Beachbody Company, Inc. quarterly report, Q1 FY2024

Business context and reporting period

The Beachbody Company, Inc. (BODi) is a subscription health and fitness company selling digital fitness content, nutrition products and connected fitness equipment. This unaudited Form 10-Q covers the three months ended March 31, 2024; comparisons are with the first quarter of 2023.

Financial performance and liquidity

Cash and cash equivalents were $38.9 million at quarter-end, versus $33.4 million at December 31, 2023; restricted short-term investments were $4.3 million. Current assets were $116.4 million and current liabilities $162.7 million. Operating cash flow improved year over year, with management citing lower net loss and working-capital changes. Investing cash flow was $3.9 million, including $5.6 million in proceeds from the facility sale; financing cash outflow was $7.2 million, mainly debt repayments.

Term Loan principal, including capitalized payment-in-kind interest, was $28.9 million at March 31. The loan carried a 21.83% effective interest rate and 12.65% cash interest rate in the quarter; maturity is February 2026. The company reported compliance with its financial covenants at quarter-end. Total liabilities were $190.3 million.

Material changes versus the prior comparable period

• Revenue fell 17%: digital revenue declined 5% to $61.5 million, nutrition and other fell 25% to $55.5 million, and connected fitness fell 50% to $3.0 million. Management attributed declines primarily to lower demand and fewer subscriptions, customers, Partners and bike deliveries.
• Digital subscriptions decreased to 1.22 million from 1.75 million; nutritional subscriptions fell to 0.15 million from 0.21 million. Total streams declined to 25.6 million from 29.7 million. Average digital retention was 95.7%, compared with 95.9%.
• Gross margin increased to 67.7% from 63.0%, reflecting lower costs, including reduced depreciation and amortization and inventory adjustments. Connected fitness remained gross-loss making, though its margin improved.
• Operating expenses declined 22% to $92.1 million, including lower selling and marketing, general and administrative, and restructuring expenses. Selling and marketing also benefited from reduced Partner commissions, including an approximately 20% commission-rate reduction effective January 2024.
• The company sold its Van Nuys production facility for $6.2 million, recognized a $0.8 million gain, and leased it back for five years at an initial annual base rent of $0.3 million. It used sale proceeds toward a Term Loan prepayment.

Outlook, commentary, risks and unusual items

No specific revenue or earnings guidance is provided. Management says existing cash and cost-control initiatives are expected to support anticipated cash needs, including debt service, for the next 12 months and longer term. It may seek additional debt or equity financing, but gives no assurance that financing will be available on acceptable terms.

After quarter-end, on April 5, 2024, the company amended its loan agreement, lowered the minimum revenue covenant to $100 million per quarter through December 31, 2024 and $110 million thereafter through December 31, 2025, and set minimum liquidity at $18 million through maturity. It prepaid $4.0 million plus a 3% premium and accrued interest; after the prepayment and a payment-in-kind fee, reported loan principal was $25.5 million. The amendment also reduced the exercise price of Term Loan warrants to $9.16 per share.

Q1 included $1.2 million of loss on partial debt extinguishment and a $0.7 million expense from changes in warrant fair value. Restructuring charges were $1.6 million. The filing identifies a pending California class action alleging Partner misclassification and labor-law violations; the company has not recorded reserves because loss probability and damages could not be estimated. A patent case brought by DISH entities was dismissed without prejudice under an April 2024 standstill and tolling agreement, with a one-time immaterial payment; litigation under the patents is restricted until at least December 31, 2026. The company warns of competition, subscription declines, liquidity and financing needs, debt covenants, litigation, and warrant valuation volatility.

Important facts for investors to verify

• Whether subscriber and revenue declines stabilize, particularly in nutrition and digital subscriptions.
• Cash generation excluding one-time facility-sale proceeds and the sustainability of cost reductions.
• Ongoing compliance with revenue and liquidity covenants, and the effect of debt service and the February 2026 maturity.
• Terms and dilution implications of outstanding warrants, including the post-quarter exercise-price change.
• Developments and potential exposure in the Partner classification litigation and other contingencies.