The Beachbody Company(BODI) - 2022 Q4 - Annual Report

PART I Item 1. Business The Beachbody Company is a health and wellness platform offering digital subscriptions, nutritional products, and connected fitness Company Overview and Strategy Overview of the company's health and wellness platform, strategic initiatives, and revenue generation - The Beachbody Company operates as a health and wellness platform, providing fitness, nutrition, and stress-reducing programs, with 2.0 million digital subscriptions and 0.2 million nutritional subscriptions as of December 31, 2022[13] Digital Platform Engagement (2022) | Metric | 2022 | | :----- | :----- | | DAU/MAU | 30.1% | | Total Streams | 121 million | - Strategic initiatives include consolidating Openfit into Beachbody platforms (July 2022), reducing the BOD + BODi annual subscription price to $179 (from $298) in September 2022, launching BODi Blocks and new mindset content (March 2023), and positioning Shakeology as a healthy dessert[15][16][18] - Revenue is primarily generated from digital subscriptions and nutritional products, often bundled, and also includes sales of the Beachbody Bike[20] Product Offerings and Economic Model Details on digital, nutritional, and connected fitness products, and the direct-to-consumer sales model - Digital subscriptions (BOD, BODi) provide unlimited access to an extensive library of over 8,500 fitness, nutrition, mindfulness, and recovery videos, accessible across various devices[21][22] - Nutritional products include Shakeology (superfood health mix), Beachbody Performance supplements (pre/post-workout), BEACHBARs, and LADDER brand sports nutrition supplements[24][25][26][27] - Connected fitness offerings feature the Beachbody Bike, equipped with a 21.5" 360-degree swivel screen, priced at $1,399 (standard) or $1,599 (Plus), with a BODi Bike Studio bundle (bike + 3-year BODi subscription + accessories) for $1,800, often with 0% APR financing[28][31][36] - The primary economic model is direct-to-consumer sales, with a proprietary network of micro-influencers (Coaches, soon 'Partners') driving the majority of revenue through commissions (typically 25%) and bonuses[38][39] Operations and Intellectual Property Competitive landscape, outsourced manufacturing and distribution, and intellectual property protection - The company operates in a highly competitive and fragmented health and wellness market, facing competition from at-home fitness solutions, digital apps, weight management providers, and other social commerce platforms[41][42][43] - Manufacturing of nutritional products, bikes, and equipment is outsourced to contract manufacturers, enabling an asset-light business model and adherence to quality standards (QAPs, GMPs)[45] - Storage and distribution are outsourced to third-party logistics companies with geographically dispersed facilities in the United States, Canada, and Europe to optimize shipping times and reduce costs[48][49][50] - As of December 31, 2022, the company holds over 3,000 registered trademarks, over 200 registered copyrights, and four patents (with 17 pending), supported by a robust enforcement program against infringement and counterfeiting[51] Regulatory Environment Compliance with diverse and evolving laws, including data privacy and product safety regulations - The company is subject to diverse and evolving laws and regulations in the United States, Canada, United Kingdom, and European Union, covering data privacy, content, food and dietary supplements, e-commerce, multi-level marketing, and advertising[53] - Compliance with data privacy laws, including GDPR (EU, UK) and California Privacy Laws (CPRA, CCPA), is critical, with potential for stringent operational requirements, mandatory data breach notifications, and significant fines for non-compliance[55][57] - Nutritional products must comply with regulations from federal agencies like the FDA and USDA, as well as similar state, local, and international agencies, regarding manufacturing, labeling, quality, safety, and marketing[58] Human Capital Company culture, employee count, and remote-first workforce strategy - The company's culture is driven by its core purpose to help people achieve their goals and lead healthy, fulfilling lives, emphasizing a customer-centered mindset, innovation, teamwork, and diversity of perspective[60][61][66] - As of December 31, 2022, the company employed 737 full-time individuals, primarily working remotely, and offers competitive benefits and compensation packages[63][64] Item 1A. Risk Factors Investing in the company's common stock involves high risks across various operational, financial, and regulatory areas Summary of Risk Factors Overview of risks related to business, indebtedness, expansion, personnel, data, regulations, and stock ownership - The company faces risks related to its business and industry, indebtedness, expansion, personnel, data and information systems, laws and regulations, and ownership of its common stock[67][68][70][71] Risks Related to Our Business and Industry Risks from changing consumer preferences, brand reputation, pricing, product reliance, and strategic initiatives - The company's success is highly susceptible to changes in consumer preferences for health, fitness, and nutrition, and its inability to anticipate or respond to these shifts could adversely affect its business[72] - Inability to sustain pricing levels for products and services, including nutritional products, digital services, and connected fitness products, could significantly reduce revenue and gross margins[73] - Maintaining the value and reputation of its brands is crucial; negative publicity or failure to provide consistent, high-quality products and services could harm its public image and customer base[76] - The business relies heavily on a few key products: digital platforms (43% of 2022 revenue) and Shakeology (25% of 2022 revenue); diminished consumer interest in these could