Q2 2021 Beachbody Company Inc Earnings Call
Any of you listening are new to the Beach body Company story. So before we go into a review of our recent performance I want to spend some time discussing our business and operating model than our CFO Sue Collyns will talk through our second quarter financial results and our full year 2021 outlook. So.
Over the past 22 years.
Each party has grown from a pioneer in creating and marketing innovative effective fitness and nutrition programs into a leading subscription health and wellness company augmenting our core competencies and our massive content library with compelling new digital fitness content and proprietary nutritional products proven.
To deliver results for our millions of customers now while the fitness industry is undergoing a significant transition in this digital age the underlying premise remains the same as when we hung the mission statement on the wall of our small startup two decades ago and that mission is to help people achieve.
Their goals and enjoy healthy fulfilling lives now today.
This mission puts beach body at the forefront.
One five trillion dollar health and wellness industry that is expanding at a time when consumers are increasingly looking for effective affordable at home digitally enabled fitness and nutrition solutions with approximately 72% of Americans overweight or obese.
And research validating the importance of good health and physical activity and promoting resistance to COVID-19.
We take our mission very seriously I believe it's more critical than ever that we execute in a way that delivers exceptional value to our customers provides a compelling opportunity for thousands of coaches and influencers to inspire new customers to be more proactive about their health and builds long term value for.
Our shareholders.
Now we believe we're uniquely positioned to capture a meaningful share of the increased focus and spending on health and wellness and our newly combined company creates a wide moat and unique competitive advantages to deliver cost effective results to the mass market that includes the deepest library of prime.
Liam digital fitness content in the industry tools to support customers, who are looking for healthy results, providing effective step by step programs that include meal planning and proprietary nutrition products.
And now a high quality cost effective at home connected fitness solution with our MX stationary bike and its 360 degree touch screen swivel tablet all underpinned by two scalable platforms that leverage our expertise and distribution marketing and compelling content creation.
Now those two platforms, our beach body on demand or what we call Bod.
Which delivers our extensive and growing content library of fitness programs and new lives subscription tier, which I'll describe that in a minute.
And open fit what we call the master class a fitness centered around celebrities and major influencers offering live instructional workouts and a unique gamify fitness experience assumed both of these platforms will be available to customers of the mixed fitness bike, which we like to call that the stationary bike for the 99%.
Because of its cost effective price, but it's also one of the highest quality commercial grade bikes on the market and it will offer a range of content for all fitness levels and preferences now what's unique about our business model is that we've created a compelling value proposition for our customers. So they have all the tools they need to get help.
The results in one place we bundle our content with meal planning and nutritional subscriptions based on the customer's individual goals for $99 a year for instance, we bundle our beach body on demand digital streaming platform along with discounts on various beach body nutritional products based on our.
<unk> specific needs for.
We're following the same model with open fit for $96 a year bundled with discounts on ladder nutritional supplements, which was that.
Supplement line was developed and used by Lebron James and Arnold Schwarzenegger now Bard was launched in 2016 and now that platform features over 3600 on demand streaming workouts across 87 completely different programs. That's a lot of variety right, there combining fitness and nutrition plans meditation.
And our own internal social media component kind of like our own Facebook groups and daily progress tracking open fit launched in 2019, using the same core competencies and content development, but open fit was built around a unique technology that creates a virtual live small group exercise experience.
We're certified trainers supervise over 400 live classes, a week and a variety of workouts, including strength training Pilates kick boxing yoga and meditation to name just a few now these classes allow for guidance with a live certified personal trainer, who can help the subscriber during the workouts user.
The camera on their smartphone or tablet.
While the entry door to beach body or open fit is often through our fitness content. Another entry point and driver of lifetime revenue is through supplement subscriptions and meal planning and this creates this synergy of providing a one stop resource for fitness and nutrition harmonizes the experience of the.
Product increases lifetime value and ultimately.
It gives customers the best results. We currently offer 25 different proprietary nutrition products created by our World class R&D and product development teams to meet specific needs and solve nutritional gaps for our customers. For example, shake allergy are well known nutritional shake formulated with Super Foods Phytonutrients earn.
<unk> premium probiotics and clean protein that helps beach body on demand customers get healthy while they make changes in their diet that supports their overall goals.
And an open fit we feature ladder supplements, which were originally created like I said to optimize Lebron James on core performance, but can do the same for any customer who is becoming more active we acquired the ladder business in Q3 of 2020 and are in the process of expanding and scaling distribution of the latter product.
Our comprehensive approach is now enhanced with the addition of stationary cycling to both the beach body and opens it platforms. The acquisition of mix enables us to offer high quality connected fitness to more people with a commercial grade bike that offers an indoor cycling experience based on the riders.
Heart rate for a truly personalized experience the MX product line is priced approximately 20% to 30% lower than the competition, depending on the configuration plus.
Both the board and open fits subscriptions can be streamed onto the mix 360 degree swivel touch screen, which gives customers the greatest variety from which to choose with access to our comprehensive library of proven on and off bike fitness meditation and nutrition content.
Unprecedented value proposition and will also allow us to cross sell other products right. There on the touch screen by delivering personalized offers to customers. We're the only provider in the connected fitness market with the ability to cross sell our products directly through the tablet.
