BEACHBODY COMPANY, INC. Management report and analysis of the financial situation and operating results. (Form 10-Q)
The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (this "Report") and the section entitled "Risk Factors." Unless otherwise indicated, the terms "
Beachbody," "we," "us," or "our" refer to The Beachbody Company, Inc., a Delawarecorporation, together with its consolidated subsidiaries.
This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), including statements about and the financial condition, results of operations, earnings outlook and prospects of the Company. Forward-looking statements are typically identified by words such as "plan," "believe," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "project," "continue," "could," "may," "might," "possible," "potential," "predict," "should," "would" and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements are based on our current expectations as applicable and are inherently subject to uncertainties and changes in circumstances and their potential effects and speak only as of the date of such statement. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to the following:
our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit, operating expenses including changes in selling and marketing, general and administrative, and enterprise technology and development expenses (including any components of the foregoing), Adjusted EBITDA (as defined below) and our ability to achieve and maintain future profitability;
our expected growth rate and market opportunities;
our liquidity and ability to raise funding in the future;
our success in retaining or recruiting, or required changes in, officers, key employees or directors;
our warrants are accounted for as liabilities and changes in the value of these warrants could materially affect our financial results;
our ability to compete effectively in the fitness and nutrition industries;
our ability to successfully acquire and integrate new operations;
our dependence on a few key products;
market conditions and global and economic factors beyond our control;
intense competition and competitive pressures from other companies around the world in the industries in which we will operate;
litigation and the ability to adequately protect our intellectual property rights;
other risks and uncertainties discussed in this report under the heading “Risk Factors”.
Should one or more of these risks or uncertainties materialize or should any of the assumptions made by management prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unforeseen events.
Beachbodyis a leading subscription health and wellness company. We focus primarily on digital content, supplements, connected fitness, and consumer health and wellness. Our goal is to continue to provide holistic health and wellness content and subscription-based solutions. We are the creator of some of the world's most popular fitness programs, including P90X, Insanity, and 21 Day Fix, which transformed the at-home fitness market and disrupted the global fitness industry by making it accessible for people to get results-anytime, anywhere. Our comprehensive nutrition-first programs, Portion Fix and 2B Mindset, teach healthy eating habits and promote healthy, sustainable weight loss. These fitness and nutrition programs are available through our BeachbodyOn Demand and Beachbody On Demand Interactive streaming services, and in January 2022, we began the process of consolidating our Openfit streaming fitness offerings onto a single Beachbodyplatform. We offer nutritional products such as Shakeology nutrition shakes, BEACHBAR snack bars, and Ladder premium supplements as well a professional-grade stationary cycle with a 360-degree touch screen tablet and connected fitness software. Leveraging our history of fitness content creation, nutrition innovation, and our network of micro-influencers, whom we call Coaches, we plan to continue market penetration into connected fitness to reach a wider health, wellness and fitness audience. Historically, our revenue has been generated primarily through our network of micro-influencers, social media marketing channels, and direct response advertising. Components of revenue include recurring digital subscription revenue, connected fitness revenue, and revenue from the sale of nutritional and other products. In addition to selling individual products on a one-time basis, we bundle digital and nutritional products together at discounted prices.
For the three months ended
The total turnover was
Digital revenues were
Connected fitness revenue was
Nutrition and other income were
The net loss was
Adjusted EBITDA was
See “Non-GAAP Information” below for more information on our use of Adjusted EBITDA and a reconciliation of net loss to Adjusted EBITDA.
Main operational and commercial indicators
We use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.
March 31, 2022 March 31, 2021Digital Subscriptions (millions) 2.46
Nutritional Subscriptions (millions) 0.30 0.42 Three Months Ended March 31, 2022 2021 Average Digital Retention 95.6 % 95.8 % Total Streams (millions) 38.2 56.0 DAU/MAU 31.6 % 35.1 % Revenue (millions)
$ 198.9 $ 226.2Gross profit (millions) $ 93.0 $ 158.1Gross margin 47 % 70 % Net loss (millions) $ (73.5 ) $ (30.1 )Adjusted EBITDA (millions) $ (19.1 ) $ (11.7 )20
Please see the “Non-GAAP Information” section below for a reconciliation of net loss to Adjusted EBITDA and an explanation of why we consider Adjusted EBITDA to be a useful measure for investors.
Digital Subscriptions Our ability to expand the number of digital subscriptions is an indicator of our market penetration and growth. Digital subscriptions include BOD,
BODi, and Openfit subscriptions. Digital subscriptions include paid and free-to-pay subscriptions, with free-to-pay subscriptions representing approximately 1% of total digital subscriptions on average. Digital subscriptions are inclusive of all billing plans, currently for annual, semi-annual, quarterly and monthly billing intervals.