materially affect operations[95] - Strategic alignment initiatives and cost-saving measures, including headcount reductions, may not achieve expected benefits, could be costly and disruptive, and potentially impact employee morale and productivity[84] Risks Related to Our Indebtedness Restrictions from financing agreements and challenges in generating cash for debt repayment - The company's financing agreement restricts current and future operations, limiting its ability to incur additional debt/liens, merge, sell assets, pay dividends, make investments/acquisitions, or engage in certain affiliate transactions[125] - The ability to generate sufficient cash to pay interest and principal on its indebtedness, including the Term Loan maturing in August 2026, depends on factors beyond its control, and refinancing may not be available on favorable terms[128][130] Risks Related to Expansion Challenges in international market expansion and potential disruptions from mergers and acquisitions - Expanding into international markets exposes the company to significant risks, including difficulties with local laws, regulations, customs, competition, intellectual property enforcement, and currency fluctuations[135][137] - Merger and acquisition activities could require significant management attention, disrupt business operations, lead to unforeseen expenditures, and potentially dilute stockholder value[139][140] Risks Related to Our Personnel Impact of labor costs, corporate culture, and reliance on key management and talent - Increases in labor costs, including wages, health insurance, and other benefits, could adversely affect the company's business, financial condition, and results of operations[141] - Failure to maintain its corporate culture could lead to a loss of innovation, teamwork, and passion, harming its ability to retain and recruit personnel and achieve corporate objectives[142] - The company's success depends on its senior management team and other key employees, including fitness trainers and nutritionists; the loss of these personnel or inability to attract new talent could severely impact the business[144] Risks Related to Data and Information Systems Data privacy compliance, IT system disruptions, and dependence on mobile operating systems and platforms - The collection, storage, processing, and use of personal and customer data subject the company to legal obligations and data security/privacy laws, with any failure to comply potentially harming its business and reputation through fines, litigation, or adverse publicity[145][157][162] - Any major disruption or failure of its information technology systems, websites, or third-party OTT services (e.g., Apple TV, Roku), or inability to implement upgrades effectively, could adversely affect operations, customer access, and revenue[149][152][197] - Dependence on mobile operating systems (Android, iOS) and platforms like the Apple App Store means changes in their policies, algorithms, or market position could adversely affect the company's ability to engage customers and distribute its app[155][156][195] Risks Related to Laws and Regulations Liability for content, nutritional product compliance, consumer protection, and intellectual property enforcement - The company faces potential liability for negligence, copyright, or trademark infringement related to the content it produces, licenses, and distributes, which could result in costly litigation and harm its business[165][166] - Nutritional products must comply with FDA and other applicable regulations regarding manufacturing, marketing, and labeling; non-compliance, especially by contract manufacturers, could harm the business[167][168] - The Coach network program and automatically renewing subscriptions are subject to consumer protection regulations; non-compliance could lead to regulatory actions, fines, or litigation[172][174] - Inability to protect its valuable intellectual property rights (patents, trademarks, copyrights, trade secrets) or defend against third-party infringement claims could reduce the value of its products and brand, leading to costly litigation[189][192][193][194] Risks Related to Ownership of Our Common Stock Founder's voting control, public company costs, impairment charges, and NYSE delisting risk - The company's founder, Carl Daikeler, controls approximately 84.6% of the voting power through Class X Common Stock, limiting other stockholders' ability to influence corporate matters and potentially allowing him to pursue interests not aligned with all stockholders[116][119][120] - As a public company, it incurs significant legal, accounting, and compliance costs, which can strain resources, divert management's attention, and make it more difficult to attract and retain qualified personnel[206][223][225] - Declines in financial performance have resulted in significant impairment charges ($19.9 million in 2022, $94.9 million in 2021) and could lead to future charges, negatively affecting stock price and financing ability[200] - The company received a NYSE notice in November 2022 for failing to meet the minimum share price criteria ($1.00/share) and faces a risk of delisting if compliance is not regained within six months[208] General Risk Factors Fluctuations in operating results, tax law changes, and macroeconomic conditions impacting financial performance - Quarterly operating results and other metrics are subject to significant fluctuations and are difficult to predict due to factors such as market acceptance, customer retention, competition, supply chain disruptions, and macroeconomic conditions[213][214][215] - Changes in tax laws, unanticipated tax liabilities, and the outcomes of income tax audits could adversely affect the company's financial results and cash flows[217][218] Item 1B. Unresolved Staff Comments The company has no unresolved comments from the SEC staff - No unresolved staff comments[229] Item 2. Properties Corporate headquarters in El Segundo, production facility in Van Nuys, and remote-first workforce strategy - Corporate headquarters: El Segundo, California (approx. 