Beachbody Company, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed March 1, 2022. Beachbody is a health and wellness platform selling digital fitness subscriptions, nutrition products and connected fitness equipment. The Myx Fitness acquisition closed June 25, 2021; reported 2021 results include Myx from June 26 onward.
Financial performance and liquidity
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Revenue | $873.6 million | $863.6 million | +1% |
| Gross profit / margin | $545.0 million / 62% | $613.9 million / 71% | Profit −11%; margin −9 percentage points |
| Operating income (loss) | $(297.3) million | $(6.3) million | Loss widened |
| Net income (loss) | $(228.4) million | $(21.4) million | Loss widened |
| Adjusted EBITDA | $(86.1) million | $51.5 million | Turned to a loss |
| Cash from (used in) operations | $(215.2) million | $61.4 million | Decreased by $276.7 million |
Revenue mix: Digital revenue rose 9% to $365.4 million; connected fitness contributed $42.7 million following the Myx acquisition; nutrition and other revenue fell 12% to $465.5 million. Digital subscriptions ended the year at 2.54 million, down 3% year over year; nutritional subscriptions were 0.30 million, down 23%. Digital retention averaged 95.7%, while streams declined to 167.1 million from 179.6 million.
Costs and margins: Connected fitness recorded a gross loss of $24.3 million (negative 57% margin), including a $10.1 million inventory net-realizable-value adjustment and higher freight and shipping costs. Nutrition and other gross margin declined to 54% from 60%. Selling and marketing expense rose 18% to $548.1 million, or 62.7% of revenue, reflecting increased advertising and media spending. Total advertising expense was $166.9 million versus $98.2 million.
Cash, debt and liquidity: Year-end cash, cash equivalents and restricted cash totaled $107.1 million, including $104.1 million unrestricted cash and $3.0 million restricted cash. Current assets were $299.4 million and current liabilities $236.2 million. The company terminated its credit facility in November 2021 and reported no year-end borrowings under it. Lease liabilities totaled $7.1 million. Financing activities provided $390.7 million, primarily due to the business combination; investing activities used $125.2 million. The company cited $59.6 million of contractual obligations and other commitments, including leases and purchase/service commitments.
Material changes and unusual items
- Revenue growth was modest despite higher digital revenue, as nutrition sales weakened and demand for at-home fitness slowed in the second half of 2021.
- Operating expenses included $94.9 million of goodwill and intangible-asset impairments: $52.6 million goodwill, $35.2 million indefinite-lived trade names and $7.1 million talent and representation contracts.
- A $50.7 million gain from changes in warrant-liability fair value improved reported results; it was noncash and primarily reflected the decline in Beachbody’s share price.
- Inventory reserves and net-realizable-value adjustments totaled $17.5 million, versus $2.8 million in each of 2020 and 2019.
- The company recorded a $6.5 million gain from assigning an office lease, reducing lease assets and liabilities. The Myx acquisition’s total consideration was $222.9 million, including $162.6 million in shares.
Outlook, management commentary and risks
The filing provides no formal numerical revenue, earnings or cash-flow guidance. Management said it planned in 2022 to consolidate Openfit and other streaming offerings onto one Beachbody platform, market the bike under the Beachbody brand, and reduce headcount. The company expected approximately $6.5 million of workforce-reduction costs in the first half of 2022; other costs were not yet estimable. Management also expected lower capital expenditures after completing major projects, planned to pause certain brand-media investments and refocus on performance marketing intended to support in-year cash flow, and said 2021 operating cash use was not expected to recur at the same level, citing bike inventory investment and one-time integration costs.
Management attributed 2021 pressure to the easing of pandemic restrictions, pandemic fatigue, higher shipping and fulfillment costs, and less efficient advertising following changes to iOS tracking. It believes the shift toward at-home fitness may persist but noted that a return to gyms could weaken demand. Key risks include customer and subscription attrition, dependence on Shakeology and other key offerings, intense competition, inventory and supply-chain exposure, product quality and warranty claims, privacy and cybersecurity, regulation of nutrition products, auto-renewing subscriptions and the Coach network, and the need for future financing if liquidity proves insufficient. The founder controlled approximately 84.5% of voting power through high-vote Class X shares.
The independent auditor issued an unqualified opinion on the consolidated financial statements. Management concluded disclosure controls were effective, but did not assess internal control over financial reporting as of year-end, citing the post-business-combination transition and unreasonable effort or expense; the auditor did not provide an opinion on ICFR.
Important facts for investors to verify
- Whether subscription trends and customer engagement stabilized after digital and nutritional subscriptions declined year over year.
- Whether digital and nutrition margins recover, and whether connected fitness can move from a negative gross margin to profitability.
- How much of the reported loss and Adjusted EBITDA deterioration reflects recurring operations versus impairments, inventory charges, acquisition effects and warrant remeasurement.
- Whether 2022 cost reductions, platform consolidation and marketing changes deliver the expected savings and cash-flow improvement, and what additional restructuring costs arise.
- Whether available liquidity is sufficient given 2021 operating cash use, contractual commitments and the possibility of additional financing needs.
- The implications of founder voting control, outstanding equity awards and warrants for governance and potential dilution.