And beyond this compelling bundling synergy with our business model what attracted us to mix was their focus on getting people results mix found that theres. This fast audience, who are intimidated by the pressure of the leader board on other platforms. Most users surveyed said they would prefer a less competitive experience based.
More on their own results and personalized workout intensity as measured by their heart rate, we believe that pairing our content with the technology that mixes developed allows us to create an innovative and compelling experience that will drive acquisition of customers, who want healthy results that come from our total solution this entire ecosystem.
Both our digital platforms and the mixed Spike is now being supported by strategic marketing investments that drive that customer acquisition retention and cross sell opportunities and this isn't new to the company we've been executing on a refined approach to direct marketing over the past two decades, and we view our approach as it.
Key competitive advantage, but now we have the product lineup capital and the resources to drive real growth. We currently acquire new customers in two ways through performance marketing paid advertising.
And through our substantial micro Influencer network, which consists of roughly 400000 people we call them coaches.
They serve as the foundation of our online community and with the merger just complete our proven business model gives us a real competitive edge with $347 million of cash on our balance sheet. The broadest fitness content library in the world the ability to cross sell products on connected fitness and this 400.
Strong army of Influencers, we are in the best position in our history to accelerate growth in the years ahead now our plans, but this capital and our plans to go forward include first accelerating customer acquisition Beach body has always acquired customers Opportunistically and we believe we can supercharge growth by <unk>.
<unk> down on customer acquisition with the same disciplined approach that we've used for the past 20 years enhanced by the leverage created by our first branded advertising campaign.
Second.
Expanding internationally Beach body is currently 99% North America based business. We believe we can scale the business model into new international markets, particularly in parts of Europe.
Third.
Increasing technology and data and analytics investments our September launch of the Bod Interactive platform is a good example of leveraging existing resources and skill sets to dramatically expand the Tam with live interactive content, featuring our very popular Super trainers. We believe this can expand lifetime value.
By adding an additional subscription tier of $19.95, a month to our board membership while maintaining the low entry membership price of $99 a year for Bob Likewise, we're investing in significant data and analytics expertise and technology to leverage the substantial user insights we've received from <unk>.
Our multiple subscription offerings. This vastly improves our ability to ensure customers have the best possible experience and to help steer future capital allocation and the direction that will create the most enterprise value.
Fourth opportunistic M&A, we're seeing many attractive inbound M&A opportunities in the market that would benefit from beech bodies scale distribution and marketing expertise over the last two years, we've acquired the <unk> technology platform latter supplements and of course, most recently mixed fitness and we're excited to pursue additional <unk>.
M&A activity that supports our growth plans.
Now turning to our recent performance as we noted in our press release completion of the merger was delayed by approximately a quarter, but despite this delay we continued to execute our business model during the second quarter, introducing new digital content and nutritional products that have been well received by new and existing subscribers on boss.
This included an all new dance fitness program led by Super trainer Shaun T called let's get up which has already been stream nearly 3 million times since its launch in April open fit announced a new initiative to bundle open fit streaming content with gym memberships, starting with an agreement with fitness international and our la fitness gym members.
Yeah.
This demonstrates our focus on continuing to capitalize on innovative distribution opportunities with open fit.
Finally, we've made a strategic minority investment in feed media group the company behind feed FM, the leading <unk> music licensing subscription service in the fitness space.
This followed our agreement with feed FM to implement its cost effective solution to further elevate the experience of our fitness content with popular music.
With <unk> unique business model users can follow the trainers curated playlists or choose from multiple stations. So they can work out to music in their choice, while staying on the beat with the rest of the class and we're excited to feature this innovative service in the bought interactive subscription that I mentioned with the merger complete.
The business is now poised to accelerate via several drivers, including our first ever Beach body brand advertising campaign launching this month across social digital and television as well as an incremental $33 million investment in marketing above our prior plans to spend $156 million on a combined full year basis.
For a total of $189 million on a combined basis. In 2021. This is a 112% increase over 2020 or 250% increase over 2019.
Finally, starting late this quarter, we will begin offering the recently upgraded mixed bike to our database and powerful network of coaches. This is something that they have been asking for purchase intent is high and we are increasing our forecasted bike units by roughly 30% from approximately 73000 units to 95000 units for <unk>.
'twenty one so.
In summary, we're very excited for what lies ahead for the beach body company no doubt the challenging macro backdrop and its impact on the predictability of consumer behavior right. Now does present, some near term unknowns, which we're watching and reacting to on a day by day basis to do what's best for the business.
I wont sugarcoat, the volatility of the current environment and that said.
I couldnt be more optimistic about our long term prospects with entry points across multiple platforms and our long history of successfully acquiring engaging and retaining customers I am confident that we will efficiently deploy our substantial financial resources to scale, the business and create significant shareholder value.
Over the long term the business. We built provides a strong foundation for growth combined with the many levers we have to drive both revenue and earnings acceleration and most importantly, allocate capital in a way that will help tens of millions more people get healthy.
So I'll now turn the call over to Sue to discuss the second quarter results and our guidance for the remainder of fiscal 2021.
Thanks, very much Carl and good afternoon, everyone I'll start with a review of our second quarter and six months results.
And then share our guidance for the full yeah. It's.
