Beachbody Company, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial figures below are in millions unless otherwise noted. Beachbody provides digital fitness and nutrition subscriptions, nutritional products, and connected fitness equipment. The June 25, 2021 business combination brought Myx into the company; reported 2021 results include Myx only from June 26 onward, so comparisons with 2020 are not fully like-for-like.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $208.1 | $251.5 | $657.4 | $639.3 |
| Gross profit / margin | $135.0 / 65% | $180.6 / 72% | $447.4 / 68% | $460.1 / 72% |
| Operating income (loss) | $(71.8) | $17.9 | $(133.5) | $(4.8) |
| Net income (loss) | $(39.9) | $13.8 | $(82.4) | $(4.6) |
| Adjusted EBITDA (non-GAAP) | $(43.4) | $31.4 | $(59.5) | $34.9 |
| Operating cash flow | Not presented for the quarter | $(139.3) | $72.3 |
Q3 revenue fell 17% year over year: digital revenue declined 5% to $94.1 million and nutrition and other revenue declined 29% to $108.1 million. Connected fitness contributed $5.9 million following the Myx acquisition. For the nine-month period, revenue rose 3%, as digital growth of 18% and Myx-related connected fitness revenue more than offset an 8% decline in nutrition and other.
Cash and cash equivalents were $199.8 million at September 30, versus $56.8 million at December 31, 2020. Current assets were $404.9 million and current liabilities $277.7 million, implying working capital of about $127.3 million. The company had no credit-facility borrowings at quarter-end; it reported $3.0 million in letters of credit and $32.0 million of facility availability. Total liabilities were $333.2 million, including lease liabilities and $19.9 million of warrant liabilities. The credit facility was terminated in November 2021, with a compensating cash balance to be maintained for the letter of credit.
For the nine months, investing cash outflow was $108.3 million, including $61.1 million of property and equipment purchases and $37.3 million of cash paid for Myx, net of acquired cash. Financing cash inflow was $390.4 million, principally from the business combination. Operating cash use included a $68.8 million inventory increase and $22.0 million of additional content assets.
Material changes and operating trends
- Q3 selling and marketing expense increased 24% to $153.8 million, or 73.9% of revenue, as higher television and online advertising was less effective at acquiring customers. Management said it intended to continue investing in these capabilities.
- Q3 digital gross margin was 87%, versus 90%; nutrition and other gross margin was 53%, versus 60%. Management cited higher content amortization and customer-service costs for digital, and freight, inventory-obsolescence reserves, and fixed-cost deleverage for nutrition.
- Digital subscriptions were 2.64 million versus 2.61 million, while nutritional subscriptions declined to 0.34 million from 0.44 million. Q3 streams fell to 35.9 million from 48.5 million; average digital retention was 95.6% versus 95.1%.
- Operating cash flow shifted from positive $72.3 million to negative $139.3 million for the nine-month comparison, reflecting the larger loss and working-capital investment, particularly inventory and content.
- Assets rose to $858.8 million from $356.3 million, including $157.9 million of Myx goodwill and $78.1 million of acquired intangible assets. The Myx purchase-price allocation remained preliminary and subject to change.
Outlook, risks, contingencies and unusual items
- Management stated that existing cash and expected operating cash flow should cover working-capital and capital-expenditure needs for at least 12 months. No quantified revenue, earnings or margin guidance was provided.
- Management described continued uncertainty around COVID-19, including whether elevated demand for digital fitness would persist. It cited higher shipping, freight and fulfillment costs and supply-chain delays; the filing also identifies competition, customer acquisition, reliance on key products, and acquisition integration as risks. Shakeology accounted for approximately 30% of revenue.
- A $30.3 million Q3 gain from the change in warrant fair value reduced the reported loss; the nine-month gain was $35.7 million. These were non-cash items, and warrant remeasurement may make reported results volatile.
- Noncancelable service and inventory purchase commitments totaled $79.5 million, including $58.6 million due in the remainder of 2021. The company disclosed ordinary-course litigation but did not expect currently identified matters to materially affect its financial position or results.
- In November 2021, Beachbody agreed to assign its Santa Monica office lease, estimating a $2.7 million increase in operating income and reductions of $22.6 million in right-of-use assets and $28.5 million in lease liabilities. Also in November, the CEO’s and another executive’s base salaries were reduced to $1 per year, effective November 15.
- Management reported effective disclosure controls at September 30, 2021, and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the sharp Q3 declines in nutrition revenue, gross margin and customer acquisition improve, and whether subscription engagement and retention remain durable.
- How much of the operating loss and cash burn reflects ongoing operations versus growth investment, acquisition integration, and non-cash or other adjustments.
- The cash and working-capital impact of elevated inventory, purchase commitments, freight costs, and capital expenditures.
- Final Myx purchase accounting, goodwill and intangible-asset valuations, integration results, and any impairment indicators.
- Potential volatility from warrant-liability remeasurement and the dilution implications of warrants, options, earn-out shares and other equity awards.
- Whether the company’s liquidity outlook remains adequate following termination of the credit facility and given ongoing operating cash use.