquisition of Sequence, in the United States, Canada and other countries as of the ~~October~~July 1, ~~2022~~2023 balance sheet date were $104.0 million, ~~$38.8~~$40.5 million and ~~$13.4~~$12.5 million, respectively.

~~For~~In performing the impairment analysis for goodwill, for all of our reporting units, ~~tested as of May 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~~Tests

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 our annual fair value impairment testing as of May ~~8, 2022~~7, 2023 and May ~~9, 2021,~~8, 2022, each the first day of fiscal May, on our indefinite-lived intangible assets and goodwill.

In performing our annual impairment analysis as of May 8, 2022, we determined that (i) the carrying amounts of our Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our Canada and New 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 of May 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 of May 8, 2022 and May 9, 2021, we 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, revenue growth rates, operating income margins and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, we would be required to record a corresponding charge, which would impact earnings. We would also be required to reduce the carrying amounts of the related assets on our balance sheet. We continue to evaluate these assumptions and believe that these assumptions are appropriate.

In performing our ~~annual~~ impairment analysis, we also considered the trading value of both our equity and debt. If the trading values of both our equity and debt were to significantly decline from their 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.~~2022.

~~Based on~~Further information regarding the results ~~of our May 8, 2022 annual franchise rights acquired impairment test performed for our United States unit of account, which held 92.7%~~ of our franchise rights acquired ~~as of the July 2, 2022 balance sheet date, the estimated fair value~~and goodwill annual impairment tests can be found in Part I, Item 1 of this ~~unit of account exceeded its carrying value by approximately 15%. Based~~Quarterly Report on ~~the results of our May 8, 2022 annual franchise rights acquired impairment analysis performed for our Canada~~Form 10-Q under Note 6 “Franchise Rights Acquired, Goodwill and New Zealand units of account, which held 4.6% and 0.5%, respectively, of our franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying values. The above difference or lack thereof between the estimated fair value of the applicable unit of account and its carrying value is referred to herein as the Annual Impairment Headroom. As previously disclosed, a changeOther Intangible Assets” in the underlying assumptions for the United States, Canada and New Zealand could change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired relatedNotes to the United States, Canada and New Zealand, for which the net book values were $698.4 million, $34.6 million and $3.6 million, respectively, as of July 2, 2022. Based on the results of our May 8, 2022 annual franchise rights acquired impairment analysis performed for our remaining units of account, which collectively held 2.2% of our franchise rights acquired as of the July 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 annual 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 our May 8, 2022 annual goodwill impairment analysis performed for all of our reporting units, all units, except for the Republic of Ireland, had an estimated fair value at least 35% higher than the respective unit’s carrying amount. Collectively, these reporting units represented 97.4% of our total goodwill as of the October 1, 2022 balance sheet date. Based on the results of our May 8, 2022 annual goodwill impairment analysis performed for our Republic of Ireland reporting unit, which holds 2.6% of our goodwill as of the October 1, 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 the Republic of Ireland may change the results of the impairment assessment and, as such, could result in an impairment of the goodwill related to the Republic of Ireland, for which the net book value was $4.0 million as of October 1, 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%

~~Indefinite-Lived Franchise Rights Acquired Interim Impairment Test~~

During the quarter ended October 1, 2022, we identified various qualitative and quantitative factors which collectively, when combined with the Annual Impairment Headroom discussed above for the United States, Canada and New Zealand units of account, indicated a triggering event had occurred within these units of account. These factors included actual business performance as compared to the assumptions used in our annual impairment test, the continued decline in our market capitalization and market factors, including the increase in interest rates. As a result of this triggering event, we performed an interim impairment test of these units of account. In performing this interim impairment test as of October 1, 2022, we determined that the carrying amounts of our United States, Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values. Accordingly, we recorded impairment charges for our United States, Canada and New Zealand units of account of $298.3 million, $13.3 million and $1.1 million, respectively, in the third quarter of fiscal 2022. The preponderance of these impairments was driven by the increased weighted-average cost of capital used in this interim impairment test of 13.4% as compared to the weighted-average cost of capital used in the May 8, 2022 annual impairment test of its indefinite-lived franchise rights acquired of 9.6%, reflecting market factors including higher interest rates and the trading values of our equity and debt.

When determining fair value, we utilize various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, we would be required to record a corresponding charge, which would impact earnings. We would also be required to reduce the carrying amounts of the related assets on our balance sheet. We continue to evaluate these assumptions and believe that these assumptions are appropriate.

In performing this interim impairment analysis, 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 20.2% to 57.6% 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 2.5%. For the year of maturity and beyond, we assumed operating income margin rates of 2.3% to 8.8%. In our relief from royalty approach, we assumed Digital revenue growth in each country of (21.5%) to 1.6% for fiscal 2022.

Based on the results of our October 1, 2022 interim franchise rights acquired impairment test performed for our United States, Canada and New Zealand units of account, which hold 91.5%, 4.4% and 0.5%, respectively, of our franchise rights acquired as of the October 1, 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 for the United States, Canada and New Zealand may change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the United States, Canada and New Zealand, for which the net book values were $400.1 million, $19.3 million and $2.1 million, respectively, as of October 1, 2022.

Any impairment test is highly dependent on the assumptions used. The most significant assumptions used in the interim impairment test discussed above were the discount rate applied and the Digital revenue growth rates. We applied a discount rate of 13.4% based on our actual weighted-average cost of capital, which included the cost of equity and the cost of debt. We projected Digital revenues based upon our current and past performance. Changes in these assumptions would have a significant impact on the valuation model. Holding all other assumptions constant, a hypothetical 50 basis point increase in our discount rate assumption would decrease the fair values of the United States, Canada and New Zealand units of account by approximately 5.5%, 5.4% and 4.2%, respectively, which would result in additional impairment charges. Holding all other assumptions constant, a hypothetical 1% reduction in projected Digital revenues for each year in the analysis would decrease the fair values of the United States, Canada and New Zealand units of account by approximately 0.9%, 1.2% and 1.0%, respectively, which would also result in additional impairment charges.

~~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.~~Consolidated Financial Statements.

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.~~2022. Our critical accounting policies have not changed since the end of fiscal ~~2021.~~2022.

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” and “Clinical Subscription Revenues”. “Digital Subscription Revenues” consist of the fees associated with subscriptions for our Digital offerings, ~~including Personal Coaching + Digital and~~which formerly included Digital 360 ~~as applicable.~~(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. “Clinical Subscription Revenues” consist of the fees associated with subscriptions for our Clinical offerings. 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~~the North America 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~~which formerly included Digital 360 as(as applicable); (ii) “Workshops + Digital Paid Weeks” is the sum of total paid commitment plan weeks which include workshops and digital offerings and formerly included total “pay-as-you-go” weeks; (iii) “Clinical Paid Weeks” is the total paid subscription weeks for our Clinical subscription products; and ~~(iii)~~(iv) “Total Paid Weeks” is the sum of Digital Paid Weeks, ~~and~~ Workshops + Digital Paid Weeks and Clinical Paid Weeks.

•

Incoming Subscribers—“Subscribers” refer to Digital subscribers, ~~and~~ Workshops + Digital subscribers and Clinical subscribers who participate in ~~recur~~recurring 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~~former Digital 360 (as applicable), 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. Given we completed our acquisition of Sequence in April 2023 after the beginning of the second quarter of fiscal 2023, we have no incoming subscribers with respect to our Clinical business for the second quarter of fiscal 2023 and the first six months of fiscal 2023. 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~~former 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; (iii) “End of Period Clinical Subscribers” is the total number of Clinical subscribers; and ~~(iii)~~(iv) “End of Period Subscribers” is the sum of End of Period Digital Subscribers, ~~and~~ End of Period Workshops + Digital Subscribers and End of Period Clinical Subscribers. Recruitment and retention are key drivers for this metric.

•

Gross profit and operating expenses as a percentage of revenue.

~~COVID-19 PANDEMIC~~

The novel coronavirus (including its variants, COVID-19) pandemic continues to evolve and have unpredictable impacts on consumer sentiment and behavior, which in turn have impacted and may impact our business performance and operations. 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 had a significant effect on our recruitments starting in March 2020. 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 third 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.

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. 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. This dynamic situation continues to drive 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. For more information, see “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for fiscal 2021.

3334

RESULTS OF OPERATIONS

THREE MONTHS ENDED ~~OCTOBER~~JULY 1, ~~2022~~2023 COMPARED TO THE THREE MONTHS ENDED ~~OCTOBER~~JULY 2, ~~2021~~2022

The table below sets forth selected financial information for the ~~third~~second quarter of fiscal 2023 from our consolidated statements of operations for the three months ended July 1, 2023 versus selected financial information for the second quarter of fiscal 2022 from our consolidated statements of ~~net income~~operations for the three months ended ~~October 1, 2022 versus selected financial information for the third quarter of fiscal 2021 from our consolidated statements of net income for the three months ended October~~July 2, ~~2021.~~2022.

Summary of Selected Financial Data

(In millions, except per share amounts)

For The Three Months Ended

October 1, 2022

October 2, 2021

Increase/
(Decrease)

%
Change

% Change
Constant
Currency

Revenues, net

$
249.7

$
293.5

$
(43.8
)

(14.9
%)

(10.7
%)

Cost of revenues

97.4

115.5

(18.1
)

(15.7
%)

(12.7
%)

Gross profit

152.4

178.0

(25.7
)

(14.4
%)

(9.4
%)

Gross Margin %

61.0
%

60.7
%

Marketing expenses

35.7

34.6

1.1

3.3
%

9.2
%

Selling, general & administrative expenses

58.4

63.7

(5.3
)

(8.3
%)

(5.6
%)

Franchise rights acquired impairments

312.7

—

312.7

100.0
%

100.0
%

Operating (loss) income

(254.5
)

79.7

(334.3
)

(100.0
%)
*

(100.0
%)
*
Operating (Loss) Income Margin %

(101.9
%)

27.2
%

Interest expense

20.9

19.3

1.6

8.4
%

8.4
%

Other expense, net

1.3

0.8

0.6

76.0
%

76.0
%

(Loss) income before income taxes

(276.8
)

59.7

(336.5
)

(100.0
%)
*

(100.0
%)
*

(Benefit from) provision for income taxes

(70.7
)

13.3

(84.1
)

(100.0
%)
*

(100.0
%)
*
Net (loss) income

$
(206.0
)

$
46.3

$
(252.4
)

(100.0
%)
*

(100.0
%)
*

Weighted average diluted shares
outstanding

70.4

70.9

(0.5
)

(0.7
%)

(0.7
%)

Diluted (net loss) earnings per share

$
(2.93
)

$
0.65

$
(3.58
)

(100.0
%)
*

(100.0
%)
*


	(In millions, except per share amounts)
	For The Three Months Ended
	July 1, 2023			July 2, 2022			Increase/ (Decrease)			% Change				% Change Constant Currency
Revenues, net	$	226.8		$	269.5		$	(42.6	)		(15.8	%)			(15.8	%)
Cost of revenues		83.6			106.5			(22.8	)		(21.4	%)			(21.3	%)
Gross profit		143.2			163.0			(19.8	)		(12.1	%)			(12.2	%)
Gross Margin %		63.1	%		60.5	%

Marketing expenses		51.1			51.9			(0.7	)		(1.4	%)			(1.4	%)
Selling, general & administrative expenses		65.7			71.3			(5.6	)		(7.8	%)			(7.7	%)
Franchise rights acquired and goodwill impairments		—			26.4			(26.4	)		(100.0	%)			(100.0	%)
Operating income		26.3			13.4			13.0			96.9	%			95.9	%
Operating Income Margin %		11.6	%		5.0	%

Interest expense		24.1			19.3			4.8			25.0	%			25.0	%
Other (income) expense, net		(0.5	)		1.6			(2.1	)		(100.0	%)	*		(100.0	%)	*
Income (loss) before income taxes		2.8			(7.5	)		10.3			100.0	%	*		100.0	%	*

Benefit from income taxes		(48.1	)		(2.9	)		(45.2	)		(100.0	%)	*		(100.0	%)	*
Net income (loss)	$	50.8		$	(4.6	)	$	55.5			100.0	%	*		100.0	%	*

Weighted average diluted shares outstanding		78.6			70.3			8.3			11.8	%			11.8	%
Diluted earnings (net loss) per share	$	0.65		$	(0.07	)	$	0.71			100.0	%	*		100.0	%	*

Note: Totals may not sum due to rounding.

*Note: Percentage in excess of 100.0%.

3435

Certain results for the ~~third~~second quarter of fiscal 2023 are adjusted to exclude the net impact of the $1.8 million of 2023 plan restructuring charges, the $0.8 million of 2022 plan restructuring charges, the $0.1 million of 2021 plan restructuring charges and the de minimis reversal of 2020 plan restructuring charges, and the impact of the $4.9 million of acquisition transaction costs. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended July 1, 2023 which have been adjusted.


										Operating
	Gross			Gross			Operating			Income
(in millions except percentages)	Profit			Margin			Income			Margin
Second Quarter of Fiscal 2023	$	143.2			63.1	%	$	26.3			11.6	%
Adjustments to reported amounts (1)
2023 plan restructuring charges		0.5						1.8
2022 plan restructuring charges		0.0						0.8
2021 plan restructuring charges		0.1						0.1
2020 plan restructuring charges		(0.0	)					(0.0	)
Acquisition transaction costs		—						4.9
Total adjustments (1)		0.7						7.5
Second Quarter of Fiscal 2023, as adjusted (1)	$	143.8			63.4	%	$	33.9			14.9	%

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 operations for the second quarter of fiscal 2023 to exclude the net impact of the $1.8 million ($1.3 million after tax) of 2023 plan restructuring charges, the $0.8 million ($0.6 million after tax) of 2022 plan restructuring charges, the $0.1 million ($48 thousand after tax) of 2021 plan restructuring charges and the reversal of $16 thousand ($12 thousand after tax) of 2020 plan restructuring charges, and the impact of the $4.9 million ($4.3 million after tax) of acquisition transaction costs. 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 2022 are adjusted to exclude the impact of the ~~$312.7~~$26.4 million of franchise rights acquired and goodwill impairments and the net impact of the ~~$3.6~~$19.1 million of 2022 plan restructuring charges and the ~~$0.1~~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 ~~October 1,~~July 2, 2022 which have been adjusted.


				Gross						Operating												Operating
	Gross			Profit			Operating			(Loss) Income			Gross			Gross			Operating			Income
(in millions except percentages)	Profit			Margin			(Loss) Income			Margin			Profit			Margin			Income			Margin
Third Quarter of Fiscal 2022	$	152.4			61.0	%	$	(254.5	)		(101.9	%)
Second Quarter of Fiscal 2022													$	163.0			60.5	%	$	13.4			5.0	%
Adjustments to reported amounts (1)
Franchise rights acquired impairments		—						312.7
Franchise rights acquired and goodwill impairments														—						26.4
2022 plan restructuring charges		(0.1	)					3.6						4.5						19.1
2021 plan restructuring charges		0.1						0.1						(0.6	)					(0.6	)
Total adjustments (1)		0.0						316.4						3.9						45.0
Third Quarter of Fiscal 2022, as adjusted (1)	$	152.4			61.0	%	$	61.9			24.8	%
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~~operations for the ~~third~~second quarter of fiscal 2022 to exclude the impact of the ~~$312.7~~$26.4 million ($~~235.1~~21.3 million after tax) of franchise rights acquired and goodwill impairments and the net impact of the ~~$3.6~~$19.1 million ($~~2.7~~14.3 million after tax) of 2022 plan restructuring charges and the ~~$0.1~~reversal of $0.6 million ($~~0.1~~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 third quarter of fiscal 2021 are adjusted to exclude the net impact of the $9.3 million of 2021 plan restructuring charges and the reversal of $0.7 million of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended October 2, 2021 which have been adjusted.

Gross

Operating

Gross

Profit

Operating

Income

(in millions except percentages)

Profit

Margin

Income

Margin

Third Quarter of Fiscal 2021

$
178.0

60.7
%

$
79.7

27.2
%
Adjustments to reported amounts (1)

2021 plan restructuring charges

5.6

9.3

2020 plan restructuring charges

(0.7
)

(0.7
)

Total adjustments (1)

4.9

8.6

Third Quarter of Fiscal 2021, as adjusted (1)

$
183.0

62.3
%

$
88.4

30.1
%

~~Note: Totals may not sum due to rounding.~~

~~(1)~~

The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the third quarter of fiscal 2021 to exclude the net impact of the $9.3 million ($7.0 million after tax) of 2021 plan restructuring charges and the reversal of $0.7 million ($0.5 million after tax) of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures.

Consolidated Results

Revenues

Revenues for the ~~third~~second quarter of fiscal ~~2022~~2023 were ~~$249.7~~$226.8 million, a decrease of ~~$43.8~~$42.6 million, or ~~14.9%~~15.8%, versus the ~~third~~second quarter of fiscal ~~2021.~~2022. Excluding the impact of foreign currency, which negatively impacted our revenues in the ~~third~~second quarter of fiscal ~~2022~~2023 by ~~$12.4~~$0.1 million, revenues for the ~~third~~second quarter of fiscal ~~2022~~2023 would have still decreased ~~10.7%~~15.8% versus the prior year period. This decrease was driven primarily by lower Digital Subscription Revenues ~~reflecting~~as a result of the lower ~~sign-ups throughout~~number of Incoming Digital Subscribers at the beginning of the second quarter of fiscal 2023 versus the beginning of second quarter of fiscal 2022 ~~primarily due~~and, to ~~worsened~~a lesser extent, by the decline in consumer ~~sentiment and our PersonalPoints program not resonating with consumers~~product sales in the quarter compared to the ~~extent anticipated. This worsened~~prior year period as we rationalized product SKUs in North America and continued the wind down of our International consumer sentiment in fiscal 2022 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.products business. See “—Segment Results” for additional details on revenues.

3536

Cost of Revenues

~~Total cost~~Cost of revenues for the ~~third~~second quarter of fiscal ~~2022~~2023 decreased ~~$18.1~~$22.8 million, or ~~15.7%~~21.4%, versus the ~~third~~second quarter of fiscal ~~2021.~~2022. Excluding the impact of foreign currency, which decreased cost of revenues in the ~~third~~second quarter of fiscal ~~2022~~2023 by ~~$3.5~~$0.1 million, cost of revenues for the ~~third~~second quarter of fiscal ~~2022~~2023 would have decreased ~~12.7%~~21.3% versus the prior year period. Excluding the net impact of the ~~$0.0~~$0.7 million of restructuring charges in the ~~third~~second quarter of fiscal ~~2022~~2023 and the net impact of the ~~$4.9~~$3.9 million of restructuring charges in the ~~third~~second quarter of fiscal ~~2021, total~~2022, cost of revenues for the ~~third~~second quarter of fiscal ~~2022~~2023 would have decreased by ~~11.9%~~19.1%, or ~~8.8%~~19.0% on a constant currency basis, versus the prior year period.

