The Beachbody Company(BODI) - 2022 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the first quarter of 2022 Condensed Consolidated Balance Sheets The balance sheet shows a decline in assets, liabilities, and stockholders' equity as of March 31, 2022 Condensed Consolidated Balance Sheets | Metric (in thousands) | March 31, 2022 | December 31, 2021 | Change | % Change | | :-------------------- | :------------- | :---------------- | :----- | :------- | | Cash and cash equivalents | $63,426 | $104,054 | $(40,628) | -39.0% | | Total current assets | $220,548 | $299,372 | $(78,824) | -26.3% | | Total assets | $544,194 | $637,612 | $(93,418) | -14.6% | | Total current liabilities | $210,285 | $236,232 | $(25,947) | -11.0% | | Total liabilities | $225,967 | $252,227 | $(26,260) | -10.4% | | Total stockholders' equity | $318,227 | $385,385 | $(67,158) | -17.4% | Unaudited Condensed Consolidated Statements of Operations The statement of operations reveals a decline in total revenue and a significant increase in operating and net losses Unaudited Condensed Consolidated Statements of Operations | Metric (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | % Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :----- | :------- | | Digital Revenue | $81,745 | $95,150 | $(13,405) | -14.1% | | Connected Fitness Revenue | $19,513 | $0 | $19,513 | NM | | Nutrition and Other Revenue | $97,664 | $131,069 | $(33,405) | -25.5% | | Total Revenue | $198,922 | $226,219 | $(27,297) | -12.1% | | Gross Profit | $93,017 | $158,102 | $(65,085) | -41.2% | | Operating Loss | $(74,420) | $(31,629) | $(42,791) | 135.3% | | Net Loss | $(73,533) | $(30,058) | $(43,475) | 144.6% | | Net Loss per Common Share, Basic and Diluted | $(0.24) | $(0.12) | $(0.12) | 100.0% | Unaudited Condensed Consolidated Statements of Comprehensive Loss The statement of comprehensive loss details the net loss and other comprehensive income components for the quarter Unaudited Condensed Consolidated Statements of Comprehensive Loss | Metric (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(73,533) | $(30,058) | | Total other comprehensive income (loss) | $(112) | $100 | | Total comprehensive loss | $(73,645) | $(29,958) | Unaudited Condensed Consolidated Statements of Stockholders' Equity This statement outlines the changes in stockholders' equity, primarily driven by the net loss for the period Unaudited Condensed Consolidated Statements of Stockholders' Equity | Metric (in thousands) | December 31, 2021 | March 31, 2022 | | :-------------------- | :---------------- | :------------- | | Total Stockholders' Equity | $385,385 | $318,227 | | Net loss | — | $(73,533) | | Other comprehensive loss | — | $(112) | | Equity-based compensation | — | $4,564 | | Options exercised, net of tax withholdings | — | $1,923 | Unaudited Condensed Consolidated Statements of Cash Flows The cash flow statement shows increased cash usage in operating activities and a net decrease in cash equivalents Unaudited Condensed Consolidated Statements of Cash Flows | Metric (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(33,371) | $(8,880) | | Net cash used in investing activities | $(12,403) | $(18,299) | | Net cash provided by financing activities | $1,923 | $17,758 | | Net decrease in cash and cash equivalents | $(43,628) | $(9,178) | | Cash and cash equivalents, end of period | $63,426 | $47,649 | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations of significant accounting policies and financial statement components 1. Description of Business and Summary of Significant Accounting Policies The company operates as a subscription health and wellness provider and is consolidating its digital platforms - The Beachbody Company, Inc is a subscription health and wellness company offering fitness programs (BOD, BODi, Openfit), nutritional products (Shakeology, BEACHBAR, Ladder), and connected fitness equipment[26] - In Q1 2022, the company began consolidating its Openfit streaming fitness offerings onto a single Beachbody digital platform[26] - During Q1 2022, the Company changed the useful life of an acquired trade name from indefinite to two years, recording $1.9 million in amortization