42,000 sq ft, lease expires 2024)[230] - Production facility: Van Nuys, California (approx. 19,400 sq ft, owned)[230] - Strategy: Emphasizes remote-first capabilities to minimize the need for additional space[231] Item 3. Legal Proceedings Delaware Court of Chancery validated the 2021 Class A common stock increase amendment on March 14, 2023 - Legal challenge concerned the approval of a 1.3 billion share increase in Class A common stock in 2021, with allegations of requiring a separate Class A vote[232] - On March 14, 2023, the Delaware Court of Chancery granted the company's Section 205 Petition, validating the Company Charter and the 2021 Class A Increase Amendment, and all shares issued based on it[234] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[236] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Class A common stock trades on NYSE; no cash dividends expected; no repurchases in Q4 2022 Common Stock Market and Holders Details on Class A common stock trading on NYSE and registered holders - Class A common stock began trading on the New York Stock Exchange (NYSE) under the symbol "BODY" on June 28, 2021[237] - As of February 21, 2023, there were 48 registered holders of Class A common stock and three registered holders of Class X common stock; Class C common stock had no registered holders[239] Dividend Policy The company has never paid cash dividends and does not expect to in the foreseeable future - The company has never declared or paid cash dividends on its capital stock and does not expect to for the foreseeable future, anticipating all earnings will be used for business operations and growth[240] Equity Compensation Plans and Performance Information on equity compensation plans and a performance graph comparing stock return - Information regarding securities authorized for issuance under equity compensation plans is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders[241] - A performance graph compares the cumulative total stockholder return on Class A common stock with the NYSE Composite Index and the S&P SmallCap 600 Index from June 28, 2021, to December 31, 2022[243] - There were no repurchases of common stock during the fourth quarter of 2022[247] Item 6. Selected Financial Data This item is reserved and contains no information - This item is reserved[248] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenue decreased 21% in 2022, net loss improved, and Adjusted EBITDA loss significantly decreased Overview and Recent Developments Company overview, 2022 financial performance, and strategic initiatives for cost reduction and growth - The Beachbody Company is a leading subscription health and wellness company, known for fitness programs (P90X, Insanity) and nutrition programs (Portion Fix, 2B Mindset), offered through BOD and BODi streaming services, nutritional products (Shakeology, BEACHBAR), and connected fitness equipment[253] Financial Performance (2022 vs. 2021) | Metric | 2022 | 2021 | Change | | :-------------------- | :--------- | :--------- | :------- | | Total revenue | $692.2 million | $873.6 million | (21%) | | Digital revenue | $300.7 million | $365.4 million | (18%) | | Nutrition and other revenue | $353.3 million | $465.5 million | (24%) | | Connected fitness revenue | $38.2 million | $42.7 million | (11%) | | Net loss | $(194.2) million | $(228.4) million | 15% | | Adjusted EBITDA loss | $(23.3) million | $(86.1) million | 73% | - Post-pandemic consumer behavior (desire to spend more time outside) and increased supply chain costs adversely impacted demand for at-home fitness solutions and gross margins in 2022[258] - In January 2023, the company executed cost-reduction initiatives (expected $6.5 million in costs) to streamline the business, focusing on revamping BODi (new BODi Blocks, mindset content) and growing Shakeology in the Healthy Dessert market[259] - The 'One Brand' strategy, consolidating streaming content into a single Beachbody platform in Q3 2022, aims to simplify product offerings and increase customer acquisition[260] - Connected fitness gross margin is expected to remain negative until existing inventory is sold, due to high supply chain costs and competitive pricing; the company is exploring new pricing and bundling strategies like the BODi Bike Studio[262] Key Operational and Business Metrics Analysis of digital and nutritional subscriptions, retention rates, and total streams Key Operational and Business Metrics (2022 vs. 2021 vs. 2020) | Metric | 2022 | 2021 | 2020 | | :---------------------- | :----- | :----- | :----- | | Digital subscriptions (M) | 1.95 | 2.54 | 2.63 | | Nutritional subscriptions (M) | 0.22 | 0.30 | 0.39 | | Average digital retention | 95.9 % | 95.7 % | 95.5 % | | Total streams (M) | 120.5 | 167.1 | 179.6 | | DAU/MAU | 30.1 % | 31.4 % | 31.6 % | - Digital subscriptions decreased by 23% in 2022 compared to 2021, while nutritional subscriptions decreased by 27%[281][282] Non-GAAP Information (Adjusted EBITDA) Adjusted EBITDA as a non-GAAP measure for core operating performance, excluding non-cash items - Adjusted EBITDA is a non-GAAP measure used by management to evaluate core operating performance, excluding non-cash expenses (e.g., depreciation, equity-based compensation, inventory net realizable value adjustments) and non-operating items (e.g., interest income/expense)[270][271][272] Adjusted EBITDA Reconciliation (2022 vs. 2021 vs. 2020) | Metric | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :------------------------------------------ | :------------------ | :------------------ | :------------------ | | Net loss | $(194,192) | $(228,382) | $(21,432) | | Impairment of goodwill and intangible assets | $19,907 | $94,894 | $0 | | Depreciation and amortization | $74,848 | $59,597 | $44,257 | | Amortization of content assets | $24,276 | $14,838 | $7,485 | | Equity-based compensation | $17,620 | $16,413 | $5,398 | | Inventory net realizable value adjustments | $24,864 | $10,082 | $0 | | Change in fair value of warrant liabilities | $(8,322) | $(50,729) | $0 | | Adjusted EBITDA | $(23,265) | $(86,108) | $51,460 | Results of Operations Detailed breakdown of revenue, gross profit, and operating expenses, highlighting key changes and drivers Revenue Breakdown (2022 vs. 