Nutrition subscriptions include monthly subscriptions to nutritional products such as Shakeology, Beachbody Performance, BEACHBAR, Bevvy and Ladder Supplements. We also package and bundle the content experience of digital subscriptions with nutrition subscriptions to optimize customer outcomes.
Average digital retention
We use month-over-month digital subscription retention, which we define as the average rate at which a subscription renews for a new billing cycle, to measure customer retention. Total Streams We use total streams to quantify the number of fitness or nutrition programs viewed per subscription, which is a leading indicator of customer engagement and retention. While the measure of a digital stream may vary across companies, to qualify as a stream on any of our digital platforms, a program must be viewed for a minimum of 25% of the total running time.
Daily Active Users to Monthly Active Users (DAU/MAU)
We use the ratio of daily active users to monthly active users to measure how frequently digital subscribers are utilizing our service in a given month. We define a daily active user as a unique user streaming content on our platform in a given day. We define a monthly active user as a unique user streaming content on our platform in that same month.
We use Adjusted EBITDA, which is a non-GAAP performance measure, to supplement our results presented in accordance with GAAP. We believe Adjusted EBITDA is useful in evaluating our operating performance, as it is similar to measures reported by our public competitors and is regularly used by security analysts, institutional investors, and other interested parties in analyzing operating performance and prospects. Adjusted EBITDA is not intended to be a substitute for any GAAP financial measure and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry. We define and calculate Adjusted EBITDA as net income (loss) adjusted for depreciation and amortization, amortization of capitalized cloud computing implementation costs, amortization of content assets, interest expense, income tax provision (benefit), equity-based compensation, and other items that are not normal, recurring, operating expenses necessary to operate the Company's business as described in the reconciliation below. We include this non-GAAP financial measure because it is used by management to evaluate
Beachbody'score operating performance and trends and to make strategic decisions regarding the allocation of capital and new investments. Adjusted EBITDA excludes certain expenses that are required in accordance with GAAP because they are non-cash (for example, in the case of depreciation and amortization, equity-based compensation, and net realizable value adjustment) or are not related to our underlying business performance (for example, in the case of interest income and expense). 21 --------------------------------------------------------------------------------
The table below presents our adjusted EBITDA reconciled to our net loss, the closest GAAP measure, for the periods indicated:
Three Months Ended March 31, (in thousands) 2022 2021 Net loss
$ (73,533 ) $ (30,058 )Adjusted for: Depreciation and amortization 21,587
Amortization of capitalized cloud computing implementation costs 168
Amortization of content assets 6,164 2,817 Interest expense 19 123 Income tax benefit (706 ) (395 ) Equity-based compensation 4,564 2,573 Inventory net realizable value adjustment (1) 14,934 - Transaction costs 2
Restructuring and platform consolidation costs (2) 7,887 - Change in fair value of warrant liabilities (264 ) - Non-operating (3) 70 (1,331 ) Adjusted EBITDA
$ (19,108 ) $ (11,744 )(1) Represents a non-cash expense to reduce the carrying value of our connected fitness inventory and related future commitments. This adjustment is included because of its unusual magnitude due to disruptions in the connected fitness market.
Includes restructuring costs and non-recurring personnel costs related to the consolidation of our digital platforms.