expense[30] - The Company adopted ASU 2020-06 on January 1, 2022, which did not materially affect its financial statements[31] 2. Revenue Revenue is disaggregated by product type and geographic region, showing declines in digital and nutrition sales Revenue by Type | Revenue Type (in thousands) | Q1 2022 | Q1 2021 | Change | % Change | | :-------------------------- | :------ | :------ | :----- | :------- | | Digital | $81,745 | $95,150 | $(13,405) | -14.1% | | Connected fitness | $19,513 | $0 | $19,513 | NM | | Nutrition and other | $97,664 | $131,069 | $(33,405) | -25.5% | | Total revenue | $198,922 | $226,219 | $(27,297) | -12.1% | Revenue by Geographic Region | Geographic Region (in thousands) | Q1 2022 | Q1 2021 | | :------------------------------- | :------ | :------ | | United States | $178,607 | $202,716 | | Rest of world | $20,315 | $23,503 | - The Company recognized $62.5 million of revenue from deferred revenue balance as of December 31, 2021, during the three months ended March 31, 2022[34] 3. Fair Value Measurements This note details the fair value of derivative assets and warrant liabilities held by the company Fair Value of Financial Instruments | Financial Instrument (in thousands) | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Derivative assets | $109 | $314 | | Public warrants | $2,650 | $2,701 | | Private placement warrants | $1,920 | $2,133 | - The fair value of private placement warrants decreased by $213 thousand during Q1 2022, primarily due to changes in the Company's Class A Common Stock price, remaining contractual term, and risk-free rate[38] 4. Inventory, Net Inventory levels decreased, with a significant adjustment for net realizable value during the quarter Inventory Breakdown | Inventory Type (in thousands) | March 31, 2022 | December 31, 2021 | | :---------------------------- | :------------- | :---------------- | | Raw materials and work in process | $22,809 | $24,436 | | Finished goods | $77,184 | $108,294 | | Total inventory, net | $99,993 | $132,730 | - Adjustments to inventory for net realizable value were $16.9 million in Q1 2022, significantly higher than $2.0 million in Q1 2021[39] 5. Other Current Assets This note provides a breakdown of other current assets, led by deferred coach costs Other Current Assets | Other Current Assets (in thousands) | March 31, 2022 | December 31, 2021 | | :---------------------------------- | :------------- | :---------------- | | Deferred coach costs | $33,523 | $30,928 | | Deposits | $3,617 | $8,915 | | Accounts receivable, net | $1,296 | $1,225 | | Other | $2,539 | $2,659 | | Total other current assets | $40,975 | $43,727 | 6. Property and Equipment, Net The composition of property and equipment is detailed, along with associated depreciation expenses Property and Equipment, Net | Property and Equipment (in thousands) | March 31, 2022 | December 31, 2021 | | :------------------------------------ | :------------- | :---------------- | | Computer software and web development | $252,276 | $231,943 | | Computer software and web development projects in-process | $10,225 | $26,490 | | Total property and equipment, net | $102,978 | $113,098 | Depreciation Expense | Depreciation Expense (in thousands) | Q1 2022 | Q1 2021 | | :---------------------------------- | :------ | :------ | | Cost of revenue | $9,081 | $3,738 | | Enterprise technology and development | $7,449 | $7,311 | | Total depreciation | $17,001 | $12,146 | 7. Acquisition This note discusses the 2021 acquisition of Myx and provides pro forma financial information - The Company acquired 100% of Myx on June 25, 2021, with no purchase price allocation adjustments in Q1 2022[43] Pro Forma Combined Results | Pro Forma Combined (in thousands) | Three Months Ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | | Revenue | $243,257 | | Net loss | $(42,385) | 8. Accrued Expenses A breakdown of accrued expenses shows employee compensation and benefits as the largest component Accrued Expenses | Accrued Expenses (in thousands) | March 31, 2022 | December 31, 2021 | | :------------------------------ | :------------- | :---------------- | | Employee compensation and benefits | $20,956 | $8,996 | | Coach costs | $13,889 | $19,168 | | Inventory, shipping and fulfillment | $12,891 | $14,360 | | Total accrued expenses | $69,897 | $74,525 | 9. Commitments and Contingencies The company discloses future minimum payment obligations and its position on current litigation Future Minimum Payments | Future Minimum Payments (in thousands) | Amount | | :------------------------------------- | :----- | | Nine months ending December 31, 2022 | $35,696 | | Year ending December 31, 2023 | $2,693 | | Year ending December 31, 2024 | $1,260 | | Year ending December 31, 2025 | $1,250 | | Total | $40,899 | - The Company is subject to litigation in the ordinary course of business but does not believe any currently identified claims will have a material adverse effect on its financial position or results of operations[50] 10. Stockholders' Equity This note details the components of accumulated other comprehensive income (loss) Accumulated Other Comprehensive Income (Loss) | Accumulated Other Comprehensive Income (Loss) (in thousands) | December 31, 2021 | March 31, 2022 | | :----------------------------------------------------------- | :---------------- | :------------- | | Balances | $(21) | $(133) | | Other comprehensive loss before reclassifications | $(158) | $(158) | | Amounts reclassified from accumulated other comprehensive income (loss) | $69 | $69 | | Tax effect | $(23) | $(23) | 11. Equity-Based Compensation This note summarizes stock option and RSU activity and the total compensation expense recognized Option Activity | Option Activity | December 31, 2021 | March 31, 2022 | | :-------------- | :---------------- | :------------- | | Options Outstanding | 41,753,042 | 38,674,077 | | Granted | — | 616,445 | | Exercised | — | (1,132,508) | | Forfeited | — | (2,562,902) | RSU Activity | RSU Activity | December 31, 2021 | March 31, 2022 | | :------------- | :---------------- | :------------- | | RSUs Outstanding | 573,678 | 322,596 | | Forfeited | — | (251,082) | Equity-Based Compensation Expense | Equity-Based Compensation Expense (in thousands) | Q1 2022 | Q1 2021 | | :----------------------------------------------- | :------ | :------ | | Total equity-based compensation | $4,564 | $2,573 | 12. Derivative Financial Instruments The company uses foreign exchange options to hedge currency risk, with a decrease in notional amounts - The notional amount of outstanding foreign exchange options decreased from $30.4 million at December 31, 2021, to $21.5 million at March 31, 2022[57] Effects of Derivative Instruments | Derivative Effects (in thousands) | Q1 2022 | Q1 2021 | | :-------------------------------- | :------ | :------ | | Unrealized losses (OCI) | $(162) | $(92) | | Losses reclassified into net loss | $(69) | $(167) | | Losses recognized on non-hedging derivatives | $(51) | $(21) | 13. Strategic Realignment A strategic realignment initiative resulted in restructuring costs and accelerated depreciation and amortization - In January 2022, the Company initiated a strategic realignment to consolidate streaming fitness offerings, incurring $7.2 million in restructuring costs, primarily for employee termination benefits[58] - The realignment led to accelerated depreciation of computer software and web development assets ($2.2 million) and amortization of content assets ($1.1 million) in Q1 2022[59] 14. Income Taxes The company recorded a small income tax benefit with an effective tax rate differing from the statutory rate Income Tax Summary | Income Tax Metric | Q1 2022 | Q1 2021 | | :---------------- | :------ | :------ | | Income tax benefit | $0.7 million | $0.4 million | | Effective benefit tax rate | 1.0% | 1.3% | - The effective tax rate differs from the U.S statutory rate primarily due to changes in valuation allowances on deferred tax assets[61] 15. Earnings (Loss) per Share Net loss per share doubled compared to the prior year, with basic and diluted figures being identical Earnings Per Share Calculation | EPS Metric | Q1 2022 | Q1 2021 | | :--------- | :------ | :------ | | Net loss | $(73,533) | $(30,058) | | Weighted-average common shares outstanding | 306,362,730 | 243,012,924 | | Net loss per common share, basic and