Gross Profit

Gross profit for the ~~third~~second quarter of fiscal ~~2022~~2023 decreased ~~$25.7~~$19.8 million, or ~~14.4%~~12.1%, versus the ~~third~~second quarter of fiscal ~~2021.~~2022. Excluding the impact of foreign currency, which ~~negatively~~positively impacted gross profit in the ~~third~~second quarter of fiscal ~~2022~~2023 by ~~$9.0~~$0.1 million, gross profit for the ~~third~~second quarter of fiscal ~~2022~~2023 would have decreased ~~9.4%~~12.2% versus the prior year period. Excluding the net impact of the ~~$0.0~~$0.7 million of restructuring charges in the ~~third~~second quarter of fiscal ~~2022~~2023 and the net impact of the ~~$4.9~~$3.9 million of restructuring charges in the ~~third~~second quarter of fiscal ~~2021,~~2022, gross profit for the ~~third~~second quarter of fiscal ~~2022~~2023 would have decreased by ~~16.7%~~13.8%, ~~or 11.8%~~both as adjusted and as adjusted on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin for the ~~third~~second quarter of fiscal ~~2022~~2023 increased to ~~61.0%~~63.1%, both as reported and on a constant currency basis, versus ~~60.7%~~60.5% for the ~~third~~second quarter of fiscal ~~2021. Excluding the impact of foreign currency, gross margin in the third quarter of fiscal 2022 would have increased 0.9% to 61.5% versus the prior year period.~~2022. Excluding the net impact of restructuring charges in the ~~third~~second quarter of fiscal ~~2022~~2023 and the net impact of restructuring charges in the ~~third~~second quarter of fiscal ~~2021,~~2022, gross margin for the ~~third~~second quarter of fiscal ~~2022~~2023 would have ~~decreased 1.3%~~increased 1.5% to ~~61.0%~~63.4% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the ~~third~~second quarter of fiscal ~~2022~~2023 and the net impact of restructuring charges in the ~~third~~second quarter of fiscal ~~2021,~~2022, gross margin for the ~~third~~second quarter of fiscal ~~2022~~2023 would have ~~decreased 0.8%~~increased 1.4% to ~~61.5%~~63.4% versus the prior year period. ~~The~~This gross margin ~~decrease~~increase was driven primarily by ~~a revenue mix shift away from~~actions to reduce the fixed cost base within our ~~higher margin Digital business to our lower margin~~ Workshops + Digital business.

Marketing

Marketing expenses for the ~~third~~second quarter of fiscal ~~2022 increased $1.1~~2023 decreased $0.7 million, or ~~3.3%~~1.4%, versus the ~~third~~second quarter of fiscal ~~2021. Excluding the~~2022. Foreign currency had a de minimis impact ~~of foreign currency, which decreased marketing expenses in the third quarter of fiscal 2022 by $2.1 million,~~on marketing expenses for the ~~third~~second quarter of fiscal ~~2022 would have increased 9.2% versus the prior year period.~~2023. This ~~increase~~decrease in marketing expenses was primarily due to ~~an increase in online, social~~lower spend on TV advertising and ~~TV media spend.~~production, public relations, agency and celebrity fees, partially offset by higher spend for Online advertising. Marketing expenses as a percentage of revenue for the ~~third~~second quarter of fiscal ~~2022~~2023 increased to ~~14.3%~~22.5% from ~~11.8%~~19.2% for the ~~third~~second quarter of fiscal ~~2021.~~2022.

Selling, General and Administrative

Selling, general and administrative expenses for the ~~third~~second quarter of fiscal ~~2022~~2023 decreased ~~$5.3~~$5.6 million, or ~~8.3%~~7.8%, versus the ~~third~~second quarter of fiscal ~~2021.~~2022. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses in the ~~third~~second quarter of fiscal ~~2022~~2023 by ~~$1.7~~$0.1 million, selling, general and administrative expenses for the ~~third~~second quarter of fiscal ~~2022~~2023 would have decreased ~~5.6%~~7.7% versus the prior year period. Excluding the net impact of the ~~$3.7~~$2.0 million of restructuring charges in the ~~third~~second quarter of fiscal ~~2022~~2023, the impact of the $4.9 million of acquisition transaction costs in the second quarter of fiscal 2023 and the net impact of the ~~$3.7~~$14.6 million of restructuring charges in the ~~third~~second quarter of fiscal ~~2021,~~2022, selling, general and administrative expenses for the ~~third~~second quarter of fiscal ~~2022~~2023 would have ~~decreased~~increased by ~~8.7%~~3.8%, or ~~5.8%~~3.9% on a constant currency basis, versus the prior year period. This ~~decrease~~increase in selling, general and administrative expenses was primarily due to ~~an increase in capitalizable projects, lower salary~~non-transaction related costs ~~and lower legal and professional fees.~~associated with the acquisition of Sequence. Selling, general and administrative expenses as a percentage of revenue for the ~~third~~second quarter of fiscal ~~2022~~2023 increased to ~~23.4%~~29.0% from ~~21.7%~~26.5% for the ~~third~~second quarter of fiscal ~~2021.~~2022. Excluding the net impact of restructuring charges in the ~~third~~second quarter of fiscal ~~2022~~2023, the impact of acquisition transaction costs in the second quarter of fiscal 2023 and the net impact of restructuring charges in the ~~third~~second quarter of fiscal ~~2021,~~2022, selling, general and administrative expenses as a percentage of revenue for the ~~third~~second quarter of fiscal ~~2022~~2023 would have increased by ~~1.5%~~4.9%, ~~or 1.1%~~both as adjusted and as adjusted on a constant currency basis, versus the prior year period.

~~Impairment~~Impairments

In performing our ~~interim~~annual impairment analysis as of ~~October 1,~~May 8, 2022, we determined that the carrying amounts of our ~~United States,~~ Canada and New Zealand franchise rights acquired with ~~indefinite-lived~~indefinite lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our ~~United States,~~ Canada and New Zealand units of account of ~~$298.3 million, $13.3~~$24.5 million and ~~$1.1~~$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.~~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.

3637

Operating ~~(Loss)~~ Income

Operating ~~loss~~income for the ~~third~~second quarter of fiscal ~~2022 was $254.5~~2023 increased $13.0 million, ~~compared to~~or 96.9%, versus the second quarter of fiscal 2022. Excluding the impact of foreign currency, which positively impacted operating income in the second quarter of fiscal 2023 by $0.1 million, operating income for the ~~third~~second quarter of fiscal ~~2021 of $79.7 million. Operating loss for~~2023 would have increased 95.9% versus the ~~third quarter of fiscal 2022 was negatively impacted by $4.3 million of foreign currency.~~prior year period. Excluding ~~the impact of the $312.7 million of franchise rights acquired impairments in third quarter of fiscal 2022,~~ the net impact of the ~~$3.7~~$2.7 million of restructuring charges in the ~~third~~second quarter of fiscal 2023, the impact of the $4.9 million of acquisition transaction costs in the second quarter of fiscal 2023, the impact of the $26.4 million of franchise rights acquired and goodwill impairments in the second quarter of fiscal 2022 and the net impact of the ~~$8.6~~$18.6 million of restructuring charges in the ~~third quarter of fiscal 2021, operating income would have been $61.9 million for the third~~second quarter of fiscal 2022, ~~a decrease~~operating income for the second quarter of ~~30.0%~~fiscal 2023 would have decreased by 42.0%, or ~~24.1%~~42.2% on a constant currency basis, versus ~~operating income in~~ the prior year period. Operating ~~loss margin for the third quarter of fiscal 2022 was 101.9% compared to operating~~ income margin for the ~~third~~second quarter of fiscal ~~2021 of 27.2%. Excluding~~2023 increased 6.6% to 11.6% versus 5.0% for the ~~impact of the franchise rights acquired impairments in the third~~second quarter of fiscal ~~2022,~~2022. Excluding the net impact of restructuring charges in the ~~third~~second quarter of fiscal 2023, the impact of acquisition transaction costs in the second quarter of fiscal 2023, the impact of the franchise rights acquired and goodwill impairments in the second quarter of fiscal 2022 and the net impact of restructuring charges in the ~~third quarter of fiscal 2021, operating income margin would have been 24.8% for the third~~second quarter of fiscal 2022, ~~a decrease~~operating income margin for the second quarter of ~~5.3%~~fiscal 2023 would have decreased by 6.7%, or ~~4.5%~~6.8% on a constant currency basis, versus ~~operating income margin in~~ the prior year period. This decrease in operating income margin was driven primarily by ~~an increase in marketing expenses as a percentage of revenue,~~ an increase in selling, general and administrative expenses as a percentage of revenue and an increase in marketing expenses as a ~~decrease~~percentage of revenue, partially offset by an increase in gross margin, versus the prior year period.

Interest Expense

Interest expense for the ~~third~~second quarter of fiscal ~~2022~~2023 increased ~~$1.6~~$4.8 million, or ~~8.4%~~25.0%, versus the ~~third~~second quarter of fiscal ~~2021.~~2022. The increase in interest expense was driven primarily by an increase in the base rate of our Term Loan Facility (as defined below). The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the ~~third~~second quarter of fiscal ~~2022~~2023 and the ~~third~~second quarter of fiscal ~~2021~~2022 and excluding the impact of our interest rate swaps then in effect, increased to ~~5.68%~~7.51% per annum at the end of the ~~third~~second quarter of fiscal ~~2022~~2023 from ~~4.69%~~4.73% per annum at the end of the ~~third~~second quarter of fiscal ~~2021.~~2022. Including the impact of our interest rate swaps then in effect, the effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the ~~third~~second quarter of fiscal 2023 and the second quarter of fiscal 2022, ~~and the third quarter of fiscal 2021,~~ increased to ~~5.77%~~6.63% per annum at the end of the ~~third~~second quarter of fiscal ~~2022~~2023 from ~~5.29%~~5.30% per annum at the end of the ~~third~~second quarter of fiscal ~~2021.~~2022. 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 (Income) Expense, Net

Other (income) expense, net, which consists primarily of the impact of foreign currency on intercompany transactions, ~~increased~~changed by ~~$0.6~~$2.1 million for the ~~third~~second quarter of fiscal ~~2022~~2023 to ~~$1.3~~$0.5 million of ~~expense~~income as compared to ~~$0.8~~$1.6 million of expense for the ~~third~~second quarter of fiscal ~~2021.~~2022.

Tax

Our effective tax rate for the ~~third~~second quarter of fiscal 2023 was (1,740.0%) compared to 38.4% for the second quarter of fiscal 2022. The effective tax rate for interim periods is determined using an annual effective tax rate, adjusted for discrete items. In fiscal 2023, we were required to increase the valuation allowance recorded against U.S. deferred tax assets as a result of the limitation on interest deductions in the U.S. The forecasted full-year tax expense, which included the increase in valuation allowance, in relation to our forecasted full-year pretax loss (albeit minimal), drove an unusually high negative annual effective tax rate. Applying this negative annual effective tax rate to the pretax loss for the first six months of fiscal 2023 resulted in an income tax benefit of $48.1 million for the second quarter of fiscal 2023, since an income tax expense of $67.6 million was recorded for the first quarter of fiscal 2023.

For the second quarter of fiscal 2023, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to the valuation allowance noted above. In addition, the effective tax rate was impacted by tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to foreign-derived intangible income (“FDII”). The tax benefit for the second quarter of fiscal 2022 was ~~25.6% as compared to 22.4% for the third quarter of fiscal 2021. The~~primarily driven by a tax benefit recorded for ~~the third quarter of fiscal 2022~~out-of-period income tax adjustments, which was ~~impacted~~partially offset by ~~a U.S. state~~ tax ~~rate change.~~expense related to tax shortfalls from stock compensation. For the ~~third~~second quarter of fiscal 2022, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to tax benefits related to FDII and out-of-period income tax adjustments, partially offset by state income tax expense, ~~and~~ tax expense from income earned in foreign jurisdictions ~~partially offset by a~~and tax ~~benefit related to foreign-derived intangible income, or FDII.The tax~~ expense ~~for the third quarter of fiscal 2021 was impacted by the reversal of a valuation allowance~~ related to tax benefits for foreign losses that are now expected to be realized. For the third quarter of fiscal 2021, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expenseshortfalls from ~~income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII.~~stock compensation.

We continue to evaluate the realizability of our deferred tax assets and if our U.S. business continues to decline, it is possible that some or all of the business interest expense carryforward may not be used. While this carryforward has an indefinite life, a change in the valuation allowance is possible in the foreseeable future which could materially increase our tax expense in the period the valuation allowance is recognized.

Net Income (Loss) ~~Income~~ and Diluted Earnings (Net Loss) ~~Earnings~~ Per Share

Net income for the second quarter of fiscal 2023 was $50.8 million compared to net loss for the ~~third~~second quarter of fiscal 2022 ~~was $206.0 million compared to net~~of $4.6 million. Net income for the ~~third~~second quarter of fiscal ~~2021 of $46.3 million. Net loss for the third quarter of fiscal 2022~~2023 was ~~negatively~~positively impacted by ~~$2.7~~$0.1 million of foreign currency. Net income for the second quarter of fiscal 2023 included a $2.0 million net impact from restructuring charges and a $4.3 million impact from acquisition transaction costs. Net loss for the ~~third~~second quarter of fiscal 2022 included a ~~$235.1~~$21.3 million impact from ~~the~~ franchise rights acquired and goodwill impairments and a ~~$2.7 million net impact from restructuring charges. Net income for the third quarter of fiscal 2021 included a $6.5~~$13.9 million net impact from restructuring charges.

Earnings per fully diluted share (“EPS”) for the second quarter of fiscal 2023 was $0.65 compared to diluted net loss per share for the second quarter of fiscal 2022 of $0.07. EPS for the second quarter of fiscal 2023 included a $0.03 net impact from restructuring charges and a $0.05 impact from acquisition transaction costs. Diluted net loss per share for the ~~third quarter of fiscal 2022 was $2.93 compared to earnings per fully diluted share, or EPS, of $0.65 for the third quarter of fiscal 2021. Diluted net loss per share for the third~~second quarter of fiscal 2022 included a ~~$3.34~~$0.30 impact from ~~the~~ franchise rights acquired and goodwill impairments and a ~~$0.04~~$0.20 net impact from restructuring charges. EPS for the third quarter of fiscal 2021 included a $0.09 net impact from restructuring charges. Additionally, EPS for the third quarter of fiscal 2021 included a $0.02 tax benefit due to the reversal of a valuation allowance related to foreign losses that are now expected to be realized.

Segment Results

As previously disclosed, effective the first day of fiscal 2023 (i.e., January 1, 2023), we realigned our organizational structure and resources to more closely align with our strategic priorities and centralized the global management of certain functions and systems. As a result of the change in our organizational structure, we now have two reportable segments, consisting of North America and International, for the purpose of making operational and resource decisions and assessing financial performance. The new reportable segments will continue to provide similar services and products.

Metrics and Business Trends

The following tables set forth key metrics by reportable segment for the ~~third~~second quarter of fiscal ~~2022~~2023 and the percentage change in those metrics versus the prior year ~~period:~~period, as applicable:

(in millions except percentages and as noted)

Q3 2022

GAAP

Constant Currency

Subscription
Revenues

Product
Sales &
Other

Total
Revenues

Subscription
Revenues

Product
Sales &
Other

Total
Revenues

Total
Paid
Weeks

Incoming
Subscribers

EOP
Subscribers

(in thousands)

North America

$
154.8

$
21.2

$
176.1

$
155.2

$
21.3

$
176.5

34.0

2,805.1

2,463.8

CE

51.2

5.3

56.5

60.0

6.2

66.2

13.6

1,118.9

1,009.7

UK

9.5

1.4

10.9

11.1

1.7

12.8

3.2

254.8

234.0

Other (1)

5.2

1.0

6.2

5.6

1.1

6.7

1.1

88.7

86.1

Total

$
220.7

$
29.0

$
249.7

$
231.9

$
30.2

$
262.2

51.9

4,267.5

3,793.6

% Change Q3 2022 vs. Q3 2021

North America

(12.4
%)

0.8
%

(11.0
%)

(12.2
%)

1.0
%

(10.8
%)

(13.5
%)

(11.2
%)

(15.6
%)
CE

(21.5
%)

(20.9
%)

(21.5
%)

(8.0
%)

(7.1
%)

(8.0
%)

(12.5
%)

(12.2
%)

(12.6
%)
UK

(30.1
%)

(32.4
%)

(30.4
%)

(18.2
%)

(20.9
%)

(18.6
%)

(20.1
%)

(24.4
%)

(20.0
%)
Other (1)

(23.9
%)

(17.5
%)

(22.9
%)

(18.0
%)

(13.0
%)

(17.2
%)

(11.1
%)

(9.6
%)

(11.0
%)
Total

(15.9
%)

(6.8
%)

(14.9
%)

(11.6
%)

(2.8
%)

(10.7
%)

(13.6
%)

(12.3
%)

(15.0
%)


	Q2 2023
	GAAP									Constant Currency
	Subscription Revenues			Product Sales & Other			Total Revenues			Subscription Revenues			Product Sales & Other			Total Revenues			Total Paid Weeks			Incoming Subscribers			EOP Subscribers
																						(in thousands)
North America	$	149.3		$	12.9		$	162.2		$	149.7		$	12.9		$	162.6			35.4			2,669.8			2,710.4
International		62.8			1.8			64.6			62.4			1.8			64.3			18.0			1,352.7			1,375.7
Total	$	212.1		$	14.7		$	226.8		$	212.2		$	14.7		$	226.9			53.4			4,022.4			4,086.1

	% Change Q2 2023 vs. Q2 2022
North America		(10.5	%)		(40.1	%)		(13.9	%)		(10.3	%)		(39.9	%)		(13.7	%)		(6.3	%)		(10.6	%)		(3.4	%)
International		(14.5	%)		(75.9	%)		(20.3	%)		(15.1	%)		(75.8	%)		(20.7	%)		(8.8	%)		(13.2	%)		(5.9	%)
Total		(11.8	%)		(49.5	%)		(15.8	%)		(11.7	%)		(49.3	%)		(15.8	%)		(7.2	%)		(11.5	%)		(4.3	%)

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)

Q3 2022

Digital Subscription Revenues

Workshops + Digital Fees

GAAP

Constant
Currency

Digital
Paid
Weeks

Incoming
Digital
Subscribers

EOP
Digital
Subscribers

GAAP

Constant
Currency

Workshops
+ Digital
Paid
Weeks

Incoming
Workshops
+ Digital
Subscribers

EOP
Workshops
+ Digital
Subscribers

(in thousands)

(in thousands)

North America

$
102.7

$
103.0

26.3

2,174.6

1,908.4

$
52.1

$
52.2

7.8

630.5

555.4

CE

43.6

51.1

12.1

1,009.8

898.1

7.6

8.9

1.5

109.1

111.6

UK

5.7

6.7

2.3

182.8

168.6

3.8

4.4

0.9

72.0

65.4

Other (1)