Includes interest income and, in the three months ended
We operate and manage our business in two operating segments,
Beachbodyand Other. For financial reporting purposes, we have one reportable segment, Beachbody. We identified the reportable segment based on the information used by management to monitor performance and make operating decisions. See Note 16, Segment Information, to our unaudited condensed consolidated financial statements included elsewhere in this Report for additional information regarding our reportable segment. The following discussion of our results and operations is on a consolidated basis as the Other non-reportable operating segment is not material to the understanding of our business taken as a whole. (in thousands) Three Months Ended March 31, 2022 2021 Revenue: Digital $ 81,745 $ 95,150Connected fitness 19,513 - Nutrition and other 97,664 131,069 Total revenue 198,922 226,219 Cost of revenue: Digital 16,425 11,122 Connected fitness 44,706 - Nutrition and other 44,774 56,995 Total cost of revenue 105,905 68,117 Gross profit 93,017 158,102 Operating expenses: Selling and marketing 106,444 144,696 Enterprise technology and development 33,697 27,089 General and administrative 20,073 17,946 Restructuring 7,223 - Total operating expenses 167,437 189,731 Operating loss (74,420 ) (31,629 ) Other income (expense) Change in fair value of warrant liabilities 264 - Interest expense (19 ) (123 ) Other income (expense), net (64 ) 1,299 Loss before income taxes (74,239 ) (30,453 ) Income tax benefit 706 395 Net loss $ (73,533 ) $ (30,058 )23
Revenue includes digital subscriptions, nutritional supplement subscriptions, one-time nutritional sales, connected fitness products, our Coach business management online platform, preferred customer program memberships, and other fitness-related products. Digital subscription revenue is recognized ratably over the subscription period of up to 12 months. We often sell bundled products that combine digital subscriptions, nutritional products, and/or other fitness products. We consider these sales to be revenue arrangements with multiple performance obligations and allocate the transaction price to each performance obligation based on its relative stand-alone selling price. We defer revenue when we receive payments in advance of delivery of products or the performance of services. Three Months Ended March 31, 2022 2021 $ Change % Change (dollars in thousands) Revenue Digital
$ 81,745 $ 95,150 $ (13,405 )(14 %) Connected fitness 19,513 - 19,513 NM Nutrition and other 97,664 131,069 (33,405 ) (25 %) Total revenue $ 198,922 $ 226,219 $ (27,297 )(12 %) NM = not meaningful The decrease in digital revenue for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily due to $8.7 millionof revenue associated with our preferred customer membership program, which is included in nutrition and other revenue since its Q4 2021 launch. Previously, these customers were classified as Coaches and paid for access to our proprietary Coach business management online platform, which was included in digital revenue. The change in digital revenue was also due to a $3.0 milliondecrease in revenue generated from our Coach business management platform as a result of fewer coaches and a $1.6 milliondecrease in VIP early access revenue, where subscribers pay for advanced access to programs not yet released to the BOD library.
There were no connected fitness revenues for periods prior to the acquisition of Myx in
The decrease in nutrition and other revenue for the three months ended
March 31, 2022, as compared to the three months ended March 31, 2021, was primarily due to $33.8 milliondecrease in revenue from nutritional products and a $4.5 milliondecrease in associated shipping revenue as we ended Q1 2022 with 29% fewer nutritional subscriptions compared to Q1 2021. These decreases were partially offset by the additional $8.7 millionof revenue associated with our preferred customer membership program, which launched in Q4 2021.
Cost of Digital Revenue
Digital cost of revenue includes costs associated with digital content creation including amortization and revision of content assets, depreciation of streaming platforms, digital streaming costs, and amortization of acquired digital platform intangible assets. It also includes customer service costs, payment processing fees, depreciation of production equipment, live trainer costs, facilities, and related personnel expenses.
Connected Fitness Revenue Cost
Connected fitness cost of revenue consists of product costs, including bike and tablet hardware costs, duties and other applicable importing costs, shipping and handling costs, warehousing and logistics costs, costs associated with service calls and repairs of products under warranty, payment processing and financing fees, customer service expenses, and personnel-related expenses associated with supply chain and logistics. 24
Nutrition and other income costs
Nutrition and other cost of revenue includes product costs, shipping and handling, fulfillment and warehousing, customer service, and payment processing fees. It also includes depreciation of nutrition-related e-commerce websites and social commerce platforms, amortization of acquired formulae intangible assets, facilities, and related personnel expenses. Three Months Ended March 31, 2022 2021 $ Change % Change (dollars in thousands) Cost of revenue Digital
