Beachbody Company, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Beachbody sells digital fitness subscriptions, nutrition products and connected fitness equipment. In Q3, it consolidated Openfit into a single Beachbody platform and began reporting one operating segment.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $166.0 million | $208.1 million | $544.0 million | $657.4 million |
| Gross profit / margin | $104.7 million / 63% | $135.0 million / 65% | $285.0 million / 52% | $447.4 million / 68% |
| Operating loss | $(36.2) million | $(71.8) million | $(155.0) million | $(133.5) million |
| Net loss | $(33.9) million | $(39.9) million | $(149.3) million | $(82.4) million |
| Adjusted EBITDA | $(6.2) million | $(43.4) million | $(26.8) million | $(59.5) million |
Q3 revenue declined 20% year over year: digital fell 23%, nutrition and other 16%, and connected fitness 44%. For the nine months, revenue declined 17%; connected fitness revenue rose to $33.4 million from $5.9 million, mainly because 2021 included Myx only after its June acquisition.
Q3 operating loss narrowed as selling and marketing expense fell 39%, principally due to lower advertising and Coach compensation. Net loss also improved, with a smaller favorable warrant fair-value gain than in the prior-year quarter. For the nine months, net loss widened despite lower operating expenses, reflecting lower gross profit and a smaller warrant-related gain. Connected fitness recorded a $47.5 million gross loss for the nine months, including substantial inventory adjustments.
Cash, debt and liquidity
- Cash and cash equivalents were $94.1 million at September 30, 2022, down from $104.1 million at December 31, 2021. Current assets were $210.3 million versus current liabilities of $192.8 million.
- For the nine months, operating cash outflow was $36.9 million, investing cash outflow $23.2 million, and financing cash inflow $48.3 million. Operating cash use was lower than the prior-year $139.3 million, partly due to reduced inventory purchases and media spending.
- In August, the company borrowed $50 million under a senior secured term loan; $49.7 million was outstanding at quarter-end. The loan matures August 8, 2026, bears a reported effective interest rate of 19.40% for the SOFR borrowing, and is secured by substantially all company and subsidiary assets. It permits up to $25 million of additional borrowing subject to conditions.
- Management stated that cash and cost-control measures should fund anticipated needs, including debt service, for the next 12 months. It may seek additional financing but gave no assurance it could obtain acceptable terms.
Outlook, management commentary and risks
- Management attributed weaker demand to post-pandemic consumer behavior, economic slowdown and rising prices; supply-chain disruption and surcharges also pressured margins. It expected negative gross-margin effects to continue at least through the remainder of 2022.
- The company expects connected fitness gross margin to remain negative until current inventory is sold. It may use pricing or bundling strategies and could make further inventory write-downs.
- Management’s initiatives include consolidating digital offerings, improving Coach recruitment and retention, reviewing the nutrition portfolio, and testing price increases. The filing provides no specific revenue or earnings guidance.
- Digital subscriptions were 2.10 million, down from 2.64 million; nutritional subscriptions were 0.24 million, down from 0.34 million. Management linked declines to fewer Coaches, fewer streaming subscriptions and lower nutrition subscriptions.
- The company recorded a $32.3 million nine-month inventory adjustment, $10.0 million of restructuring charges, and a $1.0 million noncash intangible-asset impairment. It also accelerated depreciation and amortization related to platform consolidation.
- The loan agreement imposes financial and operational covenants, including minimum revenue and liquidity requirements. A breach could lead to default and acceleration. Ordinary-course litigation was not believed by management to have a material adverse effect.
Important facts for investors to verify
- Whether operating cash use, cash balance and covenant compliance remain adequate as the company services high-cost secured debt.
- Whether subscriber and Coach declines stabilize, and whether the single-platform strategy improves customer acquisition and retention.
- How much connected fitness inventory remains, whether it can be sold without further discounts or write-downs, and whether the segment can improve its negative margin.
- Whether nutrition portfolio changes and price increases can offset weaker demand and supply-chain costs without further reducing subscriptions.
- The potential dilution from 4.7 million lender-affiliated warrants exercisable at $1.85 per share, in addition to other outstanding options, restricted stock units and warrants.