As Tom mentioned, our three way combination that makes fitness clothing and parse right acquisition call was completed on June 25th and as a result, our GAAP financials for the second quarter and six months ended June 30.
Included five day for me.
Full details regarding our financial results. Please refer to that earnings press release and Form 10-Q filed with the SEC, which are available on the Investor Relations section of our website.
Before I begin I guess.
The table on a few data points that impacted our second quarter results and has resulted in us updating 2021 full year guidance.
Nokia Covid environment resulted in challenging comparison, beginning with the second quarter of 2020 as containment began to engage in activities outside.
This is why we thought it would be helpful to share that 2019 pre COVID-19 period as additional context.
Second the course delay in closing of the merger with mix resulted in a tougher in approximately $12 million Q2 previously planned media investment until the second half of this year.
The impact of the sales mentioned previously forecast it and digital subscription towards the end of the second quarter and corresponding momentum into the second half of 2021.
Finally transparency.
Important to it.
And fourth Powerpoint, one should look at the volatility of the current environment.
Uncertainty and containment.
I hate it created by Covid variance another macro conditions, which is why we are updating our full year 2021 guidance.
Now turning onto our Q2 results.
Revenue increased 2% year over year in the second quarter to $223.1 million.
21% compared to the second quarter of 2019.
Primarily driven by strong digital performance.
Revenue of $94.3 million, a 20% increase compared to Q2 of 2020, and 61% increase compared to Q2 of 2019.
And other revenue was $128.8 million, an 8% decrease compared to Q2 of 2020, but a 3% increase compared to Q2 of 2019 with the year over year decrease driven by a shift in revenue from Shane commenting has been continued to diversify our nutritional products.
Fine.
On a pre merger and pro forma basis, we included additional historical information by quarter, including mix revenue from <unk>.
Q2 of 2020 to Q2 of 2021 and item five of our second quarter 10-Q, which was filed with the SEC today.
This will allow you to reconcile the pre merger and careful in that type of revenue for the three months period of Q2 of 'twenty, one, which increased 7% to $237.3 million or the 2020 and increased 29% compared to 2019.
You'll recall that GAAP accounting and our business combination close date of June 25th only allow us to include $88000 of revenue mix in Q2.
The $14.3 million generated revenue for the full quarter.
Following on with that same pre measure Q2 kpis.
Mix mix held 10000 bikes.
5500, a year ago and increased digital subscription to 41600, 1800 digital subscriptions a year ago.
Now I'd like to turn to our digital Kpis for the second quarter.
Yeah. Thank you subscriptions increased 13% to 7 million subscribers and are up 51 on a two year basis.
And then with engagement daily active users monthly active user which is an important engagement metric, we follow or down that was down 130 basis points versus prior year.
370 basis points.
19.
The extremes with out in 'twenty.
Versus last year.
75% compared to the second quarter 2019.
Moving down the P&L gross profit was $154.3 million.
A 3% decline compared to Q2 of 2020.
Can you think of gross margins remain consistent year over year, and 88%, while nutritional and other gross margins were 56% compared to 64% in the prior period with the decrease due to a shift in sales compensation, along with approximately one $8 million and highest shipping price.
Other fulfillment costs, largely the result of Covid related disruption and this $1.8 million charge is excluded in our adjusted EBITDA calculation.
Operating expenses totaled $184.4 million or two 6% revenue compared to 171.
Damian.
78, 5% revenue in the prior year period.
Our operating expenses will fall into three areas, one selling and marketing two enterprise technology and development and three general and administrative costs and now I'll take each one of them line by line.
And marketing expenses, primarily in clinic.
With coach compensation advertising promotions and events.
Personnel related expenses for employee and consultant.
With these areas.
Second quarter, 2021, selling and marketing expenses increased to $148.2 million or <unk> 52.
Two 8% of revenue from $134.7 million or 61, 6% of revenue last year.
At $5.5 million increase was mainly due to a $4.2 million charge for a nonrefundable deposit cross sales event, which was canceled due to COVID-19.
With friction, which is also excluded in our adjusted EBITDA calculation.
The remaining balance of $1.3 million.
Our head count additions and our data analytics and marketing team to drive.
Customer acquisition.
Enterprise technology and development expenses relate primarily to technology infrastructure that supports the business is not directly related to sales of that product.
These expenses totaled $26.9 million or 12% of revenue for the quarter compared to $22.4 million or 10% of revenue in the prior year.
The increase was primarily due to personnel additions in general enterprise system related expenses.
General and administrative expenses totaled $17.2 million or seven 7% revenue compared with $14.5 million or six 6% of revenue in Q2 of 2020.
The increase was due to merger related transaction costs, which totaled one $5 million and Thats also added back to adjusted EBITDA as well as higher personnel and general corporate expenses to support future growth.
Moving on to the change in fair value of warrant liabilities.
As many of you may recall earlier this year, there was an accounting change announced to account for warrants from equity to liabilities and.
Such a merger triggered a noncash accounting benefit of $5.4 million in the second quarter, which was primarily driven by the change in the fair value of the liability for the $15.3 million warrants between the merger date of June 25th and the period end date of June of this year.
Interest expense totaled $305000.248000 in Q2 of 2020 and related to modestly higher interest on borrowing normal working capital needs from our revolver.