$ 16,425 $ 11,122 $ 5,30348 % Connected fitness 44,706 - 44,706 NM Nutrition and other 44,774 56,995 (12,221 ) (21 %) Total cost of revenue $ 105,905 $ 68,117 $ 37,78855 % Gross profit Digital $ 65,320 $ 84,028 $ (18,708 )(22 %) Connected fitness (25,193 ) - (25,193 ) NM Nutrition and other 52,890 74,074 (21,184 ) (29 %) Total gross profit $ 93,017 $ 158,102 $ (65,085 )(41 %) Gross margin Digital 80 % 88 % Connected fitness (129 %) NM Nutrition and other 54 % 57 % The increase in digital cost of revenue for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily driven by a $3.3 millionincrease in the amortization of content assets related to BODiwhich launched in the fourth quarter of 2021 and content acquired from Myx in June 2021. The change in digital cost of revenue was also due to $3.2 millionincrease in depreciation expense primarily related to a change in useful life of certain assets in connection with our digital platform consolidation. These increases were partially offset by a decrease in variable costs of digital revenue as a result of the decrease in digital revenue. The decrease in digital gross margin for the three months ended March 31, 2022compared to the three months ended March 31, 2021was primarily the result of the deleveraging of higher fixed content assets amortization and depreciation on digital revenue. There was no connected fitness cost of revenue prior to the acquisition of Myx in June 2021. The negative connected fitness gross margin for the three months ended March 31, 2022was primarily due to a $14.9 millionnet realizable value adjustment to inventory, higher product, freight, and shipping costs due to supply chain surcharges and constraints, and lower pricing in line with a highly-competitive connected fitness market. Despite the market pressure and cost inflation we have experienced and which we expect to persist in the near-term, we do not expect the negative connected fitness gross margin to continue in the long-term. The decrease in nutrition and other cost of revenue for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily due to $11.5 milliondecrease in product, freight, and shipping expense as the result of the decrease in nutrition and other revenue and a $2.5 milliondecrease in customer service as nutrition and other comprises less of our revenue. These were partially offset by a $2.1 millionincrease in depreciation expense. Nutrition and other gross margin decreased primarily as a result of the deleveraging of fixed depreciation expense. 25 --------------------------------------------------------------------------------
Operating Expenses Selling and Marketing Selling and marketing expenses primarily include the cost of Coach compensation, advertising, royalties, promotions and events, and third-party sales commissions as well as the related personnel expenses for employees and consultants. Selling and marketing expense as a percentage of total revenue may fluctuate from period to period based on total revenue, timing of new content and nutritional product launches, and the timing of our media investments to build awareness around launch activity. Three Months Ended March 31, 2022 2021 $ Change % Change (dollars in thousands) Selling and marketing
$ 106,444 $ 144,696 $ (38,252 )(26 %) As a percentage of total revenue 53.5 % 64.0 % The decrease in selling and marketing expense for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily due to a $29.7 milliondecrease in online and television media expense and a $17.3 milliondecrease in Coach compensation, which was in line with the decrease in commissionable revenue. These decreases were partially offset by a $4.6 millionincrease in personnel-related expenses, a $2.9 millionincrease in amortization of intangible assets due to the acquisition of Myx in June 2021, and a $2.7 millionincrease in costs associated with Coach events. Selling and marketing expense as a percentage of total revenue decreased by 1050 basis points primarily due to the decrease in media investments compared to the three months ended March 31, 2021. We have reduced our media as part of our strategic realignment and in an effort to use our cash in the manner that has the highest probability of return on investment.
Business technology and development
Enterprise technology and development expenses relate primarily to enterprise systems applications, hardware, and software that serve as the technology infrastructure for the Company and are not directly related to services provided or tangible goods sold. This includes maintenance and enhancements of the Company's enterprise resource planning system, which is the core of our accounting, procurement, supply chain and other business support systems. Enterprise technology and development also includes reporting and business analytics tools, security systems such as identity management and payment card industry compliance, office productivity software, research and development tracking tools, and other non-customer facing applications. Enterprise technology and development expenses include personnel-related expenses for employees and consultants who create improvements to and maintain technology systems and are involved in the research and development of new and existing nutritional products, depreciation of enterprise technology-related assets, software licenses, hosting expenses, and technology equipment leases. Three Months Ended March 31, 2022 2021 $ Change % Change (dollars in thousands) Enterprise technology and development
$ 33,697 $ 27,089 $ 6,60824 % As a percentage of total revenue 16.9 % 12.0 % The increase in enterprise technology and development expense for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily due to a $6.2 millionincrease in personnel-related expenses related to certain technology initiatives.
Technology and business development spending as a percentage of total revenue increased 490 basis points due to deleveraging of higher fixed personnel costs.
General and administrative
General and administrative expense includes personnel-related expenses and facilities-related costs primarily for our executive, finance, accounting, legal and human resources functions. General and administrative expense also includes fees for professional services principally comprised of legal, audit, tax, and insurance. Three Months Ended March 31, 2022 2021 $ Change % Change (dollars in thousands) General and administrative
$ 20,073 $ 17,946 $ 2,12712 % As a percentage of total revenue 10.1 % 7.9 % The increase in general and administrative expense for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily due to a $2.4 millionincrease in personnel-related expenses ( $1.2 millionin equity-based compensation and $1.2 millionin wages and benefits) and a $1.9 millionincrease in insurance expense as a result of operating as a public company. These increases were partially offset by a $1.5 milliondecrease in rent expense due to our Santa Monica lease assignment, $0.6 milliondecrease in transaction costs as there was no acquisition activity in Q1 2022, and a $0.5 milliondecrease in recruiting expenses due to fewer headcount additions in Q1 2022.
General and administrative expenses as a percentage of total revenue increased by 220 basis points due to the deleveraging of higher fixed costs on revenue.
