Beachbody Company, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with FY2021. The company operates a subscription health and wellness platform spanning digital fitness and nutrition content, nutritional products, and connected fitness equipment.
Financial and operating performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $692.2 million | $873.6 million |
| Gross profit / margin | $369.6 million / 53% | $545.0 million / 62% |
| Operating loss | $203.2 million | $297.3 million |
| Net loss | $194.2 million | $228.4 million |
| Adjusted EBITDA loss (non-GAAP) | $23.3 million | $86.1 million |
| Cash from operating activities | $(47.2) million | $(215.2) million |
| Cash and cash equivalents at year-end | $80.1 million | $104.1 million |
- Revenue fell 21%. Digital revenue declined 18% to $300.7 million, nutrition and other revenue fell 24% to $353.3 million, and connected fitness revenue declined 11% to $38.2 million.
- Digital subscriptions were 1.95 million at year-end, down from 2.54 million; nutritional subscriptions were 0.22 million, down from 0.30 million. Average digital retention was 95.9%; streams fell to 120.5 million from 167.1 million.
- Connected fitness gross margin was negative 139%, versus negative 57%, reflecting inventory valuation adjustments and fulfillment and warehousing costs. Digital gross margin declined to 78% from 87%; nutrition and other margin was 53% versus 54%.
- Cash used in investing activities was $26.5 million; cash provided by financing activities was $47.6 million. Year-end current assets were $186.5 million and current liabilities $184.6 million.
- The company had $49.4 million of Term Loan principal outstanding at year-end, with $1.3 million current; the loan matures August 2026. The loan bears floating-rate interest plus 3% paid in kind; reported effective interest rate for the year was 16.66%. An additional $25 million may be borrowed subject to conditions.
Changes versus the prior year
- Management attributed weaker sales mainly to post-pandemic shifts away from at-home fitness, fewer digital and nutrition subscriptions, fewer Coaches, and lower connected-bike demand. Coach-platform revenue fell as some Coaches moved to the Preferred Customer program.
- Gross margin contracted nine percentage points. Supply-chain costs and connected-bike inventory adjustments weighed on profitability; inventory and purchase-commitment provisions were $39.8 million, versus $17.5 million in 2021.
- Selling and marketing expense fell 34% to $360.0 million, principally from lower advertising and Coach compensation. Operating expenses also included $10.0 million of restructuring charges and $19.9 million of intangible-asset impairment.
- Net loss narrowed, while Adjusted EBITDA loss improved substantially. The comparison includes non-cash and unusual items, including warrant-liability fair-value gains of $8.3 million in 2022 versus $50.7 million in 2021, and goodwill/intangible impairment charges of $19.9 million versus $94.9 million.
Outlook, management commentary and risks
- No formal revenue or earnings guidance is provided. Management said cash on hand and cost controls were expected to cover anticipated cash needs, including debt service, for the next 12 months; it may seek additional debt or equity financing, with no assurance of availability or acceptable terms.
- 2023 priorities include refreshing the BODi platform with BODi Blocks and mindset content, growing Shakeology in the healthy-dessert category, simplifying nutrition offerings, and improving Coach recruitment and retention. The combined BOD + BODi annual price was reduced to $179 from $298 in September 2022.
- January 2023 cost-reduction actions were expected to incur about $6.5 million, primarily termination benefits, in Q1 2023. Management expects connected fitness gross margin to remain negative until existing inventory is sold through; consumer response to pricing and bundles is uncertain.
- Liquidity and execution risks include continuing operating cash outflows, a high-cost secured loan with covenants and minimum-revenue/liquidity requirements, declining subscriptions and sales, competitive pricing pressure, inventory risk, and dependence on a small number of products. Digital platforms represented about 43% of FY2022 revenue, Shakeology about 25%, and bikes about 6%.
- The auditor issued an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting. Material weaknesses involved IT access and change-management controls and documentation/review controls for impairment forecasts. Management said remediation was underway and expected before the end of 2023; no resulting financial-statement misstatements were identified.
- The NYSE notified the company in November 2022 that its share price had been below $1 for 30 consecutive trading days, giving it a six-month cure period. The filing also describes founder control of approximately 84.6% of voting power through super-voting shares.
- A stockholder challenge to the 2021 charter/share authorization was resolved after the filing period: the Delaware Court of Chancery validated the charter and related shares on March 14, 2023. The filing reports no other identified litigation expected to have a material adverse effect.
Important facts for investors to verify
- Whether subscription declines and lower engagement stabilize, and whether BODi changes and price reductions improve customer acquisition and retention.
- Cash burn, liquidity headroom under the financing agreement, floating-rate debt costs, covenant compliance, and access to additional financing.
- Sell-through, valuation, and remaining commitments for connected fitness inventory, including the path to positive bike gross margins.
- Progress and independent testing of remediation for the disclosed material weaknesses in financial reporting controls.
- NYSE listing compliance status and the implications of the company’s concentrated voting control.