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | $ Change | % Change | | :---------------- | :------------------ | :------------------ | :------- | :------- | | Digital | $300,673 | $365,412 | $(64,739) | (18%) | | Nutrition and other | $353,331 | $465,495 | $(112,164) | (24%) | | Connected fitness | $38,195 | $42,738 | $(4,543) | (11%) | | Total revenue | $692,199 | $873,645 | $(181,446) | (21%) | - Digital revenue decreased primarily due to a $40.9 million decrease from the online Coach business management platform (fewer Coaches) and a $21.4 million decrease from digital streaming services (23% fewer digital subscriptions)[281] - Nutrition and other revenue decreased by $123.0 million from nutritional products and $8.0 million from accessories, with nutritional subscriptions decreasing 27%, partially offset by $26.9 million from the preferred customer membership program[282] Gross Profit and Margin Breakdown (2022 vs. 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | $ Change | % Change | | :-------------------- | :------------------ | :------------------ | :------- | :------- | | Digital gross profit | $234,254 | $317,100 | $(82,846) | (26%) | | Nutrition gross profit | $188,578 | $252,188 | $(63,610) | (25%) | | Connected fitness gross profit | $(53,259) | $(24,305) | $(28,954) | (119%) | | Total gross profit | $369,573 | $544,983 | $(175,410) | (32%) | | Digital gross margin | 78% | 87% | - | - | | Nutrition gross margin | 53% | 54% | - | - | | Connected fitness gross margin | (139%) | (57%) | - | - | - Digital cost of revenue increased by 37% due to higher fixed costs, including a $9.4 million increase in content asset amortization and a $6.2 million increase in depreciation[287] - Connected fitness cost of revenue increased by 36% due to an incremental $17.8 million in inventory adjustments (excess/obsolete) and a $4.5 million increase in fulfillment costs[289] Operating Expenses (2022 vs. 2021) | Expense Category | 2022 (in thousands) | 2021 (in thousands) | $ Change | % Change | | :-------------------------------- | :------------------ | :------------------ | :------- | :------- | | Selling and marketing | $359,987 | $548,130 | $(188,143) | (34%) | | Enterprise technology and development | $104,363 | $119,915 | $(15,552) | (13%) | | General and administrative | $78,426 | $79,682 | $(1,256) | (2%) | | Restructuring | $10,047 | $(320) | $10,367 | (3,240%) | | Impairment of goodwill and intangible assets | $19,907 | $94,894 | $(74,987) | (79%) | - Selling and marketing expense decreased by $188.1 million (34%) due to a $123.0 million reduction in television media and online advertising and a $62.0 million decrease in Coach compensation[292] - The company recognized a $19.9 million impairment of various intangible assets in 2022 (vs. $94.9 million in 2021) due to reduced revenue and operating income forecasts[302][305] - A gain of $8.3 million was recognized from the change in fair value of warrant liabilities in 2022 (vs. $50.7 million in 2021), and interest expense increased to $3.4 million (vs. $0.5 million in 2021) due to higher interest rates on borrowings[307] Liquidity and Capital Resources Cash position, Term Loan details, cash flow activities, and expected liquidity for the next 12 months - As of December 31, 2022, the company had $80.1 million in cash and cash equivalents[310] - On August 8, 2022, the company entered into a $50.0 million senior secured Term Loan, maturing on August 8, 2026, with an effective interest rate of 16.66% for 2022[311][313][507] Net Cash Flows (2022 vs. 2021 vs. 2020) | Cash Flow Activity | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | :------------------ | | Net cash provided by (used in) operating activities | $(47,173) | $(215,249) | $61,430 | | Net cash used in investing activities | $(26,493) | $(125,191) | $(46,686) | | Net cash provided by financing activities | $47,561 | $390,651 | $165 | - The decrease in cash used in operating activities in 2022 was primarily due to reduced purchases of media ($116.7 million decrease) and connected fitness inventory[316] - The company believes existing cash and cash equivalents, combined with cost control initiatives, will provide sufficient liquidity to meet anticipated cash needs for the next 12 months[321] Critical Accounting Policies and Estimates Key accounting policies for inventory, goodwill, intangible asset impairment, and income taxes - Inventory is valued at the lower of cost or net realizable value, with reserves recorded based on future demand, anticipated margin, and product discontinuances; $39.8 million and $17.5 million charges were recorded in 2022 and 2021, respectively[324] - Goodwill and indefinite-lived intangible assets are assessed for impairment annually or more frequently; definite-lived intangible assets are tested for recoverability. In 2022, a $18.9 million impairment charge was recognized for definite-lived intangible assets and a $1.0 million charge for an indefinite-lived trade name[326][329][331] - Income taxes are accounted for using the asset and liability method, requiring assessment of deferred tax asset recoverability. A valuation allowance of $116.6 million was established as of December 31, 2022, due to accumulated losses[337][338][556] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Exposure to foreign currency exchange risk and interest rate risk, with mitigation strategies - The company is exposed to foreign currency exchange risk, with approximately 10% of its 2022 revenue in foreign