3.8

4.1

0.9

72.8

70.9

1.4

1.5

0.2

15.9

15.2

Total

$
155.9

$
164.9

41.6

3,440.0

3,046.1

$
64.9

$
67.0

10.3

827.6

747.6

% Change Q3 2022 vs. Q3 2021

North America

(17.9
%)

(17.7
%)

(17.8
%)

(16.5
%)

(18.5
%)

0.9
%

1.1
%

5.7
%

13.8
%

(3.7
%)
CE

(22.8
%)

(9.6
%)

(15.5
%)

(14.4
%)

(15.5
%)

(13.1
%)

1.9
%

23.8
%

15.7
%

21.0
%
UK

(36.8
%)

(26.0
%)

(24.4
%)

(29.9
%)

(23.0
%)

(16.9
%)

(2.7
%)

(7.0
%)

(5.9
%)

(11.1
%)
Other (1)

(18.2
%)

(11.9
%)

(6.0
%)

(2.6
%)

(7.5
%)

(36.2
%)

(31.0
%)

(28.8
%)

(32.0
%)

(24.3
%)
Total

(20.2
%)

(15.6
%)

(17.3
%)

(16.5
%)

(17.7
%)

(3.3
%)

(0.1
%)

5.6
%

10.6
%

(2.0
%)


	Q2 2023
	Digital Subscription Revenues															Workshops + Digital Fees
	GAAP			Constant Currency			Digital Paid Weeks			Incoming Digital Subscribers			EOP Digital Subscribers			GAAP			Constant Currency			Workshops + Digital Paid Weeks			Incoming Workshops + Digital Subscribers			EOP Workshops + Digital Subscribers
										(in thousands)															(in thousands)
North America	$	95.4		$	95.8			27.7			2,090.2			2,130.7		$	46.3		$	46.4			7.4			579.6			542.9
International		51.9			51.5			15.6			1,164.3			1,198.6			10.9			10.9			2.4			188.4			177.1
Total	$	147.4		$	147.3			43.2			3,254.5			3,329.3		$	57.2		$	57.3			9.8			767.9			720.0

	% Change Q2 2023 vs. Q2 2022
North America		(16.6	%)		(16.3	%)		(8.0	%)		(14.7	%)		(2.0	%)		(11.8	%)		(11.6	%)		(4.2	%)		8.2	%		(13.9	%)
International		(13.1	%)		(13.8	%)		(9.3	%)		(15.4	%)		(5.3	%)		(20.7	%)		(20.6	%)		(5.5	%)		2.7	%		(10.1	%)
Total		(15.4	%)		(15.5	%)		(8.5	%)		(15.0	%)		(3.2	%)		(13.6	%)		(13.4	%)		(4.6	%)		6.8	%		(13.0	%)

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 2023

Clinical Subscription Revenues

GAAP

Clinical
Paid
Weeks

EOP
Clinical
Subscribers

(in thousands)

North America

7.6

0.4

36.8

North America Performance

The decrease in North America revenues for the ~~third~~second quarter of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues. The decrease in Subscription Revenues for the third 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 third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and the recruitment decline during the third 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 in North America Total Paid Weeks for the third quarter of fiscal 2022 versus the prior year period was driven primarily by both the lower number of Total Incoming Subscribers at the beginning of the third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and lower recruitments for the third quarter of fiscal 2022 versus the prior year period. For the third quarter of fiscal 2022, Workshops + Digital Fees, Workshops + Digital Paid Weeks and End of Period Workshops + Digital Subscribers all substantially benefited from the transition of our former Digital 360 members from the Digital business to the Workshops + Digital business during the second and third quarters of fiscal 2022 as previously disclosed.

The slight increase in North America product sales and other for the third quarter of fiscal 2022 versus the prior year period was driven primarily by an increase in licensing, partially offset by a decrease in product sales.

~~Continental Europe Performance~~

~~The decrease in Continental Europe revenues for the third quarter of fiscal 2022~~2023 versus the prior year period was driven primarily by a decrease in Subscription Revenues. The decrease in Subscription Revenues for the ~~third~~second quarter of fiscal ~~2022~~2023 versus the prior year period was driven primarily by a decrease in Digital Subscription ~~Revenues.~~Revenues and, to a lesser extent, a decrease in Workshops + Digital Fees. Digital Subscription Revenues were negatively impacted by ~~both~~ the lower number of Incoming Digital Subscribers at the beginning of the ~~third~~second quarter of fiscal ~~2022~~2023 versus the beginning of the ~~third~~second quarter of fiscal ~~2021 and~~2022. Subscription Revenues for the ~~recruitment decline during the third~~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~~2023 benefited from Clinical Subscription Revenues following our ~~PersonalPoints program not resonating with consumers to the extent anticipated.~~acquisition of Sequence. The decrease in ~~Continental Europe~~North America Total Paid Weeks for the ~~third~~second quarter of fiscal ~~2022~~2023 versus the prior year period was driven primarily by ~~both lower recruitments for the third quarter of fiscal 2022 versus the prior year period and~~ the lower number of Total Incoming Subscribers at the beginning of the ~~third~~second quarter of fiscal ~~2022~~2023 versus the beginning of the ~~third~~second quarter of fiscal ~~2021.~~2022.

The decrease in ~~Continental Europe~~North America product sales and other for the ~~third~~second quarter of fiscal ~~2022~~2023 versus the prior year period was driven primarily by a ~~decrease~~decline in consumer product ~~sales.~~sales as we rationalized product SKUs in North America.

~~United Kingdom~~International Performance

The decrease in UKInternational revenues for the ~~third~~second quarter of fiscal ~~2022~~2023 versus the prior year period was driven ~~primarily~~ by both a decrease in Subscription ~~Revenues.~~Revenues and a decrease in product sales and other. The decrease in Subscription Revenues for the ~~third~~second quarter of fiscal ~~2022~~2023 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 the ~~third~~second quarter of fiscal ~~2022~~2023 versus the beginning of the ~~third~~second quarter of fiscal 2021 and the recruitment decline during the third 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.2022. The decrease in UKInternational Total Paid Weeks for the ~~third~~second quarter of fiscal ~~2022~~2023 versus the prior year period was driven primarily by ~~both~~ the lower number of Total Incoming Subscribers at the beginning of the ~~third~~second quarter of fiscal ~~2022~~2023 versus the beginning of the ~~third~~second quarter of fiscal ~~2021 and lower recruitments for the third quarter of fiscal 2022 versus the prior year period.~~2022.

The decrease in UKInternational product sales and other for the ~~third~~second quarter of fiscal ~~2022~~2023 versus the prior year period was driven primarily by a ~~decrease~~decline in ~~e-commerce~~consumer product ~~sales.~~sales as we continued the wind down of our International consumer products business.

~~Other Performance~~

The decrease in Other revenues for the third quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in Subscription Revenues. The decrease in Subscription Revenues for the third 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 lower number of Total Incoming Subscribers at the beginning of the third quarter of fiscal 2022 versus the beginning of the third quarter of fiscal 2021 and the recruitment decline during the third 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 in Other product sales and other for the third quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.~~

RESULTS OF OPERATIONS

~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 1, ~~2022~~2023 COMPARED TO THE ~~NINE~~SIX MONTHS ENDED ~~OCTOBER~~JULY 2, ~~2021~~2022

The table below sets forth selected financial information for the first ~~nine~~six months of fiscal 2023 from our consolidated statements of operations for the six months ended July 1, 2023 versus selected financial information for the first six months of fiscal 2022 from our consolidated statements of ~~net income~~operations for the ~~nine~~six months ended ~~October 1, 2022 versus selected financial information for the first nine months of fiscal 2021 from our consolidated statements of net income for the nine months ended October~~July 2, ~~2021.~~2022.

Summary of Selected Financial Data


	(In millions, except per share amounts)																	(In millions, except per share amounts)
	For The Nine Months Ended																	For The Six Months Ended
	October 1, 2022			October 2, 2021			Increase/ (Decrease)			% Change				% Change Constant Currency				July 1, 2023			July 2, 2022			Increase/ (Decrease)			% Change				% Change Constant Currency
Revenues, net	$	816.9		$	936.7		$	(119.7	)		(12.8	%)			(9.6	%)		$	468.7		$	567.2		$	(98.5	)		(17.4	%)			(16.5	%)
Cost of revenues		321.5			379.2			(57.7	)		(15.2	%)			(13.0	%)			206.0			224.2			(18.1	)		(8.1	%)			(7.3	%)
Gross profit		495.4			557.5			(62.1	)		(11.1	%)			(7.3	%)			262.7			343.1			(80.4	)		(23.4	%)			(22.5	%)
Gross Margin %		60.6	%		59.5	%													56.0	%		60.5	%

Marketing expenses		195.1			208.7			(13.5	)		(6.5	%)			(3.6	%)			139.4			159.4			(20.1	)		(12.6	%)			(11.4	%)
Selling, general & administrative expenses		193.3			206.6			(13.3	)		(6.4	%)			(4.5	%)			125.6			134.9			(9.3	)		(6.9	%)			(6.2	%)
Franchise rights acquired and goodwill impairments		339.2			—			339.2			100.0	%			100.0	%			—			26.4			(26.4	)		(100.0	%)			(100.0	%)
Operating (loss) income		(232.2	)		142.2			(374.4	)		(100.0	%)	*		(100.0	%)	*		(2.3	)		22.3			(24.6	)		(100.0	%)	*		(100.0	%)	*
Operating (Loss) Income Margin %		(28.4	%)		15.2	%													(0.5	%)		3.9	%

Interest expense		58.8			68.7			(9.9	)		(14.4	%)			(14.4	%)			46.9			37.9			9.0			23.7	%			23.7	%
Other expense, net		3.3			0.9			2.4			100.0	%	*		100.0	%	*
Early extinguishment of debt		—			29.2			(29.2	)		(100.0	%)			(100.0	%)
(Loss) income before income taxes		(294.3	)		43.5			(337.8	)		(100.0	%)	*		(100.0	%)	*
Other (income) expense, net																			(0.9	)		2.0			(2.8	)		(100.0	%)	*		(100.0	%)	*
Loss before income taxes																			(48.3	)		(17.5	)		(30.8	)		(100.0	%)	*		(100.0	%)	*

(Benefit from) provision for income taxes		(75.4	)		6.5			(81.9	)		(100.0	%)	*		(100.0	%)	*
Net (loss) income	$	(218.9	)	$	37.0		$	(255.9	)		(100.0	%)	*		(100.0	%)	*
Provision for (benefit from) income taxes																			19.5			(4.7	)		24.2			100.0	%	*		100.0	%	*
Net loss																		$	(67.9	)	$	(12.9	)	$	(55.0	)		(100.0	%)	*		(100.0	%)	*

Weighted average diluted shares outstanding		70.3			70.9			(0.6	)		(0.9	%)			(0.9	%)			74.3			70.2			4.1			5.9	%			5.9	%
Diluted (net loss) earnings per share	$	(3.12	)	$	0.52		$	(3.64	)		(100.0	%)	*		(100.0	%)	*
Diluted net loss per share																		$	(0.91	)	$	(0.18	)	$	(0.73	)		(100.0	%)	*		(100.0	%)	*

Note: Totals may not sum due to rounding.

*Note: Percentage in excess of 100.0%.

Certain results for the first ~~nine~~six months of fiscal 2023 are adjusted to exclude the net impact of the $24.4 million of 2023 plan restructuring charges, the $0.9 million of 2022 plan restructuring charges, the $0.1 million of 2021 plan restructuring charges and the de minimis reversal of 2020 plan restructuring charges, and the impact of the $8.6 million of acquisition transaction costs. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the six months ended July 1, 2023 which have been adjusted.


										Operating
							Operating			(Loss)
	Gross			Gross			(Loss)			Income
(in millions except percentages)	Profit			Margin			Income			Margin
First Six Months of Fiscal 2023	$	262.7			56.0	%	$	(2.3	)		(0.5	%)
Adjustments to reported amounts (1)
2023 plan restructuring charges		19.4						24.4
2022 plan restructuring charges		(0.2	)					0.9
2021 plan restructuring charges		0.1						0.1
2020 plan restructuring charges		(0.0	)					(0.0	)
Acquisition transaction costs		—						8.6
Total adjustments (1)		19.3						33.9
First Six Months of Fiscal 2023, as adjusted (1)	$	282.0			60.2	%	$	31.6			6.8	%

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 operations for the first six months of fiscal 2023 to exclude the net impact of the $24.4 million ($18.3 million after tax) of 2023 plan restructuring charges, the $0.9 million ($0.6 million after tax) of 2022 plan restructuring charges, the $0.1 million ($43 thousand after tax) of 2021 plan restructuring charges and the reversal of $22 thousand ($16 thousand after tax) of 2020 plan restructuring charges, and the impact of the $8.6 million ($7.5 million after tax) of acquisition transaction costs. 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 2022 are adjusted to exclude the impact of the ~~$339.2~~$26.4 million of franchise rights acquired and goodwill impairments and the net impact of the ~~$22.7~~$19.1 million of 2022 plan restructuring charges, the reversal of ~~$0.2~~$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 nine~~six months ended ~~October 1,~~July 2, 2022 which have been adjusted.


				Gross						Operating												Operating
	Gross			Profit			Operating			(Loss) Income			Gross			Gross			Operating			Income
(in millions except percentages)	Profit			Margin			(Loss) Income			Margin			Profit			Margin			Income			Margin
First Nine Months of Fiscal 2022	$	495.4			60.6	%	$	(232.2	)		(28.4	%)
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		—						339.2						—						26.4
2022 plan restructuring charges		4.4						22.7						4.5						19.1
2021 plan restructuring charges		(0.4	)					(0.2	)					(0.5	)					(0.3	)
2020 plan restructuring charges		(0.1	)					(0.1	)					(0.1	)					(0.1	)
Total adjustments (1)		3.9						361.5						3.8						45.1
First Nine Months of Fiscal 2022, as adjusted (1)	$	499.3			61.1	%	$	129.3			15.8	%
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~~operations for the first ~~nine~~six months of fiscal 2022 to exclude the impact of the ~~$339.2~~$26.4 million ($~~256.4~~21.3 million after tax) of franchise rights acquired and goodwill impairments and the net impact of the ~~$22.7~~$19.1 million ($~~17.0~~14.3 million after tax) of 2022 plan restructuring charges, the reversal of ~~$0.2~~$0.3 million ($~~0.1~~0.2 million after tax) of 2021 plan restructuring charges and the reversal of $0.1 million ($0.1 million after tax) of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures.

Certain results for the first nine months of fiscal 2021 are adjusted to exclude the net impact of the $20.9 million of 2021 plan restructuring charges and the reversal of $1.5 million of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the first nine months ended October 2, 2021 which have been adjusted.

Gross

Operating

Gross

Profit

Operating

Income

(in millions except percentages)

Profit

Margin

Income

Margin

First Nine Months of Fiscal 2021

$
557.5

59.5
%

$
142.2

15.2
%
Adjustments to reported amounts (1)

2021 plan restructuring charges

16.4

20.9

2020 plan restructuring charges

(1.3
)

(1.5
)

Total adjustments (1)

15.1

19.4

First Nine Months of Fiscal 2021, as adjusted (1)

$
572.6

61.1
%

$
161.6

17.3
%

~~Note: Totals may not sum due to rounding.~~

~~(1)~~

The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the first nine months of fiscal 2021 to exclude the net impact of the $20.9 million ($15.6 million after tax) of 2021 plan restructuring charges and the reversal of $1.5 million ($1.1 million after tax) of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures.

Consolidated Results

Revenues

Revenues for the first ~~nine~~six months of fiscal ~~2022~~2023 were ~~$816.9~~$468.7 million, a decrease of ~~$119.7~~$98.5 million, or ~~12.8%~~17.4%, versus the first ~~nine~~six months of fiscal ~~2021.~~2022. Excluding the impact of foreign currency, which negatively impacted our revenues in the first ~~nine~~six months of fiscal ~~2022~~2023 by ~~$29.5~~$4.9 million, revenues for the first ~~nine~~six months of fiscal ~~2022~~2023 would have decreased ~~9.6%~~16.5% versus the prior year period. This decrease was driven primarily by lower Digital Subscription Revenues ~~reflecting~~as a result of the lower ~~sign-ups primarily due~~number of Incoming Digital Subscribers at the beginning of fiscal 2023 versus the beginning of fiscal 2022 and, to ~~worsened~~a lesser extent, by the decline in consumer ~~sentiment and our PersonalPoints program not resonating with consumers~~product sales in the first six months compared to the ~~extent anticipated. This worsened~~prior year period as we rationalized product SKUs in North America and continued the wind down of our International 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.products business. See “—Segment Results” for additional details on revenues.

Cost of Revenues

~~Total cost~~Cost of revenues for the first ~~nine~~six months of fiscal ~~2022~~2023 decreased ~~$57.7~~$18.1 million, or ~~15.2%~~8.1%, versus the first ~~nine~~six months of fiscal ~~2021.~~2022. Excluding the impact of foreign currency, which decreased cost of revenues in the first ~~nine~~six months of fiscal ~~2022~~2023 by ~~$8.3~~$1.7 million, cost of revenues for the first ~~nine~~six months of fiscal ~~2022~~2023 would have decreased ~~13.0%~~7.3% versus the prior year period. Excluding the net impact of the ~~$3.9~~$19.3 million of restructuring charges in the first ~~nine~~six months of fiscal ~~2022~~2023 and the net impact of the ~~$15.1~~$3.8 million of restructuring charges in the first ~~nine~~six months of fiscal ~~2021, total~~2022, cost of revenues for the first ~~nine~~six months of fiscal ~~2022~~2023 would have decreased by ~~12.7%~~15.2%, or ~~10.5%~~14.5% on a constant currency basis, versus the prior year period.

Gross Profit

Gross profit for the first ~~nine~~six months of fiscal ~~2022~~2023 decreased ~~$62.1~~$80.4 million, or ~~11.1%~~23.4%, versus the first ~~nine~~six months of fiscal ~~2021.~~2022. Excluding the impact of foreign currency, which negatively impacted gross profit in the first ~~nine~~six months of fiscal ~~2022~~2023 by ~~$21.1~~$3.2 million, gross profit for the first ~~nine~~six months of fiscal ~~2022~~2023 would have decreased ~~7.3%~~22.5% versus the prior year period. Excluding the net impact of the ~~$3.9~~$19.3 million of restructuring charges in the first ~~nine~~six months of fiscal ~~2022~~2023 and the net impact of the ~~$15.1~~$3.8 million of restructuring charges in the first ~~nine~~six months of fiscal ~~2021,~~2022, gross profit for the first ~~nine~~six months of fiscal ~~2022~~2023 would have decreased by ~~12.8%~~18.7%, or ~~9.1%~~17.8% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin for the first ~~nine~~six months of fiscal ~~2022 increased~~2023 decreased to ~~60.6%~~56.0% versus ~~59.5%~~60.5% for the first ~~nine~~six months of fiscal ~~2021.~~2022. Excluding the impact of foreign currency, gross margin in the first ~~nine~~six months of fiscal ~~2022~~2023 would have ~~increased 1.5%~~decreased 4.3% to ~~61.0%~~56.1% versus the prior year period. Excluding the net impact of restructuring charges in the first ~~nine~~six months of fiscal ~~2022~~2023 and the net impact of restructuring charges in the first ~~nine~~six months of fiscal ~~2021,~~2022, gross margin for the first ~~nine~~six months of fiscal ~~2022~~2023 would have ~~been flat at 61.1%~~decreased 1.0% to 60.2% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the first ~~nine~~six months of fiscal ~~2022~~2023 and the net impact of restructuring charges in the first ~~nine~~six months of fiscal ~~2021,~~2022, gross margin for the first ~~nine~~six months of fiscal ~~2022~~2023 would have ~~increased 0.4%~~decreased 0.9% to ~~61.5%~~60.2% versus the prior year period. ~~The~~This gross margin ~~increase~~decrease was driven primarily by ~~margin expansion~~fixed cost deleverage in ~~the Workshops +~~our Digital ~~business resulting from a more efficient studio footprint and a reduction in labor costs.~~business.