Other income totaled $1.7 million related to a noncash gain on the $15 million convertible instrument with mix that was converted to equity post merger.
No similar investments in Q2 of 2020.
Noncash gain because that are added back to our net income to adjusted EBITDA reconciliation found in our press release and 10-Q filings.
We realized an income tax benefit of $10.9 million in the quarter, which was also the result of the merger.
As a result.
The net loss of $12.4 million compared to a net loss of $10 million in the second quarter last year.
And now I'd like to move on to adjusted EBITDA, which we define and calculate as net income or loss adjusted depreciation and amortization amortization of content assets interest expense.
Income tax equity based compensation and other items not normal recurring operating expenses necessary to operate the company.
Our adjusted EBITDA loss for the quarter totaled $4.4 million compared to our purpose of $890000 second quarter of 2020.
Turn to review of our results for the first six months of 2021 total revenue was $449.3 million or.
16% increase compared to the six months ended June of 2020, and a 14% increase compared to the same period in 2019.
For the six months in 2021, the fourth quarter benefited from Covid mandated restriction, which largely quarantine customers inside their homes and we saw an increase in pre merger revenue up 43%.
Q1.2020.
Those restrictions eased in the second quarter, continuing that behavior with less predictable, which compounded an already challenging comparison.
On a pre merger and pro forma combined basis total revenue for the six month period ended June 30.
Increased 23% to $485 million. However, as previously mentioned because that business combination days at June 25th only allowed to recognize five days of revenue.
Which is $88000.
Revenue totaled $449.3 million for the six month period was 16% higher than the same period in 2020 as compared to the pro forma increase of 23% I just noted above.
Digital revenue totaled $189.5 million and 34% increase compared to the same period in 2020, and 52% increase compared to 2019.
Christian and other revenue totaled $259.9 million.
A 5% increase compared to 2020, and a 4% decrease compared to 2019 came to a change in our sales composition as we diversified and bundled other nutritional products.
The new subscription totaled $2.7 million the same as we just reviewed for the quarter period, which is a 13% increase year over year, and a 61% increase compared to 2019.
Year to date down now 33, 5%.
Third 90 basis point increase compared to 2020, and a 440 basis point increase compared to 2019.
Extreme totaled $104 million, which was a 13% increase compared to 2020, and a 93% increase compared to 2019 month over month digital retention was 95, 4%, a 20 basis point increase year over year, and 30 basis point increase.
Compared to the first half of 2019.
Regarding our nutrition and other revenue component of revenue.
Traditional subscription titled Theorize, <unk> 4 million compared to zero point $5 million in 2020 and zero point in training in 2019.
Our gross profit dollars totaled $312.4 million.
A 12% increase over 2020.
Consolidated gross margin was 17% versus 72% in the prior year period with digital margins, increasing to 88% from 87% and nutrition and now the gross margin declining to 56% from 63% due to the aforementioned product mix changes and increase.
In shipping fulfillment and personnel costs.
Total operating expenses totaled $374.1 million.
<unk> increased 24% compared to the prior year period.
As a percentage of sales total operating expenses were 83, 3% versus 77, 9% in the prior year period, while the entire percentage variance was driven by a $22 million increase in media spend compared to 2020 as the revenue increase associated with that spend.
A clear cut as a subsequent period.
Our net loss for the first half of 2021 with $42.5 million compared to a net loss of $18.3 million in 2020, and net income of $27.1 million.
2019.
Our adjusted EBITDA loss of $16.1 million in the first half of 2021 compared to adjusted EBITDA of $3.6 million in 2020, and 39.7 million in 2019.
Our weighted average shares outstanding for the three and six months ended June 30 were approximately $247.1 million and 245 million shares respectively.
This differs from the 308 million shares outstanding reported in our stockholder equity table as the calculation average shares, but the 90 and 190 day period and as you'll recall given the merger occurred on June 25th the calculation and he has five additional days of shares from that merger.
Turning on to our balance sheet as of June 30, our cash and cash equivalent type of $347.2 million.
Affecting the proceeds for the manager and no debt.
The strength of our balance sheet positions us very well to fund increased investments in marketing as well as other strategic growth initiatives digital nutrition and connected fitness over the remainder of 2021 and in the years ahead.
And now I'd like to turn to our full year 2021 guidance.
As we head into the second half of the year, we're executing on our previously communicated strategic initiatives, albeit with a quarter delay.
We expect these results will be improved in a long time with the launch of our bond interactive platform in September and the additional $45 million in media with a brand campaign, starting next week the call mentioned in his comment.
In fact on that 45 million 12 million with deferred from the first half of 2021 and the remaining $33 million is incremental and opportunistic spend for a long time. Additionally, we are increasing our full year connected fitness bike sales forecast to 95000 units from 73000 unit.
It.
Higher freight expense and global supply chain challenges have resulted in what we believe will be a short term increase in unit cost for each bike, which we do expect to negatively impact gross margin and adjusted EBITDA for at least 12 months and being a use of cash as we build inventory for the first quarter of 2022.
No.
However, the investment to meet anticipated demand supports our longer term goal of subscriber growth and creating the best experience for our customers and increasing both engagement and retention in line with our strategic plan.