currencies (Canadian dollars and British pounds), managed through derivative instruments (option and forward contracts)[341][342] - Interest rate risk is primarily associated with its SOFR-based Term Loan; a hypothetical 1% change in interest rates would not result in a material change to annual interest expense[345] Item 8. Financial Statements and Supplementary Data Audited consolidated financial statements, auditor's opinions, and detailed notes on accounting policies Independent Auditor's Report Unqualified opinion on financial statements but adverse on internal controls due to material weaknesses - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the period ended December 31, 2022, in conformity with U.S. GAAP[350] - An adverse opinion was expressed on the effectiveness of internal control over financial reporting as of December 31, 2022, due to identified material weaknesses[351][361] - Goodwill and Long-lived Assets Impairment was identified as a critical audit matter due to significant judgment in estimating fair value and sensitivity to assumptions like discount rate, revenue, and EBITDA margin[355][357] Consolidated Financial Statements Key consolidated financial statements including Balance Sheets, Statements of Operations, and Cash Flows Consolidated Balance Sheets (as of December 31, 2022 and 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Total assets | $443,395 | $637,612 | | Total liabilities | $231,853 | $252,227 | | Total stockholders' equity | $211,542 | $385,385 | Consolidated Statements of Operations (Years Ended December 31, 2022, 2021, and 2020) | Metric | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | :------------------ | | Total revenue | $692,199 | $873,645 | $863,582 | | Gross profit | $369,573 | $544,983 | $613,875 | | Operating loss | $(203,157) | $(297,318) | $(6,302) | | Net loss | $(194,192) | $(228,382) | $(21,432) | | Net loss per common share, basic and diluted | $(0.63) | $(0.83) | $(0.09) | Consolidated Statements of Cash Flows (Years Ended December 31, 2022, 2021, and 2020) | Cash Flow Activity | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | :------------------ | | Net cash provided by (used in) operating activities | $(47,173) | $(215,249) | $61,430 | | Net cash used in investing activities | $(26,493) | $(125,191) | $(46,686) | | Net cash provided by financing activities | $47,561 | $390,651 | $165 | Notes to Consolidated Financial Statements Detailed explanations of significant accounting policies, business combinations, and financial statement items Note 1. Description of Business and Summary of Significant Accounting Policies Company formation, segment reporting changes, and key accounting policies for fair value and inventory - The company's formation involved a reverse recapitalization on June 25, 2021, where Forest Road Acquisition Corp. was treated as the acquired company and The Beachbody Company Group, LLC ('Old Beachbody') as the acquirer for financial reporting purposes[384][387] - Segment reporting changed during Q3 2022, consolidating from two operating segments (Beachbody and Other) to one operating and reportable segment following the integration of Openfit streaming fitness offering[393] - Key accounting policies include fair value measurements (Level 1, 2, 3), inventory valuation at the lower of cost or net realizable value, accelerated amortization for content assets, and accounting for common stock warrant liabilities at fair value through profit or loss[394][396][398][422] Note 2. Business Combination Details of the June 2021 Business Combination, capital stock authorization, and PIPE financing - The Business Combination on June 25, 2021, involved the conversion of Old Beachbody equity units into Class A and Class X Common Stock at an exchange ratio of 3.359674941 shares per unit[459] - The company's certificate of incorporation was amended to authorize 2,000,000,000 shares, including 1,600,000,000 Class A (1 vote), 200,000,000 Class X (10 votes), and 100,000,000 Class C (no votes) Common Stock[462] - The PIPE financing resulted in the purchase of 22,500,000 shares of Class A Common Stock for $225.0 million[463] - The Myx acquisition involved the conversion of Myx equity units into approximately 13.5 million shares of Class A Common Stock, with some cash consideration[464] Note 3. Revenue Revenue breakdown by geographic region and deferred revenue recognition Revenue by Geographic Region (2022 vs. 2021 vs. 2020) | Geographic region | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :---------------- | :------------------ | :------------------ | :------------------ | | United States | $620,942 | $787,083 | $786,186 | | Rest of world | $71,257 | $86,562 | $77,396 | | Total revenue | $692,199 | $873,645 | $863,582 | - The company recognized $106.5 million of revenue in 2022 that was included in the deferred revenue balance as of December 31, 2021[470] Note 4. Fair Value Measurements Fair value measurements for derivative assets and warrants, including valuation models and changes Fair Value Measurements (as of December 31, 2022) | Item | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | | Derivative assets | $0 | $462 | $0 | | Public Warrants | $415 | $0 | $0 | | Private Placement Warrants | $0 | $0 | $107 | | Term Loan Warrants | $0 | $0 | $1,226 | - Private Placement Warrants and Term Loan Warrants are classified as Level 3 and valued using a Black-Scholes option-pricing model, with implied volatility as a significant unobservable input[473][476] - The fair value of Private Placement Warrants decreased by $2.0 million in 2022 to $0.1 million, and Term Loan Warrants decreased by $4.0 million to $1.2 million, with changes recognized in the consolidated statements of operations[475][477] Note 5. Inventory, Net Inventory valuation at lower of cost or net realizable value, with recorded adjustments Inventory, Net (as of December 31, 2022 and 