Marketing

Marketing expenses for the first ~~nine~~six months of fiscal ~~2022~~2023 decreased ~~$13.5~~$20.1 million, or ~~6.5%~~12.6%, versus the first ~~nine~~six months of fiscal ~~2021.~~2022. Excluding the impact of foreign currency, which decreased marketing expenses in the first ~~nine~~six months of fiscal ~~2022~~2023 by ~~$6.1~~$1.9 million, marketing expenses for the first ~~nine~~six months of fiscal ~~2022~~2023 would have decreased ~~3.6%~~11.4% versus the prior year period. This decrease in marketing expenses was primarily due to a ~~decline~~shift of marketing spend out of the first quarter of fiscal 2023 to the remainder of the year in ~~TV media.~~connection with our performance marketing plan. Marketing expenses as a percentage of revenue for the first ~~nine~~six months of fiscal ~~2022~~2023 increased to ~~23.9%~~29.7% from ~~22.3%~~28.1% for the first ~~nine~~six months of fiscal ~~2021.~~2022.

Selling, General and Administrative

Selling, general and administrative expenses for the first ~~nine~~six months of fiscal ~~2022~~2023 decreased ~~$13.3~~$9.3 million, or ~~6.4%~~6.9%, versus the first ~~nine~~six months of fiscal ~~2021.~~2022. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses in the first ~~nine~~six months of fiscal ~~2022~~2023 by ~~$4.0~~$0.9 million, selling, general and administrative expenses for the first ~~nine~~six months of fiscal ~~2022~~2023 would have decreased ~~4.5%~~6.2% versus the prior year period. Excluding the net impact of the ~~$18.5~~$6.0 million of restructuring charges in the first ~~nine~~six months of fiscal ~~2022~~2023, the impact of the $8.6 million of acquisition transaction costs in the first six months of fiscal 2023 and the net impact of the ~~$4.3~~$14.9 million of restructuring charges in the first ~~nine~~six months of fiscal ~~2021,~~2022, selling, general and administrative expenses for the first ~~nine~~six months of fiscal ~~2022~~2023 would have decreased by ~~13.6%~~7.5%, or ~~11.6%~~6.8% 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 ~~lower salary~~and related costs ~~lower professional fees~~as a result of the 2022 and ~~an increase in capitalizable projects.~~2023 restructuring plans. Selling, general and administrative expenses as a percentage of revenue for the first ~~nine~~six months of fiscal ~~2022~~2023 increased to ~~23.7%~~26.8% from ~~22.1%~~23.8% for the first ~~nine~~six months of fiscal ~~2021.~~2022. Excluding the net impact of restructuring charges in the first ~~nine~~six months of fiscal ~~2022~~2023, the impact of acquisition transaction costs in the first six months of fiscal 2023 and the net impact of restructuring charges in the first ~~nine~~six months of fiscal ~~2021,~~2022, selling, general and administrative expenses as a percentage of revenue for the first ~~nine~~six months of fiscal ~~2022~~2023 would have ~~decreased~~increased by ~~0.2%~~2.5%, or ~~0.5%~~2.4% on a constant currency basis, versus the prior year period.

Impairments

In performing our interim impairment analysis as of October 1, 2022, we determined that the carrying amounts of our United States, Canada and New Zealand franchise rights acquired with indefinite-lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our United States, Canada and New Zealand units of account of $298.3 million, $13.3 million and $1.1 million, respectively, in the third quarter of fiscal 2022.

In performing our annual impairment analysis as of May 8, 2022, we determined that the carrying amounts of our Canada and New Zealand franchise rights acquired with ~~indefinite-lived~~indefinite lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our Canada and New 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.

Operating (Loss) Income

Operating loss for the first ~~nine~~six months of fiscal ~~2022~~2023 was ~~$232.2~~$2.3 million compared to operating income for the first ~~nine~~six months of fiscal ~~2021~~2022 of ~~$142.2~~$22.3 million. Operating loss for the first ~~nine~~six months of fiscal ~~2022~~2023 was negatively impacted by ~~$8.9~~$0.5 million of foreign currency. Excluding the net impact of the ~~$339.2~~$25.3 million of restructuring charges in the first six months of fiscal 2023, the impact of the $8.6 million of acquisition transaction costs in the first six months of fiscal 2023, the impact of the $26.4 million of franchise rights acquired and goodwill impairments in the first ~~nine months of fiscal 2022, the net impact of the $22.4 million of restructuring charges in the first nine~~six months of fiscal 2022 and the net impact of the ~~$19.4~~$18.7 million of restructuring charges in the first ~~nine~~six months of fiscal ~~2021,~~2022, operating income would have been ~~$129.3~~$31.6 million for the first ~~nine~~six months of fiscal 2023 versus operating income of $67.5 million for the first six months of fiscal 2022, a decrease of ~~20.0%~~53.1%, or ~~13.1%~~52.4% on a constant currency ~~basis, versus operating income in the prior year period.~~basis. Operating loss margin for the first ~~nine~~six months of fiscal ~~2022~~2023 was ~~28.4%~~0.5% compared to operating income margin for the first ~~nine~~six months of fiscal ~~2021~~2022 of ~~15.2%~~3.9%. Excluding the net impact of restructuring charges in the first six months of fiscal 2023, the impact of acquisition transaction costs in the first six months of fiscal 2023, the impact of the franchise rights acquired and goodwill impairments in the first ~~nine months of fiscal 2022, the net impact of restructuring charges in the first nine~~six months of fiscal 2022 and the net impact of restructuring charges in the first ~~nine~~six months of fiscal ~~2021,~~2022, operating income margin would have been ~~15.8%~~6.8% for the first ~~nine~~six months of fiscal 2023 versus operating income margin of 11.9% for the first six months of fiscal 2022, a decrease of ~~1.4%, or 0.7%~~5.1% both as adjusted and as adjusted on a constant currency ~~basis, versus operating income margin in the prior year period.~~basis. This decrease in operating income margin was driven primarily by an increase ~~in marketing expenses as a percentage of revenue, partially offset by a decrease~~ in selling, general and administrative expenses as a percentage of revenue, ~~and~~ an increase in marketing expenses as a percentage of revenue and a decrease in gross margin versus the prior year period.

Interest Expense

Interest expense for the first ~~nine~~six months of fiscal ~~2022 decreased $9.9~~2023 increased $9.0 million, or ~~14.4%~~23.7%, versus the first ~~nine~~six months of fiscal ~~2021.~~2022. The ~~decrease~~increase in interest expense was driven primarily by ~~lower interest rates under~~an increase in the base rate of our Term Loan Facility ~~and on our Senior Secured Notes (as defined below) as a result of our April 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 first ~~nine~~six months of fiscal ~~2022~~2023 and the first ~~nine~~six months of fiscal ~~2021~~2022 and excluding the impact of our interest rate swaps then in effect, ~~decreased~~increased to ~~4.98%~~7.35% per annum at the end of the first ~~nine~~six months of fiscal ~~2022~~2023 from ~~5.28%~~4.63% per annum at the end of the first ~~nine~~six months of fiscal ~~2021.~~2022. Including the impact of our interest rate swaps then in effect, the effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the first ~~nine~~six months of fiscal 2023 and the first six months of fiscal 2022, ~~and the first nine months of fiscal 2021, decreased~~increased to ~~5.40%~~6.55% per annum at the end of the first ~~nine~~six months of fiscal ~~2022~~2023 from ~~6.00%~~5.22% per annum at the end of the first ~~nine~~six months of fiscal ~~2021.~~2022. 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 (Income) Expense, Net

Other (income) expense, net, which consists primarily of the impact of foreign currency on intercompany transactions, ~~increased~~changed by ~~$2.4~~$2.8 million for the first ~~nine~~six months of fiscal ~~2022~~2023 to ~~$3.3~~$0.9 million of ~~expense~~income as compared to ~~$0.9~~$2.0 million of expense for the first ~~nine~~six months of fiscal ~~2021.~~2022.

~~Early Extinguishment of Debt~~

In the second quarter of fiscal 2021, we wrote-off $29.2 million of fees in connection with our April 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 first ~~nine~~six months of fiscal ~~2022~~2023 was ~~25.6% as~~(40.4%) compared to ~~14.9%~~26.7% for the first ~~nine~~six months of fiscal ~~2021.~~2022. The effective tax rate for interim periods is determined using an annual effective tax rate, adjusted for discrete items. In fiscal 2023, we were required to increase the valuation allowance recorded against U.S. deferred tax assets as a result of the limitation on interest deductions in the U.S. The forecasted full-year tax expense, which included the increase in valuation allowance, in relation to our forecasted full-year pretax loss (albeit minimal), drove an unusually high negative annual effective tax rate. Applying this negative annual effective tax rate to the pretax loss for the first six months of fiscal 2023 resulted in an income tax expense of $19.5 million.

For the first six months of fiscal 2023, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to the valuation allowance noted above. In addition, the effective tax rate was impacted by tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to foreign-derived intangible income (“FDII”). The tax benefit for the first ~~nine~~six months of fiscal 2022 was ~~impacted~~primarily driven by a tax benefit recorded for out-of-period income tax adjustments, ~~and a U.S. state tax rate change,~~which was partially offset by tax expense related to tax shortfalls from stock compensation. For the first ~~nine~~six months of fiscal 2022, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to tax benefits related to FDII and out-of-period income tax adjustments, partially offset by state income tax expense, ~~and~~ tax expense from income earned in foreign jurisdictions ~~partially offset by a~~and tax ~~benefit related to~~ ~~FDII. The tax~~ expense ~~for the first nine months of fiscal 2021 was impacted by tax windfalls from stock compensation and the reversal of a valuation allowance~~ related to tax benefits for foreign losses that are now expected to be realized. For the first nine months of fiscal 2021, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expenseshortfalls from ~~income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII.~~

Net ~~(Loss) Income~~Loss and Diluted ~~(Net Loss) Earnings~~Net Loss Per Share

Net loss for the first ~~nine~~six months of fiscal 2023 was $67.9 million compared to the net loss for the first six months of fiscal 2022 ~~was $218.9 million compared to net income for the first nine months~~ of ~~fiscal 2021 of $37.0~~$12.9 million. Net loss for the first ~~nine~~six months of fiscal ~~2022~~2023 was negatively impacted by ~~$5.7~~$0.3 million of foreign currency. Net loss for the first ~~nine~~six months of fiscal 2023 included a $19.0 million net impact from restructuring charges and a $7.5 million impact from acquisition transaction costs. Net loss for the first six months of fiscal 2022 included a ~~$256.4~~$21.3 million impact from franchise rights acquired and goodwill impairments and a $16.7 million net impact from restructuring charges. Net income for the first nine months of fiscal 2021 included a $21.8 million impact from the write-off of fees related to our April 2021 debt refinancing and an $14.5$14.0 million net impact from restructuring charges.

Diluted net loss per share for the first ~~nine~~six months of fiscal 2023 was $0.91 compared to diluted net loss per share for the first six months of fiscal 2022 ~~was $3.12 compared to EPS~~ of ~~$0.52 for the first nine months of fiscal 2021.~~$0.18. Diluted net loss per share for the first ~~nine~~six months of fiscal 2023 included a $0.26 net impact from restructuring charges and a $0.10 impact from acquisition transaction costs. Diluted net loss per share for the first six months of fiscal 2022 included a ~~$3.65~~$0.30 impact from franchise rights acquired and goodwill impairments and a ~~$0.24 net impact from restructuring charges. EPS for the first nine months of fiscal 2021 included a $0.31 impact from the write-off of fees related to our April 2021 debt refinancing and a~~ $0.20 net impact from restructuring charges. ~~Additionally, EPS in the first nine months of fiscal 2021 included a $0.02 tax benefit due to the reversal of a valuation allowance related to foreign losses that are now expected to be realized.~~

Segment Results

Metrics and Business Trends

The following tables set forth key metrics by reportable segment for the first ~~nine~~six months of fiscal ~~2022~~2023 and the percentage change in those metrics versus the prior year ~~period:~~period, as applicable:

(in millions except percentages and as noted)

First Nine Months of Fiscal 2022

GAAP

Constant Currency

Subscription
Revenues

Product
Sales &
Other

Total
Revenues

Subscription
Revenues

Product
Sales &
Other

Total
Revenues

Total
Paid
Weeks

Incoming
Subscribers

EOP
Subscribers

(in thousands)

North America

$
498.0

$
70.4

$
568.4

$
498.8

$
70.5

$
569.3

110.5

2,734.9

2,463.8

CE

169.5

19.6

189.1

190.7

21.9

212.6

44.1

1,094.1

1,009.7

UK

32.6

5.5

38.1

35.8

6.0

41.8

10.1

245.0

234.0

Other (1)

18.0

3.3

21.3

19.2

3.5

22.7

3.6

94.5

86.1

Total

$
718.1

$
98.8

$
816.9

$
744.5

$
101.9

$
846.4

168.3

4,168.6

3,793.6

% Change First Nine Months of Fiscal 2022 vs. First Nine Months of Fiscal 2021

North America

(8.7
%)

(13.2
%)

(9.3
%)

(8.6
%)

(13.1
%)

(9.2
%)

(8.5
%)

(3.1
%)

(15.6
%)
CE

(17.1
%)

(28.1
%)

(18.4
%)

(6.7
%)

(19.7
%)

(8.3
%)

(11.5
%)

(7.2
%)

(12.6
%)
UK

(23.7
%)

(39.0
%)

(26.4
%)

(16.2
%)

(33.3
%)

(19.2
%)

(21.7
%)

(24.3
%)

(20.0
%)
Other (1)

(19.2
%)

(20.9
%)

(19.5
%)

(13.6
%)

(16.8
%)

(14.1
%)

(8.5
%)

(3.2
%)

(11.0
%)
Total

(11.9
%)

(18.7
%)

(12.8
%)

(8.7
%)

(16.2
%)

(9.6
%)

(10.2
%)

(5.8
%)

(15.0
%)


	First Six Months of Fiscal 2023
	GAAP									Constant Currency
	Subscription Revenues			Product Sales & Other			Total Revenues			Subscription Revenues			Product Sales & Other			Total Revenues			Total Paid Weeks			Incoming Subscribers			EOP Subscribers
																						(in thousands)
North America	$	296.6		$	36.6		$	333.2		$	297.6		$	36.7		$	334.3			69.2			2,337.0			2,710.4
International		126.6			8.9			135.5			130.0			9.4			139.3			35.1			1,209.2			1,375.7
Total	$	423.2		$	45.6		$	468.7		$	427.5		$	46.1		$	473.7			104.3			3,546.1			4,086.1

	% Change First Six Months of Fiscal 2023 vs. First Six Months of Fiscal 2022
North America		(13.6	%)		(26.5	%)		(15.2	%)		(13.3	%)		(26.3	%)		(14.9	%)		(9.5	%)		(14.6	%)		(3.4	%)
International		(17.9	%)		(55.4	%)		(22.2	%)		(15.7	%)		(53.1	%)		(20.0	%)		(12.1	%)		(15.7	%)		(5.9	%)
Total		(14.9	%)		(34.8	%)		(17.4	%)		(14.0	%)		(34.0	%)		(16.5	%)		(10.4	%)		(14.9	%)		(4.3	%)

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 Nine Months of Fiscal 2022

Digital Subscription Revenues

Workshops + Digital Fees

GAAP

Constant
Currency

Digital
Paid
Weeks

Incoming
Digital
Subscribers

EOP
Digital
Subscribers

GAAP

Constant
Currency

Workshops
+ Digital
Paid
Weeks

Incoming
Workshops
+ Digital
Subscribers

EOP
Workshops
+ Digital
Subscribers

(in thousands)

(in thousands)

North America

$
342.5

$
343.1

87.7

2,186.9

1,908.4

$
155.6

$
155.8

22.7

548.0

555.4

CE

145.9

164.1

39.9

998.5

898.1

23.6

26.6

4.2

95.7

111.6

UK

20.1

22.1

7.4

179.7

168.6

12.5

13.8

2.7

65.3

65.4

Other (1)

13.1

14.0

3.0

76.0

70.9

4.9

5.2

0.7

18.5

15.2

Total

$
521.6

$
543.2

138.1

3,441.1

3,046.1

$
196.5

$
201.3

30.3

727.4

747.6

% Change First Nine Months of Fiscal 2022 vs. First Nine Months of Fiscal 2021

North America

(11.6
%)

(11.4
%)

(11.9
%)

(6.3
%)

(18.5
%)

(1.7
%)

(1.6
%)

7.4
%

12.3
%

(3.7
%)
CE

(17.1
%)

(6.8
%)

(12.8
%)

(5.8
%)

(15.5
%)

(16.9
%)

(6.3
%)

3.5
%

(20.1
%)

21.0
%
UK

(29.2
%)

(22.4
%)

(25.1
%)

(23.5
%)

(23.0
%)

(12.7
%)

(3.9
%)

(10.7
%)

(26.2
%)

(11.1
%)
Other (1)

(11.7
%)

(5.6
%)

(2.4
%)

2.8
%

(7.5
%)

(34.1
%)

(29.6
%)

(28.8
%)

(21.9
%)

(24.3
%)
Total

(14.0
%)

(10.5
%)

(12.8
%)

(7.1
%)

(17.7
%)

(5.7
%)

(3.4
%)

3.8
%

1.0
%

(2.0
%)


	First Six Months of Fiscal 2023
	Digital Subscription Revenues															Workshops + Digital Fees
	GAAP			Constant Currency			Digital Paid Weeks			Incoming Digital Subscribers			EOP Digital Subscribers			GAAP			Constant Currency			Workshops + Digital Paid Weeks			Incoming Workshops + Digital Subscribers			EOP Workshops + Digital Subscribers
										(in thousands)															(in thousands)
North America	$	193.2		$	193.9			53.8			1,802.5			2,130.7		$	95.8		$	96.0			15.0			534.5			542.9
International		103.5			106.1			30.3			1,033.1			1,198.6			23.1			23.9			4.9			176.0			177.1
Total	$	296.7		$	300.0			84.0			2,835.6			3,329.3		$	118.9		$	119.9			19.9			710.5			720.0

	% Change First Six Months of Fiscal 2023 vs. First Six Months of Fiscal 2022
North America		(19.4	%)		(19.1	%)		(12.5	%)		(17.6	%)		(2.0	%)		(7.4	%)		(7.2	%)		0.4	%		(2.5	%)		(13.9	%)
International		(17.8	%)		(15.8	%)		(13.5	%)		(17.6	%)		(5.3	%)		(18.2	%)		(15.3	%)		(1.9	%)		(1.9	%)		(10.1	%)
Total		(18.9	%)		(18.0	%)		(12.9	%)		(17.6	%)		(3.2	%)		(9.7	%)		(8.9	%)		(0.2	%)		(2.3	%)		(13.0	%)

Note: Totals may not sum due to rounding.