But the media investment and increased unit sales of lifetime value investments rather than in year profit investment and will negatively impact our adjusted EBITDA. This year. Additionally.
Additionally, due to the lingering uncertainty created by the pandemic.
Opting for a more conservative view with respect to our outlook for the remainder of the year.
Accordingly for the full year, we are now forecasting total GAAP revenue of between 930 million to $960 million.
On an adjusted EBITDA loss.
Of between negative $110 million and $100 million respectively.
Moving on to Capex as a result of the increased investments, we're making to integrate content onto our next touch screen launch bought interactive and make improvements to our proprietary platform hosting Bud groups. We are forecasting capital expenditures of approximately $120 million and full year.
Finally, I'd like to reinforce one important point before we move to Q&A, while we felt it was important to be transparent regarding midterm consumer uncertainty and adopt a more conservative approach given the delay about merger we remain very confident in the secular trends of Apple business, our strategy and our long term.
Prospects and with that operator, please open the line for questions.
Thank you ma'am at this time I would like to remind everyone in order to ask a question. Please press star one on your telephone keypad.
Well pause for just a moment to compile the Q&A roster.
Yeah.
And our first question from Jonathan Komp of Baird You May ask your question.
Yeah.
Yes, we can hear you.
Hello can you hear me now.
Alright, great. Thank you.
Thank you I guess, the first question I wanted to ask.
When you talk about some of the volatility and.
It really more of what Youre seeing in the current environment could you just share a little bit more on what you're seeing from the core consumer and any thoughts about how that plays out maybe maybe into the back half here.
Sure.
Happy to respond and then concentrated jump in.
So and that she'd like to frame that relative to the front part of the year and also talk about some current trends we're seeing in terms of July and I know this activity so to be very clear.
For the year was very strong for us.
And we were on the <unk> side, our revenue was within actually less than 1% of budget mess. So we essentially hit on target.
Revenue side and wholesale we actually beat our target on the EBIT side of course that was a result of that.
Media delay the.
The new product releases that launched on time and are doing very well.
We're executing on the initiatives are and of course now we've got some increased purchase intent from a culture from the mixed bikes, which has emboldened us to increase the forecast and of course, we're now ramping up media by that additional $33 million. So first on the VA was very strong.
Timing difference in some of that volatility that you see reflected in the forecast for revenue is really that campaign launching.
Mitch.
Launching until later this week currently on next week, which is forecasted to take a couple of months to build momentum.
Incrementally in terms of subscribers, but our base is strong and to share some insights into July as an example.
DAU MAU was below prior year by 330 basis points, but it's still up 80 basis points over 2019.
Our retention as I look at that metric is also very strong so far it's actually 60 basis points better than prior year, and 10 basis points better than 2019 and screen.
You might know that we had a peak.
July and August where peak Covid spike.
In the second half of 2020, but our streams.
In Q3, and below 2020, but the 52% over 2019, so the business is holding up very well.
Are they seeing in terms of that revenue reduction.
And essentially driven by that immediate deferral.
Yes.
I also think that.
Despite the delay in the transaction.
Which has a bit of a ripple effect on how on things that we can actually put into the marketplace in year.
We are very excited by the launch of what we're calling bought interactive and if you recall from earlier presentations. This idea of <unk>.
Adding an additional subscription tier for $19.95, a month basically an upgrade for our.
Base Beach by the on demand subscriber.
That went into beta testing just this last couple of weeks and we have had.
Very positive feedback on that additional layer to the business. It opens up our total addressable market because were really appealing now to fitness people, who want to work out two or three times.
In their home maybe not follow a program, which is the traditional business model of Beach, Vice followed and now we're seeing people who.
It might not be in the middle of a <unk> round, Oregon Saturday round or 'twenty, one they fixed but they just want to work out a few times a week and now for the first time ever have access to the Super trainers live a few times a week and like I said. This has just started the beta test, but the feedback that we've gotten is incredibly positive.
And it's with that layer that will also be able to.
Introduced the bike to this large subscription base of beach body on demand, which is why we've increased some of those forecasts because anticipation and surveys of purchase intent are very strong and we're excited to get that underway. Unfortunately it was just.
Delayed by about a quarter. So we're not going to be able to get that started until late September but but based on the indications that we've got quite honestly, we feel very good about it at the same time, we're taking a view that that let everyone know that there are uncertainties in the market, including the <unk>.
And the reaction that people have to the dynamics are better.
Evolving every day. So we just we wanted to take an approach that is transparent and.
It doesn't over promise, but nonetheless feel very good about the initiatives that we finally get to put into play now that we've closed the deal.
Okay. That's very helpful. And then maybe thinking forward to the second half sort of the embedded guidance can you can you share any more thoughts of how you crafted the guidance it looks like for the second half in total there is maybe an acceleration in sort of a two year <unk>.
Revenue growth rate and I know you are including mix in the second half. So any further thoughts on how crafted the second half and maybe of the initiatives. You just mentioned how should we think about the biggest drivers of the incremental growth that youre expecting.
The most important.
Drivers always are incremental subscriptions and.
And.
As you mentioned the introduction of the bike into both the open ecosystem and the beach body ecosystem and so based on feedback that we've gotten from the database.
We've gotten a certain degree of confidence and.
And.