diluted | $(0.24) | $(0.12) | - Basic and diluted net loss per common share are the same because the inclusion of potential common shares would have been antidilutive[63] 16. Segment Information The company operates two segments, with the primary Beachbody segment showing decreased revenue and contribution - The Company operates two segments: Beachbody (reportable) and Other[66] - Beachbody revenue decreased from $221.75 million in Q1 2021 to $186.11 million in Q1 2022, while Other revenue increased from $4.47 million to $12.82 million[66] Segment Contribution | Segment Contribution (in thousands) | Q1 2022 | Q1 2021 | | :---------------------------------- | :------ | :------ | | Beachbody | $28,091 | $46,475 | | Other | $(1,376) | $(5,135) | | Consolidated contribution | $26,715 | $41,340 | 17. Subsequent Events No subsequent events were reported that would require adjustment to or disclosure in the financial statements Item 2. Management's Discussion and Analysis of Financial Condition and Operations Management discusses the company's financial condition, operational results, and key business metrics for Q1 2022 Overview The company is a leading subscription health and wellness provider currently consolidating its digital platforms - Beachbody is a leading subscription health and wellness company, offering digital content, supplements, connected fitness, and comprehensive nutrition programs[74] - In January 2022, the Company began consolidating its Openfit streaming fitness offerings onto a single Beachbody platform[74] Key Financial Metrics | Metric (in millions) | Q1 2022 | Q1 2021 | Change | % Change | | :------------------- | :------ | :------ | :----- | :------- | | Total Revenue | $198.9 | $226.2 | $(27.3) | -12% | | Digital Revenue | $81.7 | $95.1 | $(13.4) | -14% | | Connected Fitness Revenue | $19.5 | $0 | $19.5 | NM | | Nutrition and Other Revenue | $97.7 | $131.1 | $(33.4) | -25% | | Net Loss | $(73.5) | $(30.1) | $(43.4) | 145% | | Adjusted EBITDA | $(19.1) | $(11.7) | $(7.4) | 63% | Key Operational and Business Metrics Operational metrics show a decline in subscriptions and user engagement compared to the prior year Key Metrics | Metric (millions) | March 31, 2022 | March 31, 2021 | | :---------------- | :------------- | :------------- | | Digital Subscriptions | 2.46 | 2.74 | | Nutritional Subscriptions | 0.30 | 0.42 | | Total Streams | 38.2 | 56.0 | | Average Digital Retention | 95.6% | 95.8% | | DAU/MAU | 31.6% | 35.1% | - Digital subscriptions include BOD, BODi, and Openfit, encompassing paid and free-to-pay subscriptions across various billing plans[81] - Total Streams, defined as programs viewed for a minimum of 25% of total running time, serve as a leading indicator of customer engagement and retention[84] Non-GAAP Information This section provides a reconciliation of net loss to the non-GAAP measure of Adjusted EBITDA - Adjusted EBITDA is a non-GAAP measure used by management to evaluate core operating performance and trends, excluding non-cash expenses and items not related to underlying business performance[86][88] Adjusted EBITDA Reconciliation | Adjusted EBITDA Reconciliation (in thousands) | Q1 2022 | Q1 2021 | | :-------------------------------------------- | :------ | :------ | | Net loss | $(73,533) | $(30,058) | | Depreciation and amortization | $21,587 | $13,726 | | Amortization of content assets | $6,164 | $2,817 | | Equity-based compensation | $4,564 | $2,573 | | Inventory net realizable value adjustment | $14,934 | $0 | | Restructuring and platform consolidation costs | $7,887 | $0 | | Adjusted EBITDA | $(19,108) | $(11,744) | Results of Operations This section provides a detailed analysis of the company's operational results for the first quarter Revenue Revenue analysis shows a decline across digital and nutrition segments, partially offset by new connected fitness sales Revenue Breakdown | Revenue (in thousands) | Q1 2022 | Q1 2021 | $ Change | % Change | | :--------------------- | :------ | :------ | :------- | :------- | | Digital | $81,745 | $95,150 | $(13,405) | -14% | | Connected fitness | $19,513 | $0 | $19,513 | NM | | Nutrition and other | $97,664 | $131,069 | $(33,405) | -25% | | Total