The Beachbody Company(BODI) - 2022 Q2 - Quarterly Report

Part I. Financial Information Financial Statements Q2 2022 financial statements reflect significant declines in assets, revenue, and net income, alongside increased operating cash burn, with a subsequent $50.0 million term loan bolstering liquidity Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2022 ($ thousands) | December 31, 2021 ($ thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 57,060 | 104,054 | | Inventory, net | 72,271 | 132,730 | | Total current assets | 184,476 | 299,372 | | Total assets | 490,039 | 637,612 | | Liabilities & Equity | | | | Total current liabilities | 196,871 | 236,232 | | Total liabilities | 209,883 | 252,227 | | Total stockholders' equity | 280,156 | 385,385 | Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric | Three Months Ended June 30, 2022 ($ thousands) | Three Months Ended June 30, 2021 ($ thousands) | | :--- | :--- | :--- | | Total revenue | 179,136 | 223,108 | | Gross profit | 87,269 | 154,338 | | Operating loss | (44,404) | (30,036) | | Net loss | (41,867) | (12,440) | | Net loss per share | (0.14) | (0.05) | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Cash Flow Activity | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | (33,256) | (25,487) | | Net cash used in investing activities | (19,222) | (74,480) | | Net cash provided by financing activities | 2,660 | 389,775 | | Net (decrease) increase in cash | (49,994) | 290,402 | - In January 2022, the company initiated a strategic realignment to consolidate its streaming fitness offerings onto a single Beachbody platform, resulting in restructuring costs of $8.5 million for the first six months of 2022, primarily from employee termination benefits[64] - Subsequent to the quarter end, on August 8, 2022, the company entered into a $50.0 million senior secured term loan agreement with a four-year maturity to be used for general corporate purposes[78] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2022 revenue decline and gross margin compression to market shifts and inventory issues, responding with cost reductions and a strategic realignment, while securing a term loan for liquidity - Management identifies post-pandemic consumer behavior, a global economic slowdown, and rising prices as adverse factors impacting demand for at-home fitness solutions and contributing to declines in gross margins[90] Key Operational and Business Metrics | Metric | As of/For Q2 2022 | As of/For Q2 2021 | | :--- | :--- | :--- | | Digital subscriptions (millions) | 2.28 | 2.72 | | Nutritional subscriptions (millions) | 0.28 | 0.42 | | Total streams (millions) | 31.0 | 44.5 | | Gross margin | 49% | 69% | | Net loss (millions) | $(41.9) | $(12.4) | | Adjusted EBITDA (millions) | $(1.5) | $(4.4) | - The company is implementing a "One Brand" strategy to consolidate streaming content onto a single Beachbody platform, expected to be fully implemented by mid-Q3 2022, to simplify offerings and increase customer acquisition[91] - Connected fitness gross margin is expected to remain negative until current inventory is sold through, due to high manufacturing and shipping costs and competitive market pricing[93] Results of Operations Q2 2022 results show a 20% revenue decrease and significant gross margin compression, particularly in Connected Fitness due to inventory write-downs, despite reduced selling and marketing expenses Revenue by Segment (Q2 2022 vs Q2 2021) | Revenue Segment | Q2 2022 ($ thousands) | Q2 2021 ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Digital | 78,015 | 94,325 | (17%) | | Connected fitness | 10,605 | 10 | NM | | Nutrition and other | 90,516 | 128,773 | (30%) | | Total revenue | 179,136 | 223,108 | (20%) | Gross Margin by Segment (Q2 2022 vs Q2 2021) | Segment | Q2 2022 Gross Margin | Q2 2021 Gross Margin | | :--- | :--- | :--- | | Digital | 76% | 88% | | Connected fitness | (197%) | NM | | Nutrition and other | 54% | 56% | - The negative connected fitness gross margin in Q2 2022 was primarily due to $15.0 million in adjustments for excess and obsolete inventory and to reduce carrying value to net realizable value[120] - Selling and marketing expense decreased by 38% ($53.6 million) in Q2 2022 compared to Q2 2021, mainly due to a $35.8 million reduction in media expense and a $19.0 million decrease in Coach compensation[127] Liquidity and Capital Resources As of June 30, 2022, the company had $57.1 million in cash, with operating cash burn increasing to $33.3 million for the six months, leading to a subsequent $50.0 million term loan to enhance liquidity Cash Flow Summary | Cash Flow Activity | Six Months Ended June 30, 2022 ($ thousands) | Six Months Ended June 30, 2021 ($ thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | (33,256) | (25,487) | | Net cash used in investing activities | (19,222) | (74,480) | | Net cash provided by financing activities | 2,660 | 389,775 | - On August 8, 2022, the company entered into a $50.0 million senior secured term loan with a four-year maturity, bearing interest at SOFR + 7.15% or a reference rate + 6.15%, plus a 3.00% paid-in-kind interest component[158] - In connection with the term loan, the company issued warrants to purchase 4,716,756 shares of Class A Common Stock at an exercise price of $1.85 per share, vesting over four years[159] Quantitative and Qualitative Disclosures About Market Risk The company faces foreign currency exchange risk, with 11% of Q2 2022 revenue in foreign currencies, mitigated by derivative instruments with a $26.5 million notional amount - The company's primary market risk is foreign currency exchange risk, with about 11% of revenue in Q2 2022 coming from foreign currencies, mainly Canadian dollars and British pounds[167] - Beachbody uses derivative instruments (option contracts) to hedge foreign currency risk, with the total notional amount of these derivatives being $26.5 million at the end of Q2 2022, down from $30.4 million at year-end 2021[168][170] Controls and Procedures As of June 30, 2022, disclosure controls and procedures were deemed effective by management, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[171] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[172] Part II. Other Information Legal Proceedings No material changes to legal proceedings have occurred since the 2021 Annual Report on Form 10-K - There have been no material changes in legal proceedings since the company's 2021 Annual Report on Form 10-K[174] Other Information On August 8, 2022, the company secured a $50.0 million senior secured term loan with a four-year maturity, including financial covenants and an incremental borrowing option - On August 8, 2022, the company entered into a $50.0 million senior secured term loan facility, with an option for an additional $25.0 million[180][182] - The loan has a four-year maturity and is secured by substantially all assets of the company and its subsidiaries[182][183] - The financing agreement includes financial covenants requiring the company to maintain minimum revenue levels and minimum liquidity, starting at $10.0 million and increasing to $15.0 million over time[187] Exhibits This section lists exhibits filed with the Form 10-Q, including the Financing Agreement, Form of Warrant, and required certifications - Key exhibits filed include the Financing Agreement for the new term loan (Exhibit 10.2) and the associated Form of Warrant (Exhibit 10.3)[193]