That is reflected in the numbers as soon as presented likewise.
The conversions that we've seen of the beach body on demand current beachfront O&M and subscriber into this upgrade of an additional $19.95 a month.
<unk> performed.
As good as or better than perhaps we might have expected in the first month that we've started to message beach body on demand interactive.
And finally the.
Introduction of the Supercenter, Jennifer Jacobs, who is youll recall shoes, you used to be a peloton instructor. She has a program coming out in early December.
We have gotten very strong enthusiasm around that concept is called job one.
Month long program, a 20 minute work outs, which is really popular formula in our SEC.
The lexicon of what we've created over the years.
And sort of adding these multiple initiatives together gave us the confidence that.
We could put these numbers forward and not be over promising and.
Like I said there are a number of dynamics that were built.
Looking at and trying to understand and we're using the most current behavior.
To indicate how we go about adjusting that forecast rather than expecting things to all of the sudden change.
Or that we have a crystal ball that is more clear than it currently is with all the various dynamics going on but it's really those it's the bike is speech by the on demand interactive.
It's the launch of the new program in.
Late November early December and the indications that we're getting a purchase intent on those three things.
And mathematically I think there are any addition, I would have and you'll be able to do this math.
And you'll have a cool well pulling down the revenue forecast.
Because if I'm not coming in in June and July the media campaign would have otherwise.
<unk> had a bunch of it.
Results in.
A reduction in revenue of between $100 million to $130 million right between the second half of the year.
And with 25% of that revenue occurring in Q3, and the balance essentially occurring in Q4 and the reason for that of course is because even though the media campaign.
Launching later this week and next week.
It's going to take a while as I mentioned in the prepared remarks to get momentum behind that so we don't anticipate.
Subscribe is really being driven until the fourth quarter. So that will help spike our Q4 earnings.
The Q3 run rates.
And then I think they are in terms of sales composition Europe. It's even a theme that I think is there any way able to book any pass $1 of revenue that makes in second quarter and for the first six months and you're obviously going to see a greater share of sales mix and we're currently forecasting around 25000.
Sales of the bike in Q3 with the balance in Q4 so.
But you should be able to update your models with that kind of information.
Get to a pretty good sales composition.
Okay makes sense and maybe just last one from me when you think about the plans to ramp the investment here in marketing and other initiatives just maybe comment on what's driving your confidence relative to some of the volatility youre seeing and then how should we gauge.
The payoff that youre expecting from the investments that more.
22 expectation that we should see some benefit or how should we.
Overall view of the accelerated investments thank.
Thank you.
Yes mathematically.
I'm not expecting a financial benefit from that in a material way in 2021, which is why we also pulled down corresponding EBIT guidance. So.
Tim does that EBIT bridge from like the loss of negative $30 million to the range. We have now a negative 100 to 100.
And that basically broken up.
As a result of three drivers one is that incremental $33 million of media and not expecting to.
Drive any mentality here, just expecting it to drive real subscribe and so we'll see a bit of that revenue in Q4, but it will really help us in 'twenty two.
Two the flows the flow through of about 25% on that reduced revenue and training, we do have fixed cost of goods pressuring margins in the mid teens.
In the budget that we had this is the reality is that mid teen loss right now so that's impacting our EBITDA, but in terms of our LTV to CAC and the disciplined approach that we had to spending money in terms of media dollars in terms of performance based marketing.
Brad the way that some things some of the top of the funnel work we're doing now.
Where.
Adopting the same approach that we always have that were expecting most of the brand awareness to occur into 2022 I'll also add we've got ongoing iterative testing that we are seeing.
Wins, along the way, which is how we've always operated so.
Version of visits click to order ratios and so on where we're seeing.
<unk> wins.
That's always the way we've run the business so that over the course of time, we just get more efficient and more efficient and more efficient and then as volatility in the media marketplace starts to stabilize we get to roll those efficiencies into our media spending so we're excited by.
It's one of the reasons that we would be.
Spanning our media buys because we've seen enough indications that it will have a positive outcome and.
Capital allocation is very important to us and it's exciting to have the resources now to really do that and we feel like we've got the right makeup of the business model to invest that media into so.
We are quite excited about it both in terms of.
What it might do to two.
The effect some of the numbers in the second half.
Undermines near.
Near term, but we do feel that long term finally beach party will be on the map, both as a brand and in terms of the <unk>.
Accelerated growth that we're all expecting.
Yeah.
Okay I appreciate all the color. Thanks again.
John.
Yeah.
And we have our next question Sunshine <unk> of Guggenheim You May ask your question.
Carl I wanted to start with when you think about the $33 million of incremental investment right. So Bobby as an opportunity.
<unk> is an opportunity how do you think about allocating that.
The various brands and whereas the biggest payback likely.
Right over the next year or two.
I think that.
The investment in brand in the beach body brand because of the critical mass of beach body and its subscriber base and our micro Influencers you can imagine how powerful.
The brand awareness campaign can be to the various levers. So we've got performance marketing that's already running but now we'll get the benefit of some uplift of quite.
Quite frankly is.
Embarrassed to say after 22 years.
Not as many people are familiar.
Familiar with the beach body brand as I would like but that is an incredible opportunity for improvement so.