~~(1)~~

~~Represents Australia, New Zealand~~(in millions except percentages and ~~emerging markets operations and franchise revenues~~as noted).

First Six Months of Fiscal 2023

Clinical Subscription Revenues

GAAP

Clinical
Paid
Weeks

EOP
Clinical
Subscribers

(in thousands)

North America

7.6

0.4

36.8

North America Performance

The decrease in North America revenues for the first ~~nine~~six months of fiscal ~~2022~~2023 versus the prior year period was driven primarily by a decrease in Subscription ~~Revenues and, to a lesser extent, a decrease in product sales and other.~~Revenues. The decrease in Subscription Revenues for the first ~~nine~~six months of fiscal ~~2022~~2023 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 nine 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~~2023 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.2022. The decrease in North America Total Paid Weeks for the first ~~nine~~six months of fiscal ~~2022~~2023 versus the prior year period was driven primarily by both ~~lower recruitments for the first nine months of fiscal 2022 versus the prior year period and~~ the lower number of Total Incoming Subscribers at the beginning of fiscal ~~2022~~2023 versus the beginning of fiscal 2021. For the first nine months of fiscal 2022, Workshops + Digital Fees, Workshops + Digital Paid Weeks and End of Period Workshops + Digital Subscribers all substantially benefited from the transition of our former Digital 360 members from the Digital business to the Workshops + Digital business during the second and third quarters of fiscal 2022 as previously disclosed.2022.

The decrease in North America product sales and other for the first ~~nine~~six months of fiscal ~~2022~~2023 versus the prior year period was driven primarily by a decline in consumer product sales as we rationalized product SKUs in North America.

International Performance

The decrease in International revenues for the first six months of fiscal 2023 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 nine months of fiscal 2022 versus the prior year period was driven by a decrease in~~ Subscription Revenues and, to a lesser extent, by a decrease in product sales and other. The decrease in Subscription Revenues for the first ~~nine~~six months of fiscal ~~2022~~2023 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 nine 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~~2023 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.2022. The decrease in ~~Continental Europe~~International Total Paid Weeks for the first ~~nine~~six months of fiscal ~~2022~~2023 versus the prior year period was driven primarily by ~~both lower recruitments for the first nine months of fiscal 2022 versus the prior year period and~~ the lower number of Total Incoming Subscribers at the beginning of fiscal ~~2022~~2023 versus the beginning of fiscal ~~2021.~~2022.

The decrease in ~~Continental Europe~~International product sales and other for the first ~~nine~~six months of fiscal ~~2022~~2023 versus the prior year period was driven primarily by a ~~decrease~~decline in ~~e-commerce product sales.~~

~~United Kingdom Performance~~

~~The decrease in UK revenues for the first nine 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~~consumer product sales ~~and other. The decrease in Subscription Revenues for~~as we continued the ~~first nine months~~wind down 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 nine months of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsenedour International consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in UK Total Paid Weeks for the first nine 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 nine months of fiscal 2022 versus the prior year period.

~~The decrease in UK product sales and other for the first nine months 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 first nine 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 nine months of fiscal 2022 versus the prior year period was driven by a decrease in Workshops + Digital Fees and, to a lesser extent, a decrease in Digital Subscription Revenues. Subscription Revenues were negatively impacted by both the recruitment decline during the first nine months of fiscal 2022 as compared to the prior year period and the lower number of Total Incoming 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 nine months of fiscal 2022 versus the prior year period was driven primarily by a decrease in product sales, licensing and franchise commissions.products business.

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~~have used these cash flows, supplemented with long-term debt and short-term borrowings, to fund our operations and global strategic initiatives, pay down debt and engage in selective acquisitions. Upon the completion of our previously announced acquisition of Weekend Health, Inc., doing business as Sequence (“Sequence”) (the “Acquisition”), in the second quarter of fiscal 2023, we had a net cash outlay of $40.3 million on April 10, 2023 with respect to the payment of the purchase price and certain transaction costs. For additional details on the purchase price consideration for the Acquisition and related terms, see Part I, Item 1 of this Quarterly Report on Form 10-Q under Note 5 “Acquisitions” in the Notes to the Consolidated Financial Statements. This cash outlay has reduced the liquidity available to us in the future. See “Item 1A. Risk Factors—Risks Related to Our Acquisition of Weekend Health, Inc. (d/b/a Sequence)—The Acquisition may not achieve its intended results.” of this Quarterly Report on Form 10-Q and “Risk Factors—Risks Related to Our Liquidity—We may not be able to generate sufficient cash to service all of our debt and satisfy our other liquidity requirements.” of our Annual Report on Form 10-K for fiscal 2022 for additional details. We currently believe that cash generated by operations, our cash on hand of approximately ~~$188.3~~$91.4 million at ~~October~~July 1, ~~2022,~~2023, our availability under our Revolving Credit Facility (as defined and described below) at ~~October~~July 1, ~~2022~~2023 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 in April 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. For example, we instituted restructuring plans in recent fiscal years which have resulted in aggregate cash outlays of approximately $25.1 million in the first six months of fiscal 2023 and are expected to result in an additional $16.1 million for the remainder of fiscal 2023. For additional details, see Part I, Item 1 of this Quarterly Report on Form 10-Q under Note 16 “Restructuring” in the Notes to the Consolidated Financial Statements. The evolving nature, and uncertain economic impact, of the current demand environment may impact our liquidity going forward. To the extent that we do not successfully manage our costs, our liquidity and financial results, as well as our ability to fully access our Revolving Credit Facility, may be adversely affected.

As market conditions warrant, we may, from time to time, seek to purchase our outstanding debt securities or loans, including the Senior Secured Notes and borrowings under the Credit Facilities (each as defined below). Such transactions could be privately negotiated or open market transactions, pursuant to tender offers or otherwise. Subject to any applicable limitations contained in the agreements governing, or terms of, our indebtedness, any such purchases made by us may be funded by the use of cash on our balance sheet, the incurrence of new secured or unsecured debt, the issuance of our equity or the sale of assets. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may equate to a substantial amount of a particular class or series of debt, which may reduce the trading liquidity of such class or series.

Balance Sheet Working Capital

The following table sets forth certain relevant measures of our balance sheet working capital deficit, excluding cash and cash equivalents at:


	October 1,			January 1,			Increase/			July 1,			December 31,			Increase/
	2022			2022			(Decrease)			2023			2022			(Decrease)
	(in millions)									(in millions)
Total current assets	$	289.8		$	271.2		$	18.6		$	177.9		$	281.3		$	(103.4	)
Total current liabilities		200.0			229.1			(29.2	)		201.4			196.6			4.9
Working capital surplus		89.8			42.0			(47.8	)
Working capital (deficit) surplus											(23.5	)		84.8			108.3
Cash and cash equivalents		188.3			153.8			34.5			91.4			178.3			(86.9	)
Working capital deficit, excluding cash and cash equivalents	$	(98.5	)	$	(111.8	)	$	(13.3	)	$	(114.9	)	$	(93.6	)	$	21.4

Note: Totals may not sum due to rounding.

The following table sets forth a summary of the primary factors contributing to the ~~$13.3~~$21.4 million ~~decrease~~increase in our working capital deficit, excluding cash and cash equivalents:


									Impact to										Impact to
	October 1,			January 1,		Increase/			Working			July 1,		December 31,		Increase/			Working
	2022			2022		(Decrease)			Capital Deficit			2023		2022		(Decrease)			Capital Deficit
	(in millions)											(in millions)
Derivative (receivable) payable, net	$	(8.6	)	$	14.7	$	(23.3	)	$	(23.3	)
Portion of operating lease liabilities due within one year												$	9.9	$	18.0	$	(8.0	)	$	(8.0	)
Accrued interest												$	5.3	$	5.3	$	—		$	—
Derivative receivable												$	10.5	$	11.7	$	(1.2	)	$	1.2
Prepaid income taxes												$	17.2	$	19.4	$	(2.3	)	$	2.3
Deferred revenue	$	39.8		$	45.9	$	(6.1	)	$	(6.1	)	$	35.7	$	32.2	$	3.5		$	3.5
Income taxes payable												$	7.2	$	1.6	$	5.6		$	5.6
Operational liabilities and other, net of assets	$	50.9		$	54.7	$	(3.8	)	$	(3.8	)	$	84.6	$	67.8	$	16.8		$	16.8
Portion of operating lease liabilities due within one year	$	18.5		$	20.3	$	(1.8	)	$	(1.8	)
Income taxes payable	$	1.8		$	1.7	$	0.1		$	0.1
Accrued interest	$	10.8		$	5.1	$	5.8		$	5.8
Prepaid income taxes	$	14.7		$	30.5	$	(15.8	)	$	15.8
Working capital deficit change, excluding cash and cash equivalents									$	(13.3	)								$	21.4

Note: Totals may not sum due to rounding.

The ~~change~~decrease in ~~derivative (receivable) payable, net~~portion of operating lease liabilities due within one year was primarily due to ~~a change~~operating lease terminations resulting from the continued rationalization of our real estate portfolio. The increase in ~~fair value driven by the change in interest rates. The decrease in deferred revenue~~operational liabilities and other, net of assets, which includes accrued salaries and wages, was driven primarily by ~~lower signups compared to the prior year. The~~an increase in accrued ~~interest was due~~liabilities related to both our acquisition of Sequence in regard to cash to be paid on April 10, 2024 and lease termination accruals, and lower inventory as we rationalized product SKUs in North America and continued the ~~timing~~wind down of ~~debt principal payments. The decrease in prepaid income taxes was driven primarily~~our International consumer products business, partially offset by the timing of ~~tax payments.~~our annual bonus payment, employee termination benefit payments and an increase in receivables due to seasonality.

Cash Flows

The following table sets forth a summary of our cash flows for the ~~nine~~six months ended:


	October 1,			October 2,			July 1,			July 2,
	2022			2021			2023			2022
	(in millions)						(in millions)
Net cash provided by operating activities	$	80.5		$	125.4
Net cash (used for) provided by operating activities							$	(27.1	)	$	26.4
Net cash used for investing activities	$	(33.7	)	$	(43.6	)	$	(58.0	)	$	(23.5	)
Net cash used for financing activities	$	(2.1	)	$	(55.9	)	$	(2.3	)	$	(2.0	)

Operating Activities

~~First Nine Months of Fiscal 2022~~

Cash flows ~~provided by~~used for operating activities of ~~$80.5~~$27.1 million for the first ~~nine~~six months of fiscal ~~2022~~2023 reflected a ~~decrease~~change of ~~$44.8~~$53.5 million from ~~$125.4~~$26.4 million of cash flows provided by operating activities for the first ~~nine~~six months of fiscal ~~2021. The decrease~~2022. This change in cash ~~provided by~~flows from operating activities was primarily ~~the result of a decrease in net income, partially offset by~~attributable to an increase in ~~non-cash add-back adjustments~~net loss in the first ~~nine~~six months of fiscal ~~2022~~2023 as compared to the prior year period.

~~First Nine Months of Fiscal 2021~~

Cash flows provided by operating activities of $125.4 million for the first nine months of fiscal 2021 reflected a decrease of $2.1 million from $127.4 million of cash flows provided by operating activities for the first nine months of fiscal 2020.

Investing Activities

~~First Nine Months of Fiscal 2022~~

Net cash used for investing activities totaled ~~$33.7~~$58.0 million for the first ~~nine~~six months of fiscal ~~2022, a decrease~~2023, an increase of ~~$9.9~~$34.6 million as compared to the first ~~nine~~six months of fiscal ~~2021.~~2022. This ~~decrease~~increase was primarily attributable to ~~a decrease~~an increase in cash paid for acquisitions, net of cash acquired, in the first ~~nine~~six months of fiscal ~~2022~~2023 as compared to the prior year period.

~~First Nine Months of Fiscal 2021~~Financing Activities

Net cash used for ~~investing~~financing activities totaled ~~$43.6~~$2.3 million for the first ~~nine~~six months of fiscal ~~2021, a decrease~~2023, an increase of ~~$4.2~~$0.4 million as compared to the first ~~nine~~six months of fiscal ~~2020.~~2022. This ~~decrease~~increase was primarily attributable to ~~lower capital expenditures, partially offset by~~ an increase in cash paid for acquisitions, partially offset by a decrease in taxes paid related to the net share settlement of equity awards, in the first ~~nine~~six months of fiscal ~~2021~~2023 as compared to the prior year period.

~~Financing Activities~~

~~First Nine Months of Fiscal 2022~~

Net cash used for financing activities totaled $2.1 million for the first nine months of fiscal 2022, a decrease of $53.8 million as compared to the first nine months of fiscal 2021. This decrease was primarily attributable to the April 13, 2021 payment in full of approximately $1.2 billion of borrowings under our then-existing credit facilities and redemption of all of the $300.0 million aggregate principal amount of our then-existing senior notes, as well as the payment in aggregate of $37.0 million of prepayment penalties, financing costs and debt discount in connection with the April 2021 debt refinancing in the first nine months of fiscal 2021. In addition, there was $19.3 million used for scheduled debt repayments under our then-existing term loan facility in the first quarter of fiscal 2021 and $2.5 million used for scheduled debt repayments under our Term Loan Facility (as defined below) in the third quarter of fiscal 2021. These payments were partially offset by the proceeds received of $1,000.0 million in an aggregate principal amount of borrowings under our Term Loan Facility and proceeds received from the issuance of $500.0 million in aggregate principal amount of our Senior Secured Notes (as defined below) in connection with our April 2021 debt refinancing in the first nine months of fiscal 2021. See “—Long-Term Debt” for additional details on debt.

~~First Nine Months of Fiscal 2021~~

Net cash used for financing activities totaled $55.9 million for the first nine months of fiscal 2021 primarily due to the April 13, 2021 payment in full of approximately $1.2 billion of borrowings under our then-existing credit facilities and redemption of all of the $300.0 million aggregate principal amount of our then-existing senior notes, as well as the payment in aggregate of $37.0 million of prepayment penalties, financing costs and debt discount in connection with the April 2021 debt refinancing. In addition, there was $19.3 million used for scheduled debt repayments under our then-existing term loan facility in the first quarter of fiscal 2021 and $2.5 million used for scheduled debt repayments under our Term Loan Facility in the third quarter of fiscal 2021. These payments were partially offset by the proceeds received of $1,000.0 million in an aggregate principal amount of borrowings under our Term Loan Facility and proceeds received from the issuance of $500.0 million in aggregate principal amount of our Senior Secured Notes in connection with our April 2021 debt refinancing. See “—Long-Term Debt” for additional details on debt.

Long-Term Debt

We currently plan to meet our long-term debt obligations by using cash flows provided by operating activities and opportunistically using other means to repay or refinance our obligations as we determine appropriate.

The following schedule sets forth our long-term debt obligations at ~~October~~July 1, ~~2022:~~2023:

Long-Term Debt

At ~~October~~July 1, ~~2022~~2023

(~~Balances~~ in millions)


	October 1, 2022		July 1, 2023
Term Loan Facility due April 13, 2028	$	945.0	$	945.0
Senior Secured Notes due April 15, 2029		500.0		500.0
Total		1,445.0		1,445.0
Less: Current portion		—		—
Unamortized deferred financing costs		11.1		9.7
Unamortized debt discount		12.6		10.9
Total long-term debt	$	1,421.2	$	1,424.4

Note: Totals may not sum due to rounding.

On April 13, 2021, we (1) repaid in full approximately $1.2 billion in aggregate principal amount of senior secured tranche B term loans due in 2024 under our then-existing credit facilities and (2) redeemed all of the $300.0 million in aggregate principal amount of our then-outstanding 8.625% Senior Notes due in 2025 ~~or the Discharged~~(the “Discharged Senior ~~Notes.~~Notes”). On April 13, 2021, our then-existing credit facilities included a senior secured revolving credit facility (which included borrowing capacity available for letters of credit) due in 2022 with $175.0 million in an aggregate principal amount of commitments. There were no outstanding borrowings under such revolving credit facility on that date. We funded such repayment of loans and redemption of notes with cash on hand as well as with proceeds received from approximately $1,000.0 million in an aggregate principal amount of borrowings under our new credit facilities (as amended from time to time, ~~referred to herein as~~ the ~~Credit Facilities)~~“Credit Facilities”) and proceeds received from the issuance of $500.0 million in aggregate principal amount of 4.500% Senior Secured Notes due 2029 ~~or the Senior~~(the “Senior Secured ~~Notes,~~Notes”), each as described below. These transactions are collectively referred to herein as the ~~April~~“April 2021 debt ~~refinancing.~~refinancing”. During the second quarter of fiscal 2021, we incurred fees of $37.9 million (which included $12.9 million of a prepayment penalty on the Discharged Senior Notes and $5.0 million of a debt discount on our Term Loan Facility (as defined below)) in connection with our April 2021 debt refinancing. In addition, we recorded a loss on early extinguishment of debt of $29.2 million in connection thereto. This early extinguishment of debt charge was comprised of $12.9 million of a prepayment penalty on the Discharged Senior Notes, $9.0 million of financing fees paid in connection with our April 2021 debt refinancing and the write-off of $7.2 million of pre-existing deferred financing fees and debt discount.

Credit Facilities

The Credit Facilities were issued under a credit agreement, dated April 13, 2021 ~~or, as~~(as amended from time to time, the ~~Credit Agreement,~~“Credit Agreement”), among the Company, as borrower, the lenders party thereto, and Bank of America, N.A.~~, or~~ (“Bank of ~~America,~~America”), as administrative agent and an issuing bank. The Credit Facilities consist of (1) $1,000.0 million in aggregate principal amount of senior secured tranche B term loans due in 2028 ~~or the Term~~(the “Term Loan ~~Facility,~~Facility”) and (2) $175.0 million in an aggregate principal amount of commitments under a senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2026 ~~or the Revolving~~(the “Revolving Credit ~~Facility.~~Facility”).

In December 2021, we made voluntary prepayments at par in an aggregate amount of $52.5 million in respect of our outstanding term loans under the Term Loan Facility. As a result of these prepayments, we wrote off a debt discount and deferred financing fees of $1.2 million in the aggregate in the fourth quarter of fiscal 2021.