revenue | $198,922 | $226,219 | $(27,297) | -12% | - Digital revenue decreased due to a reclassification of $8.7 million to nutrition and other revenue, fewer coaches, and decreased VIP early access revenue[96] - Nutrition and other revenue decreased primarily due to a $33.8 million decline in nutritional product sales and a $4.5 million decrease in shipping revenue, driven by 29% fewer nutritional subscriptions[98] Cost of Revenue Cost of revenue increased significantly, driven by connected fitness costs and lower gross margins across all segments Cost of Revenue Breakdown | Cost of Revenue (in thousands) | Q1 2022 | Q1 2021 | $ Change | % Change | | :----------------------------- | :------ | :------ | :------- | :------- | | Digital | $16,425 | $11,122 | $5,303 | 48% | | Connected fitness | $44,706 | $0 | $44,706 | NM | | Nutrition and other | $44,774 | $56,995 | $(12,221) | -21% | | Total cost of revenue | $105,905 | $68,117 | $37,788 | 55% | Gross Margin by Segment | Gross Margin | Q1 2022 | Q1 2021 | | :------------- | :------ | :------ | | Digital | 80% | 88% | | Connected fitness | (129%) | NM | | Nutrition and other | 54% | 57% | - Connected fitness gross margin was negative (129%) in Q1 2022, primarily due to a $14.9 million inventory net realizable value adjustment, higher product/freight costs, and lower pricing[104] Operating Expenses Operating expenses were impacted by reduced marketing spend, increased technology costs, and new restructuring charges Operating Expense Breakdown | Operating Expense (in thousands) | Q1 2022 | Q1 2021 | $ Change | % Change | | :------------------------------- | :------ | :------ | :------- | :------- | | Selling and marketing | $106,444 | $144,696 | $(38,252) | -26% | | Enterprise technology and development | $33,697 | $27,089 | $6,608 | 24% | | General and administrative | $20,073 | $17,946 | $2,127 | 12% | | Restructuring | $7,223 | $0 | $7,223 | NM | - Selling and marketing expenses decreased by $38.3 million, driven by a $29.7 million reduction in online/television media and a $17.3 million decrease in Coach compensation, reflecting a strategic shift to performance marketing[107][108] - Enterprise technology and development expenses increased by $6.6 million, primarily due to a $6.2 million increase in personnel-related expenses for technology initiatives[110] - General and administrative expenses rose by $2.1 million, mainly due to increased personnel-related expenses ($2.4 million) and insurance costs ($1.9 million) as a public company, partially offset by reduced rent and transaction costs[113] - Restructuring charges of $7.2 million were incurred in Q1 2022 due to the strategic alignment initiative, primarily for employee termination costs[115][116] Other Income (Expense) Other income (expense) fluctuated due to changes in warrant liability fair value and the absence of a prior-year investment gain Other Income (Expense) Breakdown | Other Income (Expense) (in thousands) | Q1 2022 | Q1 2021 | $ Change | % Change | | :------------------------------------ | :------ | :------ | :------- | :------- | | Change in fair value of warrant liabilities | $264 | $0 | $264 | NM | | Interest expense | $(19) | $(123) | $104 | -85% | | Other income (expense), net | $(64) | $1,299 | $(1,363) | -105% | - The change in fair value of warrant liabilities was $0.3 million, primarily due to a decline in stock price[118] - The decrease in other income (expense), net, was mainly due to the absence of a gain on investment in a convertible instrument from Myx, which occurred in Q1 2021[119] Income Tax Benefit The income tax benefit increased due to changes in projected net deferred tax liabilities Income Tax Benefit | Income Tax Benefit (in thousands) | Q1 2022 | Q1 2021 | $ Change | % Change | | :-------------------------------- | :------ | :------ | :------- | :------- | | Income tax benefit | $706 | $395 | $311 | 79% | - The increase in income tax benefit was driven by a change in projected net deferred tax liabilities, resulting in a higher deferred income tax benefit[121] Liquidity and Capital Resources The company's liquidity position weakened due to higher cash used in