Beachbody Company, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results; amounts below are USD millions except per-share data, percentages, and subscriber counts. Beachbody sells digital fitness subscriptions, nutrition products, and connected fitness equipment.
Financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $179.1 | $223.1 | $378.1 | $449.3 |
| Gross profit / margin | $87.3 / 49% | $154.3 / 69% | $180.3 / 48% | $312.4 / 70% |
| Operating loss | $(44.4) | $(30.0) | $(118.8) | $(61.7) |
| Net loss | $(41.9) | $(12.4) | $(115.4) | $(42.5) |
| Adjusted EBITDA, non-GAAP | $(1.5) | $(4.4) | $(20.6) | $(16.1) |
| Net loss per share, basic and diluted | $(0.14) | $(0.05) | $(0.38) | $(0.17) |
Q2 revenue fell 20% year over year: digital revenue declined 17% to $78.0 million and nutrition and other revenue declined 30% to $90.5 million. Connected fitness revenue was $10.6 million, versus minimal revenue in the prior-year quarter following the Myx acquisition. For the first half, revenue decreased 16%; digital fell 16% and nutrition and other fell 28%.
Q2 gross margin dropped to 49% from 69%. Connected fitness generated a gross loss of $20.9 million in Q2, including inventory valuation adjustments and elevated product, freight, fulfillment, and shipping costs. Six-month connected fitness gross loss was $46.0 million. The company recorded $32.0 million of inventory net-realizable-value adjustments in the first half, including $15.1 million in Q2.
Cash and cash equivalents were $57.1 million at June 30, down from $104.1 million at December 31, 2021. Six-month operating cash outflow was $33.3 million, investing outflow $19.2 million, and financing inflow $2.7 million. The company reported no borrowings under its credit facility at June 30; current liabilities were $196.9 million against current assets of $184.5 million. Deferred revenue was $107.3 million. Management said cash and cost controls were expected to cover anticipated needs for the next 12 months.
Material changes and management commentary
- Digital subscriptions were 2.28 million, down from 2.72 million year over year; nutritional subscriptions were 0.28 million, down from 0.42 million. Average digital retention was 95.6%, while total streams and DAU/MAU declined year over year.
- Management attributed weaker demand partly to post-pandemic consumer behavior, economic slowdown, inflation, and supply-chain disruption and surcharges. It expected gross-margin pressure to continue through the remainder of 2022.
- The company began consolidating Openfit and other streaming fitness offerings onto one Beachbody platform, with implementation expected by mid-Q3 2022. It recorded $8.6 million of restructuring costs in the first half and accelerated depreciation and amortization related to the consolidation.
- Management reduced media spending and returned to a performance-marketing model, and expected lower inventory purchases and capital expenditures. It was reviewing its nutrition portfolio and considering price increases; portfolio rationalization could lead to further inventory write-downs.
- Management expected connected fitness margins to remain negative until current inventory is sold through. It said pricing and bundling efforts to stimulate demand may not succeed, and additional inventory write-downs could be required.
Debt, contingencies, and subsequent events
On August 8, 2022, after quarter-end, the company borrowed $50.0 million under a senior secured term loan maturing August 8, 2026, with an additional $25.0 million facility subject to conditions. Interest includes either SOFR plus 7.15% or a reference rate plus 6.15%, as well as 3.00% paid in kind. The facility is secured by substantially all borrower and guarantor assets, includes amortization, mandatory repayment provisions, financial covenants and prepayment premiums, and requires minimum liquidity of $10.0 million through 2022, rising to $12.5 million and then $15.0 million in later periods. The company also issued warrants for 4,716,756 shares at $1.85, vesting over four years.
The company disclosed ordinary-course litigation and stated it did not believe currently identified matters would materially adversely affect its financial position or results. Noncancelable inventory and service commitments totaled $38.0 million; management separately reported $45.3 million of lease obligations and purchase commitments. Goodwill impairment testing at June 30 found reporting-unit fair value approximately 60% above carrying value, with no impairment recorded. Management cited market capitalization declines and macroeconomic factors as factors it will continue to monitor.
Most important facts to verify
- Whether subscriber declines stabilize and the single-platform consolidation improves customer acquisition and digital revenue.
- Whether gross-margin pressure, connected fitness losses, and further inventory write-downs persist through 2022.
- Cash burn, working-capital needs, and compliance with the new term loan’s revenue and liquidity covenants.
- The effect of secured debt costs, mandatory repayments, prepayment terms, and warrant dilution on future liquidity and shareholders.
- Whether management’s stated expectation of sufficient liquidity for the next 12 months remains supportable given operating cash outflows and the post-quarter financing.