As of ~~October~~July 1, ~~2022,~~2023, we had $945.0 million in an aggregate principal amount of loans outstanding under our Credit Facilities, with $173.9 million of availability and $1.1 million in issued but undrawn letters of credit outstanding under the Revolving Credit ~~Facility.~~Facility subject to its terms and conditions as discussed below. There were no outstanding borrowings under the Revolving Credit Facility as of ~~October~~July 1, ~~2022.~~2023.

All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of our current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:

•

a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions.

The Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:

•

50% (which percentage will be reduced to 25% and 0% if the Company attains certain first lien secured net leverage ratios) of the Company’s annual excess cash flow;

•

100% of the net proceeds of any issuance or incurrence of debt by the Company or any of its restricted subsidiaries, other than certain debt permitted under the Credit Agreement.

The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. We may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to ~~LIBOR~~Term SOFR loans under the Credit Facilities.

In June 2023, in connection with the planned phase-out of LIBOR, we amended our Credit Facilities to replace LIBOR with Term SOFR as the benchmark rate under the Credit Agreement, which will be calculated to include a credit spread adjustment of 0.11448%, 0.26161%, 0.42826%, or 0.71513% for 1, 3, 6, or 12 months period, respectively, in addition to the Term SOFR Screen Rate (as defined in the Credit Agreement) and the margin (which was not amended).

Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at our option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the ~~LIBOR~~Term SOFR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.50% or (2) an applicable margin plus a ~~LIBOR~~Term SOFR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided that ~~LIBOR~~Term SOFR is not lower than a floor of 0.50%. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at our option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the ~~LIBOR~~Term SOFR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.00% or (2) a ~~LIBOR~~Term SOFR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided such rate is not lower than a floor of zero. As of ~~October~~July 1, ~~2022,~~2023, the applicable margins for the ~~LIBOR~~Term SOFR rate borrowings under the Term Loan Facility and the Revolving Credit Facility were 3.50% and 2.75%, respectively. In the event that LIBOR is phased out as is currently expected, the Credit Agreement provides that we and the administrative agent may amend the Credit Agreement to replace the LIBOR definition therein with a successor rate subject to notifying the lending syndicate of such change and not receiving within five business days of such notification objections to such replacement rate from lenders holding at least a majority of the aggregate principal amount of loans and commitments then outstanding under the Credit Agreement; provided that such lending syndicate may not object to a SOFR-based successor rate contained in any such amendment. If we fail to do so, our borrowings will be based off of the alternative base rate plus a margin.

On a quarterly basis, we pay a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon our Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement).

The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, we must be in compliance with a Consolidated First Lien Leverage Ratio of ~~5.75:1.00 for the period ending after the first fiscal quarter of 2022 through and including with the first fiscal quarter of 2023, with a step down to~~ 5.50:1.00 for the period ending after the first fiscal quarter of 2023 through and including ~~with~~ the first fiscal quarter of 2024, with ~~an additional~~a step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including ~~with~~ the first fiscal quarter of 2025, and ~~again~~an additional step down to 5.00:1.00, for the period following the first fiscal quarter of 2025. As of ~~October~~July 1, ~~2022,~~2023, our actual Consolidated First Lien Leverage Ratio was ~~4.99:~~7.48:1.00 and there were no borrowings under our Revolving Credit Facility and total letters of credit issued were $1.1 million. We ~~expect we may~~were not ~~be able to satisfy~~in compliance with the Consolidated First Lien Leverage Ratio ~~in the near future,~~as of July 1, 2023, and as a result, we are limited to borrowing no more than 35%, or $61.3 million, of the amount of ~~funds we are able to borrow~~the aggregate commitments under the Revolving Credit Facility ~~would be effectively limited.~~as of each fiscal quarter end until we comply with the applicable ratio.

Senior Secured Notes

The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 13, 2021 ~~or, as~~(as amended, supplemented or modified from time to time, the ~~Indenture,~~“Indenture”), among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions. As of July 1, 2023, we were in compliance with the covenants under the Indenture that were in effect on such date.

The Senior Secured Notes accrue interest at a rate per annum equal to 4.500% and will mature on April 15, 2029. Interest on the Senior Secured Notes is payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021. On or after April 15, 2024, we may on any one or more occasions redeem some or all of the Senior Secured Notes at a purchase price equal to 102.250% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date, such optional redemption price decreasing to 101.125% on or after April 15, 2025 and to 100.000% on or after April 15, 2026. Prior to April 15, 2024, we may on any one or more occasions redeem up to 40% of the aggregate principal amount of the Senior Secured Notes with an amount not to exceed the net proceeds of certain equity offerings at 104.500% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Prior to April 15, 2024, we may redeem some or all of the Senior Secured Notes at a make-whole price plus accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, during any twelve-month period ending prior to April 15, 2024, we may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes at a purchase price equal to 103.000% of the principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If a change of control occurs, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. Following the sale of certain assets and subject to certain conditions, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date.

The Senior Secured Notes are guaranteed on a senior secured basis by our subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.

Outstanding Debt

At ~~October~~July 1, ~~2022,~~2023, we had $1,445.0 million outstanding under the Credit Facilities and the Senior Secured Notes, consisting of borrowings under the Term Loan Facility of $945.0 million, $0.0 drawn down on the Revolving Credit Facility and $500.0 million in aggregate principal amount of Senior Secured Notes issued and outstanding.

At ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, our debt consisted of both fixed and variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with our variable-rate borrowings. Further information regarding our interest rate swaps can be found in Part I, Item 1 of this Quarterly Report on Form 10-Q under Note 11 “Derivative Instruments and Hedging” in the Notes to the Consolidated Financial Statements. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on our outstanding debt, exclusive of the impact of the swaps then in effect, was approximately ~~4.98%~~7.35% and ~~5.11%~~5.45% per annum at ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, respectively, based on interest rates on these dates. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on our outstanding debt, including the impact of the swaps then in effect, was approximately ~~5.28%~~6.37% and ~~5.62%~~5.50% per annum at ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022, respectively, based on interest rates on these dates.

The following schedule sets forth our year-by-year debt obligations at ~~October~~July 1, ~~2022:~~2023:

Total Debt Obligation

(Including Current Portion)

At ~~October~~July 1, ~~2022~~2023

(in millions)


Remainder of fiscal 2022	$	—
Fiscal 2023		—
Remainder of fiscal 2023			$	—
Fiscal 2024		—		—
Fiscal 2025		—		—
Fiscal 2026		—		—
Fiscal 2027		10.0		10.0
Fiscal 2028				935.0
Thereafter		1,435.0		500.0
Total	$	1,445.0	$	1,445.0

Note: Totals may not sum due to rounding.

Accumulated Other Comprehensive Loss

Our accumulated other comprehensive loss includes changes in the fair value of derivative instruments and the effects of foreign currency translations. At ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, the cumulative balance of changes in the fair value of derivative instruments, net of taxes, was a gain of ~~$9.9~~$8.0 million and a ~~loss~~gain of ~~$14.5~~$3.5 million, respectively. At ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, the cumulative balance of the effects of foreign currency translations, net of taxes, was a loss of ~~$21.2~~$15.5 million and a loss of ~~$6.5~~$14.1 million, respectively.

Dividends and Stock Transactions

We do not currently pay a dividend and we have no current plans to pay dividends in the foreseeable future. Any future determination to declare and pay dividends will be made at the sole discretion of our Board of Directors, after taking into account our financial condition and results of operations, capital requirements, contractual, legal, tax and regulatory restrictions, the provisions of Virginia law affecting the payment of distributions to shareholders and such other factors our Board of Directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants in our existing indebtedness, including the Credit Agreement governing the Credit Facilities and the Indenture governing the Senior Secured Notes, and may be limited by the agreements governing other indebtedness we or our subsidiaries incur in the future.

On October 9, 2003, our Board of Directors authorized, and we announced, a program to repurchase up to $250.0 million of our outstanding common stock. On each of June 13, 2005, May 25, 2006 and October 21, 2010, our Board of Directors authorized, and we announced, the addition of $250.0 million to this program. The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions. ~~No shares will be purchased from Artal Holdings Sp. z o.o., Succursale de Luxembourg and its parents and subsidiaries under this program.~~ The repurchase program currently has no expiration date. During the ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, we repurchased no shares of our common stock under this program.

EBITDAS, Adjusted EBITDAS and Net Debt

We define EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation, amortization and stock-based compensation and Adjusted EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation, amortization, stock-based compensation, franchise rights acquired and goodwill impairments, net restructuring charges, and ~~early extinguishment~~certain non-recurring transaction costs in connection with the acquisition of ~~debt.~~Sequence.

The table below sets forth the reconciliations for EBITDAS and Adjusted EBITDAS, each a non-GAAP financial measure, to net income (loss) ~~income,~~, the most comparable GAAP financial measure, for the three and ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021,~~2022, and EBITDAS and Adjusted EBITDAS to net loss for the trailing twelve months ended ~~October~~July 1, ~~2022:~~2023:

(in millions)


	Three Months Ended						Nine Months Ended									Three Months Ended						Six Months Ended
	October 1, 2022			October 2, 2021			October 1, 2022			October 2, 2021			Trailing Twelve Months			July 1, 2023			July 2, 2022			July 1, 2023				July 2, 2022			Trailing Twelve Months
Net (loss) income	$	(206.0	)	$	46.3		$	(218.9	)	$	37.0		$	(189.0	)
Net income (loss)																$	50.8		$	(4.6	)	$	(67.9	)		$	(12.9	)	$	(306.4	)
Interest		20.9			19.3			58.8			68.7			78.0			24.1			19.3			46.9				37.9			90.1
Taxes		(70.7	)		13.3			(75.4	)		6.5			(72.1	)		(48.1	)		(2.9	)		19.5				(4.7	)		(90.2	)
Depreciation and amortization		10.5			11.1			31.9			34.5			43.0			11.9			10.6			22.2				21.4			43.2
Stock-based compensation		3.4			3.4			10.4			16.6			15.1			3.1			2.3			5.7				7.0			11.7
EBITDAS	$	(242.0	)	$	93.5		$	(193.2	)	$	163.2		$	(125.0	)	$	41.8		$	24.7		$	26.5			$	48.8		$	(251.6	)
Franchise rights acquired and goodwill impairments		312.7			—			339.2			—			339.2			—			26.4			—				26.4			370.3
2023 plan restructuring charges																	1.8			—			24.4				—			38.0
2022 plan restructuring charges		3.6			—			22.7			—			22.7			0.8			19.1			0.9				19.1			8.9
2021 plan restructuring charges		0.1			9.3			(0.2	)		20.9			0.4			0.1			(0.6	)		0.1				(0.3	)		0.0
2020 plan restructuring charges		—			(0.7	)		(0.1	)		(1.5	)		(0.2	)		(0.0	)		—			(0.0	)			(0.1	)		(0.6	)
Early extinguishment of debt		—			—			—			29.2			1.2
Acquisition transaction costs																	4.9			—			8.6		(2)		—			8.6
Adjusted EBITDAS (1)	$	74.4		$	102.1		$	168.3		$	211.7		$	238.3		$	49.4		$	69.6		$	60.4			$	93.9		$	173.7

Note: Totals may not sum due to rounding.

(1)

The “Adjusted EBITDAS” measure is a non-GAAP financial measure that (i) adjusts the consolidated statements of ~~net income~~operations for the three months ended ~~October~~July 1, ~~2022~~2023 to exclude ~~the impact of the $312.7 million of franchise rights acquired impairments and~~ the net impact of the ~~$3.6~~$1.8 million of 2023 plan restructuring charges, the $0.8 million of 2022 plan restructuring charges, ~~and~~ the $0.1 million of 2021 plan restructuring ~~charges;~~charges and the reversal of $16 thousand of 2020 plan restructuring charges, and the impact of $4.9 million of acquisition transaction costs; (ii) adjusts the consolidated statements of ~~net income~~operations for the three months ended ~~October~~July 2, 2021 to exclude the net impact of the $9.3 million of 2021 plan restructuring charges and the reversal of $0.7 million of 2020 plan restructuring charges; (iii) adjusts the consolidated statements of net income for the nine months ended October 1, 2022 to exclude the impact of the ~~$339.2~~$26.4 million of franchise rights acquired and goodwill impairments and the net impact of the ~~$22.7~~$19.1 million of 2022 plan restructuring charges and the reversal of $0.6 million of 2021 plan restructuring charges; (iii) adjusts the consolidated statements of operations for the six months ended July 1, 2023 to exclude the net impact of the $24.4 million of 2023 plan restructuring charges, the $0.9 million of 2022 plan restructuring charges, the $0.1 million of 2021 plan restructuring charges and the reversal of $22 thousand of 2020 plan restructuring charges, and the impact of $8.6 million of acquisition transaction costs; (iv) adjusts the consolidated statements of operations for the six months ended July 2, 2022 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 ~~$0.2~~$0.3 million of 2021 plan restructuring charges andthe reversal of $0.1 million of 2020 plan restructuring charges; (iv) adjusts the consolidated statements of net income for the nine months ended October 2, 2021 to exclude the net impact of the $20.9 million of 2021 plan restructuring charges and the reversal of $1.5 million of 2020 plan restructuring charges and the impact of the $29.2 million early extinguishment of debt; and (v) adjusts EBITDAS for the trailing twelve months ended ~~October~~July 1, ~~2022~~2023 to exclude the impact of the ~~$339.2~~$370.3 million of franchise rights acquired and goodwill impairments, the net impact of the ~~$22.7~~$38.0 million of 2023 plan restructuring charges, the $8.9 million of 2022 plan restructuring charges, the ~~$0.4 million~~$18 thousand of 2021 plan restructuring charges and the reversal of ~~$0.2~~$0.6 million of 2020 plan restructuring charges, and the impact of $8.6 million of acquisition transaction costs (which includes $3.7 million recast for the ~~$1.2 million early extinguishment of debt.~~three months ended April 1, 2023). See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures.

(2)

Includes stock-based compensation expense attributable to post-combination vesting of $3.9 million.

Reducing leverage is a capital structure priority for the Company. As of ~~October~~July 1, ~~2022,~~2023, our total debt less unamortized deferred financing costs and unamortized debt discount/net loss ratio was (4.6)x. As of July 1, 2023, our net debt/Adjusted EBITDAS ratio was ~~5.2x.~~7.7x.

The table below sets forth the reconciliation for net debt, a non-GAAP financial measure, to total debt, the most comparable GAAP financial measure, for the ~~nine~~six months ended:

(in millions)


	October 1, 2022		July 1, 2023
Total debt	$	1,445.0	$	1,445.0
Less: Unamortized deferred financing costs		11.1		9.7
Less: Unamortized debt discount		12.6		10.9
Less: Cash on hand		188.3		91.4
Net debt	$	1,232.9	$	1,332.9

Note: Totals may not sum due to rounding.

We present EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS because we consider them to be useful supplemental measures of our performance. In addition, we believe EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS are useful to investors, analysts and rating agencies in measuring the ability of a company to meet its debt service obligations. See “—Non-GAAP Financial Measures” herein for an explanation of our use of these non-GAAP financial measures.

5554

OFF-BALANCE SHEET ARRANGEMENTS

As part of our ongoing business, we do not participate in arrangements that generate relationships with unconsolidated entities or financial partnerships established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, such as entities often referred to as structured finance or special purpose entities.

SEASONALITY

Our principal business is seasonal due to the importance of the winter season to our overall member recruitment environment. Historically, we experience our highest level of recruitment during the first quarter of the year, which is supported with the highest concentration of advertising spending. Therefore, our number of End of Period Subscribers in the first quarter of the year ishas been typically higher than the number in other quarters of the year, historically reflecting a decline over the course of the year.

AVAILABLE INFORMATION

Corporate information and our press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments thereto, are available free of charge on our corporate website at corporate.ww.com as soon as reasonably practicable after such material is electronically filed with or furnished to the ~~Securities and Exchange Commission (i.e., generally the same day as the filing), or the~~ SEC. Moreover, we also make available at that site the Section 16 reports filed electronically by our officers, directors and 10 percent shareholders.

We use our corporate website at corporate.ww.com and certain social media channels such as our corporate Facebook page (~~www.facebook.com/WW~~)(www.facebook.com/WW), LinkedIn page (www.linkedin.com/company/weightwatchers), Instagram account (Instagram.com/WW) and Twitter account (@ww_us) as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website and social media channels shall not be deemed to be incorporated herein by reference.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

AsDuring the second quarter of ~~October 1, 2022,~~fiscal 2023, in connection with the ~~market risk disclosures appearing~~previously announced planned phase-out of LIBOR, we amended our Credit Facilities to replace LIBOR with Term SOFR as the benchmark rate under the Credit Agreement and modified our interest rate swap agreements to transition from LIBOR-indexed to Term SOFR-indexed periodic swap payments to align with interest payments in connection with our Term SOFR-indexed debt. Other than this transition, there have been no material changes during the period covered by this Quarterly Report on Form 10-Q to the information disclosed in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for fiscal ~~2021 have not materially changed from January 1,~~ 2022.

At the end of the ~~third~~second quarter of fiscal ~~2022,~~2023, borrowings under the Credit Facilities bore interest at ~~LIBOR~~Term SOFR plus an applicable margin of 3.50%. For the Term Loan Facility, the minimum interest rate for ~~LIBOR~~Term SOFR applicable to such facility pursuant to the terms of the Credit Agreement was set at 0.50%, referred to herein as the ~~LIBOR~~Term SOFR Floor. In addition, as of ~~October~~July 1, ~~2022,~~2023, our interest rate swaps in effect had an aggregate notional amount of $500.0 million. Accordingly, as of ~~October~~July 1, ~~2022,~~2023, based on the amount of variable rate debt outstanding and the then-current ~~LIBOR~~Term SOFR rate, after giving consideration to the impact of the interest rate swaps and the ~~LIBOR~~Term SOFR Floor, a hypothetical 90 basis point increase in interest rates would have increased annual interest expense by approximately $4.0 million and a hypothetical 90 basis point decrease in interest rates would have decreased annual interest expense by approximately $4.0 million. This increase and decrease would have been driven primarily by the interest rate applicable to our Term Loan Facility.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~October~~July 1, ~~2022,~~2023, the end of the ~~third~~second quarter of fiscal ~~2022.~~2023. Based upon that evaluation and subject to the foregoing, our principal executive officer and our principal financial officer concluded that, as of the end of the ~~third~~second quarter of fiscal ~~2022,~~2023, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information called for by this item is incorporated herein by reference to Note 10 “Legal” of the ~~notes~~Notes to the ~~unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.~~Consolidated Financial Statements.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors from those detailed in our Annual Report on Form 10-K for fiscal ~~2021.~~2022, as updated by the risk factors detailed in our Quarterly Report on Form 10-Q for the quarter ended April 1, 2023 which are reproduced below.

Risks Related to Our Acquisition of Weekend Health, Inc. (d/b/a Sequence)

The Acquisition may not achieve its intended results.