operations, though cost-saving measures are underway Cash Flow Summary | Cash Flow (in thousands) | Q1 2022 | Q1 2021 | | :----------------------- | :------ | :------ | | Net cash used in operating activities | $(33,371) | $(8,880) | | Net cash used in investing activities | $(12,403) | $(18,299) | | Net cash provided by financing activities | $1,923 | $17,758 | - Cash and cash equivalents totaled $63.4 million as of March 31, 2022[122] - The increase in cash used in operating activities was due to higher net loss, payments for 2021 payables, and decreased subscription revenue receipts, partially offset by increased cash from inventory sales[123] - The Company expects to reduce cash used in operating activities through a performance marketing model and anticipated annualized cost savings of at least $29.0 million from strategic realignment[123] - The Company is exploring additional equity or debt financing but believes existing cash and cost controls will provide sufficient liquidity for the next twelve months[127] Critical Accounting Policies and Estimates No material changes have been made to the company's critical accounting policies and estimates - There have been no material changes to the Company's critical accounting policies and estimates since the 2021 Annual Report on Form 10-K[128] Recent Accounting Pronouncements Information on recent accounting pronouncements is available in the notes to the financial statements - Refer to Note 1 for details on recently adopted and recently issued accounting pronouncements not yet adopted[129] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is related to foreign currency exchange rate fluctuations - The Company is exposed to foreign currency exchange risk, with approximately 10% of its revenue in foreign currencies (primarily Canadian dollars and British pounds)[131] - Derivative instruments, mainly option contracts, are used to hedge forecasted payments for various expenses and intercompany transactions[132] - The aggregate notional amount of foreign exchange derivative instruments was $21.5 million at March 31, 2022, down from $30.4 million at December 31, 2021[134] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures with no material changes to internal controls - Management concluded that the Company's disclosure controls and procedures were effective as of March 31, 2022[135] - There have been no material changes in internal control over financial reporting during the most recent fiscal quarter[136] PART II. OTHER INFORMATION Item 1. Legal Proceedings There have been no material changes to the company's legal proceedings since the last annual report - No material changes to legal proceedings information since the 2021 Annual Report on Form 10-K[138] Item 1A. Risk Factors No material developments have occurred regarding the risk factors previously disclosed by the company - No material developments regarding risk factors since the 2021 Annual Report on Form 10-K[139] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or issuer repurchases during the period - No unregistered sales of equity securities or use of proceeds[140] - No issuer repurchase of equity securities[140] Item 3. Defaults Upon Senior Securities The company confirms that no defaults upon senior securities occurred during the reporting period - No defaults upon senior securities[141] Item 4. Mine Safety Disclosure This section is not applicable as the company has no mine safety information to disclose - No mine safety disclosures[142] Item 5. Other Information There is no other information required to be disclosed in this report for the period - No other information to disclose[143] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q report - Exhibits include the Agreement and Plan of Merger, Amended and Restated Certificate of Incorporation and Bylaws, Offer of Employment Letter, Separation Agreement, CEO/CFO Certifications, and XBRL Instance Document[146] SIGNATURES The report is duly signed by the company's Chief Executive Officer and Chief Financial Officer - The report is signed by Carl Daikeler, Chief Executive Officer, and Sue Collyns, President and Chief Financial Officer, on May 9, 2022[152]