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | | :------------------------ | :------------------ | :------------------ | | Raw materials and work in process | $13,380 | $24,436 | | Finished goods | $40,680 | $108,294 | | Total inventory | $54,060 | $132,730 | - Adjustments to the carrying value of inventory for excess and obsolete items, and to reduce to net realizable value, amounted to $39.8 million in 2022 and $17.5 million in 2021[324][481] Note 6. Other Current Assets Breakdown of other current assets including deferred coach costs and deposits Other Current Assets (as of December 31, 2022 and 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | | :------------------ | :------------------ | :------------------ | | Deferred coach costs | $31,270 | $30,928 | | Deposits | $4,527 | $8,915 | | Accounts receivable, net | $866 | $1,225 | | Other | $2,585 | $2,659 | | Total other current assets | $39,248 | $43,727 | Note 7. Property and Equipment, Net Property and equipment values, accumulated depreciation, and disposal losses Property and Equipment, Net (as of December 31, 2022 and 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | | :---------------------------------------- | :------------------ | :------------------ | | Property and equipment, gross | $276,900 | $294,881 | | Less: Accumulated depreciation | $(202,753) | $(181,783) | | Property and equipment, net | $74,147 | $113,098 | - The company recognized a net loss of $1.2 million in 2022 from the disposal of certain property and equipment due to digital platform consolidation and office lease assignment[483] Total Depreciation Expense (2022 vs. 2021 vs. 2020) | Category | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | :------------------ | | Cost of revenue | $27,137 | $18,160 | $13,619 | | Selling and marketing | $381 | $1,471 | $2,220 | | Enterprise technology and development | $28,833 | $25,290 | $21,274 | | General and administrative | $242 | $4,104 | $3,014 | | Total depreciation | $56,593 | $49,025 | $40,127 | Note 8. Content Assets, Net Content asset values, amortization expense, and expected future amortization Content Assets, Net (as of December 31, 2022 and 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | | :-------------------- | :------------------ | :------------------ | | Released, less amortization | $34,713 | $35,936 | | In production | $175 | $3,411 | | Content assets, net | $34,888 | $39,347 | - Amortization expense for content assets was $24.3 million in 2022, $14.8 million in 2021, and $7.5 million in 2020[485] - The company expects $19.8 million of content assets to be amortized during the next 12 months[485] Note 9. Acquisitions Details of the Myx and Ladder acquisitions, including consideration and goodwill recognized - The company acquired Myx in June 2021 for a total consideration of $222.9 million, including cash, share consideration, and the fair value of a convertible instrument and promissory note[487] - Goodwill recognized from the Myx acquisition was $158.8 million, primarily attributable to the assembled workforce and expected synergies[489] - The Ladder sports nutrition company was acquired in September 2020 for $27.9 million, resulting in $11.6 million in goodwill[493][494] Note 10. Goodwill and Intangible Assets, Net Goodwill and intangible asset values, impairment charges, and amortization expense - Goodwill for the Beachbody reporting unit remained at $125.2 million as of December 31, 2022, with no impairment recorded in 2022, following a $52.6 million impairment charge for the Other reporting unit in 2021[498] Intangible Assets, Net (as of December 31, 2022 and 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Contract-based | $0 | $50 | | Customer-related | $6,300 | $17,019 | | Technology-based | $800 | $12,201 | | Talent and representation contracts | $0 | $0 | | Formulae | $804 | $1,097 | | Trade name | $300 | $16,000 | | Total Intangible Assets, Net | $8,204 | $46,367 | - In 2022, the company recorded a $18.9 million non-cash impairment charge for definite-lived intangible assets (customer relationships, developed technology, trade names) and a $1.0 million charge for an indefinite-lived trade name due to reduced revenue and margin forecasts[501][502] - Amortization expense for intangible assets was $18.3 million in 2022, $10.6 million in 2021, and $4.1 million in 2020[504] Note 11. Accrued Expenses Breakdown of accrued expenses including employee compensation, coach costs, and IT Accrued Expenses (as of December 31, 2022 and 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | | Employee compensation and benefits | $20,584 | $8,996 | | Coach costs | $14,535 | $19,168 | | Inventory, shipping and fulfillment | $11,687 | $14,360 | | Sales and other taxes | $4,818 | $5,097 | | Information technology | $2,207 | $10,150 | | Advertising | $1,176 | $4,033 | | Customer service expenses | $956 | $1,773 | | Other accrued expenses | $8,467 | $10,948 | | Total accrued expenses | $64,430 | $74,525 | Note 12. Debt Details of the $50.0 million Term Loan, interest rate, associated warrants, and maturity schedule - On August 8, 2022, the company entered into a $50.0 million senior secured Term Loan, maturing on August 8, 2026, with $49.4 million outstanding as of December 31, 2022[506] - The Term Loan was a SOFR loan with an effective interest rate of 16.66% in 2022, and the company recorded $3.4 million in interest related to it[507] - In connection with the Term Loan, warrants for the purchase of 4,716,756 shares of Class A Common Stock (exercise price $1.85/share) were issued to affiliated holders, vesting over four years[508] Debt Maturity Schedule (as of December 31, 2022) | Year | Amount (in thousands) | | :---------------------- | :-------------------- | | Year ending Dec 31, 2023 | $1,250 | | Year ending Dec 31, 2024 | $1,563 | | Year ending Dec 31, 2025 | $2,500 | | Year ending Dec 31, 2026 | $44,062 | | Total debt | $49,375 | Note 13. Leases Lease liabilities, right-of-use assets, total