Brand marketing going into beach body, plus supporting our coach Influencer network with brand marketing. So there so theyre talking about a brand that people people will actually recognized so that's that's a very important aspect of this increase in.
In advertising likewise.
Mix just came out with a second version of the bike literally this month or board.
We're in August so we just launched what they call mixed to dislike is exceptional from design and function and stability.
Really when as people start to see the marketing behind that bike and the storytelling behind that bike. It is superior to what's on the market, particularly at a price point, that's 20% to 30% less than the competition. So we've just literally in the last week started to get that word out but as people start.
To understand the difference in features the fact that you don't need to change your shoes between doing a workout on the bike and then getting off it to do some functional fitness or the fact that this swivel screen goes 360 degrees. So you can do some of our beach body content off the bike and on the bike business.
The things that we specialize in and have done for 22 years to be able to apply that expertise to this new.
Innovation in stationary cycling is extremely exciting to us because the mix business model.
It was very strong going in to this transaction and we expect to just complement that now I will say.
We're going to be quite smart about the way, we do that because we're going into the third quarter media rates are squarely.
So we're doing that smart, but we're doing it again with the mindset of what we've represented to the marketplace. As we went into this transaction that we are poised for growth. We are raising this money for growth and that's what we're investing and we're doing it responsibly, but we understand.
What our directive is and our investors are expecting a growth story and we're applying it to the levers where we think we can achieve the highest growth and return on capital as quickly as possible.
And mathematically I would just say its about 70.30 in terms of the.
The split between sort of the beach body and no profit side of.
The business mix in the media in the second half of the year.
And then second real quick.
Yes, I know, there's a big opportunity on the cross sell right digital tools to nutrition.
How quickly can you get at that.
Certainly it's not 'twenty one.
Is it something that you could get up on middle of 'twenty, two or is it after that.
Do you mean on the touch screen.
No no no cross selling digital subscriptions.
<unk>.
Krishna subscribers.
Well that's ongoing I mean, that's part of the model now and is low fruit on the tree.
To increase the attach rate.
Not just because it makes good business sense, but because it makes good sense for the customer so the opportunity to communicate that quite frankly. This is another one of the exciting layers that that happens when you add content now so on the open pit side, we create 400 live workouts per week they have just.
Started to Institute the cross sell strategies into those 400 live workouts to help people understand that they could get more power from a pre workout formula or recover faster with a recovery formula Likewise on the beach body on demand side, we're now going to have 40, new workouts with our Super trainers produced.
Each week starting in late September that's an opportunity for us to reemphasize and Reengage on the cross sell opportunity.
Supplement line, we have 25 different.
Skus across our supplement line. So that is something that we expect to only ramp up here and there.
Third quarter, and particularly September October November and December as we rollout. This live content. So that's an important part of it but I do want to mention.
You mentioned.
We are also engineering the prospect of <unk>.
Touch screen ordering into that tablet that's on the mixed bike, which is a very powerful opportunity for us and it'll be it'll be done in a couple of stages, but by the end of 2021, we expect that to be fully functional so that was effectively one touch since we got your order information you'll be able to buy a meal replacement shake a pre workout shake or recover shape. So.
It will be fully functional technologically by the end of the year, but it is operational right now through the advent of the live content.
Thank you.
And our next question from Linda Bolton Weiser of D. A Davidson you may ask your question.
Yes Hello.
I was wondering.
You had mentioned in your discussion of result from hard comparisons in prior year, I guess because of Covid driven growth can you just kind of elaborate on that and talk about which ones at both sides of your business that benefited during COVID-19.
And the nutrition side.
I'm, saying that nutrition revenue was up about 5% in 2020. So that's been kind of normal for me. So it wasn't really the digital sides of the balance there can you just talk about the Covid effect on your business. Thank you.
So yes.
Go ahead please.
Right so.
Okay.
Similar to the prior question the nutritional business really follows the digital business by and large.
So last year, we saw growth in nutrition file as we had more subscribers, but we also had people who were displacing perhaps their gym membership.
And so we saw a increase in digital subscribers that was faster than the increase in nutritional subscribers.
We have since gained some efficiency, but we're still seeing.
A shift in product mix, if you will.
Sheikh allergy has been the primary.
A product of the company the dominant supplement that we've sold for the last few years and we have seen a shift in that product mix from Sheikh allergy, perhaps to our pre workout NR post workout formulations, but.
I don't necessarily think that that shift in revenue.
Is COVID-19 related and I don't know Sue if you want to speak to that but I don't think that we can correlate.
The COVID-19 environment to the change in that relationship.
Okay.
So.
Can you just kind of like talk a little bit more about.
The profitability.
No.
Sure.
So for the year went from a $30 million EBIT loss EBITDA loss of about 100 million, so $30 million or so is the incremental media.
And then so is there any way to put like the other 40 million of increase in the loss for the year is there any way of making buckets to explain to us like the reasons for the <unk>.
$40 million.
And profitability like can you say that there are certain amount of supply chain and certain amount is something else can you just kind of bucket. It for us if you could.
Sure.
Linda.
Yeah, I think youre exactly thinking about it correctly, we definitely got pressure on EBITDA as a result of the additional $33 million in media and then the balance is broken up into two key areas for US one is mixed consequence pressure.
And that's what I mentioned before that the gross profit.