On April 10, 2023, we completed our previously announced acquisition of Weekend Health, Inc., doing business as Sequence (the “Acquisition”), with the expectation that the Acquisition would result in various benefits, including, among other things, revenue synergies with our existing business and operating efficiencies. Achieving the anticipated benefits of the Acquisition is subject to a number of uncertainties, including whether our business and the Sequence business are integrated in an efficient and effective manner. Failure to achieve these anticipated benefits could result in increased costs, decreases in the amount of expected revenues generated by the combined company and diversion of management’s attention and energy away from ongoing business concerns, any of which could have a material adverse effect on our business, financial results and prospects.

Additional risks relating to integration of Sequence into our business, include, among others, the following:

•

our inability to successfully integrate Sequence in a manner that permits us to achieve the full revenue and other benefits anticipated to result from the Acquisition;

•

our ability to compete effectively in the telehealth industry;

•

disruption to our and Sequence’s business and operations and relationships with service providers, customers, employees and other partners;

•

negative effects on our core business from the changes and potential disruption that may follow the Acquisition;

•

diversion of significant resources from our core business;

•

our inability to retain the service of key management and other personnel of Sequence;

•

increased regulatory oversight of our business;

•

potential limitations placed on our business by regulatory authorities;

•

our inability to successfully integrate Sequence into our internal control over financial reporting, which could compromise the integrity of our financial reporting; and

•

greater than anticipated costs related to the integration of Sequence’s business and operations into ours.

These potential difficulties, some of which are outside of our control, could adversely affect our ability to achieve the anticipated benefits of the Acquisition. In addition, the market price of our common stock may decline if our assumptions regarding the anticipated benefits of the Acquisition are not accurate or we do not achieve the anticipated benefits of the Acquisition as rapidly or to the extent anticipated by financial or industry analysts or at all.

The Acquisition may not be accretive, and may be dilutive, to our earnings per share, which may negatively affect the market price of shares of our common stock.

We expect the Acquisition will initially be dilutive to our earnings per share, largely driven by the costs associated with the Acquisition itself. In the long term, the Acquisition may be less accretive than expected, or may be dilutive, to our earnings per share. Estimates of our earnings per share in the future are based on assumptions that may materially change. In addition, future events and conditions could decrease or delay the accretion that is currently projected or could result in dilution, including adverse changes in market conditions, additional transaction and integration-related costs and other factors such as the failure to realize some or all of the anticipated benefits of the Acquisition. Any dilution of, decrease in or delay of any accretion to, our earnings per share could cause the price of shares of our common stock to decline or grow at a reduced rate.

We have limited experience in the telehealth industry, which may hinder our ability to achieve the anticipated benefits of the Acquisition.

Due to the fact that the healthcare industry is highly regulated, we are required to adhere to new laws and regulations, including those related to telehealth, pharmacy, the corporate practice of medicine, health and consumer privacy, false claims, and the prescribing, distributing, and marketing of pharmaceutical products. We have limited experience operating a telehealth business and expect to rely in large part on the existing management of Sequence to continue to manage the Sequence business. The management teams will work together to comply with applicable laws and regulations and stay abreast of the frequent legislative and regulatory changes specific to telehealth.

In addition, the telehealth industry has incumbent and established competitors with substantial market share and new competitors will likely enter the market in the future. These companies may have greater financial, marketing and other resources than we have and may have existing cost and operational advantages that we lack. Our limited experience in this industry could negatively affect our ability to appeal to potential customers in the market, including our existing customers, develop expertise and new technologies, attract talent, manage risks, and compete with larger and more experienced competitors.

If we fail to retain the existing management of Sequence, or we fail to successfully compete in the telehealth industry, our ability to realize the anticipated benefits of the Acquisition may be adversely affected.

Notwithstanding the due diligence investigation that we performed in connection with our entry into the Merger Agreement, Sequence may have liabilities, losses, or other exposures for which we do not have adequate insurance coverage, indemnification, or other protection.

While we performed due diligence on Sequence prior to our entry into the Merger Agreement, we are dependent on the accuracy and completeness of statements and disclosures made or actions taken by Sequence and its representatives during due diligence and during our evaluation of the results of such due diligence. We did not control Sequence and may be unaware of certain activities of Sequence before the completion of the Acquisition, including intellectual property and other litigation claims or disputes, information security vulnerabilities, violations of laws, policies, rules and regulations, commercial disputes, tax liabilities and other known and unknown liabilities.

Following the consummation of the Acquisition, the liabilities of Sequence, including contingent liabilities, were consolidated with the Company’s. If Sequence’s liabilities are greater than expected, or if Sequence has obligations of which we are not aware, our business could be materially and adversely affected. We do not have indemnification rights from the prior owners of Sequence and instead rely on a limited amount of representation and warranty insurance. Such insurance is subject to exclusions, policy limits and certain other customary terms and conditions. Sequence may also have other unknown liabilities. If we are responsible for liabilities not covered by insurance, we could suffer severe consequences that could have a material adverse effect on our financial condition and results of operations.

Our reputation could be impaired due to actions taken by our franchisees, licensees, suppliers and other partners.

We believe that our brands, including their widespread recognition and strong reputation and goodwill in the market, are one of our most valuable assets and they provide us with a competitive advantage. Our franchisees operate their businesses under our brands. We license our trademarks to third parties for the manufacture and sale in retail stores by such parties of a variety of goods, including food products, and also co-brand or endorse third-party branded consumer services and products. We also sell through a variety of channels, including online through our e-commerce platforms, at our studios, and through our trusted partners, food and non-food products manufactured by third-party suppliers. In addition, we integrate our services and products with those of other third parties, including through bundled and joint offerings, and integrate data from trusted third-party partners into our offerings. Our third-party partnerships also extend to event sponsorships and co-promotions. Our franchisees, licensees, suppliers and other partners are independent third parties with their own financial objectives, third-party relationships and brand associations. Actions taken by them, including violations of generally accepted ethical business practices or breaches of law, regulations or contractual obligations, such as not following our program or not maintaining our quality and safety standards, could harm our reputation. Also, our products and services, or the third-party products or services with which we integrate our own services and products, may be subject to product recalls, brand confusion, litigation, regulatory action or other deficiencies, as the case may be, which could harm our brands. Any negative publicity associated with these actions or these third parties would adversely affect our reputation and may result in decreased recruitment, Digital product subscriptions, workshop attendance and product sales and, as a result, lower revenues and profits.

As a result of the consummation of the Acquisition, we are now associated with and may in the future become associated with professional corporations, professional associations or equivalent entities, which are legal entities organized under state laws that employ or contract with healthcare professionals in one or more states to provide telehealth services (collectively, “PCs”). We and the PCs may suffer losses or reputational harm from medical malpractice liability, professional liability or other claims against the healthcare professionals employed by, or contracting with, us or the PCs (the “Affiliated Professionals”). We and/or the PCs may be unable to obtain or maintain adequate insurance against these claims. Healthcare professionals providing telehealth services have become subject to a number of lawsuits alleging malpractice and some of these lawsuits may involve large claims and significant defense costs. It is possible that these claims could also be asserted against us and potential litigation may include us as an additional defendant. Any suits against us, the PCs or the Affiliated Professionals, if successful, could result in substantial damage awards to the claimants that may exceed the limits of any applicable insurance coverage. Although we do not control the practice of telehealth by the PCs and the Affiliated Professionals, it could be asserted that we should be held liable for malpractice of a healthcare professional employed by a PC.

In addition, we and the PCs could incur reputational harm or negative publicity in relation to a material malpractice or care-related event involving an Affiliated Professional. Malpractice lawsuits and claims can also lead to increased scrutiny by state regulators. In addition, some plaintiffs have asserted allegations of corporate practice of medicine in connection with malpractice lawsuits. There can be no assurance, however, that a future claim or claims will not be successful. Malpractice insurance, moreover, can be expensive and varies from state to state and there can be no assurance that malpractice insurance will be available to us or the PCs or the Affiliated Professionals at an acceptable cost.

Successful malpractice claims asserted against us or the PCs or the Affiliated Professionals could have a material adverse effect on our business, financial condition and results of operations. Additionally, our inability to obtain adequate insurance may also have a material adverse effect on our business and financial results.

Additionally, a number of laws and regulations govern the business of advertising, promotion, dispensing, and marketing services and products, including generic and branded pharmaceuticals. These regulatory regimes are overseen by governmental bodies, principally the U.S. Food and Drug Administration (the “FDA”), the U.S. Department of Health and Human Services (the “HHS”), the U.S. Federal Trade Commission (the “FTC”), and several state and local government agencies in the United States. Failure to comply with the laws and regulations of these governmental agencies may result in legal or other enforcement actions, including orders to cease non-compliant activities. We depend on pharmacies, laboratories and other contractors to provide certain products and services for members. These third parties may be subject to inspections and audits by federal, state or local health authorities, health insurers, and pharmacy benefit managers. If these third parties do not maintain appropriate licenses or comply with legal and regulatory requirements or are subject to enforcement actions, our business may be adversely affected.

Any inquiry into the safety, efficacy or regulatory status of the products prescribed by the Affiliated Professionals and any related interruption in the marketing and sale of these products could damage our reputation and image in the marketplace. For example, the use of such products may cause adverse events or other undesirable side effects, which could cause regulatory authorities to issue warnings about the products or could lead to recalls, withdrawals of approvals for such products or other regulatory or other enforcement actions. The FDA has also issued warning letters to companies alleging improper claims regarding their pharmaceutical products. If the FDA or any other regulatory authorities determine that we have made inappropriate drug claims, we could receive a warning or untitled letter, be required to modify our claims or take other actions to satisfy the FDA or any other regulatory authorities. There can be no assurance that we will not be subject to state, federal or foreign government actions or class action lawsuits, which could harm our business, financial condition and results of operations.

We, the PCs and the Affiliated Professionals are subject to extensive and complex healthcare laws and regulations. If we, the PCs or the Affiliated Professionals fail to comply with existing or new laws or regulations that apply to us, we or they could suffer civil or criminal penalties or be subject to other enforcement actions.

The healthcare industry and services provided via telehealth are highly regulated. Following the consummation of the Acquisition, various aspects of our operations are subject to federal, state or local laws, rules and regulations, any of which may change from time to time. Regulatory oversight includes, but is not limited to, considerations of corporate practice of medicine, licensure and scope of practice limitations for physicians and other healthcare professionals, establishment of a physician-patient relationship, prohibitions on fraud, waste and abuse, including laws prohibiting the submission of false claims, anti-kickback and all-payor fraud laws, restrictions on referrals and self-referrals, advertising and promotional restrictions, privacy protections, including patient information, and complex prior authorization and other requirements. Federal and state laws permit private parties to bring “qui tam” or whistleblower lawsuits on behalf of the federal government against companies for violations of fraud and abuse laws.

Although we and the PCs strive to comply with all applicable laws and regulations, our operations and the operations of the PCs may not be in compliance with certain laws or regulations as they may be interpreted by governmental, judicial, law enforcement or regulatory authorities or their agents. Failure to comply with laws and regulations may subject us, the PCs or the Affiliated Professionals to civil or criminal penalties, licensing or other sanctions, that limit our ability to operate our business or their ability to provide telehealth services. See “Risk Factors—Risks Related to Our Acquisition of Weekend Health, Inc. (d/b/a Sequence)—We may be subject to extensive fraud, waste, and abuse laws that may give rise to federal and state audits and investigations, including actions for false and other improper claims.”

Changes to laws and regulations pose additional risks. The failure to comply with such changes to laws and regulations may subject us, the PCs and/or the Affiliated Professionals to civil or criminal penalties or other sanctions that will limit our ability to operate our business or the ability of the PCs and the Affiliated Professionals to provide telehealth services. Changes to laws or regulations might have the effect of imposing additional costs or rendering invalid or illegal, in whole or in part, certain aspects of the expected agreements between us, the PCs and healthcare professionals. Any or all of the issues above could adversely affect our ability to attract new members or retain existing members, or subject us to governmental or third-party lawsuits, investigations, regulatory fines or other actions or liability, resulting in a material adverse effect to our business, financial condition, cash flows and results of operation.

The healthcare laws and regulations to which we are subject are constantly evolving and may change significantly in the future.

The laws and regulations applicable to our business, to telehealth services, and to the healthcare industry generally are constantly evolving. While we believe that Sequence has structured its agreements and operations in material compliance with applicable healthcare laws and regulations, there can be no assurance that we will be able to successfully address changes in the current regulatory environment. Some of the healthcare laws and regulations that are applicable to us are subject to limited or evolving interpretations, and a review of our business or operations by a governmental, judicial, law enforcement or regulatory authority might result in a determination that could have a material adverse effect on us. Furthermore, the healthcare laws and regulations applicable to us may be amended or interpreted in a manner that could have a material adverse effect on our business.

Recent and frequent legislative and regulatory changes specific to telehealth may present us with additional requirements and compliance costs, with potential operational impacts in certain jurisdictions. Our business could be adversely affected by challenges to our business model or by state actions restricting the ability of the PCs and the Affiliated Professionals to provide products and services via telehealth in certain states.

Healthcare professionals who provide professional services to a patient via telehealth must, in most instances, hold a valid license to practice or provide treatment in the state in which the patient is located. Certain states require healthcare professionals providing telehealth services to be physically located in the same state as the patient. State law applicable to telehealth, particularly licensure requirements, has been relaxed in many jurisdictions as a result of the COVID-19 pandemic. It is unclear which, if any, of these changes will remain in place permanently. If regulations change to restrict healthcare professionals from delivering care through telehealth modalities or such healthcare professionals fail to comply with telehealth laws, the PCs and the Affiliated Professionals could be subject to civil or criminal penalties, and our financial condition and results of operations may be adversely affected.

Federal and state laws and regulations specific to telehealth vary and may set forth informed consent, modality, medical records, licensing, follow-up care, and other requirements. The ability of the PCs and the Affiliated Professionals to conduct business via telehealth is dependent, in part, upon that particular state’s treatment of remote healthcare and that state medical or other board’s regulation of the practice of medicine and telehealth services, each of which is subject to changing political, regulatory, and other influences. Where new laws and regulations apply to telehealth services, we may incur costs to monitor, evaluate, and modify operational processes for compliance. All such activities may increase our costs and could, in certain circumstances, impact the ability of the PCs and the Affiliated Professionals to make telehealth available in a particular state. Additionally, patients may be reluctant to accept services delivered via telehealth or may not find it preferable to traditional treatment. It is possible that the laws, rules, and regulations governing the practice of telehealth in one or more states may change or be interpreted in a manner unfavorable to our business. If adverse laws or regulations are adopted, if patients prove unwilling to adopt the telehealth services offered by the PCs and the Affiliated Professionals as rapidly or in the numbers that we anticipate, or if any claims challenging the provision of services via telehealth are successful, and we were unable to adapt our business model accordingly, our operations in such states would be disrupted, which could have a material adverse effect on our business, financial condition, cash flows and results of operations.

We may also be subject to changes in laws, regulations, and enforcement trends governing the marketing of pharmaceutical products. Such products are subject to regulation by the FDA, FTC, and other governmental agencies, and over time, the regulatory landscape for pharmaceutical products approved for weight management may become more complex with increasingly strict requirements. To the extent federal or other requirements regarding safety, prescribing, and claims change in the future, such changes could result in increased costs, recalls, increased cancelations of member subscriptions, decreased interest from potential members or other adverse impacts or additional risks.

We may be subject to extensive fraud, waste, and abuse laws that may give rise to federal and state audits and investigations, including actions for false and other improper claims.

The U.S. healthcare industry is heavily regulated and closely scrutinized by federal, state and local governments. Comprehensive statutes and regulations govern our contractual relationships and arrangements with healthcare professionals and vendors, our marketing activities, and other aspects of our operations and the operations of the PCs and vendors. Such laws include, without limitation, federal and state anti-kickback, fraud and abuse, and false claims laws, and may authorize the imposition of criminal, civil and administrative penalties for submitting false or fraudulent claims for reimbursement to federal and state healthcare programs.

The federal anti-kickback statute (the “Anti-Kickback Statute”) makes it a criminal offense to knowingly and willingly offer, pay, solicit or receive any remuneration to induce or reward referrals of items or services reimbursable by federal healthcare programs. The Anti-Kickback Statute defines “remuneration” to include the transfer of anything of value, in cash or in kind and directly or indirectly. The statute has been interpreted to cover any arrangement where at least one purpose of the arrangement is to obtain remuneration for the referral of services or to induce the purchase, lease, order, recommendation or arrangement of items or services reimbursable under a federal healthcare program. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Many states have similar anti-kickback and consumer protection laws, and in some cases these laws have expanded to apply to commercial insurers. If any governmental, judicial, law enforcement or regulatory authority determines that we are not in compliance with any such laws, any such authority could bring an action against us and/or our supported offices for violations of such laws, which could have a material adverse effect on our business.

The Federal Civil False Claims Act (the “FCA”) prohibits the knowing submission of any false or fraudulent claim for payment to the federal government or to its agents or contractors or any recipient if the federal government provides any payment for the claim. The FCA also prohibits knowingly presenting, or causing to be presented, false claims to government health care programs, including Medicare, Medicaid, TRICARE, and the Federal Employees Health Benefits Program. It also prohibits the use of any false record or statement material to a claim made in order to have a false or fraudulent claim paid in whole or in part by the federal government. It further prohibits the knowing concealment or improper avoidance of an obligation to pay money or property to the federal government. The FCA requires no proof of specific intent to defraud to create liability. In addition, a violation of the Anti-Kickback Statute can result in liability under the FCA. Actions under the FCA may be brought by the Attorney General, the United States Department of Justice (the “DOJ”), the United States Attorney Offices, or as a qui tam action by a private individual in the name of the government. These private parties, often referred to as relators, are entitled to share in any amounts recovered by the government through trial or settlement. These “qui tam” cases are sealed by the court at the time of filing. The only parties privy to the information contained in the complaint are the relator, the federal government and the presiding court. It is possible that “qui tam” lawsuits will be filed against us and that we will be unaware of such filings. Violations of the FCA can result in significant monetary penalties. The federal government continues to use the FCA, and the accompanying threat of significant liability, in its investigations and prosecutions of telehealth companies and healthcare professionals that provide telehealth services. The government has obtained multi-million and multi-billion dollar settlements under the FCA in addition to individual criminal convictions under applicable criminal statutes. Given the significant size of actual and potential settlements, it is expected that the federal government will continue to devote substantial resources to investigating telehealth companies and healthcare professionals that provide telehealth services for compliance with the FCA and other applicable fraud and abuse laws. Collateral consequences of a violation of the FCA include administrative penalties and the imposition of settlement, monitoring, integrity or other agreements. Many states have similar FCA laws to which we may be subject. A determination that we have violated these laws could have a material adverse effect on our business.

