Beachbody Company, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Comparisons are with Q1 2021 unless otherwise noted. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context and results
Beachbody sells digital fitness subscriptions, nutrition products and connected fitness equipment. It began consolidating Openfit onto a single Beachbody platform in January 2022. Myx, acquired in June 2021, contributed connected fitness revenue in Q1 2022, so that category has no direct Q1 2021 comparable.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $198.9 | $226.2 |
| Gross profit / margin | $93.0 / 47% | $158.1 / 70% |
| Operating loss | $(74.4) | $(31.6) |
| Net loss | $(73.5) | $(30.1) |
| Adjusted EBITDA (non-GAAP) | $(19.1) | $(11.7) |
| Net loss per share, basic and diluted | $(0.24) | $(0.12) |
| Operating cash flow | $(33.4) | $(8.9) |
Revenue declined 12%. Digital revenue fell 14% to $81.7 million; nutrition and other fell 25% to $97.7 million; connected fitness generated $19.5 million. The reported connected fitness gross loss was $25.2 million, or a negative 129% gross margin. Digital gross margin was 80% (88% prior year), and nutrition and other gross margin was 54% (57% prior year).
Material changes and operating metrics
- Digital subscriptions were 2.46 million versus 2.74 million; nutritional subscriptions were 0.30 million versus 0.42 million. Average digital retention was 95.6% versus 95.8%, total streams were 38.2 million versus 56.0 million, and DAU/MAU was 31.6% versus 35.1%.
- Management attributed lower nutrition revenue mainly to fewer subscriptions: the company ended Q1 with 29% fewer nutritional subscriptions than a year earlier. Digital revenue comparisons were also affected by the reclassification of preferred-customer membership revenue beginning in Q4 2021.
- Gross margin pressure reflected connected fitness inventory markdowns, elevated product and freight costs, supply constraints and competitive pricing, as well as lower digital revenue against content amortization and depreciation.
- Selling and marketing expense decreased 26% to $106.4 million, mainly from lower media spending and Coach compensation. Enterprise technology and development expense rose 24% to $33.7 million; general and administrative expense rose 12% to $20.1 million.
Cash, liquidity and obligations
Cash and cash equivalents were $63.4 million at March 31, 2022, down from $104.1 million at December 31, 2021. Operating activities used $33.4 million and investing activities used $12.4 million; financing activities provided $1.9 million, primarily from option exercises. The company reported no borrowings outstanding at quarter-end. Total liabilities were $226.0 million, including $109.0 million of deferred revenue; this is not equivalent to funded debt.
Management said existing cash, cost controls and access to capital markets were expected to cover anticipated cash needs for the next 12 months, while also stating it was exploring additional debt or equity financing and could not assure financing would be available on acceptable terms. The company expects lower operating cash use over the next year and lower capital expenditures over the next 12 months. Noncancelable inventory and service commitments totaled $40.9 million, primarily due within the next 12 months; this excludes sales-based royalties.
Outlook, risks and unusual items
- Management expected at least $29 million in annualized cost savings from the Q1 strategic realignment beginning in Q3 2022. This is an expectation, not reported realized savings.
- The platform consolidation produced $7.2 million of restructuring expense, mainly employee termination costs. It also led to accelerated depreciation of $2.2 million and accelerated content amortization of $1.1 million.
- Inventory valuation adjustments were $16.9 million in Q1 2022 versus $2.0 million in Q1 2021. Management separately identified a $14.9 million inventory net-realizable-value adjustment in its Adjusted EBITDA reconciliation.
- Management said it did not expect the negative connected fitness gross margin to persist long term, but noted market pressure and cost inflation were expected to continue in the near term. This forward-looking statement is subject to execution and market risks.
- The filing gives no specific revenue, earnings or margin guidance. Other disclosed risks include competition, reliance on key products, liquidity and future financing needs, supply and economic conditions, litigation and intellectual-property protection. Management reported no material change to previously disclosed risk factors and no material identified litigation expected to adversely affect results.
Important facts for investors to verify
- Whether digital and nutritional subscription trends stabilize, and whether retention and engagement translate into revenue.
- Whether connected fitness inventory markdowns, freight and supply costs ease and margins improve as management expects.
- Progress and costs of the platform consolidation, including whether the expected annualized savings begin in Q3 and are achieved.
- Cash burn, working-capital needs and financing plans; the stated 12-month liquidity expectation depends partly on cost controls and access to capital markets.
- Inventory quality and remaining purchase commitments, including obligations excluded from the $40.9 million commitment total.
- Potential dilution: weighted-average common shares increased to 306.4 million from 243.0 million, and options and warrants were excluded from diluted loss per share because their inclusion would have been antidilutive.