Restructuring charges relate to our strategic alignment initiative to consolidate our fitness and nutrition offerings continuously into one
Three Months Ended March 31, 2022 2021 $ Change % Change (dollars in thousands) Restructuring $ 7,223 $ -
$ 7,223NM Other Income (Expense) The change in fair value of warrant liabilities consists of the fair value changes of the public and private placement warrants. Interest expense primarily consists of interest expense associated with our borrowings and amortization of debt issuance costs for our Credit Facility in 2021. Other income (expense), net, consists of interest income earned on investments and gains (losses) on foreign currency. Three Months Ended March 31, 2022 2021 $ Change % Change (dollars in thousands) Change in fair value of warrant liabilities $ 264 $ - $ 264NM Interest expense (19 ) (123 ) 104 (85 %) Other income (expense), net (64 ) 1,299 (1,363 ) (105 %) The change in fair value of warrant liabilities of $0.3 millionduring the three months ended March 31, 2022primarily resulted from a decline in our stock price from $2.37to $2.27during the quarter. The decrease in interest expense was due to no borrowings outstanding during the three months ended March 31, 2022compared to $20.0 millionduring the three months ended March 31, 2021. The decrease 27 --------------------------------------------------------------------------------
in other income (expense), the net amount was mainly attributable to the gain on the investment in the convertible instrument of Myx before
Income tax benefit consists of income taxes related to
U.S.federal and state jurisdictions as well as those foreign jurisdictions where we have business operations. Three Months Ended March 31, 2022 2021 $ Change % Change (dollars in thousands) Income tax benefit $ 706 $ 395 $ 31179 % The income tax benefit increase during the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, was primarily driven by a change in our projected net deferred tax liabilities which resulted in a higher deferred income tax benefit.
Cash and capital resources
Three Months Ended
March 31, 20222021 (dollars in thousands)
Net cash used in operating activities
Net cash used in investing activities
(12,403 ) (18,299 ) Net cash provided by financing activities 1,923
Net cash used in operating activities was
$33.4 millionfor the three months ended March 31, 2022compared to $8.9 millionfor the three months ended March 31, 2021. The increase in cash used in operating activities during the three months ended March 31, 2022, compared to the prior year quarter, was primarily due to the following: • an increase in net loss; •
payments for 2021 debts, including connected fitness inventory, freight and duties, and media;
a decrease in subscription revenue received from customers prior to delivery of the service or product; partially offset by
an increase in cash from inventory sold.
We expect to reduce our cash used in operating activities over the next year. During the three months ended
March 31, 2022, we returned to a performance marketing model which drives in-quarter or next-quarter payback and which reduced media spend by approximately $16.5 millionin the quarter compared to the prior year. Beginning in the third quarter of 2022, we expect to achieve operating efficiencies and at least $29.0 millionin annualized cost savings from the first quarter's 2022 strategic realignment and restructuring process. Net cash used in investing activities was $12.4 millionand $18.3 millionfor the three months ended March 31, 2022and 2021, respectively. The decrease was primarily due to a $0.9 milliondecrease in capital expenditures and a $5.0 milliondecrease in other investments. We continue to expect lower capital expenditures during the next 12 months compared to prior year due to the completion of significant projects at the end of 2021. Net cash provided by financing activities was $1.9 millionand $17.8 millionfor the three months ended March 31, 2022and 2021, respectively. The decrease was primarily due to borrowings outstanding on our Credit Facility during the three months ended March 31, 2021; we had no similar debt during the three months ended March 31, 2022. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our rate of revenue growth and overall economic conditions. See Note 9, Commitments and Contingencies, for discussion of our contractual commitments and purchase obligations that are primarily due in the next twelve months. We continue to assess and efficiently manage our working capital, and expect to generate additional liquidity through continued cost control initiatives. We are currently exploring 28 -------------------------------------------------------------------------------- additional equity or debt financing to supplement our anticipated working capital balances and further strengthen our financial position, but do not at this time know which form it will take or what the terms will be. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. The sale of additional equity would result in additional dilution to our shareholders. There can be no assurances that we would be able to raise additional capital in amounts or on terms acceptable to us. We believe that existing cash and cash equivalents, cost control initiatives, and access to capital markets will provide the Company with sufficient liquidity to meet our anticipated cash needs for the next twelve months.
Significant Accounting Policies and Estimates
There have been no material changes to the Company's critical accounting policies and estimates discussed in the 2021 Annual Report on Form 10-K in Item 7 under the heading Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates.
Recent accounting pronouncements
See Note 1, Description of Business and Summary of Significant Accounting Policies, in the notes to our unaudited condensed consolidated financial statements included elsewhere in this report for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet issued. adopted.
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