The Health Insurance Portability and Accountability Act (“HIPAA”) also created new federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

In addition, federal healthcare laws prohibit the offer or transfer to a federal healthcare program beneficiary, of any remuneration, including free services, and waivers of beneficiary cost sharing that the offeror knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of federal healthcare program items or services unless there has been a good faith determination of the beneficiary’s financial need. Violations may result in the imposition of civil monetary penalties. Moreover, the routine waivers of copayments and deductibles offered to patients covered by commercial payors may also implicate applicable state laws related to, among other things, unlawful schemes to defraud, insurance fraud, excessive fees for services, tortious interference with patient contracts and statutory or common law fraud. If arrangements are found to be inconsistent with applicable federal and state fraud, waste and abuse, state advertising, insurance or other applicable laws, we may be required to restructure or discontinue certain programs, or be subject to other significant penalties, enforcement actions or investigations, which could have a material adverse effect on our business.

To enforce compliance with the federal laws such as the FCA, the Office of the Inspector General of the HHS (the “OIG”) and the DOJ recently have increased their scrutiny of interactions between healthcare companies and healthcare professionals, which has resulted in investigations, prosecutions, convictions and settlements in the healthcare industry. Dealing with investigations can be time and resource consuming and can divert management’s attention from the business. Any such future investigation or settlement could increase our costs or otherwise have an adverse effect on our business.

Additionally, federal and state government agencies, as well as commercial payors, have increased their auditing and administrative, civil and criminal enforcement efforts as part of an effort to identify and to stem healthcare fraud and abuse. These audits and investigations relate to a wide variety of topics, including but not limited to the following: ordering and referral practices, technical compliance with coverage and payment rules, the offering of prohibited remuneration, patient privacy and data security rules and financial reporting. In addition, the OIG and the DOJ have, from time to time, undertaken national enforcement initiatives that focus on specific practices or other suspected areas of abuse. For example, the OIG announced a special fraud alert informing healthcare professionals that they should exercise caution when entering into arrangements with certain telemedicine companies. Federal and state governments also are authorized to impose criminal, civil and administrative penalties on any person or entity that files a false claim for payment for items or services reimbursed under a federal or state healthcare program. While the criminal statutes are generally reserved for instances of fraudulent intent, the federal government is applying its enforcement powers in an ever-expanding range of circumstances. If we or any of the PCs are found to be in violation of federal or state laws or regulations, we and they could be forced to discontinue the violative practice and may be subject to actions, fines and criminal penalties, which could have a material adverse effect on our business.

Similar to federal and state governmental agencies, commercial payors have increased their auditing and recovery efforts. Claims filed with private insurers can lead to criminal and civil penalties, including, but not limited to, penalties relating to violations of federal mail and wire fraud statutes, as well as penalties under the healthcare fraud provisions of HIPAA.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, ~~AND~~ USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

Nothing to report under this item.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Nothing to report under this item.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~Nothing~~From time to ~~report~~time, our directors and officers may engage in open-market transactions with respect to their Company equity holdings for diversification or other personal reasons. All such transactions by directors and officers must comply with the Company’s Amended and Restated Securities Trading Policy, which requires that such transactions be in accordance with applicable U.S. federal securities laws that prohibit trading while in possession of material nonpublic information. Rule 10b5-1 under ~~this item.~~the Exchange Act provides an affirmative defense that enables directors and officers to prearrange transactions in the Company’s securities in a manner that avoids concerns about initiating transactions while in possession of material nonpublic information.

5762

The following table describes the contracts, instructions or written plans for the purchase or sale of Company securities adopted or terminated by our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) during the quarter ended July 1, 2023, that are or were, as the case may be, intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). No “non-Rule 10b5–1 trading arrangements” (as defined by Item 408(c) of Regulation S-K) or other Rule 10b5-1 trading arrangements were entered into or terminated, nor were any such arrangements modified, by our directors or officers during such period.


Name and Title	Action and Type of Plan	Date of Action	Scheduled Expiration of Plan(1)	Aggregate Number of Securities to be Sold or Purchased
Oprah Winfrey Director	Adoption of Rule 10b5-1 Plan	5/11/2023	3/10/2025	• Sell 925,780 shares • Exercise 2,687,063 stock options and sell underlying shares • Gift 157,968 shares(2)
Oprah Winfrey Director	Termination of Rule 10b5-1 Plan(3)	5/11/2023	12/29/2023	• Sell 916,225 shares • Exercise 1,927,608 stock options and sell underlying shares • Gift 167,493 shares(2)

(1)

The plan duration is or was, as the case may be, until the date listed in this column or such earlier date upon the completion of all trades under the plan or the occurrence of such other termination events as specified in the plan.

(2)

Reflects shares proposed to be transferred by Ms. Winfrey as a gift to The Oprah Winfrey Charitable Foundation (the “Foundation”) and sold by the Foundation.

(3)

This Rule 10b5-1 Plan was originally adopted on November 15, 2022.

ITEM 6. EXHIBITS


Exhibit Number		Description

**Exhibit 2.1		Agreement and Plan of Merger, dated as of March 4, 2023, by and among WW International, Inc., Well Holdings, Inc., Weekend Health, Inc. (“Weekend Health”) and Fortis Advisors LLC, solely in its capacity as the Equityholders’ Representative (as defined therein) for Weekend Health (filed as Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2023, as filed on May 4, 2023 (File No. 001-16769), and incorporated by reference).

*Exhibit 10.1		Amendment No. 1, dated as of June 2, 2023, in respect of that certain Credit Agreement, dated as of April 13, 2021, among WW International, Inc., as borrower, the lenders party thereto and Bank of America, N.A., as administrative agent and issuing bank.

†*Exhibit 10.2		Separation Agreement and General Release, dated April 12, 2023, by and between WW International, Inc. and Michael Lysaght.

†*Exhibit 10.3		2023 Form of Term Sheet for Employee Performance Stock Unit Awards and 2023 Form of Terms and Conditions for Employee Performance Stock Unit Awards (Chief Executive Officer Annual Equity Award).

†*Exhibit 10.4		2023 Form of Term Sheet for Employee Performance Stock Unit Awards and 2023 Form of Terms and Conditions for Employee Performance Stock Unit Awards.

†*Exhibit 10.5		Form of Term Sheet for Employee Restricted Stock Unit Awards and Form of Terms and Conditions for Employee Restricted Stock Unit Awards (Chief Executive Officer Annual Equity Award).

†**Exhibit 10.6		Employment Agreement, dated May 1, 2023, by and between WW Canada, ULC and Heather Stark (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on May 4, 2023 (File No. 001-16769), and incorporated herein by reference).

*Exhibit 31.1		Rule 13a-14(a) Certification by Sima Sistani, Chief Executive Officer.

*Exhibit 31.2		Rule 13a-14(a) Certification by ~~Amy O’Keefe,~~Heather Stark, Chief Financial Officer.

*Exhibit 32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*Exhibit 101

*EX-101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

*EX-101.SCH		Inline XBRL Taxonomy Extension Schema Document

*EX-101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

*EX-101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

*EX-101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

*EX-101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

*Exhibit 104		The cover page from WW International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~October~~July 1, ~~2022,~~2023, formatted in Inline XBRL (included within the Exhibit 101 attachments).

* Filed herewith.

** Previously filed.

58† Represents a management arrangement or compensatory plan.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	WW INTERNATIONAL, INC.

Date: ~~November~~August 3, ~~2022~~2023	By:	/s/ Sima Sistani
		Sima Sistani
		Chief Executive Officer and Director (Principal Executive Officer)


Date: ~~November~~August 3, ~~2022~~2023	By:	/s/ ~~Amy O’Keefe~~Heather Stark
		~~Amy O’Keefe~~Heather Stark
		Chief Financial Officer (Principal Financial Officer)

5965


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	WW	The Nasdaq Stock Market LLC


		Page No.

PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	2

	Unaudited Consolidated Balance Sheets at ~~October~~July 1, ~~2022~~2023 and ~~January 1,~~December 31, 2022	2

	Unaudited Consolidated Statements of ~~Net Income~~Operations for the three and ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021~~2022	3

	Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021~~2022	4

	Unaudited Consolidated Statements of Changes in Total Deficit for the three and ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021~~2022	5

	Unaudited Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~October~~July 1, ~~2022~~2023 and ~~October~~July 2, ~~2021~~2022	6

	Notes to Unaudited Consolidated Financial Statements	7

Cautionary Notice Regarding Forward-Looking Statements		2629

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2831

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5655

Item 4.	Controls and Procedures	5655

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	57

Item 1A.	Risk Factors	57

Item 2.	Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities	5762

Item 3.	Defaults Upon Senior Securities	5762

Item 4.	Mine Safety Disclosures	5762

Item 5.	Other Information	5762

Item 6.	Exhibits	5864

Signatures		5965


	October 1,			January 1,			July 1,			December 31,
	2022			2022			2023			2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	188,291		$	153,794		$	91,446		$	178,326
Receivables (net of allowances: October 1, 2022 - $1,693 and January 1, 2022 - $1,726)		28,192			29,321
Receivables (net of allowances: July 1, 2023 - $907 and December 31, 2022 - $976)								25,813			24,273
Inventories		26,394			30,566			10,834			20,528
Derivative receivable								10,546			11,748
Prepaid income taxes		14,721			30,478			17,173			19,447
Prepaid expenses and other current assets		32,161			27,014			22,110			27,009
TOTAL CURRENT ASSETS		289,759			271,173			177,922			281,331
Property and equipment, net		30,112			37,219			23,569			28,229
Operating lease assets		79,911			89,902			58,019			75,696
Franchise rights acquired		440,515			785,195			386,555			386,745
Goodwill		156,155			157,374			246,208			155,998
Other intangible assets, net		62,952			61,126			71,091			63,306
Deferred income taxes		15,772			11,259			22,403			22,246
Other noncurrent assets		17,659			15,686			15,716			14,879
TOTAL ASSETS	$	1,092,835		$	1,428,934		$	1,001,483		$	1,028,430
LIABILITIES AND TOTAL DEFICIT
CURRENT LIABILITIES
Portion of operating lease liabilities due within one year	$	18,457		$	20,297		$	9,949		$	17,955
Accounts payable		17,384			22,444			21,998			18,890
Salaries and wages payable		64,047			57,401			55,198			72,577
Accrued marketing and advertising		10,277			15,904			12,290			17,927
Accrued interest		10,848			5,085			5,333			5,289
Other accrued liabilities		37,318			45,728			53,739			30,118
Derivative payable		—			14,670
Income taxes payable		1,850			1,748			7,198			1,646
Deferred revenue		39,772			45,855			35,705			32,156
TOTAL CURRENT LIABILITIES		199,953			229,132			201,410			196,558
Long-term debt, net		1,421,239			1,418,104			1,424,374			1,422,284
Long-term operating lease liabilities		70,848			78,157			58,867			68,099
Deferred income taxes		58,293			157,718			18,184			23,119
Other		2,005			2,227			14,910			2,185
TOTAL LIABILITIES		1,752,338			1,885,338			1,717,745			1,712,245
TOTAL DEFICIT
Common stock, $0 par value; 1,000,000 shares authorized; 122,052 shares issued at October 1, 2022 and 122,052 shares issued at January 1, 2022		0			0
Treasury stock, at cost, 51,667 shares at October 1, 2022 and 51,988 shares at January 1, 2022		(3,106,098	)		(3,120,149	)
Common stock, $0 par value; 1,000,000 shares authorized; 130,048 shares issued at July 1, 2023 and 122,052 shares issued at December 31, 2022								0			0
Treasury stock, at cost, 51,146 shares at July 1, 2023 and 51,496 shares at December 31, 2022								(3,079,073	)		(3,097,304	)
Retained earnings		2,457,912			2,682,349			2,370,340			2,418,959
Accumulated other comprehensive loss		(11,317	)		(18,604	)		(7,529	)		(5,470	)
TOTAL DEFICIT		(659,503	)		(456,404	)		(716,262	)		(683,815	)
TOTAL LIABILITIES AND TOTAL DEFICIT	$	1,092,835		$	1,428,934		$	1,001,483		$	1,028,430


	Three Months Ended						Nine Months Ended
	October 1,			October 2,			October 1,			October 2,
	2022			2021			2022			2021
Net (loss) income	$	(206,036	)	$	46,330		$	(218,902	)	$	36,963
Other comprehensive (loss) gain:
Foreign currency translation loss		(9,552	)		(4,877	)		(18,018	)		(3,140	)
Income tax benefit on foreign currency translation loss		2,406			1,229			4,530			791
Foreign currency translation loss, net of taxes		(7,146	)		(3,648	)		(13,488	)		(2,349	)
Gain on derivatives		8,590			1,891			27,748			8,617
Income tax expense on gain on derivatives		(2,159	)		(477	)		(6,973	)		(2,171	)
Gain on derivatives, net of taxes		6,431			1,414			20,775			6,446
Total other comprehensive (loss) gain		(715	)		(2,234	)		7,287			4,097
Comprehensive (loss) income	$	(206,751	)	$	44,096		$	(211,615	)	$	41,060


	Three Months Ended						Six Months Ended
	July 1,			July 2,			July 1,			July 2,
	2023			2022			2023			2022
Net income (loss)	$	50,828		$	(4,623	)	$	(67,851	)	$	(12,866	)
Other comprehensive gain (loss):
Foreign currency translation gain (loss)		816			(8,325	)		929			(8,466	)
Income tax (expense) benefit on foreign currency translation gain (loss)		(204	)		2,089			(232	)		2,125
Foreign currency translation gain (loss), net of taxes		612			(6,236	)		697			(6,341	)
(Loss) gain on derivatives		(544	)		4,402			(3,674	)		19,158
Income tax benefit (expense) on (loss) gain on derivatives		136			(1,106	)		918			(4,815	)
(Loss) gain on derivatives, net of taxes		(408	)		3,296			(2,756	)		14,343
Total other comprehensive gain (loss)		204			(2,940	)		(2,059	)		8,002
Comprehensive income (loss)	$	51,032		$	(7,563	)	$	(69,910	)	$	(4,864	)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Large accelerated filer	☐	Accelerated filer	☒
~~Accelerated filer~~	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐



Nine Months Ended October 1, 2022											Accumulated
											Other
	Common Stock				Treasury Stock						Comprehensive			Retained
	Shares		Amount		Shares			Amount			Loss			Earnings			Total
Balance at January 1, 2022		122,052	$	0		51,988		$	(3,120,149	)	$	(18,604	)	$	2,682,349		$	(456,404	)
Comprehensive (loss) income												7,287			(218,902	)		(211,615	)
Issuance of treasury stock under stock plans						(321	)		14,051						(15,897	)		(1,846	)
Compensation expense on share-based awards															10,362			10,362
Balance at October 1, 2022		122,052	$	0		51,667		$	(3,106,098	)	$	(11,317	)	$	2,457,912		$	(659,503	)



Three Months Ended October 2, 2021											Accumulated
											Other
	Common Stock				Treasury Stock						Comprehensive			Retained
	Shares		Amount		Shares			Amount			Loss			Earnings			Total
Balance at July 3, 2021		122,052	$	0		52,211		$	(3,129,329	)	$	(18,818	)	$	2,610,250		$	(537,897	)
Comprehensive income (loss)												(2,234	)		46,330			44,096
Issuance of treasury stock under stock plans						(50	)		2,034						(3,014	)		(980	)
Compensation expense on share-based awards															3,404			3,404
Balance at October 2, 2021		122,052	$	0		52,161		$	(3,127,295	)	$	(21,052	)	$	2,656,970		$	(491,377	)


	October 1, 2022		January 1, 2022
Weighted Average Remaining Lease Term (years)
Operating leases		7.00		7.29
Finance leases		1.00		1.54

Weighted Average Discount Rate
Operating leases		7.01		7.15
Finance leases		3.39		5.31


	Operating Leases		Finance Leases		Total		Operating Leases		Finance Leases		Total
Remainder of fiscal 2022	$	4,734	$	13	$	4,747
Fiscal 2023		24,872		31		24,903
Remainder of fiscal 2023							$	6,840	$	9	$	6,849
Fiscal 2024		18,014		4		18,018		15,235		7		15,242
Fiscal 2025		12,575		—		12,575		12,899		—		12,899
Fiscal 2026		9,683		—		9,683		9,905		—		9,905
Fiscal 2027		9,376		—		9,376		9,469		—		9,469
Fiscal 2028								9,213		—		9,213
Thereafter		36,089		—		36,089		26,931		—		26,931
Total lease payments	$	115,343	$	48	$	115,391	$	90,492	$	16	$	90,508
Less imputed interest		26,038		1		26,039		21,676		1		21,677
Present value of lease liabilities	$	89,305	$	47	$	89,352	$	68,816	$	15	$	68,831


	Nine Months Ended October 2, 2021
	Loss on Qualifying Hedges			Loss on Foreign Currency Translation			Total
Beginning balance at January 2, 2021	$	(20,979	)	$	(4,170	)	$	(25,149	)
Other comprehensive income (loss) before reclassifications, net of tax		418			(2,349	)		(1,931	)
Amounts reclassified from accumulated other comprehensive loss, net of tax (2)		6,028			—			6,028
Net current period other comprehensive income (loss)		6,446			(2,349	)		4,097
Ending balance at October 2, 2021	$	(14,533	)	$	(6,519	)	$	(21,052	)


	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%


	Q3 2022
	GAAP									Constant Currency
	Subscription Revenues			Product Sales & Other			Total Revenues			Subscription Revenues			Product Sales & Other			Total Revenues			Total Paid Weeks			Incoming Subscribers			EOP Subscribers
																						(in thousands)
North America	$	154.8		$	21.2		$	176.1		$	155.2		$	21.3		$	176.5			34.0			2,805.1			2,463.8
CE		51.2			5.3			56.5			60.0			6.2			66.2			13.6			1,118.9			1,009.7
UK		9.5			1.4			10.9			11.1			1.7			12.8			3.2			254.8			234.0
Other (1)		5.2			1.0			6.2			5.6			1.1			6.7			1.1			88.7			86.1
Total	$	220.7		$	29.0		$	249.7		$	231.9		$	30.2		$	262.2			51.9			4,267.5			3,793.6

	% Change Q3 2022 vs. Q3 2021
North America		(12.4	%)		0.8	%		(11.0	%)		(12.2	%)		1.0	%		(10.8	%)		(13.5	%)		(11.2	%)		(15.6	%)
CE		(21.5	%)		(20.9	%)		(21.5	%)		(8.0	%)		(7.1	%)		(8.0	%)		(12.5	%)		(12.2	%)		(12.6	%)
UK		(30.1	%)		(32.4	%)		(30.4	%)		(18.2	%)		(20.9	%)		(18.6	%)		(20.1	%)		(24.4	%)		(20.0	%)
Other (1)		(23.9	%)		(17.5	%)		(22.9	%)		(18.0	%)		(13.0	%)		(17.2	%)		(11.1	%)		(9.6	%)		(11.0	%)
Total		(15.9	%)		(6.8	%)		(14.9	%)		(11.6	%)		(2.8	%)		(10.7	%)		(13.6	%)		(12.3	%)		(15.0	%)