lease costs, and impact of office lease assignment Lease Liabilities and Right-of-Use Assets (as of December 31, 2022 and 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Operating lease liabilities | $5,345 | $6,900 | | Finance lease liabilities | $123 | $300 | | Operating right-of-use assets | $5,030 | $6,400 | | Finance right-of-use assets | $100 | $300 | - Total lease costs were $2.99 million in 2022, $9.87 million in 2021, and $10.33 million in 2020[514] - The assignment of the Santa Monica office lease in November 2021 reduced right-of-use assets by $22.1 million and lease liabilities by $28.2 million, resulting in a $6.5 million reduction in net loss[516] Note 14. Commitments and Contingencies Future minimum payments under noncancelable agreements and resolution of a legal challenge Future Minimum Payments under Noncancelable Agreements (as of December 31, 2022) | Year | Amount (in thousands) | | :---------------------- | :-------------------- | | Year ended Dec 31, 2023 | $20,849 | | Year ended Dec 31, 2024 | $1,844 | | Year ended Dec 31, 2025 | $1,385 | | Year ended Dec 31, 2026 | $100 | | Thereafter | $150 | | Total | $24,328 | - The company resolved a legal challenge regarding the 2021 Class A common stock increase amendment, with the Delaware Court of Chancery validating the amendment and related share issuances on March 14, 2023[520][523] Note 15. Restructuring Restructuring costs in 2022, primarily for employee termination benefits and accelerated depreciation - The company recognized $10.0 million in restructuring costs during 2022, primarily for employee termination benefits related to consolidating its streaming fitness and nutrition offerings[524] - Platform consolidation also led to accelerated depreciation ($3.4 million) of computer software and web development assets and accelerated amortization ($2.7 million) of content assets in 2022[525] Note 16. Stockholders' Equity Authorized capital stock, conversion of equity units, and accumulated other comprehensive income - The company's authorized capital stock includes 1,600,000,000 shares of Class A Common Stock (one vote), 200,000,000 shares of Class X Common Stock (ten votes), and 100,000,000 shares of Class C Common Stock (no voting rights)[526][527] - In connection with the Business Combination, Old Beachbody's preferred units converted into 33,828,030 shares of Class A Common Stock, and common units converted into 67,934,584 shares of Class A and 141,250,310 shares of Class X Common Stock[532][533] - Accumulated other comprehensive income (loss) was $37 thousand as of December 31, 2022, reflecting changes in fair value of derivative financial instruments and foreign currency translation adjustments[535] Note 17. Equity-Based Compensation Shares available under the 2021 Incentive Award Plan and activity for stock options and RSUs - The 2021 Incentive Award Plan had 14,822,267 shares of Class A Common Stock available for issuance as of December 31, 2022[539] Stock Option Activity (as of December 31, 2022) | Metric | Number of Options | Weighted Average Exercise Price (per option) | | :-------------------------- | :---------------- | :------------------------------------------- | | Outstanding at Dec 31, 2021 | 41,753,042 | $3.86 | | Granted | 22,805,144 | $1.18 | | Exercised | (1,879,095) | $1.52 | | Forfeited | (10,499,831) | $4.55 | | Expired | (3,764,635) | $2.48 | | Outstanding at Dec 31, 2022 | 48,414,625 | $2.65 | | Exercisable at Dec 31, 2022 | 21,755,992 | $2.60 | RSU Activity (as of December 31, 2022) | Metric | Number of RSUs | Weighted Average Fair Value (per RSU) | | :-------------------------- | :------------- | :------------------------------------ | | Outstanding at Dec 31, 2021 | 573,678 | $5.97 | | Granted | 3,693,286 | $1.21 | | Vested | (856,697) | $2.51 | | Forfeited | (251,082) | $4.62 | | Outstanding at Dec 31, 2022 | 3,159,185 | $1.45 | Equity-Based Compensation Expense (2022 vs. 2021 vs. 2020) | Category | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | :------------------ | | Cost of revenue | $1,416 | $1,187 | $216 | | Selling and marketing | $7,015 | $7,357 | $2,169 | | Enterprise technology and development | $1,403 | $2,380 | $1,294 | | General and administrative | $7,786 | $5,489 | $1,719 | | Total equity-based compensation | $17,620 | $16,413 | $5,398 | Note 18. Derivative Financial Instruments Notional amount of foreign exchange options and breakdown of derivative assets - The notional amount of outstanding foreign exchange options was $17.6 million as of December 31, 2022, down from $30.4 million in 2021[548] Derivative Assets (as of December 31, 2022 and 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Derivatives designated as hedging instruments | $343 | $240 | | Derivatives not designated as hedging instruments | $119 | $74 | | Total derivative assets | $462 | $314 | Note 19. Income Taxes Income tax benefit, deferred tax liabilities, net operating loss carryforwards, and valuation allowance Income Tax Benefit (Provision), Net (2022 vs. 2021 vs. 2020) | Category | 2022 (in thousands) | 2021 (in thousands) | 2020 (in thousands) | | :-------------------------- | :------------------ | :------------------ | :------------------ | | Current | $92 | $(323) | $326 | | Deferred | $2,961 | $15,862 | $(15,595) | | Total income tax benefit (provision), net | $3,053 | $15,539 | $(15,269) | Net Deferred Tax Liabilities (as of December 31, 2022 and 2021) | Category | 2022 (in thousands) | 2021 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Total deferred tax assets | $140,824 | $107,614 | | Total deferred tax liabilities | $(24,441) | $(42,670) | | Net deferred tax assets before valuation allowance | $116,383 | $64,944 | | Valuation allowance | $(116,564) | $(68,109) | | Net deferred tax liabilities | $(181) | $(3,165) | - As of December 31, 2022, the company had accumulated U.S. federal net operating loss carryforwards of $293.7 million and state net operating