Beachbody Company, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet figures are as of March 31, 2023. Comparisons are with Q1 2022 unless otherwise noted. Amounts below are in U.S. dollars.
Business context
Beachbody is a subscription health and wellness company offering digital fitness content, nutrition products, and connected-fitness equipment. In March 2023, it relaunched its BODi platform and began migrating BOD-only subscribers to BODi at renewal. Management identified platform improvements, Shakeology growth in the “Healthy Dessert” market, and improved bike affordability as 2023 priorities.
Financial and operating metrics
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $144.9 million | $198.9 million; down 27% |
| Digital revenue | $64.8 million | $81.7 million; down 21% |
| Nutrition and other revenue | $74.1 million | $97.7 million; down 24% |
| Connected fitness revenue | $6.0 million | $19.5 million; down 69% |
| Gross profit / gross margin | $91.3 million / 63% | $93.0 million / 47% |
| Operating loss | $27.4 million | $74.4 million |
| Net loss | $29.2 million; $0.09 per share | $73.5 million; $0.24 per share |
| Adjusted EBITDA (non-GAAP) | $(0.9) million | $(19.1) million |
| Operating cash flow | $(7.9) million | $(33.4) million |
Gross margin improvement reflected, in part, substantially lower connected-fitness inventory adjustments than in Q1 2022. Connected fitness still had a negative gross margin of 26% (versus negative 129%). Digital subscriptions were 1.75 million versus 2.46 million, and nutritional subscriptions were 0.21 million versus 0.30 million. Average digital retention was 95.9% versus 95.6%.
At March 31, cash and cash equivalents were $66.4 million; total current assets were $171.8 million and current liabilities were $178.3 million. Term Loan borrowings were $49.1 million, including a $1.25 million current portion; the loan matures August 2026. The loan’s cash interest rate was 12.03% during the quarter, plus 3% paid in kind. Total assets were $415.8 million, total liabilities $226.2 million, and stockholders’ equity $189.6 million.
Investing cash outflow was $3.4 million and financing cash outflow was $2.4 million. Cash declined by $13.7 million during the quarter. The filing reports $35.9 million of lease obligations and purchase commitments; separately, scheduled minimum inventory-purchase and service-agreement payments total $30.4 million.
Material changes versus Q1 2022
- Revenue declined across all three categories. Management attributed digital revenue weakness primarily to 29% fewer subscriptions, partly offset by higher revenue per subscription; nutrition revenue fell mainly with 30% fewer nutritional subscriptions; connected-fitness revenue fell with lower demand and reduced promotional activity.
- Operating expenses fell to $118.8 million from $167.4 million, primarily reflecting lower marketing, technology and development, and headcount-related costs. Restructuring expense was $5.4 million.
- Net loss narrowed by $44.3 million. Gross profit was down only $1.7 million despite lower revenue, with gross margin rising 16 percentage points. Q1 2022 included a $14.9 million inventory net-realizable-value adjustment, compared with no such adjustment in the Q1 2023 Adjusted EBITDA reconciliation.
- Operating cash use improved by $25.5 million, principally alongside the lower net loss, lower media spending, and changes in payable payments; the company also noted lower cash receipts from inventory sold.
- Interest expense increased to $2.3 million from $0.02 million, reflecting the Term Loan. Equity-based compensation increased to $9.6 million from $4.6 million.
Outlook, risks, and unusual items
- No specific revenue, earnings, or Adjusted EBITDA guidance is provided. Management said existing cash and cost-control initiatives were expected to cover anticipated cash needs, including debt service, for the next 12 months, while noting it may explore equity financing and cannot assure access to capital on acceptable terms.
- The Term Loan requires minimum quarterly revenue levels and minimum liquidity of $12.5 million through June 30, 2023, increasing to $15.0 million thereafter. The company reported covenant compliance at March 31, 2023.
- Q1 restructuring charges primarily related to headcount reductions and strategic alignment; approximately $0.2 million of additional termination-benefit charges were expected. The filing says the restructuring actions were expected to result in aggregate charges of $5.6 million.
- Management concluded disclosure controls and procedures were not effective at March 31, 2023 because of material weaknesses identified in the 2022 Form 10-K; remediation efforts were ongoing.
- Management cited risks including liquidity and financing access, subscriber and product demand, competition, reliance on key products, execution of growth priorities, litigation and intellectual-property protection, and warrant-liability valuation changes. It reported no currently identified litigation matter expected to have a material adverse effect.
Important facts for investors to verify
- Whether subscriber declines stabilize following the BODi relaunch and migration of BOD members, and whether subscription and product revenue trends improve.
- Cash burn, available liquidity, debt-service capacity, and compliance with the Term Loan’s revenue and liquidity covenants, especially after the liquidity threshold rises to $15.0 million.
- How much of the gross-margin improvement is sustainable versus attributable to lower inventory adjustments, and whether connected fitness can return to positive gross margin.
- Actual restructuring costs and savings, and the status and effectiveness of remediation of the disclosed material weaknesses.
- Potential dilution from equity financing and outstanding equity awards and warrants; the filing lists 91.4 million potential common shares excluded from diluted loss per share as antidilutive.
- The filing’s Adjusted EBITDA is a non-GAAP measure; review its reconciliation and adjustments alongside GAAP results.