The Beachbody Company, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited; dollar amounts below are in millions unless noted.
Business context
Beachbody operates digital fitness and nutrition platforms and sells nutritional products and fitness equipment. On June 25, 2021, it completed its business combination with Forest Road Acquisition Corp. and acquired Myx Fitness. The quarter includes Myx results only from June 26–30, so reported results largely reflect Beachbody before the acquisition.
Financial and operating performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $223.1 | $218.5 | $449.3 | $387.8 |
| Gross profit | $154.3 | $159.1 | $312.4 | $279.6 |
| Gross margin | 69% | 73% | 70% | 72% |
| Operating loss | $(30.0) | $(12.5) | $(61.7) | $(22.7) |
| Net loss | $(12.4) | $(10.0) | $(42.5) | $(18.3) |
| Adjusted EBITDA | $(4.4) | $0.9 | $(16.1) | $3.6 |
| Operating cash flow | Not separately provided for the quarter | $(25.5) | $44.0 |
Q2 revenue rose 2%: digital revenue increased 20% to $94.3 million, while nutrition and other revenue declined 8% to $128.8 million, principally reflecting lower Shakeology sales. For the first half, revenue increased 16%; digital grew 34% and nutrition and other grew 5%. Selling and marketing expense rose 4% in Q2 and 24% for the first half, increasing to 62.8% and 63.4% of revenue, respectively. Higher operating expenses and product, freight, and shipping costs pressured profitability.
Digital subscriptions were 2.7 million at quarter-end versus 2.4 million a year earlier; nutritional subscriptions were 0.4 million versus 0.5 million. Q2 average digital retention was 94.9% versus 96.3%, and streams declined to 44.5 million from 55.5 million. The filing says Shakeology accounted for approximately 35% of revenue, indicating product concentration.
Financial position and material developments
- Cash and cash equivalents were $347.2 million at June 30, 2021, compared with $56.8 million at December 31, 2020. Current assets were $481.4 million and current liabilities $267.0 million.
- The business combination generated $389.8 million of net financing cash inflow; management reported approximately $352.5 million of net cash proceeds after issuance costs and cash paid for Myx. Financing also included a $225 million PIPE at $10 per share.
- There were no borrowings under the revolving credit facility at quarter-end; a $3.0 million letter of credit was outstanding and $32.0 million of borrowing capacity was available. The facility matures in June 2022, and the company reported covenant compliance.
- Investing cash outflow was $74.5 million, including $37.3 million paid for Myx, $27.2 million of capital expenditures, and $10.0 million combined investment in a convertible instrument and an equity investment. Operating cash outflow was $25.5 million, versus $44.0 million provided in the prior-year half.
- Myx acquisition consideration was $222.9 million, including $162.6 million in shares and $37.7 million in cash consideration. Preliminary purchase accounting added $157.9 million of goodwill and $78.1 million of intangible assets; valuations remain subject to adjustment.
- Noncancelable inventory-purchase and service commitments totaled $135.4 million, including $124.0 million due in the six months ending December 31, 2021. Operating and finance lease obligations totaled $40.3 million.
Outlook, commentary, risks, and unusual items
Management stated that cash, expected operating cash flows, and available credit were expected to cover working capital and capital expenditure needs for at least the next 12 months. The filing provides no quantified revenue, earnings, or EBITDA guidance. Management expects continued investment in marketing and customer acquisition and said selling and marketing expense may increase as new products are released and the business expands internationally.
Management cited pandemic-related freight, shipping, and fulfillment cost increases, supply-chain delays, and canceled Coach events. It cautioned that the effect of COVID-19 and the persistence of pandemic-driven at-home fitness demand remain uncertain. Key risks also include customer retention and changing consumer preferences, reliance on a few products, competition, Myx integration and warranty exposure, supplier and logistics disruption, product and subscription regulation, privacy and cybersecurity, and foreign-exchange exposure.
Q2 results included a $5.4 million net gain from changes in warrant-liability fair value and related transaction costs, and a $10.9 million income-tax benefit. The tax benefit primarily reflected deferred tax liabilities recorded with the Myx acquisition, which reduced the valuation allowance required on deferred tax assets. Warrant liabilities were $50.2 million at quarter-end and are remeasured through earnings, potentially causing volatility. Beachbody also has a dual-class share structure: Class X shares carry ten votes each, and the founder and affiliates controlled approximately 84.8% of voting power at June 30.
Most important facts for investors to verify
- Whether digital subscription growth and retention can offset weaker nutrition revenue and the decline in nutritional subscriptions.
- Whether selling, marketing, freight, and fulfillment costs stabilize enough to improve gross margin and adjusted EBITDA.
- Cash conversion and funding needs, particularly given first-half operating cash outflow and the $124.0 million of near-term purchase and service commitments.
- Progress integrating Myx, its actual contribution to revenue and profitability, and final acquisition fair-value allocations.
- Potential earnings volatility from warrant remeasurement, the effect of the Myx-related tax benefit, and the consequences of founder voting control and potential dilution.