Beachbody Company, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Amounts are in U.S. dollars; financial statement figures are in millions unless noted. Beachbody operates a subscription health and wellness business spanning digital fitness, nutrition products, and connected fitness.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $134.9 | $179.1 | $279.8 | $378.1 |
| Gross profit / margin | $82.7 / 61% | $87.3 / 49% | $174.1 / 62% | $180.3 / 48% |
| Operating loss | $(24.2) | $(44.4) | $(51.6) | $(118.8) |
| Net loss | $(25.7) | $(41.9) | $(54.9) | $(115.4) |
| Adjusted EBITDA (non-GAAP) | $(4.8) | $(1.5) | $(5.7) | $(20.6) |
| Net loss per share, basic and diluted | $(0.08) | $(0.14) | $(0.18) | $(0.38) |
- Q2 revenue by category: digital $65.2 million (down 16% year over year); nutrition and other $64.6 million (down 29%); connected fitness $5.1 million (down 52%).
- Gross margin improved year over year, chiefly reflecting lower connected-fitness inventory valuation charges and lower costs, as well as improved nutrition margins. Connected fitness remained loss-making at gross profit: $(3.6) million for Q2 and $(5.1) million for the first half.
- Q2 operating expenses were $106.9 million, down from $131.7 million. Selling and marketing was $76.5 million; at 56.7% of revenue, its share of revenue increased from 48.4%.
- First-half operating cash use was $14.4 million, versus $33.3 million in 2022; investing cash use was $5.0 million versus $19.2 million. Cash and cash equivalents were $58.7 million at June 30, down from $80.1 million at year-end 2022.
- At June 30, current assets were $159.2 million and current liabilities $191.5 million. The current ratio was approximately 0.83. Total liabilities were $223.9 million and stockholders’ equity $167.2 million.
- Term Loan principal was $50.1 million at June 30; the balance sheet reported $42.1 million in current and long-term debt carrying value combined, net of debt discount and issuance costs. The loan’s cash interest rate was 12.12% at quarter-end; the filing also reports an effective rate of 18.69% for the first half.
Changes versus the prior comparable period
- Revenue fell 25% in Q2 and 26% in the first half. Management attributed digital declines principally to lower demand and fewer subscriptions; nutrition declines to fewer nutritional subscriptions and preferred customers; and connected-fitness declines to fewer bike deliveries and lower average selling prices.
- Digital subscriptions were 1.53 million at June 30, down from 2.28 million a year earlier; nutritional subscriptions were 0.20 million, down from 0.28 million. Average digital retention was 95.2% in Q2 versus 95.6% a year earlier.
- Net loss narrowed, but Q2 Adjusted EBITDA loss widened to $4.8 million from $1.5 million. First-half Adjusted EBITDA loss improved to $5.7 million from $20.6 million. These non-GAAP figures include adjustments described in the filing.
- First-half equity-based compensation increased to $12.7 million from $7.6 million. At June 30, 111.8 million potential common shares were excluded from diluted loss per share as antidilutive, versus 75.1 million a year earlier.
Outlook, management commentary, and risks
- Management identified 2023 priorities as improving the BODi digital platform, growing Shakeology in the “Healthy Dessert” market, and improving bike affordability. The platform relaunched in March, with new programming and a migration of BOD-only members to BODi on renewal. The filing gives no formal revenue, earnings, or Adjusted EBITDA guidance.
- Management said cash, cash equivalents, and cost-control initiatives should meet anticipated cash needs, including debt service, for the next 12 months and longer term. It may explore additional equity financing, with no assurance of availability or acceptable terms; any issuance could dilute shareholders.
- On July 24, 2023, after quarter-end, Beachbody amended its Blue Torch financing agreement and prepaid $15.0 million of principal, plus a 5% prepayment premium of $0.8 million and accrued interest. A $0.5 million fee was added to principal. Post-transaction principal was $35.6 million. The loan maturity was shortened from August 2026 to February 2026.
- The amendment set minimum liquidity at $20 million through March 31, 2024 and $25 million thereafter through maturity. Minimum quarterly revenue is $100 million through March 31, 2024, then $120 million for subsequent quarters through December 31, 2025. The company reported compliance with the covenants as of June 30, including the amended revenue covenant.
- The amendment also reduced the exercise price on warrants for 4.7 million shares from $1.85 to $0.41. Related amendment and warrant effects are to be recorded in Q3 2023.
- Beachbody recorded no goodwill or long-lived asset impairment in its June 30 interim tests. Goodwill fair value exceeded carrying value by approximately 11%; management cautioned that weaker demand, macroeconomic conditions, market volatility, or revised forecasts could affect future valuations and potentially lead to impairment.
- Disclosure controls and procedures were deemed ineffective at June 30 because of material weaknesses identified in the 2022 Form 10-K; remediation was ongoing. The company reported no material changes to internal control over financial reporting during the quarter.
- The filing describes ordinary-course litigation and states that identified matters were not expected to have a material adverse effect. It reports no material developments in previously disclosed risk factors.
Most important facts for investors to verify
- Whether subscription and customer declines stabilize, and whether the March BODi relaunch and product initiatives improve retention, engagement, and revenue.
- Cash generation and liquidity after the July debt prepayment, including ongoing compliance with minimum-liquidity and minimum-revenue covenants.
- The economics and repayment burden of the secured Term Loan, including its high interest cost, shortened maturity, and lender protections.
- Whether improved gross margins persist, particularly given continuing connected-fitness gross losses and lower sales volumes.
- Potential dilution from outstanding options, restricted stock, warrants, and the executive chairman’s performance-based option award.
- Progress remediating the material weaknesses in disclosure controls and procedures.