We had a budget of course is really a mid teens loss.
And so that's actually about $15 million and the rest represents flow through on the reduced revenue estimate of between 100 man, which gets you to that 930.
Hum.
$960 million or $130 million, which gets you to the 913.
Thank you.
Well yeah on slide here was really you can just look at the cost of goods margins and then add in the balance being coach costs instead of getting to a 25% plus you on that.
Okay. Thank you that's very helpful and then.
Okay.
Talk about your longer term views on profitability.
Ill.
You had really projected to be profitable on an EBITDA basis in 2022.
Do you think you can still be positive EBITDA in 2022.
Yeah.
No you don't want to make projections about next year now, but we're looking at positive EBITDA do you think in 2022.
Since the middle early to update our full year 2022 guidance, because while revenue obviously governed by GAAP and even though we met the revenue in the first half of the year compared to our budget essentially and will be the EBITDA, what's different of course not in the second half of the year, which is why we know that the guidance is the fact that subscribe.
<unk> can occur on the last day of the year and that really drives results for the subsequent year right.
So the launch of body in September is obviously going to be a key data point I will be the success of the media campaign.
As well as some other conversations that are currently in place, but it's too early to forecast and the change to subscribers at this time, our EBITDA or anything else that would impact anything other than 2021.
Yeah.
But we'll see.
Directionally, how things are unfolding in the next quarter.
Okay.
And then.
So it was kind of like a bigger picture question on your business.
Your nutrition business.
It was a direct selling model and as you've mentioned will have albeit these culture is 400000 coaches out there.
And theyre, earning commissions that you're paying them out of your profitability Commission.
The promotions of your products.
So why was your model require such a large kind of marketing our media investment on top.
Investment in their network of health coaches.
As I mentioned the business model has always been or certainly for the last.
15 years or so been this combination quite synergistic combination of performance marketing.
And the coach or influence or model that Influencer model.
Benefits from the performance marketing now, while we still expect the performance marketing to achieve a certain profitability.
And Thats.
Bit.
That's shifting as we're adding a layer of brand marketing on top of it part of the premise of this entire business model is as we support those coaches, who do incredibly important work and only get paid when they are successful at bringing in new customers and helping them get results.
The more we can help them have an ecosystem and a company with a reputation that they can point to and say.
This company does good work and they handle all of the transactions and they handle all the inventory and they stand behind their 30 day money back guarantee we need to make that.
We need to sort of make that ground fertile for them and they are more productive and that's something that we've benefited from frankly.
Since we launched this company is having this dual approach of supporting them.
With marketing and.
And sales efforts that tell the story of the product so that.
So if I opened up a conversation with you and said Hey, I'd love like right now I'm doing a program called <unk> hundred 45, and if I said, you Im having an incredible experience with this.
You could say.
I saw that I saw that the Instagram story ads that looks like a pretty cool program now Ive got.
So im triangulated that and I've got a better chance of <unk>.
Bringing you into my group and Thats the synergy that we've seen over time that we're hoping is only enhanced.
By the brand marketing efforts and in fact, we have shown our brand marketing advertisements to the coach community and they are quite excited to both share that and be it media and under their own but also to benefit from the additional exposure of the parent company. So it's a synergy.
Thats really the bottom line.
Okay. Thank you very much.
Thank you Linda.
Yeah.
Again, if you would like to ask a question first star one on your telephone keypad.
Our next question from Daniel Adam.
Capital markets you May ask your question.
Hey, guys. Thanks for taking the question.
Sue I think you may have mentioned this.
In the prepared remarks, but just to make sure I got it correct did you say that.
That mix contribution to revenue for the full quarter was $14.6 million.
If it were.
During the quarter contribution.
Exactly yeah, yeah, and you'll see in Daniel if you go to the 10-Q and you better items.
Yeah.
See the amounts by quarter going back to Q2 of 2020 at 14 million to 165000, but unfortunately, we can only count $88000 of that revenue.
Got it and what was the EBITDA.
Loss.
Isn't it.
We report that partly because a y.
Not mixes in Warner Center, and said listen sign off on it.
But you can imagine that given the supply chain constraints together with the general shipping and handling charge with everything going on that's continuing to impact the EBITDA in a similar way than it might have in the first quarter.
Okay great.
That's it for me I appreciate it thanks guys.
Sure thing.
Okay, operator, I think.
With that we can probably conclude the call and.
Yes take care.
No further questions at this time I will turn the call over to back to <unk> CEO for closing remarks, alright. Thanks. So much for look I appreciate everybody getting on the call today and more so.
That you can.
Care about the mission of Beach body and the opportunity ahead for the company we.
Where I feel we do have some important work, helping people improve their overall health and fitness and as such.
Our investors and thoughtful insights of the analyst community really plays a vital role in unlocking our ability to reach more people and.
I know that the expectations is that.
We run this company with an emphasis on growth with 22 years of experience in having just accumulated the resources to make our brands into household names and with some of the most exciting innovations in our history right on the horizon, we're going to pursue that growth and look forward to sharing results at the next opportunity that we have so thank you everybody and have a good night.
This concludes today's conference call. Thank you all for a shiny you may now disconnect.
Okay.
Okay.
Okay.
Okay.
No.
Okay.
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