loss carryforwards of $285.2 million[557] - A full valuation allowance of $116.6 million was recorded against deferred tax assets as of December 31, 2022, due to the level of losses[556][559] Note 20. Employee Benefit Plan Details of the 401(k) plan and matching contributions expense - The company maintains a 401(k) plan, matching 50% of participant contributions up to 6% of total compensation[561] - Matching contributions expense was $2.9 million in 2022, $3.4 million in 2021, and $2.0 million in 2020[561] Note 21. Earnings (Loss) per Share Net loss per common share, basic and diluted, and exclusion of antidilutive shares Net Loss per Common Share (2022 vs. 2021 vs. 2020) | Metric | 2022 | 2021 | 2020 | | :------------------------------------ | :----- | :----- | :----- | | Net loss per common share, basic and diluted | $(0.63) | $(0.83) | $(0.09) | - Basic and diluted net loss per common share were the same for all periods presented, as the inclusion of all potential common shares would have been antidilutive[562] - Approximately 79.4 million potential common shares were excluded from the computation of diluted net loss per common share in 2022 due to their antidilutive effect[563] Note 22. Related Party Transactions Transactions with related parties, including property purchase, royalty payments, and legal services - In July 2021, the company purchased a building for $5.1 million from a company owned by its controlling shareholder[564] - Royalty payments to a company related to the controlling shareholder were $0.5 million in 2022 and $1.0 million in 2021[565] - Legal services from a law firm where a minority shareholder and director is affiliated amounted to $1.3 million in 2022 and $2.3 million in 2021[566] - Financial advisory services related to the August 2022 Term Loan resulted in $1.0 million in payments to a minority shareholder affiliated with a director[567] Note 23. Subsequent Events Cost-reduction initiatives initiated in January 2023, expecting termination benefits - In January 2023, the company initiated cost-reduction initiatives, expecting approximately $6.5 million in termination benefits during the first quarter of 2023[568] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure No changes in or disagreements with independent accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[570] Item 9A. Controls and Procedures Disclosure controls were ineffective due to material weaknesses, but financial statements are fairly presented Management's Evaluation of Disclosure Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses - Management concluded that the company's disclosure controls and procedures were not effective as of December 31, 2022, due to material weaknesses in internal control over financial reporting[571] - Despite the identified material weaknesses, management believes the consolidated financial statements and other information in the report fairly present the company's financial position, results of operations, and cash flows[572] Management's Annual Report on Internal Control over Financial Reporting Management concluded internal control over financial reporting was not effective as of December 31, 2022 - Management is responsible for establishing and maintaining adequate internal control over financial reporting and concluded that the system was not effective as of December 31, 2022, based on COSO criteria[573][575] Material Weaknesses and Remediation Plan Identified material weaknesses in IT general controls and impairment analysis documentation, with a remediation plan - Material weaknesses identified include ineffective information technology general controls (user access, program change management) and insufficient contemporaneous documentation for review controls over goodwill and long-lived asset impairment analyses[579] - The company is implementing measures, including additional training and quality control, to remediate these material weaknesses, with expected completion prior to the end of 2023[581][582] Item 9B. Other Information Chief Legal Officer Blake Bilstad will depart, receiving severance benefits and accelerated equity vesting - Blake Bilstad, Chief Legal Officer and Corporate Secretary, will leave the company effective May 1, 2023, due to business reprioritization[584] - Severance benefits include a lump sum payment of annual base salary plus a pro rata target bonus, 12 months of COBRA reimbursements, and accelerated vesting of time-based equity awards through May 15, 2024[585] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[587] PART III Item 10. Directors, Executive Officers, and Corporate Governance Information for this item is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders[589] Item 11. Executive Compensation Information for this item is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders[590] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders[591][592][593][594] Item 13. Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders[595] Item 14. Principal Accounting Fees and Services Information for this item is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders[596] PART IV Item 15. Exhibits, Financial Statement Schedules Lists financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - The section includes the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive Income (Loss), Stockholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements[597] Financial Statement Schedules (as of December 31, 2022) | Schedule | 2022 (in thousands) | | :------------------------------------ | :------------------ | | Inventory reserve, end of year | $52,975 | | Deferred tax asset valuation allowance, end of year | $116,564 | - A comprehensive list of exhibits required under Item 601 of Regulation S-K is provided, including agreements, certificates, and plans[601][602] Item 16. Form 10-K Summary This item states that no Form 10-K Summary is provided - No Form 10-K Summary is provided[604]